Category Archives: compensation

A Blockbuster Hack

By now, I’m sure most of you are quite familiar with Sony’s data breach, which has occupied headlines over the past couple of weeks.

176217375As you might expect, much of the attention surrounds the hacker’s decision to post some of Sony’s yet-to-be-released movies, including a remake of Annie and a new film titled The Interview — a comedy about two American journalists who are recruited to assassinate North Korea’s leader Kim Jong-un. A group named Guardians of the Peace have taken credit for the cyber attack, but some have speculated the North Korean government could be the real culprit here, since it’s none too pleased with The Interview’s storyline. (Others doubt this is the case, and North Korea has publicly denied its involvement.)

Tom Kellermann, chief cybersecurity officer at the private security firm Trend Micro, told the New York Times after the story broke that “unlike stealth attacks from China and Russia, Sony’s hackers not only aimed to steal data, but also to send a clear message. ‘This was like a home invasion where, after taking the family jewels, the hackers set the house ablaze,’ ” he said.

Though it certainly has been well covered in the mainstream press, just a tad less attention has been paid to the non-creative information liberated from Sony’s computers—employee Social Security numbers, healthcare records, salary information and performance reviews. Sure, Sony isn’t the first to experience such an HR data breach, but there’s little question the scope and nature of the information made public (which includes salaries of executives) make this breach especially noteworthy.

I can only imagine the kind of disruption this is likely causing at Sony—and the toll it’s taking on productivity. Not to mention the financial toll it’s going to have.

I also have to think more than a few CEOs, after reading the various stories appearing in the press, were once again wondering, “Could something like this occur here?”

Yesterday, I asked Gordon Rapkin, CEO of Archive Systems, an HR-document-management firm based in Fairfield, N.J., for his take on what happened at Sony.

“My impression is a chunk of the Sony HR breach has to do with people there who kept things on their computers that shouldn’t have been kept there,” he said. What the field, he adds, calls “shadow files.”

What’s more, Rapkin said, the fact that all this information was unprotected and unencrypted and seemed to be available in the same trove that was pilfered is pretty surprising. “Usually,” he said, “[the information] is carved up in different systems and kept in different files—with salary information in one place, benefit information in another, and employment and performance in a third. But here, it looks as though all of this was accessible in the same place. That’s surprising, especially when you consider HR information represents some of the more sensitive data a company possesses.”

Lisa Rowan, vice president of research at IDC in Framingham, Mass., agrees. “It seems odd for [these] to be stored together,” she said.

At a recent records-management conference he attended, Rapkin said his company surveyed attendees on how many felt HR followed their organization’s information-governance policies. One-third of those queried, he said, responded that HR didn’t follow those policies and procedures. Hardly a vote of confidence.

Perhaps Sony is the latest company to get hit, Rapkin explained, but, he added, “I think the problem may be fairly common.”

(Looking for more thoughts about this topic?  You might want to check out “4 security takeways from the epic Sony hack.“)

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HO HO HO-liday Bonuses

It’s that time of year again!

No, I’m not talking about Christmas, but rather the annual tradition (depending on where you work, of course) of holiday bonuses.

Two new polls on the topic of holiday bonuses were recently released by Oklahoma City-based Express Employment Professionals. The polls show that, while cash tops both sides’ wish lists, there’s precious little consensus on other “shows of appreciation.”

In an online poll of more than 200 employees and job seekers, they were asked, “How do you wish your company showed appreciation to employees?” They responded:

Cash Bonus 27%
Pay Raises 13%
Days Off or Shortened Holiday Hours 9%
Gift Cards 5%
Gift Items Other Than Money 1%
A Holiday Party 1%
Other 1%
A Combination of the Above 35%

In a separate online poll of 400 respondents, business leaders were similarly asked, “What type of holiday bonus will you give your employees this year?” While 34 percent said cash, another 21 percent said, “We will not give holiday bonuses.”

In addition, of the 7 percent who chose “other,” 27 percent self-reported Scroogish answers such as “no holiday bonuses ever.”

What Type Of Holiday Bonus Will You Give Your Employees This Year?
Cash 34%
We Will Not Give Holiday Bonuses 21%
Gift Cards 12%
Other 7%
Extra Days Off    3%
Tangible Gifts 3%
A Combination of the Above 19%

“During the holiday season, it’s important for businesses to show their appreciation to their employees,” said Bob Funk, CEO of Express, and a former chairman of the Federal Reserve Bank of Kansas City.

