Category Archives: compensation

New Guidance on Pay-Ratio Rule

In case you missed it, last week the Securities and Exchange Commission approved interpretive guidance to assist companies in their efforts to comply with the pay ratio disclosure requirement mandated by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the Commission’s rule implementing the pay ratio requirement, companies are required to begin making pay ratio disclosures in early 2018.

“It’s our priority to make sure that we implement disclosure rules mandated by Congress in a way that is true to the mandate and, to the extent practicable, allows companies to use operational data and otherwise readily available information to produce the disclosures,” said Chairman Jay Clayton.  “Today’s guidance on pay ratio reflects the feedback the SEC has received and encourages companies to use the flexibility incorporated in our prior rulemaking to reduce costs of compliance.”

In particular, the guidance:

  • States the Commission’s views on the use of reasonable estimates, assumptions and methodologies, and statistical sampling permitted by the rule;
  • Clarifies that a company may use appropriate existing internal records, such as tax or payroll records, in determinations about the inclusion of non-U.S. employees and in identifying the median employee; and
  • Provides guidance as to when a company may use widely recognized tests to determine whether its workers are employees for purposes of the rule.

The Commission’s staff is also providing guidance separately about the pay ratio rule.

“This additional staff guidance, which includes examples illustrating how reasonable estimates and statistical methodologies may be used, is intended to assist companies with their compliance efforts and reduce the costs associated with preparing disclosures,” said Bill Hinman, director of the division of corporation finance. “We encourage companies to contact the division staff if additional interpretive questions arise as the compliance date approaches.”

Privacy May Trump Fed Data Demands

A judge’s early ruling in Google’s complex legal battle with the U.S. Department of Labor highlights a new argument that other companies may use in fighting regulators’ demands for HR data: The government can’t be trusted to keep it safe from hackers.

The ruling came after the DOL’s Office of Federal Contract Compliance Programs had been auditing the company’s compensation practices for much of 2017, according to a blog post by Google vice president for people operations Eileen Naughton. Federal officials first requested documents in September 2015.

The Labor Department has not publicly accused Google of any specific violation, but critics have claimed the company—and others in tech—pays men more than women for the same work. Naughton, however, maintains that company data disprove this claim. “Our own annual analysis shows no gender pay gap at Google,” she writes.

The company had been cooperating with the audit, providing the government more than 329,000 documents and “detailed compensation information,” Naughton writes. Included were records on more than 21,000 employees.

But the two sides reached an impasse over the summer after the Labor Department demanded more information in June, according to a summary of the case by San Francisco-based administrative law judge Steven B. Berlin accompanying his July 24 preliminary ruling in the case (posted here, thanks to the Washington Post). The agency and company found compromises on some requests but remained at odds over others, Berlin writes.

According to Naughton, Google balked after DOL auditors wanted “employees’ compensation and other job information dating back 15 years, as well as extensive personal employee data and contact information for more than 25,000 employees. We were concerned that these requests went beyond the scope of what was relevant to this specific audit, and posed unnecessary risks to employees’ privacy.”

In his July decision, which is not yet final, Berlin granted a portion of the DOL request, but ruled that the request for employee contact information was “over-broad, intrusive on employee privacy, unduly burdensome, and insufficiently focused on obtaining the relevant information.”

Noting that hackers have accessed the federal government’s own employee records in a well-publicized 2015 data breach at the U.S. Office of Personnel Management, the judge outlined his other main objection to the DOL requests: “My concern centers on [the] extent to which the employee contact information, once at OFCCP, will be secure from hacking, OFCCP employee misuse, and similar potential intrusions or disclosures. OFCCP has already collected for 21,114 employees information such as name, date of birth, place of birth, citizenship status, visa status, salary, and stock grants. That information, if hacked or misused, could subject tens of thousands of employees to risk of identity theft, other fraud, or the improper public disclosure of private facts. Adding contact data, such as personal phone numbers and email addresses, increases the risk of harm to Google’s employees. The contact information could ease the efforts of malicious hackers or misdirected government employees.”

