Category Archives: compensation

Gap Bets on a Higher Hourly Wage

Everyone’s talking about the recent Congressional Budget Office report that estimated raising the nation’s minimum hourly wage to $10.10 per hour by 2016 could potentially eliminate 500,000 jobs, or about 0.3 percent of total employment. Opponents cite the 500,000 number, while supporters note that the report also estimated the higher wage would increase the incomes of 16.5 million low-wage workers in an average week.

San Francisco-based Gap Inc. isn’t waiting around — yesterday, CEO Glenn K. Murphy announced in a letter to the company’s employees that it would set the minimum hourly rate for its U.S. workforce at $9.00 per hour this year and establish a minimum of $10 per hour next year. “Our decision to invest in front-line employees will directly support our business, and is one we expect to deliver a return many times over.”

Murphy ended his letter with this:

The people in our company who engage directly with our customers carry an incredible responsibility. Our success is a result of their hard work, love of fashion and commitment. We hope this decision provides them with some additional support as they grow their careers with Gap Inc.”

According to a story in today’s New York Times, at Murphy’s previous position — CEO of Canadian pharmacy retailer Shoppers Drug Mart — he discovered that paying the chain’s hourly employees a higher wage than its competitors resulted in greater productivity per worker.

Gap employs 65,000 people in the United States at its Gap, Banana Republic, Old Navy and other stores. The company has not taken a public position on whether the federal minimum wage should be raised.

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The G Quotient: Why Gay Executives Excel

I was intrigued to find a book review in an academic journal about a study that was done all the way back in 2006 on the dearth of gay executives in corporate America. Intrigued on two 454213821 -- Letter Gcounts actually: 1) that I had never heard of this study and 2) that the review was appearing so long after it was conducted and published. Well, it turns out, the answers to both are kind of interrelated.

The very title of the study, and book , by Kirk Snyder, a professor at the Marshall School of Business at the University of Southern California, says a lot — The G Quotient: Why Gay Executives are Excelling as Leaders … and What Every Manager Needs to Know. The findings are also substantive and compelling: As Snyder was studying employee engagement, he noticed that employees of gay executives often had higher levels of job satisfaction than employees of other leaders.

“What he noticed was a connection between some characteristics of gay male executives and what were considered desirable [business leadership] principles, including diversity, creativity and emotional intelligence,” writes Irene F. Stein, an associate core faculty member at the University of the Rockies, in her book review (same title as the book) that appeared in the November 2013 issue of the Journal of Psychological Issues in Organizational Culture.

Snyder then explains the reasons he thinks many gay executives operate naturally under what he has named the “G Quotient” — seven principles of leadership he found he could actually measure using a simple assessment: inclusion, creativity, adaptability, connectivity, communication, intuition and collaboration.

“Much of the connection [between gay business leaders and these seven principles] stems from growing up knowing they are different, and having to adapt to the realities of their environment to feel safe,” Stein writes. “Consequently, gay men develop three fundamental learned skills — adaptability, intuitive communication and creative problem solving — skills that are often demonstrated by gay executives.” Not to mention effective leaders.

So why did Kenneth Sherman, editor-in-chief of JPIOC, assign this fascinating book review to Stein some eight years after Snyder’s study and book publication? Because, as he told me when I called him, too few people have heard about it (myself included). More importantly, at the time it was written, no Fortune 500 CEOs were openly gay and “I still haven’t heard of a single CEO coming out since.”

So does Sherman think corporate America actually needs this infusion? Well, yes, he does. But it goes beyond simply being gay. He says the real message here for employers and HR leaders is that gay business leaders’ effective leadership skills come from the ways in which “they developed their own pathways of adult development and [the fact that] the things they may have encountered at various stages of their lives have predisposed them to certain sensitivities that aren’t really negative things, but positive things.”

