Compensation Force

Early 2011 Salary Planning Numbers Released

Hay Group has released early forecasts from their 2010 Compensation Survey, reflecting data provided by more than 300 organizations from March through June 2010.  Comprehensive results will be published at the end of July.

Select statistics from the early release: 

 
Hay also provides some early breakouts by industry; click through to see more.
  

Comparable Worth: Debating the Pros & Cons

The cover story in the July issue of WorldatWork's workspan magazine is The Pros, Cons and What You Really Need to Know About Comparable Worth.  Paul Weatherhead (U.S. Postal Service) moderates, Jim Brennan (ERI) debates the "Pro" angle and I take on the "Con" point of view.

The article has been posted online and also featured in WorldatWork's online community where it should prompt some interesting discussion.

Won't you join in?

The Perils of Setting Incentive Plan Targets: Revisiting Some Rules of Thumb

Amid the uncertainty we all inherited along with the downturn, the challenges of setting incentive plan targets are even more acute than usual.  What constitutes a reasonable target performance level?  Are we setting the bar too high ... or too low?  How do we put these decisions into some context?

In helping my clients navigate plan design and update, I've pulled out and shared my "rules of thumb" (for setting incentive plan threshold, target and maximum levels) a number of times in the past few weeks.  These were first shared with me by an attorney who specializes in defending reasonable compensation claims and charges; I have since had them confirmed by a number of sources.  Bottom line, they continue to make sense to me and they provide helpful guidance when navigating plan design and update, particularly through times when economic turbulence makes goal-setting and budget determination difficult. 

So I share them here with you again (I first trotted them out in a post back in 2006) in the hopes that you will also find them helpful.

Threshold:  This term usually refers to the minimum level of performance required for any incentive award to be generated.  The question is:  Where to set threshold?  Rule of thumb: Threshold is typically established at a level that you would expect to be reached in 8 or 9 out of every 10 years.  In other words, plans should be designed so that there is some level of payout (typically minimal for this level of performance) 8 or 9 times out of 10.

Target:  This term usually refers to the level of performance that generates a "competitive", "plan" or "budget" level award.  It typically means you have reached the plan goal.  The rule of thumb suggests that target is typically established at a level that you would expect to reach 5 out of every 10 years (or about half the time).  (Remember that you have to blow past threshold to reach target; this is the reason that these figures are not additive.)

Maximum:  This term usually refers to the level of performance which results in the maximum award available under the plan being granted.  For plans with no maximum or ceiling, perhaps this level is designated "outstanding" or "exceptional".  At any rate, the rule of thumb for plan maximum is that it is established at a level that you would expect to reach 1 or 2 times out of every 10 years.

Any other rules of thumb that you've found helpful in target setting?  Any experiences that would suggest the set I provide here is no longer relevant?  Feedback and comments welcome!

Image: Creative Commons Photo "Target by Jasper Johns" by cliff1066

Reward Design: It's No Place for Amateurs

A colleague of mine is the CFO for a mid-size service company.  One day, his administrative assistant phoned me.  He had tasked her with revising the company's employee incentive plan.  After a few minutes of vague direction, he asked her to take her best stab at it and then fax the result to me for review and approval.

The problem was, of course, this very competent administrative professional had no experience in reward design and she didn't know where to begin.  She spent an hour surfing the web looking for ideas, then - stumped - called me to ask for help.

It took all I could draw from my relatively shallow wells of tact and diplomacy to steer this dialogue back to her boss and help him see his error without either stigmatizing her or jeopardizing my relationship with him.

My point?  Simply that reward design is no job for amateurs.  Read more about the reasons why at my Compensation Cafe post today.

What Should a Career in Your Company Look Like (& Do Your Pay Practices Sync Up?)

I get a lot of questions (and so do many of you, I bet) about seemingly isolated pieces of pay program design, like:

• How many pay grades should we have?
• How much differential between pay grade midpoints should there be?
• How wide should our salary ranges be?
• Should we establish multiple levels for some jobs (e.g., Accountant 1, 2 and 3) and, if so, how do we determine the number of levels needed?
• What guidelines should we establish for promotional increases?

While circumstances will press you to make decisions like this quickly and on their own (supposed) individual merits, to do so misses the chance to pull them together in a manner that supports the kind of work experience designed to make your employees - and ultimately your company - more successful.

It starts with asking one important question:  What should a career in your company look like?

And underneath this big question are a number of more pointed and specific ones, including:

• To what degree should a career in your company be about upward movement, encouraged and reinforced by the chance for a promotional increase?
• To what degree should a career in your company be about lateral development? Cross departmental/functional/divisional development? How should this development be encouraged and reinforced?
• Should the pay program encourage people to stay and learn in the same role for many years? Should it encourage them to move on or up after a year or two?
• Do the answers to these questions vary by employee group? By professional discipline? By functional area? If so, how should the pay program best address these differences?

