Posts belonging to Category compensation



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.

 

Voters Decide Battle for Better Wages

votersThis past Monday, a law went into effect that granted San Jose, Calif., low-wage workers what decades of traditional labor-organizing efforts hadn’t: a higher minimum wage.

As reported by The Los Angeles Times, San Jose joins Long Beach on a growing list of American cities—including Albuquerque, San Francisco, Santa Fe and Washington—where voters have approved measures that secure higher wages for workers.

In November, 58 percent of San Jose voters endorsed raising the minimum wage in the city from $8 to $10 an hour.  In Long Beach, 63 percent of voters awarded the city’s hotel workers an increase of about $4 per hour, on average.

According to The Times, “the victories put these two California cities on the cusp of an emerging trend: Ballot initiatives, labor experts say, have the potential to rewrite labor’s playbook for how to win concessions from management.”

This labor strategy began in the 1990s, the article notes, with labor unions reaching out to city councils in an effort to pass living-wage requirements. The initiatives have expanded in recent years, however, as labor activists have bypassed city council to team with labor and community leaders in taking minimum wage issues to the ballot box.

Organized labor’s successes in states such as California and Washington could spread to communities in other parts of the country where union-friendly politicians are elected, Maria Anastas, a shareholder in the San Francisco office of labor and employment law firm Ogletree Deakins, told HRE.

“It’s already become a trend a sorts, given that other cities have followed suit,” says Anastas. Still, she doesn’t necessarily anticipate a nationwide trend emerging, “because it depends on the electorate in each community or state.”

For example, she says, Minnesota—where Democrats control both houses—is on the verge of passing the highest state minimum wage in the United States.

In addition to urging local politicians to pass higher minimum wage ordinances, organized labor has publicly targeted specific industries for failing to pay workers a ‘fair wage.’ These web-based campaigns and public rallies have recently focused on fast food and other restaurant workers. The combination of political efforts and public awareness will likely lead to more success for organized labor’s efforts in this arena.”

The message for employers and HR, she says, is twofold:

Organized labor has in some cases concentrated their minimum wage efforts on select industries, i.e., hospitality. Therefore, employers in these industries who may be impacted by a higher minimum wage should recognize that organized labor will likely capitalize on these successes by increasing their organized efforts.”

Secondly, employers with concerns about minimum wage ordinances “should focus on strengthening their relationships with political leaders and business advocates in advance of organized labor’s legislative initiatives,” she says, “in addition to maintaining a positive public image.”

 

OFCCP Audits Getting Bigger and Tougher, Attorney Warns

Uncle SamThe Obama administration has made it clear that combatting pay discrimination is a major enforcement priority, and the Office of Federal Contract Compliance Programs’ recent rescission of two pay discrimination guidance documents in favor of broader, more flexible investigation procedures is yet one more sign of that, said Lynn Clements, an employment attorney at Jackson Lewis in Baltimore.

“The OFCCP felt the old standards were too restrictive and not transparent enough,” said Clements, who spoke today at the Society for Human Resource Management’s 2013 Employment Law and Legislative Conference, held just steps from the Capitol at the Washington Hyatt Regency.

The rescinded standards, which were established in 2006, included a component that allowed federal contractors to “self-evaluate” their pay practices, said Clements. Now the OFCCP wants to investigate “total compensation,” including benefits, shift differentials and incentive pay, she said. It wants to look at the total take-home pay of male vs. female employees and non-minorities vs. protected groups. It also wants to look at the impact of hiring decisions that may influence pay, she said. “The OFCCP will be looking at all the factors that influence pay in your organization — work assignments, training, job classifications, promotions.

“It wants to know whether women are being steered to company departments where there is less chance of advancement, for example,” said Clements. At a supermarket chain, for example, the meat department tends to be bigger and thus have more opportunities for advancement than the bakery department, which tends to be smaller, she said. If newly hired women are being steered toward the bakery department, this could pose a problem, she said.

If a federal contractor fails a preliminary compensation screen, she said, the OFCCP will request individual compensation data for each employee–and if the company stores such information electronically, it must now be sent to the agency in that form. “This will certainly make things easier for the OFCCP,” said Clements. “Will it make things easier for you? Probably not.”

Companies that are audited by the agency can expect it to comb through their data, searching over and over for any discrepancies, she said. “You can expect a significant increase in the costs to defend an audit and a significantly reduced ability to predict whether you’re in compliance,” she said.

Clements suggested HR leaders at federal contractors carefully review their pay policies — make sure the policies are thorough, or else, don’t have one at all, she said.

With respect to OFCCP audits in general, federal contractors should be aware that nothing prevents the OFCCP from sharing data it obtains from these audits with the EEOC, she said. So it behooves companies to periodically evaluate their screening and hiring procedures for adverse impact–and if it occurs, consider validating the procedures or else making changes.

Complying with the OFCCP’s reporting requirements regarding the hiring of minorities continues to be an area of struggle for many federal contractors, said Clements, not least due to the sheer volume of applicants via the Web, said Clements. The most important thing for HR at these companies to keep in mind is this, she said: When did the minoritiy applicants fall out of the process, and why? “If you can answer that, you’ll be in reasonably good shape,” she said.

Pay-Ratio Reference Draws Fire

A statement released last week by U.S. Securities and Exchange Commission’s Luis A. Aguilar received a prompt response last Thursday from the HR Policy Association’s Center on Executive Compensation.

Specifically, it was the pay-ratio component of the commissioner’s comments that caught the HRPA’s eye.

