Category Archives: compensation

Benchmarking and Executive Comp

Executive-pay packages often don’t include a comparison of company performance and its competitors are regularly approved by boards of directors, and many have wondered why.

New research by University of Michigan professor Martin Schmalz and co-authors Miguel Anton and Mireia Gine of the IESE Business School and Florian Ederer of the Yale School of Management helps explain why—and why benchmarking happens more in some industries than in others.

They found that when companies in an industry are owned by the same shareholders, the executives tend to be rewarded relatively more for industry performance and less for their own company’s performance.

“Many people have been puzzled why shareholders approve pay packages that lead to high pay without much benchmarking,” said Schmalz, the NBD Bancorp Assistant Professor of Business Administration and an assistant professor of finance. “But it’s actually not that puzzling once you analyze these shareholders’ economic incentives.”

Schmalz, Anton, Ederer and Gine examined 20 years’ worth of data from ExecuComp, which measures the compensation of top executives of the largest 2,000 U.S. companies.

The more a company’s institutional shareholders own big stakes in rival companies, the less pay managers receive for company performance and the more pay they receive in response to rivals’ performance.

The logic is easy to understand, the author contends:

If you benchmark performance against rival companies, that gives managers an incentive to compete aggressively. If you own a number of companies in the same industry, you don’t want that to happen,” Schmalz said. “If anything, you want them to cooperate more, because you want to improve the value of your entire portfolio, not just one company. Our findings suggest managerial contracts give managers economic reasons to act in their shareholders’ interests—it’s as simple as that.

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What Drives Retention Rates?

Around the world, pay matters most to workers. But other factors that keep them loyal vary quite a lot, a new study finds. And they’re changing as the nature of work evolves.

The results are part of the 2016 Global Talent Management and Rewards Survey by Willis Towers Watson. Every other year the company surveys workers around the globe to see what rewards and conditions keep them happy or attract them to new jobs.

This year’s survey, conducted in April and May, included 31,000 employees in 29 markets. In studying retention factors, the London-based consulting firm ranked eight countries, including the United States. (See the full results at the bottom of this post.)

Pay was the top priority in each, says Laura Sejen, managing director for talent and rewards at Willis Towers Watson.  After that, the No. 2 retention driver in most countries, including the U.S., was career advancement opportunities.

For multinational companies, those two factors are fundamental to attracting and retaining workers, Sejen says. Workers want clear expectations not only for their current job, but also for what they need to move up.

For a global employer, “If I could only do two things right, I would focus on those,” Sejen says.

Career advancement opportunities wasn’t the No. 2 retention driver everywhere, however. In China it was the physical work environment. In Brazil it was the length of the commute. In India it was job security.

Sejen notes that work environment has been moving up in the list of priorities globally. She thinks longer hours and a trend toward open offices and shared workspaces may have increased employee awareness of the physical environment as a factor in their job satisfaction.

“That, I think, is just a reflection of how the work environment has changed,” Sejen says. “It’s important. We spend a lot of time at work.”

Among the eight countries studied, job security was No. 2 only in India. But it’s slowly rising in importance around the world, Sejen says.

How workers define job security varies, however. Few workers expect a job for life. But many worry about losing financial security, and others worry about their jobs changing.

Sometimes mundane local conditions like traffic congestion influence the rankings. It makes sense that commute times would be important in Brazil, because cities there tend to be dense, sprawling and challenging to navigate, Sejen notes. “If you’ve ever been to Sao Paulo, you can appreciate that.”

Retention drivers Globally Brazil Canada China Germany India Mexico U.K. U.S.
Base pay/salary 1 1 1 1 1 1 1 1 1
Career advancement opportunities 2 3 2 3 2 3 2 2 2
Physical work environment 3 4 2 5 3
Job security 4 7 3 3 2 6 3 3
Work-related stress 5 6 4 5 6 7
Trust in senior leadership 6 5 4 4
Relationship with supervisor 7 5 7 7 6 7
Length of commute 2 4 4 4 5 6
Retirement benefits 6 6 4 5
Flexible work environments 5
Challenging work 6
Opportunity to learn new skills 7 7 7 5
Source: 2016 Global Talent Management and Rewards Survey by Willis Towers Watson
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So Long, Salary History Questions?

