Compensation Force

Too Many Chiefs? Title Inflation Hitting New Highs

In the good old days, our biggest worry was whether Vice President titles were being handed out too liberally.  Now, according to an article in this month's Knowledge@Wharton, title inflation has made its way to the C-suite.

As the article tells us:

We're all familiar with titles like chief executive officer, chief financial officer and chief operating officer.  We have even grown used to chief technology officer, chief marketing officer and chief diversity officer.

But what about chief talent officer, chief cultural officer, chief innovation officer, chief privacy officer, chief reputation officer, chief apology officer and chief geek, to name just some of the more contemporary titles that have cropped up in today's companies?  What happened to corporate hierarchies where there were only a few chiefs and many, many subordinates reporting to them?

Part of the reason for title inflation is that titles represent a cheap way to recognize employees and their contributions.  As the article say and many of us have long suspected, these titles often come in lieu of pay increases when budgets are tight and in lieu of promotions in organizations with less hierarchy to climb.  But there can be other (presumably more legitimate) reasons as well, including

• The desire to signal the importance of a particular issue to the organization (as in chief ethics officer), or
• The wish to communicate that the role has shifted from an operational to a strategic one (e.g., from training director, tucked within the human resources function, to chief learning officer, in a function all its own).

But the authors advise caution:  Too much title promotion can create cynicism (no!) or, as Wharton management professor Ben Campbell tells us, "dilute the 'currency' of the title structure."

Betsey Stevenson, Wharton professor of business and public policy, in the spirit of the widely read and much blogged-about recent Wall Street Journal article The Most Praised Generation Goes to Work (paid subscription required), offers this final explanation:

She wonders whether the people pushing for higher titles are "the same ones who, as students, pushed for 'A's and caused grade inflation.  Now they are making it into the corporate world and they want big titles."  She recalls a psychological study that looked at students from 1970 through today and concluded that the more recent entrants into the job market are significantly more spoiled and self-absorbed than their predecessors.  The people who are getting inflated titles, she says, "could be part of what is an increasingly narcissistic generation."

Board Compensation Trends: Non-Employee Director Pay Up 10%

According to a recent analysis of board compensation by Equilar, Inc.. detailed in their May 2007 newsletter, non-employee director total compensation at Fortune 500 companies increased 10% from 2005 to 2006, reaching a median annual amount of $165,000.  (For the purposes of this analysis, Equilar defines total compensation as the sum of annual retainers and board meeting fees, excluding any committee fees.)

More findings on overall board compensation:

• The median value of annual retainers paid in cash was $50,000, remaining flat from 2005 to 2006.
• The median value of annual retainers paid in equity increased 8% to $100,000 in 2006.
• The median value of aggregate board meeting fees increased less than 1% to $12,900 in 2006.
• Beyond compensation, the analysis also found that the median number of Board meetings held annually increased from 7 to 8.

And Audit committees:

• Median per-meeting (of the Audit committee) fee remained unchanged at $1,500.
• Median annual retainer for Audit committee members increased 21% to $10,000 in 2006.
• Beyond compensation, the analysis also showed that the median number of Audit committee meetings per year stayed fixed at 9.

And Compensation committees:

• Median per-meeting (of the Compensation committee) fee stayed constant at $1,500.
• Median annual retainer for Compensation committee members increased 4% to $6,250 in 2006.
• Beyond compensation, the analysis also showed that the median number of Audit committee meetings per year remained steady 6.

Cap Off the Incentive Plan's First Year with Evaluation

I've posted before about the fact that the first year is a learning year with employee incentive plans, and about the importance of actively managing, reviewing and updating incentive plans to ensure that they stay relevant and effective.  An important facet of active plan management is evaluation, and a great time (but hopefully not the last time) to evaluate your incentive plan is at the end of the first year (after payouts, if any, have been made).

I also endorse involving plan participants - employees - in the plan evaluation process.  I spent a morning last week at a client organization where we have completed the first year of an employee incentive plan and are preparing to roll out version 2.0 (or is it 1.2?).  During this meeting, we met with a large group of participating employees for the purpose of reflecting on how the first year of the plan had gone.  We formed smaller groups out of the larger one, and asked each group to discuss and then select their top responses to a couple of questions, like:

What positives did the incentive plan produce this past year?

How could the plan be improved to work better for employees and the company?

It was a terrific session where we received a lot of interesting and insightful comments from employees.  Human Resources and the top management team are now working to assess the input to determine whether and where changes to the plan are appropriate.  Not surprisingly, employee input was more focused on the communication around the plan than on plan design itself - which makes good sense since most of the innovation and improvement in incentive plans takes place in the communication and implementation arena.

While the responsibility for plan evaluation and management typically resides with Human Resources and leadership, the only way to discover how the plan is really operating at the ground level is to speak with the participants themselves.

Harder to Advance in Big Organizations?

