Analyzing Proxy Trends

There weren’t many surprises in the overview of executive pay trends offered by David Chun, CEO of Equilar, and Patrick McGurn, special counsel at Institutional Shareholder Services, during a session at WorldatWork’s 2011 Total Rewards Conference.

Based on their review of several hundred proxy statements of S&P 500 companies, Chun said the $9 million average compensation for CEOs was at a record level, and was 28 percent higher than 2009 when CEO pay dropped 10 percent from 2008.

In general, CEO compensation was composed of cash bonus (43.3 percent), stock (39.4 percent), stock options (16.4 percent), salary (5 percent) and other (13.1 percent), he said. One trend he has seen is a continued preference for complexity in equity grant design, with three-quarters of companies using two or more long-term-incentive vehicles (primarily options, time-vested stock and performance shares).

As for say-on-pay, McGurn said 23 companies failed to get shareholder support for their pay practices — and of them, 21 have had close to double-digit negative returns for three years.

 As for the other companies, three-quarters of them saw approval rates of 90 percent or higher in support of management pay packages.

There was some pushback from shareholders, he said, on frequency of say-on-pay votes. About half of the S&P 500 companies sought approval for triennial voting while two-thirds of shareholders voted instead in favor of annual approval processes.

Testing Employee Comp Preferences

Leave it to data-driven Google to survey its employees on their pay preferences as a prelude to the company’s dramatic announcement last November of a 10-percent across-the-board pay increase to all employees.

At WorldatWork’s 2011 Total Rewards Conference and Exposition in San Diego, four of Google’s compensation professionals spoke about the survey data that helped define the company’s comp strategy as well as offered background into the way the change was approved and rolled out.

“This was a fairly dramatic change in our compensation philosophy,” said Frank Wagner, director of compensation. “We need the best in their field to work in search, video, mobile.”

It was also intended to prevent attrition or “lock in Googlers,” as they like to call themselves, he said.

The conjoint survey — which asked participants to give their preferences for different tradeoffs in comp packages — offered various levels of choices among base pay, bonuses, stock options and restricted stock.  In their responses, Googlers said they valued base pay the highest, with bonuses as second, followed by restricted stock units and then stock options, said John Schirm, compensation manager.

With that knowledge in hand, said Eric Schaeffer, compensation program manager, the team went into “Launch & Iterate,” the company’s structure for getting project approvals — which involves offering information about the various program options (including offering some polarizing alternatives or “charged viewpoints); getting feedback one-on-one from the management team; using that feedback to get consensus in a full executive session; and then taking the program to the board and being prepared to answer these key questions:

* What are we solving for?

* Why this?

* Why now?

* Why should the board members say yes?

* What else are we not thinking of?

Knowledge of the program was kept to a very small group and, because of tight timing (it took about three to four months from creation to approval to announcement), communications vehicles were being prepared even before the across-the-board raise was approved by the board, said Monica Patel Davis, senior compensation manager. The emails and printed documents were designed to answer: why, why now and what’s the individual impact of the change.

Google also created an online tool (developed by a software engineer who wasn’t even aware of why he was developing the tool) that would allow individuals to see how the changes would affect them. In addition to the pay increase, employees also received a $1,000 bonus and merit increases.

Wagner said the group went with the 10-percent hike because “it’s a big, round number and it fit into the cost-modeling we were doing with the financial folks as well.”

Another Court Upholds Bankruptcy Considerations

Yet another court — in this case, the U.S. Court of Appelas for the 11th Circuit — upheld a private employer’s right to deny employment to an applicant on the basis of his or her previous bankruptcy filing.

The ruling in the case of Myers vs. Toojay’s Management Corp. brings the number of states where private employers can consider bankruptcy filings when making hiring decisions to nine. They are: Alabama, Delaware, Florida, Georgia, Louisiana, Mississippi, New Jersey, Pennsylvania and Texas. The ruling also now joins the 11th Circuit with the Third and Fifth Circuit Courts of Appeal in approving this right.

Here’s a story we wrote on HREOnline™.com when the Third Circuit decided similarly in the case of Rea vs. Federated Investors. And here is an analysis by Ron Fliegel and William Simmons, shareholder and associate, respectively, in the San Francisco-based firm of Littler Mendelson, about that ruling.

In this more recent case, according to a synopsis from Claud L. McIver, senior partner in the Atlanta office of Fisher & Phillips, Eric Myers, a Florida resident, had filed for bankruptcy in North Carolina in 2008 before subsequently moving to Florida to seek a fresh start.