It’s a topic that has made many an interviewee squirm. When asked to discuss compensation history, it’s only natural for job candidates to worry about either pricing themselves out of the market or setting the salary bar too low.

Depending on what happens when Congress returns from summer recess, job candidates may never have to answer uncomfortable salary history-related questions again.

Late last week, a trio of lawmakers announced that they planned to introduce a bill that would prohibit employers from asking job applicants for their salary history before making a job or salary offer.

These legislators, however, have loftier aspirations than just making the interview process a little less awkward for job seekers.

Congresswoman Eleanor Holmes Norton, along with Representatives Rosa DeLauro (D-CT) and Jerrold Nadler (D-NY), will introduce the bill, which “seeks to eliminate the wage gap that women and people of color often encounter,” according to a statement announcing the bill.

“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.”

Ultimately, “the only way to make sure women and minorities will be treated equally is to remove the early biases that exist, both in hiring practices and salary negotiations, and our bill works to eliminate those obstacles by requiring employers to offer salaries based on the value of the work,” said Congressman Nadler, in the aforementioned statement. “Employers can and should hire good employees without taking into account prior pay history or condemning someone to depressed wages due to gender and racial inequity.”

The Washington Post calls the bill “the latest sign that efforts to dump the dreaded [salary history] question could be gaining momentum.”

In August, for example, Massachusetts Governor Charlie Baker signed an equal pay bill—passed unanimously by both of the state’s legislative branches—forbidding employers from asking about salary history until a job offer was extended.

Meanwhile, an amendment to California’s Fair Pay Act went into effect at the beginning of 2016 that would bar companies from basing compensation decisions on prior salaries alone, according to the Post.

Such recent examples aside, the new bill’s prospects for passage aren’t great, the paper notes, pointing out that bills attempting to legislate equal pay have been introduced in every Congress since 1997, to no avail.

That doesn’t mean, however, that the legislation is dead on arrival, as Fatima Goss Graves, senior vice president at the National Women’s Law Center, told the Post.

“People can see the connection of the deep unfairness of carrying past discrimination with you to job after job,” Graves told the paper, noting that the support the Massachusetts business community has shown since the state banned salary-related questions could have a mobilizing effect.

“When states show that something is possible,” says Graves, “that’s extremely reinforcing.”

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The Motherhood Tax at Work

New research out of the United Kingdom shows the gender-pay gap widens significantly after the birth of a child, otherwise known as the “motherhood tax.”

According to a new report from the Institute for Fiscal Studies, 12 years after giving birth for the first time, women are making 33 percent less per hour than men.

On average, women in work receive about 18 percent less per hour than men, down from 23 percent in 2003.

While the wider gap for mothers is not because women see an immediate cut in hourly pay after childbirth.

Possible explanations include mothers missing out on promotions or accumulating less labor market experience, the authors said.

“Comparing women who had the same hourly wage before leaving paid work, wages when they return are on average 2 percent lower for each year spent out of paid work in the interim,” the IFS wrote.

(Tip of the hat to CNN Money.)

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A Groundbreaking New Pay Equity Law

Beginning July 1, 2018, employers in Massachusetts will be prohibited from asking job candidates about their salary history before offering them a job or asking candidates’ former employers about their pay. The new law, the Pay Equity Act, is designed to reduce the pay disparities between men and women in the workplace.

Although other states (including California and Maryland) have also enacted recent legislation designed to reduce pay inequity, Massachusetts is the first state to ban employers from asking about candidates’ salary history. The law, signed earlier this week by Republican Gov. Charlie Baker, not only had bipartisan support in the state legislature but also from business groups such as the Greater Boston Chamber of Commerce.

Nationally, women still earn only 79 cents for every dollar earned by men, according to the U.S. Census Bureau. Because companies tend to use candidates’ pay history as a guideline in making offers, these inequities can follow candidates throughout their lifetimes, pay-equity advocates say.

The Massachusetts law, which amends and expands upon the state’s pre-existing pay equity law, also makes it illegal for employers to ban employees from discussing their pay with others and will require equal pay employees whose work is “of comparable character or work in comparable operations.” The law also bars employers from reducing the pay of any employee in order to come into compliance with the Pay Equity Act.