According to a recent study by the Institute for Corporate Productivity, employees at larger organizations are twice as likely to face a waiting period of one to two years before being eligible to apply for other positions.

The survey of 423 companies reveals that 30% of organizations with more than 10,000 employees require workers to have one to two years on the job before they can apply for an internal posting.  This compares with 16% for companies with 2,500 to 4,999 employees and 17% for companies with 500 to 2,499 employees.

In an era when we are warring for talent and (according to Penelope Trunk) the average tenure among younger members of the workforce is only 2 years (a recent EBRI study puts average tenure for all private sector workers at 3.9%), isn't limiting advancement opportunities in this way tantamount to begging for a retention issue?

Free Occupational Wage Data Online

The Bureau of Labor Statistics has released its May 2006 Occupational Employment and Wage Statistics Survey.  The survey provides national, state and metro area data on employment and mean/median wages for 801 occupations.  Each occupation has a brief job description, which you can access by clicking on the occupation title.

Yes, the survey is obviously at least a year old at this point, but it is free and I have found it to be a useful supplemental source of wage/salary information (by which I mean that it syncs up well with other survey sources that cost me a lot of money).  The data are especially helpful for occupations and locations that aren't well covered by professionally published compensation surveys.

I would recommend aging the data by 3.75% or so (the rate at which base pay has purportedly been growing over the past year) to bring it up to date as of May, 2007.

Additional Information on CARS Research

Some follow-up information on the CARS (Consortium for Alternative Reward Strategies) group incentive plan research featured in the two preceding posts (here and here):

WorldatWork (formerly the American Compensation Association, an original sponsor of CARS) no longer has summaries of the research available, but highlights of the research are covered in the following three articles (reprints available from WorldatWork) -

• "Capitalizing on Human Assets Through Performance-Based Rewards" by Jerry McAdams and Elizabeth Hawk, ACA Journal, Autumn 1992, Volume 1, Number 1.
• "Organizational Performance and Rewards: A Strategic Use of Employee Assets" by Jerry McAdams and Elizabeth Hawk, ACA Journal, Autumn 1994, Volume 3, Number 3.
• "Making Group Incentive Plans Work" by Jerry McAdams and Elizabeth Hawk, WorldatWork Journal, Volume 9, Number 3, Third Quarter 2000.

Don't be put off by the dates; this research - and its findings and lessons - remain relevant and useful in today's work world. 

Enjoy!

More Lessons from CARS: Making Group Incentives Effective

In yesterday's post I discussed the CARS research on group incentive plans, perhaps the most comprehensive research ever done on the topic, and some of the key findings from the first three CARS studies.

This post features the fourth and final study, CARS IV, which was kicked off in 1997.  CARS IV took a different and more focused approach than its three predecessors, using in-depth case studies of eleven group incentive plans in four different organizations to developer a richer understanding of what makes plans effective.

The results of CARS IV are covered in a WorldatWork Journal article, "Making Group Incentives Work", authored by CARS co-founders and directors Jerry McAdams and Elizabeth Hawk (Volume 9, Number 3, 3rd Quarter 2000).  In the article, McAdams and Hawk present seven key lessons gleened from the final CARS project:

• Design your plan well - but do a great job implementing.  Certain plan design features are more likely to get good results.  Yet this new research demonstrates that differences in local plant implementation and support drove incentive plan effectiveness as much as differences in plan design.  Therefore, having the right management in place is critical.  The plant manager and direct supervisors are the strongest drivers of a culture that supports effective incentive plans.  They need to establish a climate of trust and a supportive, communicative culture.
• Do not use group incentives to replace a well-thought-out and articulated business strategy.  Incentives only supplement and reinforce strategy.  Smaller organizations are at special risk here because the time needed for active strategic management may be in short supply.  The temptation to use the plan to manage the strategy may be high.  Resist.
• Ensure that the pay-for-performance message is reinforced by other systems.  Align group incentive plans with other HR systems - performance management, staffing, work design, training, organizational development - and the messages they send.  If, for example, you stress teamwork but measure and pay people solely on individual accomplishments, your systems are at dangerous cross purposes.
• Increase recognition to complement the group incentive plan.  Group incentive plans, by design, do not reward individual performance.  When it is possible and desirable to measure individual performance, combine group incentives with individual rewards delivered outside the group incentive plan.  This allows managers to reward for team effort and still differentiate individual performance.  Also, don't forget the power of recognition of teams and workgroups to spur performance.
• Make sure employees understand the measurements and what they can do each day to influence them.  If plan participants believe they can influence results and, therefore, payouts, they'll certainly try.  That's good for the organization as well as for employees.  However, it takes work to be sure employees really understand the measures and have the knowledge and tools to influence them.  Many industries have traditionally used the old "mushroom approach" with employees when it comes to the business by keeping them in the dark.  That simply won't work if the intent is to engage people in performance improvement.
• Communcate, communicate, communicate.  In successful incentive plans, managers keep communicating about the plan in good times and bad.  In good times, employees need to understand that incentive payouts are not an entitlement; they must improve their performance continuously to ensure payouts.  In times of poor performance, with small or no payouts, companies need to resist the natural urge to stop communicating about the plan.  Instead, tough times are an opportunity to reinforce what it takes to be successful, to be honest about any factors outside of employees' control that may have influenced plan results and to use concrete examples of what employees might do to help get performance back on track.
• Do not institute incentive opportunites at the expense of base salaries.  Most plant employees are not interested.