Once in Florida, according to court records, he applied for a managerial position at Toojay’s Gourmet Deli and, as part of the application process, signed a background check release which permitted Toojay’s to conduct a “comprehensive review” of Myers’ background, including a review of his “credit history and reports.”  According to Toojay’s, Myers’ hiring was contingent on the background check.  Shortly thereafter, Toojay’s notified Myers that he would not be hired because of the previous bankruptcy filing that appeared in his credit report. 

Myers then sued Toojay’s, claiming that its refusal to hire because of his bankruptcy filing constituted a violation of the Bankruptcy Code.  The Eleventh Circuit disagreed, essentially finding that, if Congress had intended private employers to be prohibited from basing a hiring decision on this factor, as public employers were prohibited, it would have drafted the Bankruptcy Code to achieve that goal. 

(While the Bankruptcy Code prohibits government employers from refusing to hire an individual because that individual previously filed for bankruptcy, it does not contain language specifically prohibiting private employers from refusing to hire on that basis.)

“Although private employers in these [nine] states may engage in this practice,” writes McIver, “employers should ignore the temptation of distinguishing the different types of bankruptcy filings or of weighing the particular circumstances of an individual’s filing when making hiring decisions.

“Such a practice,” he writes, “is likely to lead to inconsistent results and undermine the very purpose for researching a job applicant’s credit history in the first place. If an employer considers bankruptcy filings to be an important predictor for an applicant’s suitability for a position, the better practice is to adopt a bright-line rule that prior bankruptcy filings automatically disqualify an applicant.”

Switching from a Defined-Benefit to Defined-Contribution Plan

Siemens Corp. swapped a future $5 billion pension liability for a $259 million one-time P&L impact when it froze its pension plan and offered employees increased company-matching contributions as well as a new service-based company contribution to the 401(k) plan — the combination of which equaled the company’s contribution under the pension plan.

It didn’t reduce the company’s current-day costs — in fact, it cost more money, said Steven Seltz, vice president of compensation and benefits for US/Americas for Siemens Corp. — but it did eliminate potential liability down the road.

And it was a long road to see the plan from conception to fruition — take two years to conceive and get approvals and another year to communicate and implement the change, Seltz said.

“There was no way we could overcommunicate” the changes, he said, noting that employees received at least six written brochures, notifications or requests for action during the transition. Siemens also offered in-person and web financial-planning seminars and offered financial counseling.

They “anticipated the worst” from workers and were surprised that there was “virtually no criticism whatsoever” from employees, both union and non-union — crediting not just the equitable plan but also the communications effort that was part of the transition.

Key takeaways from the process, said Seltz and Nicholas Vollrath, manager of retirement plans and M&A, were:

* Don’t underestimate the time required to craft an effective design or to get necessary stakeholder approval.

* Don’t underestimate the time needed to define the requirements and adjust recordkeeping systems.

* Consider timing the freeze with other benefit changes or other initiatives.

* Involve a broad team to address various topics (including legal, accounting, finance, etc.)

* Make sure participants know the difference between a pension freeze and a pension termination.

* Consider whether changes impact union workers, if any.

* In communications, make sure to include the rationale for the change and be straightforward about it. Also balance the need to provide advance notice of the change with sufficient details of the change.

* Don’t avoid addressing uncomfortable topics (such as benefit reductions).

* Include non-experts on the communications team so they can help frame the message to workers who are not as knowledgeable about financial issues.

Challenging Assumptions

You’ve probably heard Albert Einstein’s definition of insanity: doing the same thing over and over again but expecting different results.

Dan Pink, in his opening keynote address at WorldatWork’s Total Rewards 2011 Conference and Exposition in San Diego,  offered a possible reason people continue to do that — they fail to challenge their assumptions and conventional orthodoxies.

Pink didn’t mention Einstein, but he did talk about a study by four economists at the Federal Reserve Bank of Boston, which disputes the CW that higher pay results in better performance. Pay motivates, he said, only when workers are involved in rudimentary mechanical work, according to the study.

As long as an organization offers fair, competitive salaries, that takes money “off the table” as an issue, Pink said.

Instead, for workers doing cognitive, creative work, HR leaders would profit more — as would their organizations — from providing autonomy (offering control over time, tasks, team and technique), mastery (being able to make progress in your work) and purpose (knowing your work has meaning).

