Compensation Force

Are Stock Options Losing Their Grip?

Stock options, once the undisputed king of long-term incentives (LTIs), continue their fall from favor, even (perhaps particularly) in technology and life science companies.  Results from a recent pay practices and policies survey published by Culpepper reveals that companies in these sectors continue to shift away from plans focused solely on stock options towards plans using a mix of multiple types of LTIs.

Blame the change in accounting rules (whereby companies are now required to expense options), the backdating scandals and declines in the stock market for pushing us toward the more balanced practice that we probably should have been following all along.  Only 59% of the companies surveyed no offer stock options to employees; only 17% are relying on options as their sole LTI vehicle.

The trend doward diversification of LTIs, as evidenced by the Culpepper study results is illustrated in the chart below.

Creative Commons Photo "Regret" by Bruce Funston

The Road to Pay Program Transparency: Involving Employees in Job Matching

One of the challenges that the democratization of pay information has placed in our collective HR laps is the need to reconcile the differences in the kinds of compensation data relied on by employers (via purchases of professional published surveys) versus employees (typically accessed through free Internet sites). 

From the employer point of view, one of the biggest weaknesses of much of the pay data available online without charge is the fact that it is self-reported.  Part of the issue here is our assumption that people will succumb to the temptation to inflate their pay levels.  But there is another, less talked about issue surrounding the whole service-service employee pay data business, in my experience, and that is the difficulty employees have in objectively and appropriately matching their jobs.

This, my friends, provides us with a potential teaching moment, one with two-way benefits.  Getting employees involved in the matching of their jobs to pay surveys produces positive results in the following ways:

1. Better and more accepted job matches for the employer.  Not only do we benefit by getting the employee's point of view on their role and responsibilities, but we also gain their acceptance by giving them a voice in the process.
2. Better understanding of the job matching process by the employee.  The employee has an opportunity to see, understand and appreciate the job matching process through the employer's eyes, including the importance of focusing on the job that is being done, not the employee and their personal credentials (e.g., yes, you may have been working here for 18 years but the job you are performing is Technician 2; it is not a Technician 5 simply by virtue of your personal years of experience).

At this point, I know, beads of sweat are breaking out on some of your foreheads.  I realize that not every organization may be ready for this level and kind of employee participation, but I am here urging you to consider it.  I will confess that my initial stab at this (working directly with employees to match their jobs to survey benchmarks), a long time ago, came not at my own suggestion but rather as a result of a (somewhat visionary) client company promising to do it without running it past me first.  After freaking out just a tiny bit, I sat down with the employees and got to work ... and became a believer.    

Of course, like many avenues of employee participation, getting them involved in the job matching process takes extra preparation, extra attention to expectation setting and management, and - particularly - extra dedication to education and communication.  In fact, we typically spend time in what we like to refer to as "Market Benchmarking 101" as a prelude to employee participation in the process.  Some of the points we go through with employees during this effort include:

• What is a benchmark job?  Benchmark jobs are not real jobs from this or any other company.  Rather, they describe common roles that are found in many organizations.  For this reason, benchmark job descriptions are purposefully brief and generic.  It is important that these jobs be defined broadly enough that they allow comparisons across a range of companies, so that a critical mass of pay data can be collected.
• There won't be exact matches.  There may not be many companies exactly like this one in the surveys, and there probably aren't exact counterparts to our company's jobs there.  We try to find as many valid matches as possible, benchmark jobs that represent comparable skill requirements and levels of responsibility, so that we can be assured that we are building the salary program using valid competitive pay information.
• Your job, not you.  What we need you to focus on (and we realize that this is a difficult thing to ask anyone to do) is the job you perform, its scope and its requirements.  You, as an individual, may indeed have capabilities and experience beyond what is required for this job (in some cases, this may lead us to discussion of career development choices ...).

The plain fact is that, going forward, employees will have increasing access to pay data, and they will use it to assess the opportunities and practices of their employers and potential employers.  To pretend that they are not up to the task of assessing their own job relative to the market is to ignore the fact that they are doing it already (whether or not they are doing a good job). 

By taking the initiative to educate and involve them in your own market pricing efforts, you increase trust in the process and better the odds that  - when they do feel compelled to do their own outside research - you and they will come to more consistent conclusions about the fair market value of their work.