If more top business leaders would “simply go around the room” at the next staff or business — or even executive-leadership — meeting and “hear their people’s stories about the challenges of their lives and the things they have rebounded from and now champion,” he says, “the business world would be less rigid,” and all employees would be more engaged and satisfied.

“And guess what,” he says, “companies are going through difficult and strenuous times too.” In other words, he explains, the dialogue could go both ways and workforces would be connected and more productive in ways we can only imagine at this point. “Change,” he says, “comes in small increments.”

I called Stein, too, just to get her take. She says she agrees with Snyder “that the more we can accept everyone’s perspective, including gender identification, the better it will be for business.”

To her, she says, “it’s really the same kind of thing with what women can bring to the workplace … kind of having a more holistic view of employees [and business leaders] and wanting them to bring their whole selves” to work.

I guess considering Stein’s point about women, Sherman’s “small-increments” reference makes sense. Look how long it’s taken us to fully incorporate women into the workplace. And we’re still not there yet, not in terms of pay equity, executive ranks, board representation … or, yes indeed, female CEOs.


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HR Plaintiffs Build Their Case Against Lowe’s

Worker misclassification is back in the news again, this time with Lowe’s Home Centers the center of attention.

Lowes_Sanford_Opening1-330x500Earlier this month, U.S. District Judge Virginia M. Hernandez Covington conditionally certified as a nationwide class a lawsuit brought by former Lowe’s employees, stating that the suit sufficiently showed that Lowe’s misclassified Lizeth Lytle and similarly situated workers and failed to pay them “the FLSA-mandated time-and-a-half hourly rate for any hours worked beyond 40 in a week, even though the workers lacked discretionary authority over hiring, firing and supervising other employees.”

In the complaint, the plaintiff asserted that Lowe’s …

… willfully and intentionally engaged in a nationwide pattern and practice of violating the provisions of the [Fair Labor Standards Act (FLSA)], by misclassifying Human Resources Managers as exempt under the FLSA overtime wage provision, thereby improperly failing and/or refusing to pay [Lytle] and the Plaintiff Class, comprised of all current and former similarly situated employees who work or have worked over forty (40) hours per week, overtime compensation pursuant to FLSA [29 U.S.C. §§ 206-207].

Of course, cases involving the misclassification of workers aren’t uncommon. But what’s particularly interesting about this suit—which was initially filed in August 2012—is that it involves at least 1,750 HR managers who claim “they weren’t actually managers and were willfully misclassified as exempt from overtime pay requirements.”

I recently spoke with Thomas Lewis, an attorney with Stevens & Lee in Princeton, N.J., about the significance of this case. As might be expected, he immediately pointed to challenges that could easily arise in a case involving HR professionals as the plaintiffs.

“What makes this particularly interesting isn’t just that there’s potentially a Fair Labor Standards Act violation here, but that it’s always difficult when the plaintiff is an HR professional,” Lewis said. “You have to be very careful when the plaintiffs are in HR, because they know all of the hidden secrets of the company and can therefore be ferocious plaintiffs.”

We’ll obviously have to wait and see how this case plays out. But some experts believe it also serves as an important reminder that HR departments aren’t immune from overtime lawsuits.

In a blog post, David L. Barron, an attorney in Cozen O’Connor’s Houston office, writes …

Many exempt HR personnel do not qualify for the executive exemption because they do not directly supervise two or more full-time employees. The administrative exemption, which likely would apply to HR staff, can pose challenges in ligation because it revolves around the level of discretion enjoyed by the employee (which can be subjective). Prudent employers should make sure to keep records of exempt HR employees being involved in hiring, firing or discipline of employees. Keep in mind that the law does not require the exempt employee to have final authority to make decisions, only that he or she be allowed to make recommendations which are given substantial weight. Keeping such records will make it very difficult for the exempt employee to sue for mis-classification and overtime.”

Certainly that’s sound advice in any setting, but especially for those cases involving HR as the plaintiff.