“It can be disheartening for an employee to feel unappreciated, yet our poll indicates that more than a fifth of employers won’t give their workers anything this holiday season. You don’t have to be extravagant about your holiday bonuses, but it’s important to show recognition. As one respondent told us, ‘A thank you note will suffice.’ ”

So even if your company isn’t planning on handing out envelopes with cash in them this season, you should at least be preparing for some sort of expression of appreciation for your workers.

‘Tis the season!

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HR: Stewards of Compensation?

Forbes contributor Robin Ferracone just posted this morning an interesting Q&A she conducted last month with Jerry McGrath, DHR International’s global HR practices leader, on the topic of HR’s role in determining executive compensation.

In the piece, Ferracone — an executive compensation consultant for more than 30 years — tells McGrath that “the expediency and overall success” of an organization’s compensation program depends on great collaborations with the HR community:

 We believe the role of HR is very important, and we like working closely with the HR team as well as the compensation committee of the board. If we don’t work closely together, surprises inevitably arise, and no one likes surprises – at least in this context.

With that said, Ferracone then highlights a few pitfall areas for HR executives to avoid in the comp arena.

“I have to admit, it was easier to come up with the roles HR should avoid,” she says, which include:

  • CEO advocate: This approach does not play well with the compensation committee and sets up an issue of trust;

  • Peacekeeper: Some eggs may need to be broken to make an omelet; and

  • Copycat or scared-y cat: HR shouldn’t be afraid to proffer opinions. HR deserves to have its own point of view heard.

She then offers five areas HR executives can focus on “to become the stewards of compensation” at their organizations:

1.  Regulation: When it comes to the CEO Median Pay Ratio disclosure, keep it simple. Interpret and clearly communicate the numbers for shareholders. Keep it low-key.

2.  Shareholder Engagement: Engage with shareholders and proxy advisers, but at the right time. Listen carefully to their thinking, ideas and concerns, but don’t feel you’re wedded to them in your design. Instead, wed yourself to your company’s strategy.

3.  Linking Talent to Strategy: Compensation has largely been a backward-looking exercise.  We need to look forward in order to protect our talent franchise. As you think about retention and  workforce planning, you need to think about how to link talent planning to compensation.

4.  Managing Dilution and Talent Retention: For a struggling company, you must recognize when equity isn’t doing its job. You need to think differently about how to compensate in this environment.

5.  Build Trust and Collaborate: The best approach is to work collaboratively with both compensation committees and consultants. Be engaged in the process and refrain from advocating for the CEO.

“In short,” she says, “HR needs to work with management and the compensation committee to ensure that executive interests are aligned with shareholder interests.”

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Good News: I Quit

According to a new Reuters analysis of the latest monthly U.S. Labor Department labor data, Americans quit their jobs in September at the fastest rate in over six years, to the tune of 2 percent of U.S. job-holders, or about 2.8 million workers.

And while it may seem counterintuitive to think that a rise in the quits rate — or the number of people quitting their job in a given month — would actually be a good sign for the overall health of the economy, such is the case in the murky world of economic indicators.

But why is it a good thing when more people quit their jobs? Two reasons, according to Reuters:

One, the quits rate fell during the  recession and has been slower to recover than other labor market indicators because workers were hesitant to make any job changes in uncertain times.

Some analysts, the Reuters piece notes, believe this has helped keep wage gains stagnant even as the jobless rate has fallen because employers don’t have to raise wages as much to retain talent when there is less employee turnover.

Second, the report notes Federal Reserve Chair Janet Yellen has signaled the quits rate as an indicator she is following on her “dashboard” for assessing progress in the labor market’s recovery.

“It’s definitely good for wages,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. “Also, the chair of the Federal Reserve is looking at it, and if she’s looking at it, we have to as well.”

So if you happen to notice a rise in the quit rate of your own organization, you can either take solace in knowing it’s contributing to the overall health of the economy, or else reevaluate your compensation and retention programs to ensure your best talent doesn’t float out the door on the rising tide of the economy.

Just like with economic indicators, it’s all in how you look at it.

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Microsoft CEO Touts Equal Pay after Apology

Satya_NadellaIt seems Microsoft Chief Executive Officer Satya Nadella (at right) is still in apologetic mode after making some ill-advised comments at a recent conference that, in essence, discouraged female employees from asking for raises.

