Compensation Cafe

The Best of the Compensation Café 2012 – A Holiday Gift from Us to You

Each year the crew at the Comp Café writes about 200 articles on all things compensation. Many of them are actually pretty darned good. In this spirit, each Café writer has selected a favorite post of 2012. Some were read widely and shared throughout the industry, others are hidden gems you may have missed when they were first posted. Here’s your chance to have a little thought-provoking, cheeky, holiday reading while you wait for reindeer hooves upon your roof. These are some of the best from the best compensation writing team in the business (or one of the best) (maybe around the median?) (nah, we’ll go with the “BEST”). Enjoy and get inspired for a 2013.

Ann Bares: Rewards & Gamification: New Frontier or Next Big Fad?

Used to be that the notion of playing games at work meant sneaking in a hand of Solitaire during a slow moment.  Now gaming is drawing attention as a way to connect people to reward programs and focus them on goal achievement.  Is this the new frontier of engagement or just the next fad?

Jim Brennan: The Compensation Cookbook

Bowing to the unceasing demands of compensation people for a one-stop source of all the secrets of the trade, E. James (Jim) Brennan dedicated his April 1 article to breaking news about the forthcoming Compensation Cookbook from the renowned author H.R. Screwtape.  The Compensation Cookbook is expected to be the last word on 21^st Century state of the art in the field of total rewards.  Readers are encouraged to place their advance orders as soon as possible.

Chuck Csizmar: Balancing Comp 101 with the Workplace

The contribution you can make to your organization is in blending technical knowledge (the how-to) with seasoning and experience to understand what will work for your organization, considering culture and management bias.  Technical knowledge will give you the same answer every time, but knowing how to use that knowledge like a craftsman’s tool to aid in achieving business objectives – that's the key to success as a Compensation professional.

Derek Irvine: You Can Never Give Too Much Recognition

One question I’m often asked is, “Can’t you recognize too much or too often? Doesn’t that water down the effect and impact of recognition?” My answer is nearly always to ask another question, “Have you ever received too much recognition?” The answer is invariably, “No.” Find out why in this post (including why the new Wreck-It Ralph animated movie is on my must-see list).

Margaret O’Hanlon: Your Comp Program Speaks for Itself. Are You Comfortable with That?

It’s tough to be candid with yourself about pay-for-performance practices. This article starts with vignettes from a few companies that don’t realize that they are stumbling. When managers don’t identify high performers accurately (because they prefer to reward their favorites), they don’t realize they’re throwing cold water on productivity and creativity. Most companies can’t afford to stumble these days. Q1 is a great time to both make resolutions and actually start work on them. Here are issues that you can, and should, address in your own backyard to sharpen the focus on results at the same time that you manage the numbers.

Laura Schroeder: Moneyball

Companies tend to overvalue top talent and undervalue everyone else. Assembling a team based on the ‘best’ people you can get for your money isn’t a winning strategy unless money is no object, and even then it’s questionable. This post discusses how the right B team can kick the A team’s butt and how that fact can impact hiring, rewards and performance.

Stephanie Thomas: The Compensation Function is Evolving

This was the Cafe's first infographic – proof that we are evolving right along with the profession. Creating visually stimulating translations of data can be challenging, but the results speak for themselves. It’s great to see that most comp pros (at least those included in the survey) are on the right track. - they recognize the importance of communication and consistency, and are moving toward refinement and specificity. I think this can only improve the compensation function.

Jacque Vilet: Out With Metrics ---- In With Analytics!  

I feel strongly that when compensation decisions are made, Compensation professionals need to use analytics that look toward the future rather than metrics that focus on the past.  The use of analytics will allow Compensation to more closely align a total rewards strategy with the company’s business strategy --- and that’s Compensation’s most important responsibility.

Dan Walter: Is it Time to Change the Equity Compensation Paradigm?

I love equity compensation, but am not currently enamored with how it is being used. This is the starting point for a discussion on how to best evolve equity compensation. The instruments, vesting schedules and stated goals for most of these plans have changed very little over the past 20 years. While people are naturally resistant to change, we are also supremely adaptable. What can we do to restore the purpose and luster to these programs?

Note: to see more from any of the Compensation Cafe writers simply copy and paste their name into the search field on the left. We bet you will find some additional articles that will make your “best” list for 2012.

