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08/05/2015

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Any comp professional worth their salt could have predicted that there would be more issues than benefits with the pay floor Mr. Price put into place. He should've consulted with a compensation professional before implementing the pay changes. It's too bad he can't afford one now to help him fix what he created. I do see there is a posting for an HR Manager on the Gravity careers page...

Karen,
I love that yiou used the term "worth their salt", which is itself a direct reference to pay (http://www.phrases.org.uk/meanings/worth-ones-salt.html)

I didn't even think to look to see if they were hiring, much less hiring for an HR manager!. Priceless (or at least priced at more than $70K)

I'm not one to limit creativity but someone may want to explain the potential risks to the employees. If they are raising their standard of living (buying homes, bigger cars,...) and this does not work out they will likely not be able to find another job with the same pay. If the company does not succeed it could cause financial ruin for some of its employees.

On the other side, the end story has not been written yet and this initial backlash may pass. It sounds like they need to get through the year to let the new client revenue stream kick in.

Don't get me wrong, I would have a hard time suggesting going down this path but, the initial reaction to such a big change will be the strongest. He may be able to replace anyone that leaves with others that are more aligned with his strategy and bring a higher skill set.

If any comp professional worth their salt could have predicted that there would be more issues than benefits could they also figure out ways to embrace the philosophy and design surrounding programs to increase the likelihood of success?

As a profession are we so focused on what we think is "best practice" that we have lost our own ability to be creative and challenged?

Don't they say millennials want to work for a cause/purpose? How many dedicated hardworking individuals are lining up to work for Dan just to prove it can work? I always say it is the first movers that have the most conviction that have the best chance to make something work. It is the followers that will fail.

Trevor,

You make very god points. I think this initiative might still have some positive impact (if the company can adjust quickly enough.)

I also think that it was a knee jerk decision that did not include the four types of basic modeling that I always recommend a company perform.

1. Best Case Scenario - Unlikely, but what if everything goes right.

2. Worst case scenario - Also unlikely, but what if everything, or something really big, goes wrong?

3. Mathematical case scenario - What does the math tell you? You might not like it, or even agree, but it shouldn't come as a surprise down the road.

4. EXPECTED case scenario - What do you REALLY think will happen, and what will it take to best ensure that it happens?

I spend most of my time creating out of the box compensation solutions for interesting situations, companies and individuals. I LOVE bespoke solutions that are designed to fit a specific company, rather than some vanilla idea of industry standard or best practice. That being said, without a lot of work, out of the box solutions are more risky than following the leader.

As a quick idea, this could have been something they phased in over 2-3 years. They could have spent some of the money communicating the idea and getting employee buy-in. For those that expressed concerns or outright disagreement, they could have devised a succession plan to ensure lower risk to the company and all employees. They could have better communicated this to the other shareholders to ensure that there would not be an expensive lawsuit to further drain their time and monetary resources.

I am sure you would agree on most or all of the above. A little bit of planning would have gone a long way in this case.

Totally agree! It is all about planning.

The last time I ran the numbers, I found that if Jeff Immelt gave up his annual bonus and divided it equally among GE's employees, they would each get (after tax) enough for a small pizza.

Tony,

I have done the same simple math for companies like Walmart. They employ about 1.4 million in the US (and about 2.1M worldwide). Their 2015 proxy shows the CEO makes about $20M, 75% of which is in equity compensation value. So if they simply took ALL of his 2015 pay and divided it equally to the US employee (because who cares about the 500K outside the US?), each person would get about $14.00 extra FOR THE WHOLE YEAR. I doubt many would be impressed by this.

There is a real problem, but simply saying that it can be solved by limiting, cutting or sharing CEO pay is pretty darned shortsighted.

Yes, the idea that addressing CEO pay can solve the issue is very shortsighted. However, it carries great power for politicians. Despite the obvious math problems with the argument, it has great populist appeal and CEO pay is very easy to demagogue.

The same tactic is used with the idea that the US could pay off the deficit if only the top 1% would pay their "fair share" of taxes. The math (and a basic understanding of human behavior) proves that it won't work, even at 100% withholding of all income, but it sure gets a lot of votes.

Scott,

Thanks for the additional perspective. It is unfortunate that the "all or nothing" scenario is so many people go-to choice right now. It isn't just true for compensation and taxes, but nearly everything, It takes a lot of effort for people to find "common ground", mainly because "common ground" has somehow been redefined as surrender.

Some correction in CEO pay is probably a good idea. Some correction in tax revenue is a good idea. Some correction in the all or nothing world of politics is a good idea. Communicating the value of compromise as the best path is seemingly a last art this moment.

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