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Shareholders Say ‘No’ to Oracle CEO’s Payday

EllisonOracle Corp. wants to pay its founder and CEO Larry Ellison a pay package worth $78.4 million, but its shareholders have just voted “no” by an overwhelming margin. In fact, it appears that 80 percent voted against the package, if you strip out the 25 percent of company shares owned by Ellison, writes exec-comp observer Steven M. Davidoff, a professor at Ohio State’s Moritz College of Law.

That’s not to say Ellison won’t end up getting the enormous package anyway — after all, the Dodd-Frank provision granting shareholders a say-on-pay vote on executive compensation is nonbinding. But the Oracle vote is striking nonetheless, Davidoff writes, because in most cases shareholders nearly always vote to approve CEO pay packages. In fact, as of August 99 percent of Fortune 500 companies had their pay packages approved by shareholders, according to Towers Watson.

In Oracle’s case, shareholders were encouraged to vote no by Change to Win, a union-affiliated organization that seeks to draw attention to what it says is outrageously exorbitant CEO pay that is not sufficiently tied to company performance. Ellison’s pay far exceeded that for executives at peer companies such as Google and Microsoft, Change to Win noted. Ellison’s compensation was not based on incentives that require Oracle to outperform its competitors, Davidoff writes. Instead, it is linked to Oracle’s stock price — unlike at other companies, which grant incentives in the form of restricted stock to ensure pay is less affected by gyrations in the stock market that may have nothing to do with a company’s actual performance, he writes.

Say-on-pay has tripped up other companies. One of our recent HR Honor Roll winners, Paul McKinnon, had to deal with a negative vote from Citigroup shareholders last year on the pay package for former CEO Vikram Pandit. McKinnon helped lead an outreach to shareholders, who this year granted a 91-percent favorable vote for Citi’s exec-comp package. Although say-on-pay votes aren’t binding here in the States, that’s not the case in some European countries. And, experts warn, it may take only a few more examples of egregious CEO misconduct or another economic downturn to make it binding here, as well.

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Severance Without the ‘Sweetener’

Ever said or written something you wished you could take back? Then you probably have some idea how Lucy Adams might be feeling right now.

200275121-001In Adams’ case, it’s the word “sweetener” that’s currently plaguing the BBC HR director. If you’ve been watching the news lately, you know that current and former BBC officials were grilled earlier in the week by the MPs on the House of Commons Public Accounts Committee over controversial severance payments that were made to senior managers who were terminated between 2005 and 2013. Many of those payments reportedly exceeded what was spelled out in their employment contracts.

One of those officials marched before the committee is Adams, who is accused of using the word “sweeteners” to describe the payouts.

Here’s how the Guardian describes the hearing …

At Monday’s hearing Adams said she could not recall using the word ‘sweetener’—which she described as a ‘strange term’—when asked repeatedly by Stephen Barclay, the Conservative MP and PAC committee member who obtained the email.

However, when the MP said it came from a leaked email in his possession, she conceded: ‘I may have used the term by means of an incentive to get to a swift resolution.’ ”

In the Guardian story, Barclay is quoted describing the term as a “ ‘damning illustration of the attitude at the top of the BBC’ towards six- and seven-figure payouts to departing executives” and shining “a light on the real culture of the HR department which saw payments [that went beyond] contractual terms as simply perks of the job.”

According to the piece, Adams “denied that she had instructed HR staff to be lax about paying handsome severance deals in an effort to reduce the senior-management headcount at the BBC.”

As a result of the uproar over her alleged role in the matter and her choice of words, some have called for Adams to immediately step down from her role as the BBC’s HR chief, in advance of her recently announced departure next April.  Accusations by the MP against Adams, who has headed HR at the BBC since 2009, reportedly brought cheers to the BBC newsroom.

I imagine it hasn’t been one of the better years for the BBC HR chief, especially the last week or so. But I think  a strong case could also be made that BBC controversy—and the principal role Adams is alleged to have played in it—hasn’t done the HR profession as a whole any favors either, at least not in the U.K. (Here’s a slightly over-the-top-piece that appeared in the Telegraph.)