Bottom line: Is a career at your company better because of your pay program ... or in spite of it?  Only proactive planning (and resisting the pressure for isolated pay design decisions) will ensure that career and pay progression are in purposeful sync, rather than at odds with one another.

Employee Benefit Trends Revealed, Including Potential Link Between Benefits & Productivity

For eight consecutive years, MetLife has surveyed employers and employees on pressing benefit issues in the workplace and compiled the results in its annual Study of Employee Benefit Trends.  The study is based upon 1,503 interviews with employer benefit decision makers and 1,305 interviews with full-time employees.

With this year's study, MetLife notes five major findings:

#1 Employee benefits appeared relatively resilient in this recession.

Employee benefits weathered the economic storm with only relatively modest reductions.  Most employers held the line on core benefits and 401(k) matching in the face of enormous bottom-line pressure.

#2 Employers are reprioritizing their benefits objectives in response to the recession.

Benefits objectives have shifted as a result of the economic crisis.  Controlling benefits costs has risen to the top among benefits objectives for employers, overtaking employee retention, which had led since 2006.

#3 Benefit programs may be effective at improving employee productivity

A new finding this year is a reported link between benefits programs and employee productivity.  Many employers and employees say that programs that foster health & wellness, financial advice and guidance and work-life balance can be very effective at improving productivity at work.

#4 Employees' concerns and attitudes about their financial security are subsiding but still significant

It may be months or even years before the economic pendulum swings completely back to expansion and growth, but employees appear to feel surprisingly optimistic about the future, and have taken steps to address some of their financial inadequacies by beginning to save more and reducing personal debt.

#5 New employer engagement is emerging for retirement programs, but the gap between employer actions and employee priorities persists

As the continued interest in companies implementing automatic features in defined contribution plans attests, employers are becoming more involved with their retirement programs.  They are increasingly vested in ensuring that these programs will be capable of supporting workforce management goals and facilitating an orderly retirement of their oldest workers.

Download the MetLife report of study results here.

Are Your Values Delivering Value?

Nearly every organization I've ever encountered has an articulated set of values.  Some are downright inspiring.

The questions are:

Do they matter?

Do they really mean something?

Do they deliver value of any kind?

Or are they just pretty words, framed up on the entry wall and the web site?

In her Harvard Business Review blog post on the topic of corporate values, Rosabeth Moss Kanter lays out the ten essential ingrediants for making values, well, valuable ... in ways that improve accountability, collaboration and initiative within an organization.  Her list is terrific; I found myself particularly drawn to Ingrediant #7:

7.  As they become internalized by employees, values and principles can substitute for more impersonal or coercive rules. They can serve as a control system against violations, excesses, or veering off course.

I have seen the truth in this first hand.  Organizations that truly live their values, even (and, perhaps, especially) when they force tough trade-offs and difficult decisions, can ultimately rely on them as a powerful system of internal controls.

The trick, of course, is in the willingness to walk the value talk.  For many organizations, institutionalizing values really comes down to performance management.  It means a commitment by leadership to deal - quickly and decisively - with value-busting behavior.  Even (and, in fact, especially) when the value-breaker is a top producer, a long-tenured employee or a member of senior management. 

The inability to do so speaks volumes, volumes that way overpower any framed message in the foyer.  Value statements that are merely (in Moss Kanter's words) "passive decorations" are not only unlikely to deliver value, they are powerful underminers of trust. They unwittingly emit an aura of dishonesty and double standards.  They say "we speak one thing, but do another."

As employers emerge from the recession, the time may be ripe to revisit corporate values to ensure that the words still resonate and that they represent concepts that your leaders are willing to stand up for, no matter what.  Moss Kanter's list of essential ingrediants provides you with a great guide for that conversation - and for putting that confirmed set of values to work for you.

I leave you with the immortal words of that great organizational thinker, Elvis Presley:

Values are like fingerprints.  Nobody's are the same, but you leave' em all over everything you do.

New Study Covers Outside Director Compensation

Hewitt Associates recently released an analysis of compensation programs for outside directors at 708 public companies (average sales volume $12.5 billion, median $3.4 billion), the data drawn from public documents between January 1 and December 31, 2009.

Based on the information collected, Hewitt reports the average outside director compensation package to be comprised of the following components in the proportions shown:

 
Further high level details of the typical outside director compensation package are summarized below:

Annual retainer

• 99% of companies provide an annual retainer.
• 79% are distributed solely in cash, 2% solely in equity and 18% of retainers include a mix of cash and equity.
• The average annual retainer is $67,262 and the median is $50,000.

Board meetings and fees

• 56% of companies pay board meeting fees.
• The average fee is $1,094 and the median is $1,000 per meeting.
• The boards studied met on average 8 times during the study period.