The law also increases the penalties for violations, according to an analysis by law firm Holland & Knight:

The law expands the remedies available to plaintiffs by extending the statute of limitations from one year to three years, and creating a continuing violation provision under which a new violation of the law occurs each time an employee is paid an unequal amount. This provision may permit employees to recover years of back pay discrepancies as well as liquidated damages. Fines are increased from $100 to $1,000 per violation. There is no requirement that an employee file first with the Massachusetts Commission Against Discrimination (MCAD). Lawsuits may be filed directly in court.

Notably, however, the law features a safe harbor provision for employers that have been accused of pay discrimination, writes attorney Victoria Fuller of White and Williams:

Employers may avoid liability for pay discrimination under the Act if they can show within the last three years and before the commencement of the action, they have completed a good-faith self-evaluation of their pay practices and can demonstrate that reasonable progress has been made towards eliminating compensation differentials based on gender for comparable work in accordance with the evaluation.

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Hope Reigns Supreme in the HR Suite

As a good HR leader, you probably have a handle on hiring trends within your organization’s industry.

But what about your profession? What’s the employment forecast for HR?

At the moment, the prognosis is pretty good. And the younger the HR practitioner, the brighter the outlook, according to the 2016 HR Jobs Pulse Survey, recently released by the Alexandria, Va.-based Society for Human Resource Management.

The SHRM poll asked 365 U.S.-based HR professionals to gauge their faith in their own job security and ability to find work if they were to leave their current employer.

Overall, 75 percent of all respondents reported confidence in their job security, with that number climbing to 85 percent among early-career HR professionals.

Those at the earliest stages of their careers were found to be “particularly confident” in the stability of the profession, “which suggests that new entrants to the profession are feeling optimistic about their future as HR practitioners,” says Alex Alonso, SHRM senior vice president of knowledge development, in a statement.

Some of these younger professionals, however, are a bit unsure about their chances outside their current organization, at least in comparison to their more experienced colleagues. Sixty-three percent of early-career respondents said they were “somewhat” or “very” confident that they could find a new job. Overall, 88 percent of respondents described their prospects the same way.

Regardless of age, most of these HR practitioners intend to stay put anyway, as just 19 percent of those polled said they were looking for a new job.

The roughly one-fifth of those pursuing other opportunities have their reasons for doing so, of course. Not surprisingly, money tops the list, with 42 percent citing “more compensation/pay” as their primary motivation for seeking new employment. Thirty-seven percent said they were in search of “better career advancement opportunities.”

Just 27 percent of those surveyed said their companies were hiring for HR positions, however. That percentage remains unchanged from 2015, according to SHRM.

What kind of talented HR practitioners are organizations looking to find? According to the SHRM survey, HR generalists continue to be in the highest demand (49 percent), followed by HR professionals with employment and recruitment skills (31 percent).

Ultimately, while hiring remains fairly flat for HR positions relative to last year, the findings suggest an air of optimism in the HR suite, says Alonso.

“Confidence in the stability of the profession has increased slightly,” he says. “The vast majority of HR professionals … had some level of confidence that they could land a new job if necessary.”



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Job Satisfaction Hits New High

According to the Conference Board’s latest job satisfaction survey, the rate of job satisfaction among U.S. workers is at the highest level it’s been since 2005, with nearly half (49.6 percent) of workers reporting that they’re satisfied with their jobs. The Conference Board notes that job-satisfaction rates have increased steadily since 2010.

Of course, this also means that half of U.S. workers are not satisfied with their jobs. The latest number is also a far cry from the highs hit in 1987 and 1995, when the Conference Board’s survey found that 60 percent of American workers were satisfied with their jobs.

The strengthening economy is a big factor in the higher job-satisfaction rates in the latest report, says the Conference Board’s Michelle Kan, who co-authored the report. “The rapidly declining unemployment rate, combined with increased hiring, job openings and quits, signals a seller’s market, where the employer demand for workers is greater than the available supply.”

In other words, employees today have more options than they’ve had in some time, and they know it — and HR needs to pay attention to their needs. Indeed, while the Conference Board report finds that workers are most satisfied with their colleagues (59 percent), interest in their work (59 percent) and their supervisors (57 percent), they’re much less satisfied with their organizations’ pay and promotion policies. In fact, the five job components with the lowest satisfaction are promotion policies (24 percent), bonus plans (24 percent), the performance review process (29 percent), educational/job training programs (30 percent) and recognition/acknowledgement (31.5 percent).