All the best,

The Compensation Café

(And a special "thank you" from the Editor to Dan, who took time out of a busy year-end schedule to coordinate and compile this gift to our readers.)

Newton’s Three Laws of Compensation Motion

Earlier this week, fellow Comp Café-er Stephanie Thomas, wrote an article titled The ‘God Particle’ of Total Rewards. In it, she discusses the Higgs boson particle that seemingly holds the key to why things have mass and the secret ingredient in compensation programs - people - and how they hold things together. This got me thinking about how some of the most basic laws of physics control some of the most profound aspects of life. Given the fact that my last physics class was almost 30 years ago, I thought I’d take us back to basics. Sir Isaac Newton was a pretty smart guy. He developed three laws of motion that have historically worked well for most humans. With a little (OK, a lot) of poetic license I reframed these three laws below.

I. Every compensation program in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.

Basically, this says that once something is moving it will continue moving in the same manner unless, of course, something acts to stop or change that movement. Consider your average compensation program implementation.  Even the best implementation and roll-out has a few flaws, but it would be great if whatever movement we created at kickoff would remain constant for a while. However, nearly everything that happens at a company and to each individual directly impacts the movement of your program. Changes in goals scrape off a little of your speed. Strife with a boss pushes back against your well-designed program. Little and typically unnoticed distractions slowly drain away even more speed.

Handling this Law requires always being behind your plan pushing, or in front of your plan clearing a path. The push comes from understanding your program goals and being able to translate that into the goals of each key stakeholder and influencer. Clearing the path is mainly about communication.

Law I states: things will not change unless you make them change. In other words, don’t expect change to happen just because you want it to.

II. The relationship between an object's mass m, its acceleration a, and the applied force F is F = ma. Acceleration and force are vectors (as indicated by their symbols being displayed in slant bold font); in this law the direction of the force vector is the same as the direction of the acceleration vector.

This Law explains how velocities change when forces are applied. The greater the mass, the greater the force needed to create acceleration. Also, a greater mass requires more force to slow it down. This is the argument for both rigorous testing before any plan change and small pilot programs when the final number of people involved will be large. It is fairly easy to redirect, speed up or slow down a small group. Large groups, on the other hand, take enormous amounts of effort to get moving, to change direction or to slow down or stop. It is easier to stop a toddler on a trike than a fully loaded locomotive.

Often people wonder why compensation programs at very large companies tend to remain fairly constant regardless of popular trends. This law explains this.  While it is possible to make fairly quick movements with even the largest plans, the force (staff size and budget) required to execute and control the movement is seldom within the range of what compensation departments are allocated. The only hope for achieving quick movements here is to show how the quick movement of the compensation program can lead to an equally quick movement in company success.

Law II states: making changes becomes harder the bigger the group or issue gets.  In other words, don’t wait to make changes and when you do make changes make sure they work small before you try them big.

III. For every action there is an equal and opposite reaction.

This law is the tricky one for compensation professionals. Basically, it translates into: “Every time you do something great, expect to deal with something bad. I often hear this referred to as the “Law of Unintended Consequences.” In truth, if the action taken was deliberate, the opposite reaction should also have been fully expected.

The place I see this happen most often is in pay for performance programs. The performance award goal says to maximize revenue, but there is no mention of controlling costs or risks. The sales commission programs says you get paid a bonus on what you close in Q3, but does not specify that the deals need to stay closed through a given date in the future. The raise is given to keep an important person who would have been happy with half as much had they just not been “forced” to go interview somewhere else.

Law III states: that there should be no unintended consequences if you plan and design with forethought. In other words, every time you work to motivate an action or feeling, determine exactly how that motivation may also result in exactly what you don’t want.

While the ‘God particle” may still up be for debate, these basic laws are proven. Use them to your advantage or spend most of your time dealing with their consequences.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay

Executive Compensation Contradiction: Differentiate…But Don’t Innovate?

A recent article in London’s, The Telegraph “Overhaul the role of pay advisers, urges Lord Myners”, pushes for more accountability on the part of the advice provided by executive compensation and remuneration consultations. At issue are recent pay packages that met with shareholder ire, including those at Barclays and Cookson Group.

At both companies, CEOs had large compensation packages approved by their boards. In both cases, the companies used external consultants. At both companies, the packages for the CEOs were outside the norm. And, at both companies, the boards made it clear that they utilized the expertise and experience of their outside consultants to guide them through the process of creating better compensation programs.