And that's a good thing! 

Wanted: HR Seat at the Sales Compensation Table

The table, the table, the table.  You can't turn sideways these days in the HR blogosphere without bumping into a post, an article (or a carnival!) that discusses HR's eternal quest for a seat at the table!  The mythical table referenced in all the angst is, we presume, the one at the top of the corporate house, where leaders fearlessly plan and plot business direction and strategy.

But HR is often missing from another table.  There doesn't seem to be a lot of teeth gnashing and hand wringing over this one, but in my line of vision, it is a problem.  The table I'm referring to is the sales compensation design table.  There has been a historical tendency, not in all but in many organizations, to exclude HR from sales compensation design.  I suspect that some of the reasons for this are as varied as the organizations in which it happens, but there is one reason that I see popping up repeatedly, and that is an unwillingness to develop the necessary business and sales acumen.  In short, they don't think we "get" sales, and often we agree with them.

Designing effective sales compensation plans is an intricate and technically challenging effort, to be sure.  It is not necessary that HR professionals become sales compensation design experts to participate successfully in the effort.  It is necessary, however, that the HR professionals develop an understanding of not only how the organization creates and delivers value to its customers, but also the competitive landscape, the company's particular competitive strengths and weaknesses, its specific sales strategy and objectives, and the role that different sales jobs play in executing that strategy and those objectives.

Too many of my HR - and even compensation - colleagues shy away from the whole sales compensation process.  It's easy to rationalize doing this; it is a challenging area and - let's face it - in many organizations the sales management group doesn't necessarily want HR deeply involved to begin with. 

Why bother?

Here's why.  Sales compensation plans - in my opinion - usually suffer for lack of an HR perspective in their design and communication.  Like any incentive plan, and maybe even more-so than any other, these compensation programs tend to be most successful when their design reflects a variety of disciplines and perspectives - and the HR point of view is an invaluable part of that mix.

So here it is: A call out to my HR colleagues to press for a seat at the sales compensation table, and to do the necessary preparation and information-gathering to ensure that you are positioned to bring value to the discussion and decision making. Corner a sales manager and ask a ton of questions.  Find a sales buddy and learn to love their shadow for a day.

Can we make this happen?  Will we?

Image: Michael Connors

Just Do It! Edition 39 of the Carnival of HR

Not getting the HR respect you deserve?  The most recent edition of the Carnival of HR, hosted by Kris Dunn, the HR Capitalist, features 36 HR bloggers bringing you the information, wisdom and perspective you need to step up your game. 

So what are you waiting for?

Image by Clara Natoli

Sales Compensation: Rethinking the Hunter/Farmer Model

Designing sound sales compensation programs always begins with a clear understanding of your company's sales structure and specific sales roles (which presumably have been thoughtfully defined in light of your overall sales strategy, right?).  One common, and perhaps potentially overused, sales model is that of the hunter and farmer.  In this model, there are sales people in the role of the hunter, whose charge is to find and bring in new customers, and other sales people in the role of the farmer, who are responsible for building and nurturing the customer relationships. 

In their recent newsletter as well as their article in the July/August 2008 issue of the Harvard Business Review , Jerome Colletti and Mary Fiss advise against the often leapt-to conclusion that this popular approach is always the right sales staffing solution, and walk us through some of the hunter/farmer sales model's more serious shortcomings:

• It rests on the assumption that the business of selling to new customers is transactional rather than consultative; hence, it is easy to "hand it off"
• It assumes that the skills required for the hunter and farmer business development roles are fundamentally different
• It assumes that there is more business to be had from new than existing customers - not always the case
• It trivializes the cost of the hand off from hunter to farmer
• It disregards that the hunter may leave a fair number of "loose ends" since they don't have to deal with the consequences of on-going customer relationship

A reminder that it is always a smart step to carefully assess your own company's situation and strategy, and select a staffing and compensation approach that truly fits and supports it.

Grade Creep or Value Growth: Sorting Through the Facts & Circumstances

Back in the day when I had a real job in a corporate setting, I recall a period when my compensation colleagues and I were facing a particularly strong and steady onslaught from line managers regarding job re-evaluation.  It seemed every manager with an employee whose salary was above midpoint felt compelled to retitle the job, rewrite the job description and push hard for an upgrade.  Despite our efforts at control, the average salary grade across the company seemed to be ticking upward on a daily basis.  One manager in particular stood apart for his commitment to the continuous upgrading of his department's positions.  We christened him the Grade Creep. 