What does this mean for HR?

One employment attorney says the lesson for employers is to respond cautiously to government demands for sensitive employee data.

“The July order demonstrates that employers can, and should, take steps to protect their employees’ confidential information—even when such information is demanded by the government,” writes Margaret C. Inomata of the Washington, D.C. office of Vedder Price, in a blog post. “By resisting the OFCCP’s overbroad requests, Google managed to significantly pare down the scope of the agency’s demand and forced the OFCCP to take additional steps to protect its employees’ contact information,” she writes “Like Google, other employers should consider creative solutions to defend against the unnecessary disclosure of sensitive employee data and maintain their employees’ trust.”

 

Want Happy Workers?

A new report by Adecco USA uncovers how employers are experimenting with ways to attract and keep skilled workers happy, with the C-suite considering pay the most important factor.

According to the report, Best in Class Workforce Management Insights,  77 percent of 500 U.S. executives surveyed for the report consider pay to be the top concern when it comes to attracting and retaining workers.

“In this candidate-driven market, the burden is on employers to offer compelling reasons for candidates to join and remain with their organizations. Right now, part of the conversation is centering around wages,” said Joyce Russell, president, Adecco USA.

“While fair pay is a key driver in securing today’s workforce, employers must also make predictions and be nimble in adopting new solutions as the meaning of ‘Best-in-Class’ continues to evolve,” Russell added.

Among the other findings in the report:

  • 77 percent of executives believe pay is the most important factor to employees.
  • More than half of respondents offer health insurance and 401(k) packages to salaried employees, and 40 percent say they now also offer “softer” benefits, like flexible schedules.
  • 47 percent of employers do not prioritize hard or soft skills over the other when vetting a job candidate, and they weigh a candidate’s happiness as early as the interviewing phase.
  • Less than half of employers are offering education courses to their employees, but 61 percent believe mentorships are of importance in determining employee happiness.

You can download the full report here.

Survey: 3-percent Raises in 2018

The economy is generally strong and low unemployment rates mean some organizations are scrambling for workers. But most companies are not planning to spend more on pay increases in 2018, according to a new survey.

Employers are prepared to open their checkbooks a bit wider to reward top performers, according to the global consulting firm Willis Towers Watson, which surveyed 819 U.S. companies in a range of industries from April through July.

Of companies surveyed, 99 percent expect to grant raises next year, according to a summary by Willis Towers Watson. The average 2018 raise forecast for most employees, including both professional and nonexempt workers, was 3 percent — the same as the average raise given in the last three years. The average expected raise for executives is about the same — 3.1 percent.

“Most companies are not under any significant pressure to increase their salary budgets in the near term,” said Laura Sejen, Willis Towers Watson’s managing director for human capital and benefits, according to a company announcement.

Employers continue to offer performance bonuses to their most valuable players, the survey found. Among companies surveyed, top performers received raises of up to 4.5 percent. Willis Towers Watson found some companies surveyed base their bonuses not only on performance, but on professional development.

“While organizations may be forecasting 3% increases, the landscape of how and when they are giving increases varies considerably,” said Sandra McLellan, North America rewards practice leader at Willis Towers Watson, according to the company announcement.

 

Comment Period Begins for OT Rule

The Department of Labor is expected to publish today in the Federal Register its anticipated Request for Information on its overtime rule.

As you may recall, the rule was blocked last November by a Texas federal judge before it would have expanded overtime protections to over 4 million workers, by more than doubling the annual salary level at which workers must be compensated for overtime pay, from $23,660 to $47,476. There will be a 60-day public comment period following tomorrow’s Request for Information.

Seyfarth Shaw attorney Alexander Passantino, former acting administrator of the Labor Department’s wage and hour division, and current partner in the D.C. office of the firm, writes in a blog post that the issues the DOL seeks comment on include whether the 2004 salary test should be updated based on inflation, and if so, which measure of inflation; whether duties test changes would be necessary if the increase was based on inflation; and other questions.