Reprints of the WorldatWork Journal Article are available through customer service at WorldatWork.  I am checking to see whether copies of the CARS research, or the executive summary, are still available for purchase; I will report here if I learn that they are.

Lessons from CARS: Comprehensive Research on Group Incentives

The research conducted by the Consortium for Alternative Reward Strategies (CARS), probably the most comprehensive ever on group incentive plans, seems to be one of the best kept secrets in the rewards profession.  I thought it a good idea to provide some information here on the research and some of its most important findings.

CARS was formed in 1990 by Jerry McAdams (former rewards practice leader at Watson Wyatt, where I spent more than a decade of my consulting career, and author of a few of my favorite rewards books; The Reward Plan Advantage and Rewarding Teams) and Elizabeth Hawk, kicking off more than a decade of extensive research.  The first three CARS studies (CARS I, 1990-1993; CARS II, 1993-1995; and CARS III, 1995-1996) used a survey approach to examine the effectiveness of a total of 750 group incentive plans. 

Some findings from the first three CARS studies (which covered a total of 1.3 million employees) include the following:

• Plans are installed to improve business performance through people, rather than to "attract and retain" employees.
• Payouts are modest, with a median of about 3% of base pay.
• Plans reporting more intensive communications, feedback and involvement also report lower payouts.  An employee treated as a valued asset and involved in the process of performance improvement does not require as much direct financial reward as one who is not.
• At median, the organizations studied gained $2.34 (in performance improvements) for every dollar they spent on incentive payouts; thus a close approximation of net plan ROI is 134%.
• Plans are more successful if they have management support at all levels - including first line supervisors.
• Plans are more successful when they are regularly reassessed to stay current with business strategy.

CARS IV, which was kicked off in 1997, took a more focused approach, using in-depth case studies of eleven group incentive plans in four different organizations to developer a richer understanding of what makes plans effective. 

More on CARS, specifically the important lessons gleaned from CARS IV, in tomorrow's post.

Rewards Can Be One Facet of Improving Sales & Marketing Teamwork

Brian Carroll, author of the B2B Lead Generation Blog, has a recent post on the need to improve teamwork between sales and marketing.  He discusses the use of frequent and more effective meetings -- he calls them "huddles" -- as one powerful way to foster communication and collaboration.  He also lists 35 other possibilities for increasing the cooperating between these groups.

I'd like to add one of my own:  Creating shared goals and rewards.

Too often, job goals and incentive plans -- particularly for sales positions -- focus exclusively on individual accomplishments.  Case in point would be the classic sales commission plan which rewards sales revenues or volume generated by the individual salesperson.  Whiles these plans can have some obvious benefits, they also tend to work at cross purposes with any efforts to foster collaboration, even just among the sales staff.

If improving sales and marketing teamwork is an important objective for your organization, consider establishing at least one shared goal for these groups; something that the sales and marketing staff must work together to achieve.  Then tie a piece of everyone's compensation to this accomplishment.

Reward design alone will not create collaboration without the benefit of other efforts and activities; however, they have the ability to throw a serious wrench into these initiatives if they are putting out conflicting messages.  Even those of us with the best of intentions find it difficult to ignore the messages that are directly wired to our paychecks.

Major Law Firm Considers Abandoning Billable Hours in Pursuit of Balance and Flexibility

An article in today's New York Times, After Baby, Boss Comes Calling, discusses the "opting back in" movement (whereby women and others who have opted out of the workforce seek to ramp their careers back up) and the steps that many leading organizations are taking, as a talent shortage looms, to support this re-entry process.

One of these organizations, the law firm of Heller Ehrman, is even considering tossing away the revered (and reviled) billable hours metric in the name of flexibility and balance for employees.

The law firm of Heller Ehrman, for instance, created a group called the Opt-In Project, which has spent the past year studying the way the firm does business.  At the end of the month, the group plans to unveil a proposal to abandon the idea of billable hours that is deeply ingrained in the profession.  "We can't afford to keep losing all these people,"  says Patricia Gillette, founder of the project.  "The way we curently reward spending more and more hours at work makes no sense in a world where people demand balance.

Those of us who have grown up in professional service firms understand what a huge step this would be.  For many firms, billable hours is the centerpiece of all performance measures and serves as the basis for a host of decisions, including pay increases and incentive awards.  Kudos to Heller Ehrman for being willing to look for a better way!