Category Archives: compensation

Female Managers: Change Agents or Just Cogs?

Do female managers act in ways that narrow, preserve or even widen the gender wage gap?

That was the essential question for Sameer B. Srivastava, an assistant professor,  and Eliot L. Sherman, a doctoral student, both of the Haas School of Business at the University of California, Berkeley, and their answer might just surprise you:

“We find conditional support for the cogs-in-the-machine perspective: In the subsample of high performing supervisors and low performing employees, women who switched from a male to a female supervisor had a lower salary in the following year than men who made the same switch. “

Their research, “Agents of Change or Cogs in the Machine? Re-examining the Influence of Female Managers on the Gender Wage Gap,” is featured in the latest issue of the American Journal of Sociology.

The study examined how the salaries of both male and female employees changed when they switched from reporting to a male manager to reporting to a female manager (and vice versa).

Previous research suggested that female managers can be “agents of change” who act in ways that reduce the gender wage gap, but this study didn’t support that supposition.

In fact, a subset of switchers—low-performing women who switched to working for a high-performing female supervisor—fared worse financially, not better, than their male colleagues making a comparable switch.

“A high-performing woman might, for example, worry about being devalued because of her association with a low-performing female subordinate,” says Srivastava. “This effect can occur when people see themselves as part of a valuable group but worry that others won’t see them that way. This might lead her to undervalue the subordinate’s contributions.”

Srivastava and Sherman analyzed 1,701 full-time employees in the U.S. who worked for a leading firm in the information services industry between 2005 and 2009. The researchers had access to complete employment data: salary, reporting structure, annual performance evaluations, and demographic information. For example, the average age of employees was 43; average length of employment was 8.85 years; and merit increases ranged from 3 percent to 5 percent.

The authors conclude that it may be wishful thinking to assume that the gender wage gap will automatically close as more and more women take management positions.

For fundamental change to actually occur, the authors say, the increasing number of women managers must be matched by an organizational culture that is committed to gender equality, fostering initiatives to reduce tokenism, and encouraging women to positively identify with their gender in the workplace.

So, HR leaders, I pose this question to you: Is your organization training its female managers to become agents of change or just cogs in the machine?

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Are ‘Significant’ Changes to Comp Disclosures Coming?

If you believe the good folks over at Towers Watson, then the answer to that question in the headline is a yes. (A qualified yes, but, a yes nonetheless.)

One in three U.S. public companies expect to significantly change their approach to disclosing information on how they reward their executives in the wake of the Securities and Exchange Commission’s proposed pay-for-performance disclosure rules, according to a poll by global professional services company Towers Watson.

The poll also found that a majority of companies are likely to provide additional information and analysis that go beyond what the proposed rules will require.

In case you forgot, back in April, the SEC issued proposed rules to implement the Dodd-Frank provisions that require companies to disclose the relationship between executive compensation actually paid and the company’s financial performance.

The proposal would require company proxy statements to include a pay-versus-performance table and an explanation of the relationship between pay and performance. The Towers Watson poll of 453 corporate executives and compensation professionals was conducted June 4, during Towers Watson’s national webcast on the proposed rules.

According to the poll, 33 percent of respondents expect the pay-for-performance disclosure rule will fundamentally change their approach to executive pay disclosure. More than half of the respondents (55 percent) expect to do more than the minimum that would be required under the SEC proposal: 37 percent plan to disclose additional information and analyses to help tell their pay-for-performance story, while 18 percent will perform and may disclose additional pay-for-performance analyses.

“With the SEC rules on the table, companies can carefully evaluate how they tell their pay-for-performance story to shareholders,” said Steve Kline, a director in Towers Watson’s Executive Compensation consulting group and the practice’s pay-for-performance analytics team leader. “The fact that many companies expect to provide more information than the rules require is encouraging, although for many, the real challenge will be deciding the best way to present this information in their proxies.”

The poll also found that nearly half of the companies (46%) have been waiting for the rules to be issued and now expect to make some changes to their Compensation Discussion and Analysis (CD&A), while one in 10 view this as an opportunity to revamp their CD&A significantly. Additionally, roughly half of respondents (51%) anticipate using the same peer group for their pay-versus-performance disclosure that they use for benchmarking their total compensation.