The issues on which the Department seeks comment, according to Passantino’s post, are:

  • Should the 2004 salary test be updated based on inflation? If so, which measure of inflation?
  • Would duties test changes be necessary if the increase was based on inflation?
  • Should there be multiple salary levels in the regulations? Would differences in salary level based on employer size or locality be useful and/or viable?
  • Should the Department return to its pre-2004 standard of having different salary levels based on whether the exemption asserted was the executive/administrative vs. the professional?
  • Is the appropriate salary level based on the pre-2004 short test, the pre-2004 long test, or something different? Regardless of answer, would changes to the duties test be necessary to properly “line up” the exemption with the salary level?
  • Was the salary level set in 2016 so high as to effectively supplant the duties test? At what level does that happen?
  • What was the impact of the 2016 rule? Did employers make changes in anticipation of the rule? Were there salary increases, hourly rate changes, reductions in schedule, changes in policy?  Did the injunction change that? Did employers revert back when the injunction was issued?
  • Would a duties-only test be preferable to the current model?
  • Were there specific industries/positions impacted? Which ones?
  • What about the 2016 provision that would permit up to 10% of the salary level to be satisfied with bonuses? Should the Department keep that? Is 10% the right amount?
  • Should the highly compensated employee exemption salary level be indexed/how? Should it differ based on locality/employer size?
  • Should the salary levels be automatically updated? If so, how?

“Of course, the value of these responses ultimately is dependent on the Fifth Circuit’s decision on whether the salary test is permissible to begin with,” Passantino writes. “Should the Fifth Circuit rule in the Department’s favor on that issue, the RFI responses will provide the Department with the information it needs to proceed on a new rulemaking adjusting the salary level . . .  assuming the employer community responds.”

House Passes Comp Time Bill

Hourly workers who’ve had to juggle shift schedules with picking up their kids from school or daycare or attending college classes while holding down a full-time job may have cause to cheer a bill that was passed earlier this week by the U.S. House of Representatives. The Working Families Flexibility Act, sponsored by U.S. Rep. Martha Roby (R.-Ala.), would allow employers to give their workers paid time off in lieu of time-and-a-half pay (i.e., “overtime pay”) when they work more than 40 hours during a single week. The bill  now heads to the Senate, where Sen. Mike Lee (R.-Utah) has introduced a similar measure.

The House bill, which had strong Republican support, was touted as a way to “codify” flexibility for employees.

“I don’t think there’s anything more powerful than giving them more control over their time so that they can make the best decisions for themselves and their families,” said Rep. Cathy McMorris Rodgers (R.-Wash.) at a press conference held by Republican House leaders, reports CNN.

House Democrats were universally opposed to the bill, giving it zero votes. Six House Republicans also voted against it. The bill’s chances of passing the Senate appear uncertain at best: It will need to garner votes from at least 8 Democrats  as well as all 52 Republican senators in order to avoid a filibuster and make it to the desk of President Trump, who’s indicated he will sign it.

“This is nothing but a recycled bad bill that would allow big corporations to make an end-run around giving workers the pay they’ve earned,” said Sen. Patty Murray (D.-Wash.) in a statement. Several similar bills have been passed by the House in recent years but died in the Senate.

The National Partnership for Women & Families has also strongly criticized the bill, saying that it would put too many restrictions on employees’ ability to decide when they’d want to use their paid time off.

If it became law, the Working Families Flexibility Act would give workers “a false and dangerous choice between overtime pay now and time off later when they work more than 40 hours in a week,” writes NPWF Vice President Vicki Shabo in The Hill. “It does this by giving employers the right to hold onto employees’ overtime wages for months, while giving employees no guarantee that they will be able to take their ‘comp time’ when they need it.”

 

A National Ban on Salary History?