I’ve come to appreciate many of the British TV sagas that have made their ways to U.S. shores, like Downton Abbey and State of Play. But this is one real-world drama we all probably would have been better off without.

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Fast-Food Workers Strike Again

Even on a normal day, you’re not likely to find me frequenting a fast-food restaurant. But yesterday seemed like a particularly good day to stay away.

By now, you’ve no doubt heard that workers at fast-food restaurants such as McDonald’s, KFC and Burger King in nearly 60 cities (ranging from Atlanta and Kansas City to Springfield, Ill., and San Lorenzo, Calif.) walked out of their establishments in protest over low pay. The workers are seeking a boost in their hourly wages to $15 an hour. (According to the Service Employees International Union, the average pay of these workers is around $8.94 an hour—though many earn the federal minimum wage of $7.25.)

148115569Though similar walkouts by fast-food workers occurred over the past year, this is reportedly the largest. (In case you’re wondering, the Bureau of Labor Statistics reports there were 19 major strikes and lockouts involving 1,000 or more workers lasting at least one shift in 2012, unchanged from 2011.)

USA Today reports that, in Detroit, a dozen workers didn’t show up for their shift at a McDonald’s on 8 Mile Road, forcing the closure of the dining room there, while another protest took place at a McDonald’s on West Grand Boulevard. About 30 workers in Raleigh, N.C., meanwhile, picketed outside a Little Caesars.

In New York and Chicago, Bloomberg reports, “passersby demonstrated little support for the workers and there were comments about $15 an hour being too high for entry-level jobs. Moments after protesters left a Wendy’s in downtown Manhattan, about 20 people piled into the store for lunch. When chanting strikers entered the Chicago McDonald’s, workers continued to pour coffee and bag food for a throng of customers.”

If one of the strikers’ goals is to have their voices heard, they definitely succeeded. Pretty much every mainstream news outlet in the universe picked up on the story. Still, few expect these workers are going to see $15 an hour wages anytime soon. “This is a more widespread [action] and involves more cities,” says Sonya Madison, an attorney with Counsel on Call based in Atlanta. “But I do think the results may be similar to before, in that you’re dealing with franchises, which aren’t making millions of dollars. It’s going to be difficult for them to raise wages.”

If there’s a change, Madison adds, “it’s going to occur on the legislative level.”

As most of you know, President Obama pushed to raise the federal minimum wage to $9 an hour (the last time the minimum wage was increased was in 2009). But with stiff resistance in Congress, that probably won’t happen anytime soon as well.

Happy Labor Day, BTW.

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Shareholders Shift Their Focus

It’s been widely reported that companies have fared quite well as far as Say on Pay votes have been concerned. Indeed, Semler Brossy Consulting Group reports that, as of April, 94 percent of employers have passed such a vote (with a 70 percent approval rating).

Say on PayTo be sure, that’s good news for companies and their comp committees. But it does raise the question:  Who’s failing?

According to researchers at Towers Watson, the answer: smaller companies.

While key shareholder voting outcomes have improved very slightly for the Russell 3000 overall, the analysis found, smaller companies are failing their Say on Pay votes at almost twice the rate as last year. (Towers Watson defines failures as receiving Say on Pay support from less than 50 percent of the votes cast.)

In an article posted Monday on Towers Watson’s website, the authors note:

Through May 24, a total of 27 Russell 3000 companies received failing Say on pay votes from their shareholders. Only two are in the S&P 500. Companies outside the S&P 1500 … accounted for almost two-thirds (63 percent) of the failures. Last year, these smaller companies accounted for only 31 percent of the Russell 3000 failure.”

James Kroll, a senior consultant at Towers Watson and one of the article’s authors, said he isn’t surprised to see shareholders start to shift some of their attention to smaller companies. “We’re most of the way through proxy season and we’ve seen a refinement of efforts at the largest companies—so it’s natural that the focus would start to shift downward in terms of company size,” he said.