Aguilar noted in his statement, titled “Shareholders Need Robust Disclosure to Exercise Their Voting Rights as Investors and Owners,” that …

Pay Ratios“The relative pay of different classes of employees, such as the ratio between CEO compensation and median pay, can also create risks to an enterprise, including the risk of employee, customer, and shareholder discontent. Decisions regarding executive compensation may also affect succession planning and related risks. Companies should consider whether additional disclosure is necessary to enable stockholders to assess such risks and the manner in which any such risks may be affected by a company’s compensation policies and practices.”

(Check out this Reuters’ story for more.)

A provision in the Dodd-Frank Act, the notion of pay ratios has drawn fire from HRPA’s Center in the past.

In response to Aguilar’s most recent statement, CEC President Timothy J. Bartl said

While we were encouraged that the statement recognized the value of supplemental executive compensation disclosures to investors in explaining the pay for performance relationship, we were disappointed that Commissioner Aguilar encouraged companies to voluntarily disclose a pay ratio in their 2013 proxies, given that investors have not expressed broad interest in this information and the Commission has not yet  issued final rules.

In evaluating whether to make such disclosures, Commissioner Aguilar asks companies to be ‘guided by a clear vision of the investors who are relying on the disclosure to make important voting and investment decisions.’ Yet, the Center has found that, unlike pay for performance, investors are generally not asking for pay-ratio information, and where shareholder proposals have been offered on the pay ratio, support from shareholders has been very low.

“It’s pretty unusual for the commission to put out a statement advocating company actions,” Bartl told me this morning. “It’s more typical for these be expressed through speeches or other channels.”

Through his statement, Bartl says, Aguilar is urging companies to take voluntary steps, in light of the fact that the SEC is not close to taking action on rules, given the current status of the commission with two commissioners from each party following the departure of SEC Chairman Mary Schapiro in December.

But if Bartl is correct, he probably shouldn’t hold his breadth on this particular front.

HR Is ‘Off the Mark’ on Employee Attitudes

At least, that’s according to the piece ”Mind The Gap – Knowing What Employees Want Is Key” by Lena M. Bottos, Kenexa’s vice president of compensation.

After reviewing the results of its annual Compensation Outlook Survey, then “directly comparing the data with a similar survey from visitors to our consumer website, Salary.com, and to World Norms from Kenexa’s Employee Engagement database. We gained incredible insight from these comparisons and were able to clearly see similarities and differences worth noting.”

According to Bottos, across all HR categories covered in the survey, there was a “noticeable gap” between the Salary.com visitors and HR perception, while the World Norms data hovered somewhere in between:

We can safely assume that the visitors to Salary.com are biased toward workplace dissatisfaction, because they are visiting a career site most likely looking for a career change or a new job. It is also highly likely that the World Norms data is skewed toward more highly engaged employees or more self-edited answers, depending on an individual’s trust in survey anonymity. The bottom line, however, is that HR’s perception of employee attitudes is off the mark in every category.

The piece goes on to share a few data points backing up the findings, including:

*     69 percent of HR professionals think employees have a high level of engagement — while Salary.com visitors show engagement levels of 45 percent.

 

*     81 percent of HR professionals believe employees would recommend the organization as a good place to work, while World Norms figures are at 72 percent, and Salary.com visitors are at 38 percent.

 

*     83 percent of HR professionals believe employees will stay with the organization in the coming year, but the figure is only 57 percent in the World Norms data and 41 percent for Salary.com visitors.

Bottos concludes the piece by saying the research shows that HR has become “too distanced from the employee population,” thus leading to a misunderstanding of where the employee mindset truly is. And, she says, since ultimate success lies in proper manager training, “managers need to be prepared to discuss and promote programs, as well as collect feedback for HR on how those programs are perceived. Business is business, yes. But it’s also personal — and it’s about making the workforce smarter.”

(Tip of the hat to the Watercooler newsletter.)

Publicizing Promotions

stk149211rkeIt’s nice to think that your highest-achieving, hardest-working employees are driven to excel in the name of meeting team goals, advancing the company’s mission, increasing market share and all of that good stuff.

And many of them are. That should be part of what pushes them, anyway.

We all know there needs to be something in it for them as well. The prospect of receiving a promotion is one obvious motivator, and employees want to know what’s required to reach the next rung on the company ladder. And from an employer standpoint, making sure workers understand how they can continue climbing is also a wonderful recruitment and retention tool.

Nevertheless, a recent survey from Scottsdale, Ariz.-based WorldatWork finds very few companies making serious efforts to convey promotional guidelines and policies to their workforces.

The survey of 873 HR, compensation and benefits managers found just 16 percent of respondents saying their organizations widely communicate such information to employees.

Companies neglecting to share parameters for employee promotions do so at their own peril, says Kerry Chou, practice leader with WorldatWork, in a statement announcing the findings.

Employers may be missing out on an opportunity to enhance [their] ability to attract, motivate and retain employees by not sharing general information about the guidelines or processes associated with promotions.”

While employers may be mostly hush-hush on promotional guidelines, the study finds organizations still finding room in the budget for programs supporting employee advancement, and respondents report promoting about 8 percent of employees in a typical year.

The survey also found the average promotional increase award to salaried employees in 2012 was 8.7 percent, compared to 8.3 percent in 2010. Officers and executives received an average promotional pay increase of 10.2 percent, versus a median jump of 9.5 percent two years ago.

Most responding companies (81 percent) defined a promotion by an increase in pay, band, grade or level, and/or the addition of higher-level responsibilities (76 percent).

Make special note of how most respondents defined a promotion: While nearly one in five organizations reported awarding promotions without salary increases, the importance of providing a bump in compensation shouldn’t be overlooked, says Chou. In other words, pay up when you promote.

While a bigger title and recognition from peers are nice, employees will usually not feel completely satisfied with a promotion unless there is a meaningful increase in base pay.”