U.S. Congresswoman Eleanor Holmes Norton (D-DC) today introduced the Pay Equity for All Act of 2017 with original cosponsors Representatives Rosa DeLauro (D-CT), Jerrold Nadler (D-NY), and Jackie Speier (D-CA) to prohibit employers from asking job applicants for their salary history before making a job or salary offer, according to a press release.

The bill — which was first introduced last Sept. — seeks to reduce the wage gap that women and people of color often encounter.  The bill is particularly vital after the U.S. Court of Appeals for the 9th Circuit overturned a lower court ruling that determined that pay disparity based exclusively on past salaries was discriminatory under the Equal Pay Act.

As you may recall from our coverage on the topic, Massachusetts, New York City, the District of Columbia and Philadelphia have passed similar legislation banning employers from seeking past salary history.  Because many employers set wages based on an applicant’s previous salary, workers from historically disadvantaged groups often start out behind their white male counterparts in salary negotiations and never catch up.

“After last week’s disappointing 9th Circuit ruling, it is critical that Congress take legislative action to ban the practice of asking for an employee’s salary history, which disadvantages women and minorities, who disproportionately carry lower salaries through their entire careers simply because of wages at previous jobs that were set unfairly,” said Congresswoman Norton.  “Our bill will help reduce the wage gap by requiring employers to offer salaries to prospective employees based on merit, not gender, race, or ethnicity.”

“The 9th Circuit’s ruling represents a step backward in the fight for equal pay and only serves to reinforce the salary gap that has persisted for generations,” said Congressman Nadler (D-NY).  “To end this cycle of gender and racial pay inequality, states and localities—including New York City—have recently passed laws banning employers from asking about salary history. Congress should follow New York’s lead and ensure that people all around the country are afforded the same opportunity to break the cycle of pay inequity.”

“Forcing employees and potential employees to disclose their salary history sabotages our efforts to combat the wage gap for women and minorities,” said Congresswoman Speier. “The Pay Equity for All Act protects applicants from being frozen in pay scales unrelated to their experience, skills, and merit.”

Wells Fargo Shows Its Claws

Months after the revelations that Wells Fargo had engaged in highly questionable (some say illegal) practices, including creating fraudulent accounts, its board of directors has taken action to recoup some of the compensation from the bank’s leaders during the time the nefarious schemes were ongoing.

According to the New York Times, an additional $75 million in compensation will be “clawed back” from the two executives the company’s says bear the majority of the blame for the scandal over fraudulent accounts: the bank’s former chief executive, John G. Stumpf, and its former head of community banking, Carrie L. Tolstedt:

The clawbacks — or forced return of pay and stock grants — are the largest in banking history and among the largest in corporate America. A four-person committee of Wells Fargo’s directors investigated the extensive fraud.

The Times says that while the amount of money customers lost was relatively small — the company has refunded $3.2 million — the scope of the fraud was huge: 5,300 bankers were fired for creating as many as two million unwanted bank and credit card accounts:

In one detail revealed by the board’s report, a branch manager had a teenage daughter with 24 accounts and a husband with 21.

According to Time magazine, Wells has instituted several corporate and business changes since the problems became known nationwide. Wells has changed its sales practices, and called tens of millions of customers to check on whether they truly opened the accounts in question.

Wells Fargo board Chairman Stephen Sanger also acknowledged in a Monday conference call with reporters that board members “could have pushed more forcefully to change leadership at the community bank,” according to USA Today.

While conceding he could not “promise perfection” in the efforts to regain trust from customers and regulators, Sloan said, “I’m very confident we’re on the right track.”

 

Taking On Banks Over Gender Pay

Figured the day before Equal Pay Day (that’s right, that’s tomorrow!) would be a perfect time to tell you about a pretty interesting teleconference I sat in on recently.

The topic, you guessed it, was gender-pay equity. Two women — Natasha Lamb, managing director and lead filer of gender-pay resolutions for Arjuna Capital, and Former Lt. Gov. of Massachusetts Evelyn Murphy, founder and president of The WAGE Project Inc. (an activist group dedicated to gender-pay equity) — were filling listeners in on Arjuna’s next bold move: making the banks come clean on what it sees as their backward pay practices when it comes to women.