Apologizing immediately afterward, Nadella now says in this Oct. 20 Time magazine online article, that men and women at Microsoft are paid equally. Clearly, the need for more positive spin is still there.

Here, in case you missed it, is Josh Eidelson’s Oct. 13 post on Bloomberg Businessweek‘s Politics & Policy site about whether Microsoft’s female employees have grounds for a complaint with the National Labor Relations Board, based on what Nadella said onstage at the recent Grace Hopper Celebration of Women in Computing Conference in San Francisco.

The post also mentions that Nadella apologized and retracted what he said just hours later in a companywide email, calling his gaffe “completely wrong.” For the record and according to Eidelson, here was his egregious response to a question someone at the conference posed about what he would tell women who are hesitant to ask for a raise:

“It’s not really about asking for the raise, but knowing and having faith that the system will actually give you the right raises as you go along. And that, I think, might be one of the additional superpowers that quite frankly women who don’t ask for a raise have. Because that’s good karma. It’ll come back, because somebody’s going to know that’s the kind of person that I want to trust. That’s the kind of person that I want to really give more responsibility to.”

Wilma Liebman, who chaired the NLRB during President Obama’s first term and now lectures at Cornell University, says in the post, “You could make a very clear argument that [such a comment] means, ‘Don’t ask for a raise, and if you ask for a raise, you’re not going to be trusted.’ And ‘you’re not going to be trusted’ translates to ‘you could be in some jeopardy.’ ”

The issue raised in the Businessweek piece, of course — since it considers NLRB review and possible enforcement of Section 7 of the National Labor Relations Act — is whether Nadella’s message explicitly chills a protected concerted activity; i.e., a group of Microsoft women banding together in search of higher pay.

Lawyers are mixed on that one. “If a group of women said these comments chilled them from seeking together to get better pay in the workplace, they could file an unfair labor practice claim with the NLRB,” Paul Secunda, director of the Labor and Employment Law Program at Marquette University Law School, is quoted as saying in that story.

On the other hand, the story says, Samuel Bagenstos, a University of Michigan law professor and former Department of Justice official, doubts Nadella’s comments would merit NLRB review, considering he didn’t specifically address that kind of group activism. “Asking for a raise for oneself only would count as concerted activity if there was an argument that the employee was asserting a grievance that was or could be expected to be shared by others,” Bagenstos is quoted as saying.

Hope B. Eastman, principal at Bethesda, Md.-based Paley Rothman and co-chair of its employment law group, who I spoke with about this, concurs. “The fact that Nadella has apologized and retracted his statement, and the fact that his comment was in the context of an individual woman asking for a raise,” she says, “makes it unlikely that the NLRB would take this on … .”

That said, she adds, “there have been studies suggesting that women do not negotiate salaries as well as men; this is an issue that needs attention.” So the silver lining, I guess, is that this issue was given new light through Nadella’s comments.

The Businessweek piece also brings up another story we followed in 2011 on this blog, when the NLRB issued a complaint against Boeing, claiming executives’ public comments about striking employees in the state of Washington suggested they were to blame for the company’s intended move to a new South Carolina site at the time. (Here’s one other mention of that story on this blog.)

As Eidelson points out, that Boeing story establishes “precedent for investigating public comments from an executive as alleged discrimination.”

And — aside from staying on that apparently long, arduous road toward equal pay — what’s the message for HR in all this? I guess check with your C-suiters on absolutely everything they intend to say publicly before they take the podium or stage …

If that’s even possible.

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Hiking the ‘Living Wage’ in NYC

According to the New York Times, Mayor Bill de Blasio plans to sign an executive order today designed to “significantly expand” New York City’s living wage law, covering thousands of previously exempt workers and raising the hourly wage itself, to $13.13 from $11.90, for workers who do not receive benefits.

The executive order will immediately cover employees of commercial tenants on projects that receive more than $1 million in city subsidies going forward. Workers who receive benefits such as health insurance will earn $11.50 an hour, compared with $10.30 before, the paper notes.

And the current living wage law, passed in 2012, has applied to about 1,200 jobs, officials say, excusing many retailers and companies that lease space as part of city-subsidized projects, the paper reports.

The paper says the living-wage change is also intended to frame a looming debate in Albany, where Mr. de Blasio hopes to win the authority to set the citywide minimum wage at the same amount. If Mr. de Blasio succeeds in matching the minimum wage to the living wage, all hourly workers in the city would earn more than $15 by 2019, according to the city’s projections.