The CEOs made more money than some thought was warranted. It seems obvious to them that the pay packages were incorrectly or intentionally structured to pay out higher than might otherwise be warranted. In both cases, the programmes (hey, it is the UK…) were not typical of the peers’ remuneration programs. There is an outcry for better link between pay and performance and these different plans did not make that link as expected.

Here’s the rub…

The critics have been complaining for years (decades) that legacy compensation practices have been consistently ratcheting pay upward. Simultaneously, they are screaming because these companies broke from the norm. At issue is the possible future of innovative and evolution of executive compensation practices.

Evolution is often met with failure. It is the nature of the process that some new things will work and others will succeed. Over time and many steps, we can build upon the successes to create something entirely new.

With thousands of public companies and hundreds of consultants, we can accelerate the process by closely monitoring the successes and failures. If we clearly communicate both the “what” and “why” of the successes, we will move swiftly to a new regime of remuneration (it’s still the UK…) Of course, we also need to recognize the failures, but we need to correct, and not overreact, when these occur. Our investors, compensation committees and organizations like ABI, ISS and Glass-Lewis must be better at pointing out the flaws while recognizing the attempt at something better.  We then need to move on to something better, not return to something “like everyone else has.”

If the old way is broken and new ways are punished, what are we to do?

As compensation professionals, (external consultants, internal leaders and subject matter experts), we need to be better about explaining the “what” and “why” of every innovation. We need to make sure that both upside and risks are fully understood. We need our boards to truly understand the flaws of the legacy program and how the new program has been designed to correct them. In short, we need to provide the ammunition for support just in case the risks come true. Compensation has become increasingly more strategic and visible. If we are going to evolve to meet everyone’s needs we must also be given the room to occasionally fail.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay

What Are Shareholders Really Saying on Pay?

 “Danny, if I have to tell you one more time to stop jumping on the bed, you are going to get it!” 

The warning is not enough and Danny jumps on the bed again.

“Danny, next time you jump on the bed I’m taking away your allowance.”

Shareholders have become much like lenient, but frustrated parents.

This is how investors seem to be using Say on Pay (SOP). When you look at their SOP votes and filter out all of the noise, what they are really saying is:

“We want you to take this pay thing more seriously.  If you don’t, we are going to get angry. If you keep it up, we are going to vote against you.”

Look at Citigroup. Their 2011 Say on Pay passed with over 80% of shareholders voting for it. This year they received a failing vote. In fact, nearly all of the companies who have failed thus far in 2012 received significant passing votes just a year ago. These same companies would have likely received passing votes prior to 2011, if Say on Pay had already been the rule of the land. So why is there negativity this year?

Shareholders have been talking about this for a while. Here’s a translation:

“You haven’t been listening to us and you are not learning your lesson. So, we’re going to punish you by making our disappointment public with a “no” vote.  We are voting ‘no’ on your executive compensation. And, if you don’t fix this by next year and we have the same problem again, you’re really going to get it!”

Now of course, investors have little to threaten with, other than shame. Unlike mom, they can’t unilaterally take away executive “allowances.” Say on Pay is not a binding vote. It just allows them to voice concerns. To make a real impact, shareholders would need to have the votes to remove members of the Compensation Committee or other members of the Board. But, this is drastic action that has been seldom taken in the past. We haven’t yet seen this happen with Say on Pay in the US, but the rule is young and shareholders’ patience is shorter than ever.

Like frustrated parents, I can foresee the comments now.

“We told you to stop jumping on the bed. But, you kept on jumping. Then we ‘sent you to your room’ by voting no on your compensation package. But, the bouncing continued. Now, you’re being grounded for a week and are required to do extra chores, like making the company perform better, or get paid less. To prove we’re serious, you’re not allowed to play with your friends on the Compensation Committee anymore.”

Everyone has been given sufficient warning and time to prepare for Say on Pay. When a company fails, those of us outside might be surprised, but internally the company is unlikely to be caught unaware. It’s more likely they realized there was a good chance of failing.  So instead, they felt that if they cajoled a few people, or got investors to understand the executives are not fully to blame for poor corporate performance, they could squeak by one more year.