Gad Levanon, the Conference Board’s chief economist for North America, tells the Wall Street Journal that the high satisfaction rates of 1987 and 1995 are unlikely to be repeated soon.

“It was a whole different world in terms of employee-employer relationships,” he said. “There was much more loyalty. People looked to their employer for more than a job, in many cases.”

Nevertheless, said Levanon, a satisfaction rate of 55 percent may be achievable.

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The Many, Many Vacation Days Not Taken

Here’s a new buzzword to add to your lexicon: “under-vacationed.” It’s how Project: Time Off, which regularly surveys American workers on how much time they take off from work, describes the 55 percent of U.S. workers who left vacation days unused last year, according to its latest survey. Previous Project: Time Off research showed that 42 percent of Americans were leaving vacation time on the table.

Project: Time Off is sponsored by the U.S. Travel Association, which obviously stands to benefit from more people taking time off to, you know, travel. But the research seems pretty legit, using polling firm GfK to conduct random representative samples of the U.S. population. This year’s survey queried 5,641 American workers working at least 35 hours per week, including 1,184 managers who are company decision-makers.

American workers have lost a full week of vacation, the research finds. Previous research conducted by Project: Time Off found U.S. workers’ vacation usage had fallen to 16.0 days a year—nearly a full week less than the average between 1978 and 2000, when it was 20.3 days per year. In the latest analysis of vacation usage, American workers took 16.2 days of vacation in 2015.

This year’s survey marks the first time that a majority of American workers have left vacation days unused. Previous surveys showed that 42 percent of Americans were leaving vacation time on the table. These “under-vacationed” Americans left a total of 658 million unused vacation days, far exceeding the previous estimate of 429 million unused days, according to Project: Time Off.

It’s not quite as bad as it sounds: Previous Project: Time Off surveys were conducted mid-year and asked respondents how much vacation time they anticipated using during the year. However, the latest survey was conducted in January and required that respondents know the exact amount of time they’d used during the previous year.

Why are so many Americans leaving their vacation time unused? Fears that employees would return to a mountain of work (37 percent) and that no one else can do the job (30 percent) topped the list. People who ranked higher in the organization also expressed concern that it’s harder to take time off when you hold such positions (28 percent). Twenty-two percent cited the idea that employees want to show “complete dedication” to their company and job.

People with high-ranking positions can have a big impact on changing this trend for the better: Eighty percent of employees said if they felt fully supported and encouraged by their boss, they would be likely to take more time off.

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Getting Your Messages ‘Heard’

You can create the best comp and benefit plan in the world, but it will be all for naught if you don’t get your communication strategy right.

dv1492011Despite the many and varied tools available to them, employers continue to struggle to communicate in a way that ensures their messages are being heard. Sure, employers may be getting information into the hands of their employees. But is it really resonating with them?

The above point wasn’t lost on those responsible for programming WorldatWork’s 2016 Total Rewards Conference and Exposition in San Diego, which featured several sessions focusing on comp and benefit communications.

(Indeed, each of the half-dozen sessions I attended included at least a couple of slides emphasizing the critical role of effective communications.)

The value of a well-crafted communication strategy was certainly evident in a session titled  “Cutting-Edge Communication Strategies to Drive Employee Engagement.”

John Hyttinen, senior director of total rewards at ADP Canada, detailed the key role communications played as ADP went about revamping its global bonus program. Business leaders, he said, realized they needed to do a better job leveraging multimedia in order to communicate those changes to employees.

To that end, ADP engaged GuideSpark to build a solution for delivering content to its multigenerational workforce. (GuideSpark provides internal communication platforms that specialize in areas such as benefits, financial wellness and talent management.)