See, Arjuna was the activist investment firm (with U.S. headquarters in Boston) that took the lead last year in getting seven of nine targeted tech companies (eBay, Intel, Apple, Amazon, Expedia, Microsoft and Adobe) to include data on their pay practices in their proxy statements.

Now, said Lamb in the teleconference, her firm is going after six top banks and credit-card companies that it has financial stakes in — Wells Fargo, Citigroup, Bank of America, JP Morgan, MasterCard and American Express — to pressure them to do the same by officially considering its proposal in this year’s annual proxy statement.

Unfortunately, she pointed out, all but MasterCard are opposing Arjuna’s proposal requesting reports from the banks on the percentage pay gap between male and female employees across race and ethnicity (including base, bonus and equity compensation; policies to address that gap; the methodology used; and quantitative reduction targets).

Citigroup specifically came out and said in its proxy statement that such gender-pay-gap reporting would be “costly and time-consuming.” In fact, here is Citigroup’s entire board recommendation from that statement:

“We remain committed to our ongoing efforts to promote diversity in the workplace and believe we are making demonstrable progress in building a diverse company and compensating our employees based on performance. [Arjuna’s proposal] calls for a report on the company’s policies and goals to reduce the gender-pay gap, which would be costly and time-consuming, and in light of our many efforts in this area, would not offer stockholders meaningful additional information. As such, the proposal would not enhance the company’s existing commitment to an inclusive culture or meaningfully further its goal and efforts in support of workplace diversity; therefore, the board recommends that you vote AGAINST this proposal.”

That said, however, Citigroup spokesman Mark Costiglio did tell me his company has “had productive discussions with Arjuna Capital on its proposal and looks forward to continued engagement on this issue.” So we’ll see.

During the teleconference, Lamb lit into the entire banking industry, with direct reference to Citigroup:

“You just can’t get around the fact that big banks are in the stone ages when it comes to gender-pay equity.  Big tech stepped up in 2016 and took real action to address the legitimate concerns of long-term shareholders and women.  Yet the banks are sticking their heads in the sand, which makes you wonder: What do they have to hide?

“It’s a continuation of the status quo where bank leadership paternalistically pats investors on the head and tells them to trust them.  Unfortunately, we already know that banks are among the worst offenders when it comes to how women are treated in the workplace.  How can we hold Amazon to one standard on gender equity while Citigroup pretends it’s 1957, not 2017?”

Last year, eBay, Google and Facebook were all opposed to the pay transparency and improvement campaign. But, “when peer group after peer group agreed to it,” Lamb said, “eBay actually switched to 51-percent approval.” Though Google and Facebook remain opposed, requests to them have been resubmitted, she added.

The business case for pay equity can’t be denied, Murphy chimed in. “In the last seven years, [it’s] been very strong,” she said.

One caller asked if the tech companies have actually done more than simply become more transparent. “Have they taken more steps to close the gender gap?” she asked. Lamb’s response:

“Yes, they have.”

But the banks are going to be a tougher nut to crack, since finance is a heavily male-dominated field with one of the highest disparities of all industries examined by Glassdoor, the release points out.

Apparently, Arjuna is up for the challenge.

Meanwhile, if you’re interested in a silghtly different take on this issue, you might want to tune into this roundtable discussion tomorrow at 11 a.m. PDT hosted by PayScale and moderated by its vice president, Lydia Frank.

The gist of that discussion, Gap Analysis: What Equal Pay Day Gets Wrong, will center on the premise that the oft-quoted “women earn 80 cents for every $1 earned by men” is actually an unfair representation of the gender-pay problem because it doesn’t reflect men’s and women’s pay for the same job (which PayScale claims is actually 98 cents on the dollar).

PayScale believes that the pay gap is, instead, an opportunity gap since women tend to find themselves in lower-paying jobs than men and are also left behind men when it comes to leadership roles or promotions in the workplace.