In light of this, Kroll said, smaller companies might want to take some cues from their larger peers, including revisiting their disclosures and fine-tuning their messaging so shareholders have a much clearer picture of what’s happening.

Put simply: Be more engaged with your shareholders, something many larger companies have  gotten much better at.

And if you’ve failed a vote? “Shareholders,” Kroll said, “are going to be looking at how you’ve responded … .”  In terms of responding, he adds, some companies are doing a better job than others.

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It’s Not (Just) About the Money

rewardsFrom our neighbors to the north comes some insight into what employees really want when it comes to rewards and recognition. Spoiler alert: it’s not money.

Well, it’s not just money.

Ceridian Canada’s Pulse of Talent 2013 survey recently asked more than 800 employees from three generations—baby boomers, Generation X and Generation Y—for their perceptions of job security, technology, performance reviews, job recognition and career satisfaction.

When discussing the rewards they would like to see their companies offer, the majority of respondents in each group said they would prefer non-monetary awards. Seventy-four percent of Generation Y employees indicated as much, with 65 percent of Gen Xers and 56 percent of boomers saying the same.

What specifically would they like to receive for a job well done?

Preferred non-monetary awards included:

• Free personal days off (37 percent)

• Free food/meals (20 percent)

• Event tickets (19 percent)

• Club memberships (17 percent)

• Technology resources (15 percent)

An iPad, the occasional comp day or tickets to the ballgame, however, may not be enough to hang on to your talent. Indeed, 29 percent of surveyed employees who said they expect a salary increase, bonus or promotion within the next year said they would look for other opportunities if they didn’t receive one. And, take special note if your workforce skews younger: That number jumped to 52 percent among Gen Y respondents.

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Say-on-Pay Movement Growing Globally

Momentum continues to build in the European Union to give shareholders greater powers of oversight on executive-pay practices.

166843264 -- globe and moneyA release from New York-based Mercer announcing its latest perspective on the topic details some of what’s going on “across the pond”: In the United Kingdom, binding say-on-pay votes will be implemented starting in October; in Switzerland, a March referendum to introduce binding say-on-pay votes was just supported; and, with similar measures being discussed in France, German and Spain, the EU is planning to introduce legislation later this year to require all 27 EU countries to implement mandatory, binding say-on-pay votes. (The link takes you to Mercer’s “Perspectives” landing page; the April special issue, Executive Pay Regulation: The Potential Impacts of Proposed European Reforms, is at the top right.)

As the perspective notes, there’s a certain European “hardening of attitudes” going on:

The political impetus to regulate executive pay has accelerated in Europe. Recent regulatory developments that would give shareholders greater oversight of executive pay and cap bonuses in the financial services sector, reflect a hardening of attitudes among European politicians and the public. In an era of low or nonexistent economic growth, consumer price inflation, and falling average real wages, executive remuneration will continue to be a sensitive issue.

This is particularly true in the banking sector, where the continued payment of bonuses, in the face of taxpayer-funded bailouts and revelations such as the Libor fixing scandal in London, has sparked outrage. But with other countries and regions taking a less prescriptive approach, an unlevel playing field is emerging and may result in executives leaving the EU for less regulated markets.

These proposed regulations, which have, for the most part, been supported by shareholders, will nevertheless require them to be more active in their oversight of executive pay. One consequence of this greater investor workload may be to extend the influence of proxy advisory firms.

The piece goes on to note exactly what’s going on globally, including in the United States, where say-on-pay votes are still non-binding but have, nonetheless, “influenced executive pay practices [by eliminating] many problematic practices and [increasing] shareholder-engagement efforts.”

Indeed, in this blog post written by Senior Editor Andrew R. McIlvaine about a session at the recent WorldatWork Total Rewards 2013 conference, he goes into much more detail about some of the ways say-on-pay is impacting — pro and con — the business community.