Well, we thought it was funny.

Nearly every compensation professional I work with faces some level of pressure on the job re-evaluation front.  It's tough to carve out time for the reward initiatives that will truly deliver value to the organization when you are forced to spend all your time as Pay Cop.

The trick, I think, is to avoid becoming too entrenched in our cop mentality (we are business partners, yes?) and to develop a process to sort through the requests in order to discern which are legitimate - e.g., from a functional area that is truly changing or growing in scope so as to require different roles and talent levels - and which requests are merely symptomatic of a lack of managerial discipline and accountability around salary management.

I have advised a number of my clients to introduce a brief survey or questionnaire into the process, asking the managers requesting a job review to provide some information and detail as to the nature and history of the situation. Specifically, I suggest questions like the following:

• Has the job in question gained additional job responsibilities since it was last evaluated? If yes, please describe these additional responsibilities in the space provided. Include information on where and by what other job these responsibilities were previously performed before being added to this job.  If these job responsibilities are, in fact, brand new to the department or company, please provide a brief background on why they have been added.
• Has there been any change in the education, experience and skills required to perform this job since it was last evaluated?  If yes, please describe the changed requirements in the space provided, and note the reason behind the change in qualifications.
• If new responsibilities or requirements have been added to a job which has current incumbents, please describe the steps that these incumbents have taken to upgrade their education, skills and/or experience to fit the changed position?

The point of the questionnaire isn't to discourage managers from requesting re-evaluations, although it may have that affect in some cases.  Rather, its intent is to force some description and documentation as to the presumed underlying value growth that would justify a potential upgrade.

Grade creep or value growth?  A tough call sometimes, but I think it is our responsibility to support the latter while helping keep the former at bay.

What do you think?

Private Survey Strategies for the Data Desperate

Sometimes the readily available "off the shelf" published pay surveys simply don't have what you need; not the right jobs, the right data or the right participants.  You're then faced with the choice to either do without ... or do it yourself.

The "do it yourself" survey (also referred to as a private or custom survey) is one which you sponsor and/or conduct yourself in order to hone in on the specific information that you are seeking.  Typically this means either that you involve an independent third party to do the work on your behalf or that you do some portion of the legwork yourself.  (Please see, however, this post for information on the Sherman Anti-Trust Act, which governs the conduct of salary surveys, to ensure that you stay on the right side of the law in your data collection efforts.)

Participants in your private survey will typically take the time and make the effort to submit their pay information because:

1. If you need but can't find this data, chances are pretty good that they find themselves in the same boat (i.e. motivated), and
2. They receive a complimentary (courtesy of you) report of the survey results.

And, of course, if luck is shining upon you and you play your cards right, you might even get a cost sharing arrangement set up among participants to defray some of the survey expenses.

But what if you find your prospective participants less than eager about joining your survey effort?  This can happen for a host of reasons, including:

1. They are busy and understaffed (and who isn't these days) and don't have the resources to devote to completing your survey questionnaire
2. They are not sure they need/want the data as badly as you do
3. They - or their superiors who must approve their involvement - have concerns about the confidentiality of the survey process

In addition, it is simply true that industries vary significantly in terms of their level of inter-organizational competition versus collaboration.  I'm working right now with an organization in just such an industry; it is a relatively small industry with less than a dozen major players and - traditionally - there has been little to no contact among HR folks in the different firms.  This is a pretty significant - potentially insurmountable even - hurdle to any kind of survey effort.  And yet, the lack of competitive data presents a critical issue for us, so that we feel we must give it a shot.

In my experience, there are some strategies (other than the obvious one of following anti-trust guidelines and providing an ABSOLUTE guarantee of a professional and confidential survey process) to better your odds of success in situations like this.  My client and I have been doing some brainstorming on these and it occurred to me that some of the ideas might be worth sharing here, for readers who find themselves facing a similar dilemma.

And so, following that l-o-n-g preamble, I bring you a select sample of private survey strategies for the data desperate.