Wherever the truth lies in all of this, I say it certainly doesn’t hurt to get more employers, whatever their industry, to open their books and start tackling discrepancies.

Paying CEOs to Fail

Scott MacDonald thinks the contract language and hiring processes for chief executive officers need to change. As he sees it, some CEOs are great leaders who deserve their seemingly extravagant salaries, but others are highly paid despite their poor performance. And even when they’re fired, they don’t lose out because they’re given a golden parachute — millions of dollars for failing, he says.

In some back-and-forth with me recently about this, MacDonald — former CEO at the Australian company Investa, who wrote a book about his experience there, Saving Investa: How An Ex-Factory Worker Helped Save One of Australia’s Iconic Companies (here’s his website’s information about the book and here’s the Amazon link) — said this to me:

“Every year, we read stories of corporate boards of directors firing a senior executive for unsatisfactory performance and then paying the executive millions of dollars upon his or her departure.

“Several years ago, for example, the Walt Disney Co. hired Michael Ovitz [as president] and then terminated him 14 months later. Ovitz reportedly received a severance package of $140 million. Recently, Wells Fargo admitted that thousands of their employees opened new accounts in customers’ names without consent to generate bigger fees and commissions. The scandal has damaged the bank and led to many investigations and potential fines. The person in charge of the retail division where the scandal occurred announced her retirement and reportedly received about $125 million upon her departure.”

MacDonald says the real problem stems from the narrow definition of “cause” in current CEO’s employment contracts; specifically, the clause that says the executive may be fired “for cause,” in which case nothing more is owed to him or her.

But the definition of cause is still limited to being found guilty of felony acts, committing fraud or stealing from the company. It almost never includes poor performance.

MacDonald’s had a successful career as a CEO turning around struggling companies, often by addressing performance issues. Through his years of experience, he says,

” … the benefits gained from changing personnel have always outweighed the short-term financial cost … . Once, I fired a talented chief financial officer because he was not a team player, typically promoting himself while disparaging other team members. The cost of his termination was significant because being a bad team member was not defined in his “for cause” contract definition, but the entire company performed much better after his departure.”

So how did “cause” become so narrowly defined and almost unenforceable? It’s unclear, MacDonald says, but he has a theory, based on the past 40 years of business as usual, and it even includes human resources. Here’s how he lays it out:

“Generally, a board retains an employment consultant to help negotiate the contract or provide an opinion that the contract is fair and competitive in the industry. The same consultant will often seek to see human resource-related consulting services to CEOs in the future. If a consultant recommends approval of a CEO’s favorable employment contract, the consultant is more likely to be favorably considered when that CEO approves hiring an HR consultant.

“After one board agrees to a narrow definition of ’cause,’ it quickly becomes cited by other executives and their attorneys as the standard. … When an executive is terminated for poor performance but not ‘for cause’ … he or she is typically entitled to all the compensation and benefits that he or she would have received if he or she had not been terminated. This usually includes salary not yet paid, bonuses not yet earned, stock options not yet vested and various other entitlements. If a terminated executive has three years left on a contract, the company often has to pay three years of full compensation as if the executive had been a stellar executive.”

So what can we do to turn this around? Simple. According to MacDonald, just broaden the definition of “cause.” Successive years underperforming [against] a pier group of companies should be cause for termination. And if a dispute occurs over the performance measures, submit it to an arbitration panel for resolution.

Other items we might consider cause for dismissal could include successive poor results on confidential employee surveys, failure to meet budget targets in successive years, failure to follow written directives from the board … his list goes on.

Companies that provide audit services to another company are generally not permitted to provide other consulting services to avoid influencing the impartiality of the audit. Similarly, says MacDonald, “companies that provide employment-contract services could be forbidden from providing other consulting services to the company involved.”

Finally, he says, when an employee is terminated without cause, he or she should not be paid full bonuses for all the remaining years of their contract. “Clearly,” he says, “the bonuses would not be earned.”