Compensation Force

Tough Times May Demand Centralized Pay Inventory

Many employers have worked diligently to decentralize pay management, pushing that responsibility out to HR professionals and even line managers in different business units.  This is a good thing, from many and even most angles, allowing compensation design to be tailored and pay decisions to be made "locally" by those closest to the situation and the impacted employees.  It enhances flexibility and fleetness-of-foot in the application of rewards to support business success.

Tough times, however, may demand a little more centralized control - or, minimally, centralized information gathering and assessment.  When salary increases, incentive payouts and even jobs themselves are in jeopardy, it is critical that those making the decisions have the information necessary to see how and where compensation dollars are being spent throughout the organization. 

In good times, it may be acceptable and appropriate for individual departments to have their own separate stashes of cash, whether negotiated with a senior management patron, grandfathered from an earlier arrangement or simply allocated as part of a decentralized reward initiative.  When crunch time comes, however, all cards need to be laid on the table.

I recommend a simply inventory spreadsheet where all reward programs can be noted and tallied, something like the following:

     

I've been in enough conversations recently where we are having a tough talk about salary freezes (or worse) in one part of the organization and somebody slips in an observation about the entitlement reward spending that's going on in another department/division.  If this is happening where you work, it may be time to make an organization-wide inventory of rewards a top priority, so that any difficult decisions that must be made can happen with full accounting of all reward plans and spending.

It's the Carnival of HR, Holiday Edition!

HR pros are dealing with a lot these days and the holiday edition of the Carnival of HR, hosted by Peggy Andrews of the Career Encouragement Blog, features a lot of great questions and solid thinking on the challenges we are all facing. 

Grab a sleigh ride over and check it out!

Image: "L'hiver Quebecois Winterreise" by Michel Villeneuve

Rewarding Investment Bankers with Mortgage Backed Securities & Junk Bonds: Justice?

Senior investment bankers with Credit Suisse Group typically receive about half of their compensation in stock, the rest in cash.  This year, according to the Wall Street Journal, the bank is planning to pay a substantial portion of their 2008 compensation with an illiquid group of mortgage backed securities, junk bonds and corporate loans.

According to the article, many of the senior bankers are upset, believing they are being unfairly punished for risky assets bought by colleagues in other parts of the firm.

Credit Suisse explains the move as necessary to help the bank reduce its pile of risky assets, demonstrate to shareholders that the bank is taking the credit crisis seriously, and to provide at least some compensation in a year when the bank could post losses of $4 billion or more.

I can appreciate the position of individual bankers who believe they are taking a hit for poor business decisions they may not have been involved in making.  It is likewise unfair for the many thousands of workers nowhere near Wall Street who are watching their pay - and in many cases their jobs - being cut.  Not really their fault either. 

All in all it strikes me as a pretty smart move on the part of Credit Suisse, and an interesting way to send a message via the structuring of a reward package. 

What do you think?

Prevalence of Cost Cutting Measures Rises Over Past Months

A quick rundown of changes in cost cutting measures over the past two months (October to December) as reported in a Watson Wyatt study released today:

The Recession Is Causing Companies to Change a Broad Array of HR Programs    I have updated yesterday's post regarding the most recent 2009 salary planning news with the Watson Wyatt findings as well. I am running hard today nailing down client commitments, so not a lot of time to add commentary, but I would welcome reader observations and thoughts!

Salary Budgets Come Under Continued Pressure: What's the Latest? How to Cope?

I have been posting regular updates (see here and here) on salary and overall pay planning intelligence, in the wake of the economic crisis, as information becomes available to me.  With the release of some more recent research in the past week or so, it is time for a post on the latest.

Earlier studies attempting to gauge the impact of economic turbulence found that only about 40% of organizations were reporting any plans to change (lower) their original salary increase plans.  Among those who were reporting a decision to lower salary increase levels, the average "drop" seemed to be about 1% (i.e., an organization that had originally planned a salary increase budget of 3.8% was lowering it to about 2.8%).  About 10%-15% of employers were reporting plans to freeze salaries.

New research released by Hewitt and Mercer (and, per postcript below Watson Wyatt) suggests that this picture has shifted over the past month or so (and these new findings mirror what I am seeing and hearing on the ground from my consulting practice).

From the newest research:

More than half of employers have changed their salary spending plans for 2009 -

• Mercer study:  73% have changed their plans/budget.
• Hewitt study:  50% have changed their plans/budget.

• Watson Wyatt:  61% have changed their plans/budget.

New/revised salary budget plans for 2009, according to the Hewitt research -

• Executives:  2.2% (down from 3.8%)
• Salaried Exempt:  2.5% (down from 3.8%)

• Salaried Nonexempt:  2.6% (down from 3.7%)

Watson Wyatt reports an overall revised 2009 salary budget number of 2.5% (from 3.8%).

A small piece of good news; the number of employers freezing salaries has held steady (12% as reported by Mercer), indicating that most organizations are making an effort to provide some level of salary increase.  (Per postscript, Watson Wyatt reported a lower level of salary freeze plans in October, 4%, which has now risen to 13%, a level consistent with Mercer's findings.)