Some of the companies he cited as being progressive in that way are Netflix (which has no vacation policy for salaried employees — they can take as much as they want, whenever they want); Facebook (which lets new hires decide which team they want to work with); Atlassian (which has Fedex Days — all employees will take a Thursday to work on whatever they want; then they make presentations the following day, which has led to many new products and improvements); and of course, Google (which is famous for offering its employees 20 percent of their time to work on whatever they want — two results of that: Gmail and Google News).

He suggested HR leaders ask managers and supervisors to take an autonomy audit — and to have their teams take it as well (warning that the bosses always predict their teams will score higher than they actually do — and that they are always be surprised by that.)

Score 0 to 10 on the following four questions (0 for very little; 10 for huge).

* How much autonomy do you have over your time at work — to arrive, leave or allocate hours?

* How much autonomy do you have over your tasks — what you do everyday?

* How much autonomy do you have over your team — can you choose the people with whom you collaborate?

* How much automony do you have over your actual performance — the main responsibilities of your job?

A score of 27-28 and higher is “pretty healthy,” he said.

The Massey Explosion, 13 Months Later

Yesterday, a report was released by J. Davitt McAteer, a mine regulator during the Clinton administration, on Massey Energy Co.’s Upper Big Branch mine explosion on Apr. 5, 2010. Twenty-nine miners were killed in the accident. (In January 2011, Massey announced it would be sold to coal giant Alpha Natural Resources.) 

The 120-page report concludes that “accident could have been prevented and was primarily the result of the failure of the company’s safety systems, as well as inadequate oversight by federal and state regulators,” writes Kris Maher of the Wall Street Journal.  

Among other things, it alleges that the ultimate responsibility “lies with the management of Massey Energy. The company broke faith with its workers by frequently and knowingly violating the law and blatantly disregarding known safety practices while creating a public perception that its operations exceeded industry safety standards.”

I think one of most troubling lines in the report can be found on page 109: “ … more than a year after 29 men died in the Upper Big Branch mine, there is strong evidence that Massey has not changed the manner in which it operates its mines.”  

Probably not the findings Massey’s management hoped to see. 

BTW, Jeff Gillenwater, the company’s vice president for human resources, is mentioned once in report: “At 5:14 p.m., a staff member for the Response line called Massey Energy’s office and spoke with Jeff Gillenwater, the company’s vice president for human resources. Gillenwater told the official, “I did just put out a press release [at 4:57 p.m.] saying we did have an explosion and injuries are unknown at this time. I’m trying to get that information as well right now myself, but I don’t have any numbers yet.”

Vice President of Safety Elizabeth Chamberlin, meanwhile, is mentioned about 10 times.

Rewards and Recognition: Germany Edition

The norms of business shift when one sets foot on the European continent, but recent news reports on one German insurance company’s “party” for employees highlight just how differently Americans and Europeans may view the phrase “rewards and recognition.”

According to a post this morning on CNN’s Business 360 blog:

A unit of insurer Munich Re awarded high-performing agents with a 2007 party in Budapest with 20 prostitutes, according to a story to be published today in Handelsblatt, a leading German business newspaper.

According to a story preview published on the Handelsblatt website, about 100 guests gathered at the Gellert spa “and transformed the historic site into an open-air brothel.”

The company confirmed to Handelsblatt and other media the incident occurred, according to the blog post: 

The party was “a clear violation” of company policy, Alexander Becker, a spokesman for the Munich Re subsidiary Ergo Versicherungsgruppe told Bloomberg.

Two employees most responsible have since left the company after an unrelated restructuring,  Dow Jones Newswires reports. “We have to dig a bit deeper into details of that incident to see whether there are others still with us,” Becker told Dow Jones.

After reading the tawdry details, one hopes there is now a German version of Dave & Buster’s available for the next time Munich Re wishes to reward its employees.

Study: 401(k) Loans at a ‘Record High’


According to a just-released report from Aon Hewitt, about 28 percent of active participants in defined-contribution retirement plans had an outstanding loan in 2010–a record high, according to the firm. The average balance of the outstanding amount was $7,860, which represented 21 percent of these participants’ total plan assets, according to the study, entitled Leakage of Participants’ DC Assets: How Loans, Withdrawals, and Cashouts Are Eroding Retirement Income.

The study, encompassing 1.8 million employees across approximately 110 large plans, found that middle-aged and middle income are most likely to have outstanding loans–participants in their 40s, and those earning between $40k and $60k per year had significantly higher loan prevalence.

