Posts belonging to Category compensation



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.

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.

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.

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.

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.

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.

 

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.

 

Troublingly Different Reward Strategies Emerge at WorldatWork

Balancing the AccountsInteresting — some might say disturbing — juxtapositions came out of two different sessions this morning at the first full day of the WorldatWork Total Rewards 2013 conference in Philadelphia.

One, an inspiring keynote address by author and networking expert Mark Scharenbroich, challenged all rewards and HR professionals in the room to get better at making authentic connections with the people they want performing for them.

Author of Nice Bike: Making Meaningful Connections on the Road of Life, Scharenbroich punctuated his points with personal stories from both his life and his work, as well as anecdotes from organizations he has worked with. Throughout his compelling presentation, the message was clear: “Embrace your journey [as HR and rewards professionals] with a passion to serve others — when you do that, people will follow.”

He also noted that “every problem is an opportunity to engage and connect with customers” inside and outside of your organizations.”

Scharenbroich accentuated employees’ needs — everyone’s needs, for that matter — to belong to a group or a cause; that “people will stay where they feel appreciated, recognized and part of the game.”

But in their session directly following the opening keynote, Jay Schuster and Patricia Zingheim, of Schuster-Zingheim & Associates Inc., cited their yet-to-be released research on What CEOs Want from Total Rewards as proof positive that, if you ask the bosses of HR and rewards professionals, as they did, you’ll find they want their rewards programs to be centered on nothing of the kind.

What CEOs want, they said, are proof of individuals’ value in terms of business goals. As Schuster put it early into the session, “If you’re here to hear about pet insurance, you came to the wrong session.”

According to their research, he said, an impressive majority of the CEOs they interviewed (I plan to write about this later and supply all the numbers from their report) “aren’t even interested in best practices and benchmarks” — they don’t want all the paperwork HR comes in with “frequently changing definitions and the wording of performance management and what it needs to consist of.”

They simply want HR to focus on results that make good business sense and compensation plans that reward the individuals and the behaviors and the results that will take them in the direction they want to go.

And more alarmingly, the CEOs they interviewed don’t feel HR executives are delivering on that, not really in the least.

“They think we’re becoming shoe-shiners, not adding real value to the business,” Schuster said.

One good pointer the two did share was that giving company stock to high-performers was very attractive to the CEOs they interviewed. They considered it, in Schuster’s words, “a piece of the pie and a fraction of the action [as opposed to] giving teddy bears.”

So what’s the joint message here for HR and rewards professionals? Obviously, your approach will be your own; just know this indication from CEOs suggests it should be customized in terms of adding value to the business you’re in, not the businesses you’ve studied or benchmarked. One tech company Schuster-Zingheim studied, for instance, adopted a multiple-tier workforce, with three-to-five-year work agreements for core professional talent, keeping pay and benefits in transition as performance is proven. It worked, and continues to work, for them.

Zingheim’s checklist for drafting your own rewards program includes:  How does a program change reflect real business success? Does it add value to the business? Is it cost-effective compared to other organizations? Does your reward structure help to upgrade the performance of your organization? (The list goes on; to be continued when I take this up again.)

Also, the two stressed, take chances. “If you’re going to err,” said Schuster, “err in favor of best performers.”

Not-So-Free Lunch

free lunchConsider this a heads-up for the companies offering free meals to employees on campus: The Internal Revenue Service may be coming for its piece of the pie.

That’s according to a recent Wall Street Journal article, which says the IRS is examining whether the free food enjoyed by employees is a fringe benefit on which they should pay additional tax.

What’s piqued the taxman’s interest, it seems, is why grub is being provided gratis to employees. Or at least how firms describe their reasons for doing it.

According to tax rules, offering free food as a way to promote morale or attract prospective employees is considered taxable compensation. The Journal article notes, however, an exception that allows employee meals to remain untaxed if they are served for a “non-compensatory” reason for the “convenience of the employer.” This exception has typically been applied to remote workers, or those in professions in which reasonable lunch breaks aren’t feasible.

According to the Journal piece, though, some attorneys argue that various technology firms could qualify for the exception, “in part because free food encourages longer work hours and is a crucial part of Silicon Valley’s collaborative culture.”

University of Florida tax-law professor Martin J. McMahon doesn’t go for that idea at all. He thinks employees at companies such as Google—famous for the elaborate and eclectic culinary options it makes available to its people—should be paying their share.

 “I clearly think it ought to be taxable income,” he told the paper.

“I buy my lunch with after-tax dollars,” says McMahon, who contends that free meals should often be considered part of compensation packages. “And I have to pay taxes to support free meals for those Google employees.”

(Curious how much a food tax would cost the average Googler? Assuming a fair-market value of between $8 and $10 per meal, a Google employee eating two meals on campus each workday could be looking at taxes on an extra $4,000 to $5,000 a year, according to the Journal.)

The IRS may share McMahon’s opinion, and “often takes a dim view” of employers’ claims that free food is integral to maintaining a collaborative corporate culture, according to employment-tax attorney Thomas M. Cryan Jr., a shareholder with Washington-based firm Buchanan Ingersoll & Rooney.

Cryan Jr. told the paper that he’s worked on audits for multiple Silicon Valley-based tech firms, and has seen the IRS question companies’ practices surrounding complimentary meals.  He offered a few words of caution:

“If they’re in there auditing, and you’re not taxing the meals, they’re going to challenge you on it.”

Employers, he says, typically settle and determine a fair-market value for the meals, which they include in employees’ future paycheck stubs. In these instances, firms frequently give employees a bump in pay, to cover their bigger tax bills.

And, a failure to carefully and correctly treat the taxation of employee meals could prove even costlier for the company. While individual employees would technically be on the hook for any unpaid back taxes, experts say the IRS is more likely to pursue the employer for failing to withhold taxes.

Walker’s Future at JCP?

It’s been well reported that CEO Ron Johnson is out at J.C. Penney Co., following the company’s dismal performance since he took over. (Since joining JCP, shares have plummeted more than 50 percent.)

540px-JCPenney_2012_logo.svgSo what does this mean for JCP’s chief talent officer, Dan Walker, who previously served as CTO at Apple during Johnson’s tenure there? Today’s Wall Street Journal is reporting sources as saying that “other Apple veterans at the top of Penney are likely to follow Mr. Johnson out the door.”

Among those “most vulnerable,” the article says, are COO Mike Kramer and Walker. (The Journal reports Kramer and Walker didn’t respond to requests for comment.)

The article also reports:

Many longtime Penney’s employees said they felt that new hires [from Apple] judged them or felt that they weren’t smart. Apple references were constant.”

In Johnson’s case, he’s not going to be leaving with the typical seven-figure package.  “Johnson opted not to enter into a termination pay agreement, according to the company’s latest proxy, which says the former CEO would be entitled only to any unpaid salary and $143,924 from a savings plan and the value of unused vacation,” according to the Journal.

Walker, however, would apparently do a bit better. Forbes reports that the CTO would see about $4 million were he to lose his job without cause.

Some of you may recall Walker topped our HR Elite list last year, with a total comp package of around $20 million.