How to cope?  How to manage your compensation costs while retaining your top performers and keeping your overall workforce motivated and productive?  Here are some options to consider, drawing on my own experience and recent conversations as well as some thoughts provided in the Hewitt, Mercer and other recent releases:

1. First of all, remember that ongoing communication is essential to manage employee anxiety during these challenging times.
2. Rather than freezing salaries or even lowering increase levels, consider the alternative of postponing the salary increase cycle (by, for example, 3 or 6 months).  This would lower 2009 costs but still provide a competitive increase to employees.  I realize that this would be a bigger challenge to those on an anniversary date cycle than those on a common increase date cycle - but still an option to consider.
3. Another option is withholding or lowering senior management salary increases (the Hewitt data above suggests that this may already be happening out in the marketplace).  Not only would this reduce costs, but it would also send an important signal to employees and other shareholders that leaders are doing their part and carrying their share of the burden in these difficult times.
4. Make sure you are taking full advantage of your incentive/variable pay plans.  By design and even by definition, these programs are positioned to relieve the pressure of fixed compensation spending by making payout contingent on organizational success/prosperity.  If your program isn't working this way, you may want to make changes.

Can you share any strategies that your organization has found helpful for managing compensation costs, while maintaining morale and productivity?

Additional studies, including a major update by WorldatWork, are scheduled for release in January.  Keep watching here for more information as it becomes available.

Postscript:  I have updated the original Hewitt and Mercer findings this post with Watson Wyatt data released Thursday 12/18.

The Value and Role of Forced Rankings (Whether You Love'em or Hate'em)

"I LOVE forced rankings!" says Paul Hebert in a great post over at Fistful of Talent. 

I don't, necessarily.  Love them, that is.  But Paul presents a compelling case for the value of forced rankings, based on the fact that they inject constraints - and a different kind of thinking - into performance discussions.

From Paul's post:

We all have constraints in business.  Budgets are a constraint.  The economy is a constraint.  Competition is a constraint.  All of these constraints make you think differently and change how you make decisions.  Going through the process of ranking your employees makes you think about your staff differently and will allow you to look for ways to improve and change.  It may very well result in someone leaving the team or the company.  But, it may also result in a different training program, a transfer to another department or even highlight someone whom you didn't realize had a huge impact on your business.  You all know there is one person who quietly, behind the scenes, really does all the work but doesn't get any credit or even seek the limelight.

I realize that forced rankings have their negatives - but I also think that forced rankings are a way to eliminate the biases we have when you have the "good ole" boy/gal that is always fun to be around, but really never get's anything done.

Constraints force choices and trade-offs.  I will allow that this can be a good, necessary and even important addition to the performance measurement process, particularly with management groups that lack the discipline and intestinal fortitude to be truthful and fair in their assessment of subordinates. (I'm not, by the way, speaking in favor of Welchonian "rank and yank" here, but rather the use of forced ranking as a method to calibrate performance differences.)

When it is necessary, though, I prefer to see forced ranking serving as a compliment to - not a substitute for - performance management, which entails assessing performance against defined standards and expectations.  I can see forced ranking providing a helpful set of guard rails, for the management team that is inexperienced with - but needs to get up to speed on - making tough performance calls.  But I worry about forced ranking becoming a crutch, one that gets managers "off the hook" for the tough work of proactively managing employee performance.  You know, the whole drill of communicating expectations up front, talking about and coaching to them throughout the year, etc. 

The other thing that troubles me about forced ranking is that it tends to moves performance assessment away from an independent set of performance expectations to the discretionary relative judgment of the manager.  I appreciate that there are facets of every role that are difficult to translate into objective and measurable standards, but I believe it is important to dedicate the energy to doing what we can.  Having a clear set of standards and performance expectations for one's job is a motivating and empowering thing - it means that I have the ability to gauge and manage my own performance, rather than relying on my manager to do so for me.  This is one of the reasons that salespeople tend to have such high levels of engagement, commitment and career satisfaction - their compensation plans give them clear and explicit direction as to how their performance will be measured and rewarded.  I think we owe all employees our best shot at this information.

I really appreciate Paul's use of the concept of constraints to frame the issue of forced ranking.  While it still isn't a love connection for me - I find it helps me better appreciate where, how and why this process can add value.

More Aggressive Pursuit of Noncompetes during the Economic Downturn: Is This Right? Or Smart?

This may represent a small drift from the topic of rewards, but I have a hard place in my heart for noncompetes and so cannot help myself here.

According to Workforce.com, employment attorneys are seeing an increase in litigation over noncompetes during the current economic downturn, as company executives take measures to protect business.  And not just for executives and salespeople, but for junior and midlevel employees as well.  Including those who have been or are being laid off.

Is this right?  Is it smart?

I admit that much of my grudge against noncompetes stems from my personal experience with them and with organizations that rely heavily on them - I certainly am no employment attorney.  For me, though, nobody has summed up the argument against noncompetes with more wisdom and clarity than Charles Green of the Trusted Advisor blog, in a post he did last year titled You Empower What You Fear.