New York Gov. Andrew M. Cuomo, who in February said that allowing local governments to set their own minimum wages would yield “a chaotic situation,” seemed to have reversed himself months later. He said he would support a plan, advocated by the Working Families Party, that allowed municipalities with higher costs of living to set their own minimum wages.

As a result, the governor has endorsed an increase to $10.10 in the statewide minimum wage, with a provision allowing New York City and other areas to raise their minimums as much as 30 percent higher, to $13.13.

It will be interesting to see how — and if — New York City’s example is adopted elsewhere when it comes to setting a higher bar for a living wage for workers.

Regardless, HR leaders should keep an eye on this development to ensure they won’t be caught off guard when a living-wage boost may be introduced in their municipality or state.

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Employees: Pay Matters Most

payWe routinely feature, in our print edition and on our website, stories about the vital role played by leadership training, wellness programs, communication strategies and even office design in creating and sustaining employee engagement. But it shouldn’t obscure the fact that, for most employees, the bottom line is the bottom line — when it comes to engagement, pay is the most important factor.

The new Workforce 2020 survey, which queried more than 5,400 employees and executives in 27 countries and was conducted by Oxford Economics with the support of SAP, is the latest report to confirm this. The survey finds that two-thirds of the respondents cite competitive compensation as the most important attribute of a job. And it’s cross-generational: millennials and non-millennials alike cite comp as the most-important benefit, while 41 percent of millennials and 38 percent of non-millennials say higher compensation would increase their loyalty and engagement with the company.

This isn’t to undermine the importance of things like manager training and corporate culture: Studies have repeatedly shown that while competitive pay and benefits can lure employees to companies, having a positive work environment and a good boss play crucial roles in keeping them there. But if they feel under-compensated for the value they provide, it’s only a matter of time before greener pastures — or at least, the appearance of greener pastures — lure them elsewhere.

Do companies get this? The trucking industry doesn’t appear to. According to HREOnline columnist and Wharton School Professor Peter Cappelli, real wages for truck drivers apparently have fallen by almost 10 percent during the last 10 years — and even a critical shortage of truck drivers so severe that some trucking companies are unable to accommodate their customers’ needs hasn’t led to an increase in wages. Companies cite customers’ unwillingness to pay higher fees as a reason for not raising wages, Cappelli writes — and yet, trucking firms are perfectly willing to pass along higher fuel costs to their customers, he adds.

Cappelli ends his column on this provocative note: The trucking industry will either have to raise wages to attract the drivers it needs, or “we start hearing that we need to import more foreign drivers because ‘no Americans want to drive trucks.’ “

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Increasing Pay, Increasing Challenges

Not sure how you’ll read this, whether you’re the full-glass or half-glass sort, but this latest survey from Mercer shows pay raises are growing steadily … albeit in .1-percent increments.

180274674 -- pay raiseAccording to the New York-based global consulting firm’s 2014/2015 U.S. Compensation Planning Survey, the average raise in base pay is expected to be 3 percent in 2015, up slightly from 2.9 percent in 2014, 2.8 percent in 2013 and 2.7 percent in 2012.

No leaps and bounds, certainly, but indicative — we’d all have to agree — of a steadily improving economy and job market, no?

Granted, .1-percent increments may not give your employees the wow factors they’re looking for as they mull whether to stick around or try out greener-looking pastures. And this can be especially worrisome when you consider what it will take to keep your highest-performing workers on board and happy.

Which leads me to another survey finding: that the range between increases to high-performing employees and those given to lower-performing employees continues to widen. Specifically, the survey shows, the former received average base-pay increases of 4.8 percent in 2014, compared to 2.6 percent for average performers and 0.1 percent for the lower performers.

“Differentiating salary increases based on performance has become the norm,” says Rebecca Adractas, principal in Mercer’s rewards consulting business. “Investing in those employees [who] are driving organizational performance has become a necessity.”

So has making sure the good ones have more than one reason — pay — to stay.

Mary Ann Sardone, partner in the firm’s talent practice and regional leader of its rewards segment, says employers are also “continuing to provide rewards beyond compensation, in the form of training and career development.”

“Employee engagement and retention continue to be a top priority,” she says.