Committees and fees

• 97% of companies pay additionally for committee service.
• Median meeting fees (for Audit, Compensation and Nominating and Governance Committees) is $1,500 per meeting.
• 93% of companies pay the chairman of the Audit Committee a retainer fee (median $15,000).
• 90% of companies pay the chairman of the Compensation Committee a retainer fee (median $10,000).
• 86% of companies pay the chairman of the Nominating and Governance Committee a retainer fee (median ($10,000).

Equity

• 83% of companies provide some form of nonretainer equity compensation.
• The median and average economic values (fair market on 3/31/09) of nonretainer equity grants are $59,172 and $68,767, respectively.

Hewitt's analysis is rich with further information and details (including subanalyses by industry and company size), very worth checking out if you are seeking intelligence on outside director compensation.

Image from Hewitt 2010 Analysis of Outside Board of Director Compensation.

What Form Could Legalized Worker Pay Disclosure Take? What Would OUR Responsibility Be?

As many of you know, the Paycheck Fairness Act has been approved by the House of Representatives and discussed in the Senate.  There's a good chance it will be considered before Congress takes its August recess.

A post this week on Robert Fitzpatrick's Employment Law blog, Passage of the Paycheck Fairness Act Could Legalize Employees' Discussion and Disclosure of Their Wages with Co-Workers (via Jon Hyman), led me to consider a particular aspect of the Act that I hadn't previously given much thought to.

In Section 3 of the proposed Paycheck Fairness Act (H.R. 12, S. 182), the bill in Section 3(b) proposes to radically amend Section 215 of the FLSA (29 U.S.C. § 215(a)), including language that would appear to generally legalize discussions and disclosures amongst employees of their wages. The language proposes to add to Section 215(a)(3) language so that it would read, in part, as follows: “it shall be unlawful for any person-- . . . (3) to discharge or in any manner discriminate against any employee because such employee has inquired about, discussed or disclosed the wages of the employee or another employee.”

As the proposed amendment contains no language that relates the inquiry about wages or the discussion of wages or a disclosure of wages to gender discrimination issues, it would appear to be a general prohibition, making employer action predicated upon such inquiry, disclosure, or discussion a wrongful discharge.

It strikes me that this could have significant implications for HR and reward professionals.  If employers can no longer prohibit employees' discussion of pay with their co-workers, to what lengths would - could - employees be allowed to go in their exchange of information?  What roles would we (as HR and reward professionals) want - need - to go in tracking these efforts and complementing them with the educational framework necessary to ensure that this exchange is as well-informed and ultimately helpful as possible?  What responsibility would we, should we, take for policing these activities?  Who is ultimately accountable for enforcing the boundaries of employee privacy rights in this legal scenario?

Seems like this Section of the Act, if passed, could open some interesting doors for us. 

Are we ready?

Image: Creative Commons Photo "U.S. Capitol" by Cliff1066

Not Either But Both: Connecting Employees to Their Work AND Rewarding Them Effectively

For as long as I've worked in this field, there's been an ongoing debate about intrinsic versus extrinsic rewards.  Years earlier, it was driven by Alfie Kohn's Punished By Rewards.  Today, the debate rages anew with Dan Pink's Drive.

Although the debate is an interesting and ultimately productive one, I think most of us in the world of people practice realize that - bottom line - both intrinsic and extrinsic rewards are important in meeting the needs and objectives of all the parties involved in today's workplace.

And for me, variable pay is an example of where these two aspects of motivation must intersect in order for any plan to achieve its potential.  I've written before on the three connections that are essential for making incentives deliver on their promise; the first two of these three connections are Meaning (understanding how our work benefits others) and Value (understanding how our work creates economic value).  I stubbornly maintain that all work has meaning and value - or there is no reason to be doing it in the first place.

In an article, Management by Shared Mindset, in the newest issue (71) of Change This, David Ulrich and Wendy Ulrich discuss making work meaningful and profitable at the same time.  I particularly appreciate their thoughts on the challenge of "customizing the employee deal":

Too often employees feel emotionally disconnected from the work they do; their work may capture
their talents and time, but not their heart and soul. Great leaders personalize work conditions so that
employees know how their work contributes to outcomes that matter to them. These leaders help
employees answer the question “what challenges interest me?” so that the employee does work that
is meaningful to him or her. Customizing work includes tailoring what work is done, where it is done,
when it is done, and how it is done. Employees who find their work energizing and enjoyable will
find more meaning from it. Employees will stay awake, enthused and excited about the work and will
be more productive in doing it.

Helping employees see the meaning and the value in their work - in a way that matters to them.  That is great leadership ... and the fundamental platform for effective rewards.

How do your practices stack up?

Image: Creative Commons Image "Abstract - Yin and Yang" by Temari 09