“While not surprising given the language of the Dodd-Frank requirement, the fact that the SEC proposal defines performance in this disclosure as total shareholder return will put even more shareholder focus on this measure,” Kline said. “However, TSR is only a part of the pay-for-performance story. Companies will want to think carefully about the broader performance picture and how best to help shareholders understand how the pay programs support long-term value creation.”

Indeed, HR leaders will need to be a big part of that thought process around the “broader performance picture” in order to set the right framework to ensure compliance with these proposed changes.

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Employees Treated Pretty Well on Memorial Day

148293872 -- memorial dayHappy Memorial Day everyone! No doubt most of you are not sitting at computers right now, but prepping for some enjoyable barbecued fare and time outside. Regardless, just in case you “stopped by” for a spell, thought you might also be interested in some recent findings on how the American workforce is experiencing the holiday.

According to this recent Bloomberg BNA nationwide survey with accompanying infographic, 97 percent of American employers are providing a paid day off today. (That’s heartening. I honestly thought that number would be lower.)

At the same time, more than two in five employers (43 percent) will require some employees to work on the holiday, and 85 percent of those working today will receive some type of additional compensation.

The most impressive breakdown are the differences among organizations by size and type. According to the survey, 80 percent of large organizations — those with 1,000 employees or more — are requiring at least some employees to work today, compared to only 31 percent of smaller organizations.

Also, interestingly, 59 percent of non-business organizations (hospitals, government agencies and municipalities) are requiring at least some of their people to be on staff, compared to only 35 percent of manufacturers and non-manufacturers.

The lion’s share of workers out there today, the survey finds, are in technical, public safety and security roles, which, along with hospitals, “have always been among the employer groups requiring workers to report on holidays,” says Matt Sottong, Bloomberg BNA‘s managing editor for surveys and research reports.

“A sign of the times,” he says, “is the increase in the number of technical workers, men and women, who keep our servers running and data flowing.” This year, 17 percent of tech workers are on duty today, “a greater percentage than even security and public safety,”  Sottong adds.

Holidays such as Memorial Day “pose a particularly nettlesome problem for employers because of the built-in expectation that the day will be provided as a paid day off,” he says. “When workers are told they need to report, managers should come prepared to offer whatever they can to offset the disappointment.”

Fortunately, most appear to be doing that. According to the survey, only 11 percent of employers are requiring some workers to be on duty at regular pay only.

Still, that is 11 percent. One point over 10. Not the most encouraging research, especially when you consider that only 5 percent of employers are sponsoring any kind of holiday-related events or activities this year.

Hope you’re not one of the Memorial Day scrooges. Then again, you are sitting here reading this when you could be outside tossing Frisbees and flipping burgers.

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Looking to the Future for Total Rewards

It’s been 15 years since the American Compensation Association changed its name to WorldatWork, reflecting the group’s decision to increase its footprint beyond the world of compensation and embrace a broader total-rewards approach.

ThinkstockPhotos-175679126This year, the Scottsdale, Ariz.-based HR association celebrates its 60th anniversary. And with that milestone comes a revamped total-rewards model.

Announced during the opening session of this week’s WorldatWork’s Total Rewards 2015 Conference and Exposition in Minneapolis, the new model now includes the verb “engage” (which joins attract, motivate and retain in describing total rewards’ contribution to the organization) and the addition of “talent development” as a sixth element of the total-rewards strategy.

WorldatWork’s previous model, introduced in 2006, featured the following five elements: compensation, benefits, work/life, performance and recognition, and development and career opportunities.

Anne Ruddy, president and CEO of WorldatWork, noted that the time was right for the association to re-examine its total-rewards model and make it more relevant to the kinds of issues members are facing today.

Models aside, it would seem many of those attending this year’s conference have their sights set on the future. On Monday afternoon, I attended a packed session presented by Steven Gross, a senior partner at Mercer, entitled “Total Rewards 2020: What to Expect in the Next Five Years Based Upon a Lifetime of Experience.”

Five minutes before the session began, attendees were being turned away at the door because the room was already filled to capacity. (Fortunately, for those unable to attend, the session was scheduled to be repeated the following day.)

Gross, who is based in Mercer’s Philadelphia office, gave attendees a quick rundown of the external factors influencing total rewards today, a glimpse of what the future might look like five years from  now and what steps employers ought to take to prepare for that world.