One of the most notable quotes in his post comes from John England, managing partner of Philadelphia-based Pay Governance, who fears what the European binding-vote wave landing on U.S. shores might mean. (He is clearly not a fan.)

“When CEO pay escalates sharply against average worker pay, it will inflame things,” England says in the post. “I do believe we are just one or two scandals away from the prospect of a binding say-on-pay law … in this country.”

What are employers to do with this information? I ran that by two Mercer thought leaders. Here’s what they both had to say. First from Vicki Elliott, Mercer’s senior partner and global financial-services consulting leader:

Companies should not let tighter regulation in financial services and other sectors define their objectives for compensation and talent-management effectiveness. Be creative and don’t succumb to a one-size-fits-all. Companies will [also] need to rethink their employee value propositions and the power of non-pay methods — it can no longer be all about pay.

And from Gregg Passin, senior partner and executive rewards leader for North America:

As say-on-pay develops, it is very important to simplify and clearly communicate remuneration strategies and programs to shareholders. It is [also] likely that there will be more focus on building talent from within so processes for managing talent pipelines such as succession planning and career development will be critical.


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Some Cool Philly-isms at Total Rewards

I witnessed two distinct ties to my City of Philadelphia just now while covering WorldatWork’s Total Rewards 2013 conference. Both occurred back-to-back, but it was the latter that convinced me it just might be worth sharing.

152178005--ben franklinOn leaving a session titled Tales from the Trenches: Managing Executive Performance Share Programs, I couldn’t help but notice the conference snack of choice — in fact, the sole snack for this session break — was an assortment of Tastycakes: krimpets, cupcakes, juniors, pies, etc.

For those conference-goers who appeared caught somewhere between bemused, confused and impressed, I proudly shared that the Tasty Baking Co., makers of the treats before them, hailed from this fine city (birthplace of both my sons, though I chose not to share that part with them). Anyway, nice touch, WorldatWork!!

Moments before, at the session mentioned above, moderator James C. Heim, managing director at Pearl Meyer & Partners, was serving as the go-between for Walter Cox, senior manager of executive compensation at Raytheon, and Carley Finkenthal, executive compensation leader at United Technologies Corp. The stories from both panelists on the decisions made and the lessons learned surrounding their performance-share and compensation programs was compelling and seeds for a story down the road — perhaps on our website, perhaps in HRE.

But it was Heim’s wrap-up witticisms that caught my ear and reminded me (and everyone else) what city we happened to be in. Using actual quotes from Philadelphia’s greatest claim to fame, Benjamin Franklin, Heim interpreted each one as if Franklin were alive and well and … well, moderating the panel himself. Here’s “Benjamin Franklin’s Roadmap for Success” as delivered by Heim and designed to make you a better executive-comp guru:

“When in doubt, don’t.” Do not implement a performance-share program if it is not administratively possible to do so.

“Be slow in choosing a friend, slower in changing.” Beware how far down you want to drive performance and be very careful in considering eligibility.

“Well done is better than well said.” Select performance metrics that are demonstrably correlated with long-term shareholder value creation. It’s better to have measures that drive value than measures that are easily explained.

“We must, indeed, all hang together or, most assuredly, we shall all hang separately.” Compare your proposal to industry prevalence data — is it different because it’s better or is it just different? And if it’s better, then don’t be afraid to follow your own lead.

“Being ignorant is not so much a shame as being unwilling to learn.” Model your proposed executive-compensation plan under a variety of scenarios — both proactive and reactive — to better understand the impact of your proposal across a variety of performance scenarios.

“How few there are who have courage enough to own their faults, or resolution enough to mend.” Revisit your plan periodically, and fix it when it needs fixing.

Remember, Heim said, “changing plans sends a powerful message” to the company and to the outside world that you’re on to something bigger and better, and carefully laying out new plans.


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