From Charlie's post:

Non-compete agreements are the manifestation of sick management thinking. They are symptomatic of failed people management. They give the lie to many companies’ claims that they care about their employees. But worst of all—like throwing water on a grease fire—they produce more of the very thing they were designed to prevent.

They are a poster child for the concept that you empower what you fear.

If you fear employees will rip you off, and set up spying processes—you will get ripped off.

If you fear employees will steal from you, and institute lie detector tests—they will steal (see The Perversity of Measuring Trust)

If you fear your employees will talk to search firms, and tell the receptionist to screen calls—they will talk.

If you fear your employees will take your secrets to a competitor, and force them to sign non-competes—they will try to take secrets to a competitor, and if they can’t do that, they’ll bring on a whole lot of other nasty side effects.

The alternative?  I like Charlie's thoughts here as well:

• If you really care about the employee who left, then be happy for him/her. If you’re not happy for them, then cut out the crap in your website where it says you believe in people development, because you don’t—you believe in the development of "human capital," an oxymoron. People know the difference. Capital doesn't.
• If you’re happy for them but wish they hadn’t left, then find out why they left and fix it before the next one leaves. If you don’t want to fix it, then go buy a lottery ticket. The odds of effectiveness are about the same.
• Make alumni of the people who leave. Your college didn’t go all resentful on you when you graduated; they didn’t make you sign a non-compete about getting a master's from another university. And when your college phones you to contribute to the fund years later, you still do! (And if you don’t, it’s because your college needs to read this blog). Think of people who leave as graduating advocates of your company—not as disloyal double agents.
• Let everyone know that you run the company on the basis of rules 1 through 3 above. And tear up the non-compete forms.

I get that there are necessary exceptions to these rules when it comes to some aspects of intellectual property and "trade secrets".  For the rest, I think it really does come down to fear.  And trust.  Or the lack of it.

If Charlie and others who posit that our current economic collapse can be largely traced back to a collapse of trust are right (and I think that they are on to something), is pushing noncompetes harder really the answer?

What do you think?

And Now... a Ray of (Pay) Hope!

In these days when we can feel surrounded by discouraging news, I thought this story was worth sharing.

Following the sale of their company to SKF Group of Sweden, the founding family of 67-year-old PEER Bearing Company, an international manufacturer of ball bearings, distributed $6.6 million in bonuses to its 230 U.S. and British employees.

From the story at UPI:

We always knew the success of the family could not have been achieved without our employees, and we wanted to show our sincere appreciation with something extra special as we all ride through these uncertain economic times," said Laurence Spungen, who announced the "thank you" with his wife Florence and their four children.

And... 

The bonuses, based on each employee's years of service, are in addition to the company's profit-sharing payments and 401k contributions, the family noted.

Daughter Debbi Spungen said some employees became emotional when they learned of the gifts.

"There was more than a little crying," she said. "One woman told me her husband has been out of work and the bonus will relieve a lot of financial pressure. Another woman was able to provide money for her elderly father to have surgery and said the money was 'a gift from heaven.'

The Spungen family sets a good example for all of us.

Hat tip to John Hunter of the Curious Cat Management Improvement Blog for his posting on this story.

Global & US Severance Pay Benchmarks Released

A global study of severance pay practices (covering 28 countries and 1,500 respondents, 456 of which were from the U.S.) has been released by Right Management.

I am sharing high level findings here, in response to the fact that I am getting a lot of calls and emails from people looking for benchmark data on severance practices.

The study notes that U.S. employees earn the least amount of severance pay worldwide, regardless of their level or tenure with the organization.  Something to keep in mind if you are involved in or overseeing reductions on a global scale.

From the study:

Mean Weeks of Severance Per Year of Service:

	United States	Worldwide
Voluntarily Separated:
Top Executives	2.76	3.39
Senior Executives	2.23	3.29
Department Heads/Managers	1.55	3.00
Professional/Technical	1.39	2.79
All other employees	1.23	2.65

Involuntarily Separated:
Top Executives	3.04	3.52
Senior Executives	2.49	3.33
Department Heads/Managers	1.78	2.93
Professional/Technical	1.60	2.75
All other employees	1.44	2.59

The Right Management data is consistent with the results of a WorldatWorksurvey on severance and change-in-control practices released in 2007 (featuring the responses of 523 WorldatWork members, presumably all or mostly U.S. based) which found that the most prevalent formula for calculating cash severance was one week of salary per year of service (31%), followed by two weeks of salary per year of service (20%).

The Latest Talent Management Blog Power Rankings are Out!

The crew at Fistful of Talent is at it again, unveiling round 2 of their Talent Management Blog Power Rankings. This round, Team FOT looked over 115 Talent, HR and Recruiting-related blogs in order to compile their list of the very best.

Compensation Force is honored to return to the #4 slot in the top 25!

Big thanks to Kris and compatriots for devoting the time and energy that they do to bringing us the best of the talent blogosphere.  Big congrats to all the great blogs recognized, both in the "top 25" and the "also receiving votes" section.

In these days of limited professional development budgets, I would submit that one of the best ways for you to keep your edge sharp and stay abreast of what's happening in the Talent field is to take advantage of the wisdom and information offered by these great forums.  With that, here is a terrific opportunity to add to your reading list!