As might be expected, Gross led off his presentation by acknowledging the crucial role changing workforce demographics is playing in shaping the future of total rewards.

“It’s not only about people living longer, but people working longer,” Gross said. “Think about the implications of one quarter of folks over age 65 and 15 percent of folks over age 70 in the workforce”—and the kinds of challenges these changes are going to present to employers.

Generational differences, he said, are also likely to have an impact, as employers face the formidable challenge of addressing “the different sensitivities” of traditionalists, baby boomers, Gen Xers and millennials.

Other external factors Gross cited included income disparities, diversity, globalization and technology.

Gross predicted that, five years from now, companies will be much more focused on “core employees” who are viewed as being crucial to their organization’s success, will continue to put more weight on individual accountability, and will pay greater attention to personalizing rewards to reflect greater workplace diversity.

Going forward, he said, companies will also be much more focused on “best fit rather than just best practice.” (In other words, he explained, does your total-rewards strategy fit the culture of your organization?)

What’s more, he added, do-it-yourself benefits programs will be far more common five years from now, with self-service becoming an even greater fixture of tomorrow’s workplace. (Gross also joined the chorus of those predicting employers will increasingly be getting  out of the “healthcare business.”)

I suppose we’ll know in five years which of Gross’ predictions were on target—and which ones missed the mark.  But of this we can be fairly certain: Tomorrow’s total-rewards landscape isn’t likely to look anything like the one that exists today. As Gross reminded those attending his session, there are simply too many significant forces at work to ensure that that’s the case.

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A Closer Look at Executive Compensation

moneyThe U.S. Securities and Exchange Commission wants the link between executive pay and a company’s financial performance to be clearer.

The SEC hopes it took a step in that direction this week, when it proposed rules that would implement a requirement mandated by the Dodd-Frank Act, obliging companies to disclose that relationship.

According to an SEC statement announcing the proposal, the rules “would provide greater transparency and allow shareholders to be better informed when they vote to elect directors and in connection with advisory votes on executive compensation.”

Firms would be obligated to disclose executive pay and performance information in a table, for themselves as well as a “peer group” of companies, and tag the information in an interactive data format. The table would include data such as:

  • Executive compensation actually paid for the principal executive officer, which would be the total compensation as disclosed in the summary compensation table already required in the proxy statement, with adjustments to the amounts included for pensions and equity awards.
  • The total executive compensation reported in the summary compensation table for the principle executive officer and an average of the reported amounts for the remaining named executive officers.
  • The company’s total shareholder return on an annual basis.

On the heels of the SEC announcement, National Public Radio’s Jim Zarroli summed up the proposal more succinctly.

“The rule grew out of the 2010 Dodd-Frank financial overhaul bill,” said Zarroli, a business reporter with NPR. “And it simply says that companies have to disclose whether executive pay is in line with their financial performance.”

This information “is already available for people who want to pore through financial reports,” he added. “The new law would simply require companies to put it in a form that’s easier for shareholders to digest.”

Zarroli called the rule “the latest attempt by regulators to address soaring corporate pay,” but also noted some compensation consultants’ skepticism toward the proposal, and said it’s unclear what if any bearing the law would have if approved.

SEC Chairwoman Mary Jo White, meanwhile, seems optimistic about the rule’s potential impact.

“These proposed rules would better inform shareholders,” said White, in the aforementioned statement, “and give them a new metric for assessing a company’s executive compensation relative to its financial performance.”

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$70,000: The New Minimum Wage

By now, you’ve likely heard of Gravity Payments’ CEO and Founder Dan Price, who set off the latest salvo in the wage wars when he told his 120-person staff that he would raise the salary of even the lowest-paid clerk over the next three years to a minimum of $70,000.

According to the New York Times‘ piece, Price, who started the Seattle credit-card-payment processing firm in 2004 at age 19, said he would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 percent to 80 percent of the company’s anticipated $2.2 million in profit this year.

The paychecks of about 70 Gravity workers will grow, with 30 ultimately doubling their salaries, according to Ryan Pirkle, a company spokesman. The average salary is $48,000 a year.

While Price’s audacious move may not have many companies following in its path, it at least speaks to an economic issue that has captured national attention in the years since the recession: The disparity between the soaring pay of chief executives and that of their employees.