Although most plans require employees who are terminated to immediately repay in full any outstanding 401k loans they have, the study found–not surprisingly–that nearly 70 percent of such workers subsequently default on the repayment, with the default percentage jumping to 80 percent among participants in their 20s. However, the study also found that on average, active employees default on their loans less than 3 percent of the time.

However, new legislation just introduced in Congress proposed by Senators Herb Kohl of Wisconsin and Mike Enzi of Wyoming would limit the number of 401k loans employees could take and allow them more time to pay back outstanding balances, penalty-free, should they lose their jobs.



SHRM Enters Into Yet Another Website Venture

It’s getting hard to keep up with dealings that either affect or involve the Society for Human Resource Management. The latest is this announcement today that SHRM and are forming an alliance that, as the release states, “seeks to inform employers and students about the benefits of experiential education and to provide cutting-edge tools and resources to optimize the process.”

As part of the alliance, it says, has developed a dedicated microsite accessible to SHRM employer and student members so they can directly search for and connect to each other for free. SHRM and will collaborate, it says, to ensure that student members are aware of the new resources.

That’s followed by respective pats on one another’s backs by Robin D. Richards, chairman and CEO of, and Henry G. Jackson, interim president and CEO of SHRM.

“SHRM is the most respected and influential human resource management organization in the world … ,” Richards says.

Says Jackson: “For students seeking a career in HR, internships provide valuable practical experience and an advantage in the search for a first professional position,” Mr. Jackson said. “SHRM’s new alliance with will help provide important resources to those entering the HR profession.”

What feels a bit dizzying about all this is the still-unresolved dot-jobs-universe fight between the latter’s creator, Employ Media (which worked in conjunction with DirectEmployers Association to create that domain and was sponsored in that effort by SHRM), and the Internet Corporation for Assigned Names and Numbers, which filed a breach-of-contract against Employ Media all the way back in February, claiming Employ Media’s issuance of thousands of demographic and occupational dot-jobs sites was in direct competition with the job-board world and in direct oppostition to its stated purpose under ICANN’s contract. Told you it was dizzying.

Hard to say where all that stands, or is headed. In this April 21 statement, posted on the News Blaze site, The .JOBS Charter Compliance Coalition basically chastizes ICANN for not holding Employ Media’s feet to the fire over its initial 30-day shutdown threat in its initial Feb. 27 notice or its first extension to April 15. It further demands ICANN settle the matter or shut the dot-jobs universe down by its latest May 6 extended deadline.

Most recently, three days before that last extension, Employ Media comes out with this announcement, posted on, saying it is filing for formal arbitration from ICANN so it can argue all the finer points of what it claims was ICANN’s “lengthy and thorough process that [it] utilized in approving Employ Media’s plans … .” No date for that has been set yet, it seems.

SHRM’s new recruiting service for employers and interns certainly appears to be a nice change of scenery.

Rethinking Talent Management

Most talent-management implementations over the last few years have been failures, said Jason Averbook, founder of Minneapolis-based consultancy KnowledgeInfusion and a presenter at this year’s IHRIM conference, held this week at Washington’s Gaylord National Harbor resort.

Most TM implementations are simply digitizing old processes that didn’t work in the first place, said Averbook, who spoke to a standing-room only crowed packed so tightly that people stood shoulder-to-shoulder along the walls during his presentation, entitled “New Technologies for 2011: Emerging Trends and Technology Critical to Your Workforce.” Averbook outlined what he called his “TM Call to Action”: rethink, innovate and get creative, think “big” and focus on adoption: “Put yourself in the mindset of the end-user asking ‘What’s in it for me?” he said.

Averbook, who punctuates his intense delivery style with the phrase “Does that make sense?” to ensure his audience is following along, urged attendees to push their vendors to build “outcome-centric and cross-functional” solutions instead of “HR-process-centric” tools. Using a texting-based polling service, he asked attendees to grade their organizations’ TM deployments to-date. The majority rated their efforts a “C,” only one attendee–a woman from the Mayo Clinic–awarded her organization an “A.” “We had really great change management,” the woman told Averbook (who handed out Starbucks gift cards to each person he called on).

A successful TM implementation is one designed for the worker, not the HR department, he said. Organizations should put together cross-functional “workforce experience teams” to audit all employee-facing HR initiatives for usability and intuitiveness, said Averbook.  And HR must not wipe its hands of a project once it’s “gone live,” he said; instead, the focus must now be on user adoption and outputs, ensuring that the new system is useful and is being used. And usefulness must be based on the business metrics of the organization, not HR metrics, he said.