• Create a survey group where direct labor competition is minimized.  We used this approach recently in designing a survey for a real estate development firm, where there was a high sense of labor competition among local businesses.  We researched and selected a group of national peer firms, no two in the same geographic area - in order to collect relevant data while minimizing concerns about the information being used to poach employees.  We clearly explained our logic to the prospective participants; most agreed and liked the strategy.  The survey was a big success.
• Offer a customized survey report.  Rather than a one-size-fits-all report of results, offer each participant a customized summary where their pay data is broken out from and compared to survey norms, including an overall competitive summary.  This can be an attractive value-add.
• Offer a seminar of survey highlights.  As an extra bonus for submitting data, offer a free seminar to participants at the back end, featuring a brief presentation of survey highlights and the opportunity to discuss them with peers.  In prospective survey groups where secrecy is a big deal, this could also be done as a private on-site session with each participating firm (obviously a more expensive and resource-intensive option).

Readers, what strategies have you found to be successful in coaxing survey participation out of a reluctant group of peer organizations?

Salary Budgets Projected to Continue Steady Growth Despite Troubled Economy

eWorldatWork released preliminary results from its 35th annual salary budget survey (which includes over 2,700 participating organizations) today, showing pay budgets growing steadily from 2008 to 2009 in the U.S. and Canada.  The 2008 actual average increase in salary budgets was 3.9%, and the survey projects a 3.9% increase again in 2009.  WorldatWork views this even level of growth as an indicator of labor market stability despite current economic challenges.  This makes sense to me, and it is good news.

A few other highlights from the preliminary results:

• There is also stability in the proportion of employees receiving salary increases.  For the third consecutive year, participating organizations are reporting that, on average, 91% of employees can expect to receive an increase in their base pay this year.
• High performers can expect raises of over 5% while below average performers can expect 2% or less, an indicator that employers continue to work on pay differentiation based on performance.

Full results of the survey will be released in early August.

Heads Up! High Performers Looking to Leap, Low Performers Planning to Stay?

A new study by Leadership IQ reports that 47% of the high performers surveyed are actively seeking another job.  But the news gets worse: Only 18% of low performers and 25% of middle performers are actively looking.

Begs the question: Are we doing enough to retain our high performers, or are we assuming that the slow economy and job market preempt this concern?

The results come from research where Leadership IQ surveyed 16,237 employees on a range of workplace issues, then divided them into high, middle and low performers based on their annual appraisal scores.  In what I find to be an interesting (and somewhat ironic) side note, there were 3,896 self-identified high performers, 8,607 middle performers and 3,734 low performers.  A nearly perfectly balanced bell shaped performance curve - how often do we see that in real organizational life?

And Speaking of Telecommuting in Response to Rising Fuel Costs...

I posted yesterday about recent research on employer responses to the spike in gas prices.  According to that study, one of the most common strategies being pursued by companies is the offering of telecommuting to employees as one way to help them defray the rising costs of traveling to work.

But telecommuting programs present their own set of challenges to the employer, particularly with respect to non-exempt employees and the Fair Labor Standards Act.  Mike Haberman, author of HR Observations, has a great post up today on what he calls "the FLSA Train Wreck" as well as other issues which companies offering telecommuting to their workers must address.

From Mike's post:

The train wreck I alluded to in the title is with the Fair Labor Standards Act. The FLSA requires that all non-exempt employees (both hourly and salaried non-exempt employees) be paid for time worked more than 40 hours in a week (in some state and local jurisdictions for more than 8 hours in a day). This means if you have a non-exempt employee with a company issued laptop/Blackberry/phone and they are checking email, working on projects, etc. you have to track all their time and then compensate them for the overtime. This can get very complicated, particularly if those devises are used for personal things.

Click over to Mike's post to get up to speed on some of the issues your telecommuting program will likely face and read his advice on how to circumvent some of the landmines. 

Perhaps the compressed (typically 4 day) workweek, the other top strategy being chosen by surveyed employers to deal with commuting costs, is looking like a better option all the time...

Update: Readers - for more on this issue, check out Michael Moore's (he of the Pennsylvania Labor & Employment Blog) thoughts in the comments here as well as a related post on his blog and on Jon Hyman's Ohio Employers Law Blog.