 Indeed, in an essay published recently by Politico Magazine, venture capitalist Nick Hanauer warned that the widening income gap in the United States would eventually spark a violent revolution:

“No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out.”

But, according to the Huffington Post,  rather than see this as a charitable offer to his workers, Price sees the pay raises as an investment. In theory, workers motivated by higher salaries will ultimately attract more business and handle clients better.

“This is a capitalist solution to a social problem,” Price said. “I think it pays for itself, I really do.”

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What’s On CFOs’ Minds These Days?

CFOHow are chief financial officers in North America feeling these days? They’re concerned, but fairly optimistic on matters such as hiring and their company’s growth prospects, according to Deloitte’s latest CFO Signals survey, for the year’s first quarter.

Gyrations within the global economy — particularly China and Europe, along with the strengthening dollar — have the 100 CFOs from North America’s largest companies concerned, yet most feel positive about their company’s prospects for growth this year. Forty eight percent expressed improving optimism while only 14 percent expressed declining optimism.

Domestic hiring expectations among the CFOs rose to 2.4 percent, up from the previous quarter’s 2.1 percent. CFOs in the energy/resources industries are the most optimistic at 4 percent, while manufacturing CFOs have the lowest optimism, at 0.5 percent. Meanwhile,  optimism on offshore hiring rose to 3.1 percent from the previous quarter’s 2 percent.

Shareholder activism is a big concern, with close to three-fourths of the CFOs saying they have experienced some form of shareholder activism. About half said their companies have made at least one major business decision specifically in response to such activism. As noted in this story, some investors are specifically targeting companies’ executive-pay practices — particularly when they feel pay and severance are way out of line with performance and with the median pay received by employees.

Finally, China appears to have definitely lost its luster: Only 18 percent of the CFOs describe China’s economy as good, compared to 34 percent in the last quarter. And only two percent describe Europe’s economy as good — and just 10 percent expect it to improve in the next year.

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CEOs Pay the Price for Scandal

CEO payWhether it’s a companywide pattern of unseemly actions or one rogue employee’s dirty deeds, corporate misconduct happens.

And, when it does, the chief executive has to answer for it.

Theoretically, anyway. But how do you hold CEOs accountable for ethical breaches—and deter future lapses—that occur on their watch?

One way is to hit them in the wallet, in the form of reduced salaries or forfeited bonuses, for example.

Earlier this week, the Wall Street Journal suggested that more boards are taking that route, in a piece highlighting a few prominent examples of CEOs who have recently seen their compensation cut in the wake of scandal (subscription required).

For instance:

  • The board of directors at GlaxoSmithKline cited the settlement of bribery charges in China (and the company’s sinking profits) when it slashed CEO Andrew Witty’s pay nearly in half.
  • Rolls-Royce Holdings chief executive John Rishton saw his salary cut last year amidst a series of bribery and corruption scandals that continue to plague the company.
  • Faced with sliding profits and a spate of compliance issues, soon-to-be former Standard Chartered CEO Peter Sands recently announced he would forego a bonus reportedly in the neighborhood of $6 million.

Richard Leblanc, an associate professor of governance, law and ethics at York University, told the Journal that affecting executives’ pay incentives is “the best way to control management” in terms of preventing bad behavior and unsavory business practices.

In the same piece, Leblanc says boards are taking an increasingly unforgiving stance on such transgressions, withholding CEO pay and vesting of equity as part of a broader trend of “risk-adjusted” compensation.

In some cases, chief executives may be forced to fall on their swords even if untoward behavior took place before he or she took over the top spot.

In fact, CEOs should be prepared to do just that, according to Alan Johnson, managing director of compensation consulting firm Johnson Associates.

“It may not be your fault,” Johnson told the Journal. But “the lesson for executives is to expect it.”

Johnson urges CEOs to “get out ahead of the board” and actually volunteer to have their pay cut or to waive a bonus in such a situation.

“It’s probably going to happen anyway,” he said, “so why go through the pain of [the board] having to agonize over it?”

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The Push for Gender Wage Equality

On the heels of Patricia Arquette’s call for wage equality at last Sunday’s Academy Awards ceremony, Arjuna Capital issued a press release yesterday referencing Arquette’s remarks and calling attention to eBay’s decision to oppose the wealth-management GettyImages_478267645firm’s gender-pay-transparency proposal.