So, on the glass-half-empty end, if you’re not doing everything you can to figure out who your top performers are, what they want and how you can provide it, you will inevitably be caught with your proverbial pants down.

On the glass-half-full side, at least things are looking up … ever-so slowly but surely.

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Sharing the Wealth

sharing moneyWith the debate over minimum wage still swirling, one university president is taking it upon himself to see that his lowest-paid workers’ salaries get a boost.

The Lexington Herald-Leader reports that Raymond Burse, interim president at Kentucky State University, is giving up more than $90,000 of his annual salary in order to increase the salaries of 24 KSU employees—some of whom were earning as little as $7.25 hourly—to $10.25 an hour.

Burse—who served as KSU president from 1982 to 1989 and was an executive at GE for 17 years—told the Herald-Leader that he and the KSU Board of Regents discussed his potential pay cut before the board met to approve his contract in late July.

Burse’s annual salary had been set at $349,869. That number now sits at $259,745, which seems to sit just fine with Burse.

“My whole thing is I don’t need to work,” he told the paper. “This is not a hobby, but in terms of the people who do the hard work and heavy lifting, they are at the lower pay scale.”

He was also quick to point out that the move isn’t simply a publicity stunt.

“You don’t give up $90,000 for publicity. I did this for the people. This is something I’ve been thinking about from the very beginning,” he said, noting the raise in pay for the affected employees will remain in place after a new president is selected.

Burse is also under no illusion that his counterparts in academia will begin sharing their salaries with employees on the lower rungs of the pay scale, and says his largesse “is not a poke” at other university presidents to follow his example.

“I was in a position where I could do that,” he told the Herald-Leader. “That is not always the case.”

Fair enough. And it’s safe to say Burse probably hasn’t started a trend here. But, whatever his reasons, give Burse credit for taking steps to beef up the paychecks of some of his lowest-earning employees, and doing so at his own expense.

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A Study in Greed

CEOWhen top managers and executives pursue “extreme wealth,” it’s the company’s shareholders that often pay the price, according to new research.

In a study that recently appeared in the Journal of Management, a team of researchers conducted a statistical examination of 335 companies, analyzing stock market returns and dividends, and conducting interviews with top executives and an independent panel of experts from a variety of disciplines, including academic scholars and senior business executives.

The study looked at the size of CEOs’ perquisite packages, analyzed the difference between a CEO’s cash compensation and that of his or her No 2. executive, and performed an analysis of CEOs who were overpaid compared to a benchmark of their peers.

In the process, the authors—led by Katalin Takacs Haynes, assistant professor of strategic management at the University of Delaware—found the “pursuit of extreme wealth by top managers can lead to lower performance and loss of shareholder value,” according to a summary of the findings appearing at UDaily, the University of Delaware’s online news service.

“Self-interest is OK, but eventually it reaches a tipping point,” said Haynes. “When it is taken to the extreme—when it becomes greed—it is detrimental to firm value.”

There is somewhat of a silver lining in the findings, however. The researchers also concluded that a powerful board or long CEO tenure can “moderate the relationship between greed and shareholder return.”

Some CEOs “appear to direct more of the firm’s resources toward themselves than others, and this can occur more when managers have a lot of discretion or have a short tenure, or if the board is weak,” according to Haynes. “Interestingly, we found that the negative effects of executive greed on shareholder wealth decreases as CEOs experience more time in their role.”

HR can play a part in mitigating this effect, Haynes told HRE.

“There are some points for HR executives to consider when designing compensation packages, while keeping shareholders’ preferences in mind,” she says.

“”Encourage shareholders to actively participate in the compensation process,” for example. “SEC regulations allow for shareholders to express their opinions about compensation packages via the ‘say on pay’ regulations.”

While say-on-pay is non-binding, “ignoring shareholder no-votes invites public scrutiny and negative attention to the company,” adds Haynes, advising HR executives and compensation committees to pay close attention to shareholders who choose to actively participate in the executive compensation process via say-on-pay.

HR leaders must also look out for “the indicators of greed,” she says, such as excessive perquisite compensation in the “other annual” and “all other” categories; the ratio of the CEO’s total comp package to that of the organization’s second-in-command; and CEO pay at peer companies and industry benchmarks, which help identify possible overpayment of your organization’s chief executive.

“CEOs play a significant role in setting their own pay, and are not passive recipients of pay,” says Haynes, “as the term ‘overpayment’ implies.”

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