In the session, GuideSpark’s CEO and Co-Founder Keith Kitani provided attendees with a series of tips aimed at creating more effective communications, including …

  • Think holistically about your employee-engagement touch points. “To build a connection, you need consistency” from beginning to end.
  • Make sure your communication includes a theme. “Are you trying to get above the noise or just check off a compliance box?”
  • Put your employees at the center of your communication. “You need to connect on a much more personal level” and “help them understand what’s in it for them.”
  • Personalize your communication. He pointed out that “35 percent of Amazon’s revenue is driven by recommendations.”
  • Use a multi-channel approach.
  • Leverage trends such as social, mobile and Big Data.
  • Embed communications in the employee workflow so employees are able to get the information when they need it.
  • Measure your success. “It’s really important that you measure what you’re doing” and use that data to modify your approach.

At least one presentation at the conference addressed the challenges of getting your message across to the organization’s business leaders. No easy task, either.

In a session titled “Storytelling: Influence Leaders and Make a Business Impact,” Britt Wittman, director of executive compensation at Intel, outlined ways benefit and comp leaders can effectively use storytelling to make their cases.

Speaking to a packed room, Wittman explained how stories, when properly used, can be a powerful tool that helps “people remember key messages” and “drives them to act.”

To prove his point, Wittman (who, as the session’s title suggested, focused his presentation on influencing business leaders) shared a story involving former Intel CEO Paul Otellini. “One of the reasons Intel’s stock had gone sideways [for a while] despite strong financial results was the fact that the story Paul was telling The Street was not a compelling vision of the future.”

(Wittman prefaced his remarks by saying that, while Otellini was the “goat of this story,” he was a good CEO.)

You can present the data, Wittman said, but that alone isn’t going to inspire people to take action.

The key to delivering a good story, of course, is to know your audience, Wittman said. “The more you know that audience,” he explained, “the more likely your story is going to have an emotional connection. If you’re talking to someone who hates sports, building sports analogies into your presentation simply isn’t going to work.”

Fortunately, he said, benefit and comp professionals are often presenting to the same individuals—so “leverage what you know about them.”

Effective storytelling, Wittman said, requires setting the context. You need to make sure business leaders understand what you’re talking about, he said, adding that doing so could make a huge difference in getting a “yes” rather than a “no” to a particular request.


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Worrisome Numbers for Working Moms

Mother’s Day may be three days behind us, but the time still seems right to direct attention to CareerBuilder’s most recent poll focusing on working moms.

The Chicago-based employment website and HR software provider’s 2016 Mother’s Day survey questioned 2,186 hiring and HR managers, along with 1,002 working parents (593 working mothers and 409 working fathers) with children 18 years old and younger who still live with them at home.

The picture the findings paint looks all too familiar, unfortunately: Despite successfully shouldering the same load on the job and at home, working moms’ salaries still lag behind those of their male counterparts.

(In some cases, moms are actually taking on more responsibility with the kids, as 58 percent of working mothers said they spend four or more hours with their children every day during a typical workweek, compared to 41 percent of working dads who said the same.)

For example, at least two in five of the mothers and fathers surveyed indicated they were the sole breadwinner in their family. This survey, however, finds fathers in this role nearly three times as likely to earn $50,000 or more, and three times more likely to bring in a six-figure salary.

Naturally, all parents sometimes struggle to balance the personal and the professional, as 23 percent of working mothers and 26 percent of employed fathers say they’ve missed three or more significant events in their children’s lives in the last year.

Many mothers still feel they can strike that elusive work/life balance, though. Eighty-two percent of those surveyed feel they can “have it all.” Just 50 percent, however, feel they are equally successful in their jobs and as parents, with 36 percent considering themselves more successful as a parent and 14 percent feeling they excel more at work.

All that said, it seems working mothers—and working fathers, for that matter—wouldn’t give up the work/life juggling act even if they could. Overall, 40 percent said they would be unlikely to leave their jobs if their spouse or partner made enough for the family to live comfortably. In addition, 55 percent of working moms suggested they wouldn’t be willing to take a pay cut if it allowed them to spend more time with their kids (66 percent of working dads indicated as much).

Still, while many women balancing family obligations with professional duties feel they have a handle on both, the issue of pay equality continues to make the job more difficult.

“The pressure to succeed in both arenas can be tough, especially if you’re not earning enough money to take care of financial demands at home,” said Rosemary Haefner, CareerBuilder CHRO, in a statement highlighting the Mother’s Day survey findings. “More working moms today feel that they are able to balance the needs of their professional and personal worlds, but household income still remains a major concern.”

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