Could proposals like this one be a preview of things to come? I would think many HR leaders probably hope they won’t be.

Here are some specifics from the Arjuna’s release …

“eBay’s Board has committed to publicly oppose a shareholder proposal filed by Arjuna Capital … requesting eBay publicly report the pay disparity between male and female employees and set goals to close the gap.

This is the first year the issue of gender wage equality has been put to the proxy ballot of a U.S. corporation and the Company’s opposition comes in the face of public outcry and regulatory efforts … .

The eBay Board has stated that it believes that implementation of this proposal is not in the best interests of eBay and its stockholders.”

Arjuna’s proposal calls for eBay to issue a report that would be “adequate for investors to assess eBay’s strategy and performance” and “would include the percentage pay gap between male and female employees, policies to improve performance and quantitative reduction targets.”

In case you’re not familiar with Arjuna (I certainly wasn’t), here’s a snippet from its website …

“Our mission is twofold: Through our research and activism, we seek to advance the understanding of what sustainability means for investor returns and corporate profitability.

We bring the fruits of those efforts to our clients in the form of the most diverse, sustainable, profitable and suitable investment opportunities on offer.

We work to build and preserve our clients’ wealth while serving the common good through enlightened engagement in the capital markets.”

In its response to Arjuna, eBay wrote …

“We remain committed to our ongoing efforts to promote diversity in the workplace and strongly believe we continue to make demonstrable progress in building a diverse eBay. As such, the Board feels that 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.”

Natasha Lamb, director of equity research and shareholder engagement for Arjuna Capital, said the eBay proposal is Arjuna’s first and only attempt to seek information on pay gaps. “But our goal,” she explained, “is to invest in companies committed to the innovation and success diversity fosters, and we intend to continue to seek more transparency on these issues.” (She said she’s heard similar proposals, independent of Arjuna, were sent to the boards of ExxonMobil and Wal-Mart for the current proxy season.)

Lamb said she was surprised by the board’s opposition, since the eBay proposal is clearly in the interest of enhancing shareholder value.

Of course, not everyone agrees that would be the case.

Yesterday afternoon, I spoke with Alan Johnson, managing director of Johnson Associates, a New York-based compensation-consulting firm, who told me he wasn’t at all surprised eBay’s board would reject the proposal.

“In terms of eBay,” Johnson said, “the assumption is being made that the jobs are the same, but the reality is that that may not be the case. eBay, for instance, may have a big call center staffed by females. If that’s true, it would skew all the numbers.”

Johnson noted that the Arjuna proposal is an attempt to put “a lot of pressure on fixing something that may not be correctable” and could ultimately “do a lot of harm” by encouraging employers like eBay to offshore jobs or hire part-time workers.

Apparently not one to mince words, Johnson described the effort as “naïve” and a “big, expensive distraction.”

Like I said, not everyone agrees the proposal is a good idea.

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Promotions on the Rise

If this isn’t a sure sign of an ascendant economy, then I’m not sure what one is: The percentage of employees receiving a promotion on an annual basis has increased from 7 percent to 9 percent since 2010.

This is according to a new survey titled “Promotional Guidelines” conducted by WorldatWork, a nonprofit human resources association and leading compensation authority based in Scottsdale, Ariz.

The association conducted the 2014 survey — its fourth such survey — of its membership to better understand the trends in promotional guidelines.

The survey focuses on a variety of practices and policies including what employers consider to be a promotion as well as the standard pay increases that often accompany promotions. WorldatWork conducted similar compensation practices surveys in 2012, 2010 and 2006.

“The steady upward trend of employee promotions mirroring the economic recovery is further evidence that organizations are relaxing their budget purse strings,” says Kerry Chou, WorldatWork senior practice leader. “While the gradual trend is good news, the data also suggests that employee vacancies are helping employers foot the bill for these promotions.”

Additional highlights from the 2014 survey include:

  • Less than half (42 percent) of responding organizations budget separately for promotional activity.
  • In order to define employee movement as a “promotion,” 77 percent of responding organizations require higher-level responsibilities and 75% require an increase in pay grade, band or level.
  • 63 percent of respondents said their organization does not feature or market promotional opportunities or activities as a key employee benefit when attempting to attract new employees.
  • More than 60 percent of workforces consider their organization’s promotional opportunities to have a positive effect on employee engagement and employee motivation.
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