Looking at the votes that have been coming in, there seems to be little doubt in the Say on Pay failures. When companies fail, it is pretty conclusive. The real doubt is in the passing votes. The average passing vote gains more than 85% of shareholder votes. Perhaps shareholders should be a little less lenient when they are giving their initial warnings so companies on the cusp can clearly understand that investors are serious. Or, perhaps companies should look at every positive vote with a more critical eye. An 80% vote this year, may simply be your shareholders saying:

“Danny, if you do that ONE MORE TIME…”

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay

Nonprofit Restrictions Might Affect You

Why should HR/comp professionals care that almost 400,000 nonprofits disappeared last year in America?  Above and beyond those who are directly employed by a nonprofit, there are lots of reasons for the rest of us, including self-interest. 

Corporate giving programs are frequently part of the total rewards system.  Employees may ask for donations to charities or request time off for volunteer activities at worthy causes.  Top business executives regularly serve on nonprofit boards and often involve their HR and compensation staff to provide in-kind pro bono services.  Finally, regulators can levy personal fines of $10,000 against organization managers (which includes advisors) for every compensation mistake. So some knowledge about the nonprofit sector is a must.

Government housecleaning caused the approximately 20% reduction in the number of tax-exempt entities currently recognized by the IRS. The organizations that lost their tax-exempt status had not filed with the Service for 3 years; most were very small and no longer active.

Tax-exempt enterprises hold their privileged status only by providing a public benefit and meeting certain specific federal and state rules like timely filing.  One of the most fundamental (and surprising) requirements is transparency, as the annual required IRS financial reporting is a public document.  To maintain their tax exemption status, they must follow IRS regulations and restrict their activities to permitted behaviors that meet the public benefit purposes that justify not paying taxes on their assets or income.  That means that if they abuse the rules or skip submitting the necessary forms to the IRS long enough, they can lose their tax-exempt status.  In 2011, the IRS implemented legislation that forced the loss of tax exemption for nonprofits that did not file as required.  With fewer to audit, state and federal regulators may become more aggressive.  The remaining group of nonprofits approved for tax-exempt status will be subject to tighter IRS review in the future.

Total reward professionals or their executives who take part in management decsions at charities and foundations will be well advised to: 

• avoid prohibited political and unrelated business activity; 
• file the correct form properly;
• use e-filing because it will catch math errors and the software won’t permit failures to complete the form properly;
• watch out for excess benefit transactions that enrich insiders and can trigger an Intermediate Sanctions (IRC 4958) charge by enforcers. 

Special rules permitting lesser penalties than revocation of tax-exempt status against parties who receive or permit unreasonable compensation were enacted in 2001. Directors and HR/compensation professionals who qualify as organization managers under IRC 4958  (even if merely providing outside advisory services) are exposed to personal financial liability under the Intermediate Sanctions regulation for activities that are permitted at for-profit enterprises.  For example, allowing the Chairman's worthless nephew to hold a highly paid sincecure at a tax-exempt organization can cost you a personal $10,000 fine. 

Truly, things are different at nonprofits.  Forewarned is forearmed!

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

Image courtesy of discoverybusinessservices.com

What's the Point of Base Pay?

What's the point of base pay? Oddly enough, that's the kind of question that writers for Compensation Cafe kick around!

Employees have told us -- through research -- that incentives, career development and performance management may change behavior. Base pay, on the other hand, has been shown to be a satisfier not a motivator. But something about that was bugging me though I couldn't put a finger on it.

 So, I spent the last few days searching around for a concise way of communicating what was in my muddled mind. Here's what I found, and I think it gets us half way there at least. (More on the other 50% in a minute.)

This is Towers Watson's Linkage Model -- a model that I was trained on as a Towers Perrin consultant, so I guess it was lurking back there in my grey cells. 

Yes, as you can imagine, base pay is a foundational reward not a performance-based reward. But, but, but. Get base pay wrong, let it get out of date, misaligned with current job responsibilities or somehow feel unfair, and engagement, retention, productivity and customer service will all suffer.

The other 50% that I mentioned earlier? It's not behaviors, but emotions. Strong, deep employee emotions that can flay behaviors alive.

Let base pay drift or do a poor job of communicating it and watch employee trust drip, drip, drip away. Then watch what happens to engagement, retention, productivity and customer service.

Thanks to Towers Watson for reminding me. The rumors about base pay's limited influence on behavior seem premature.

Hey, by the way . . .

Want your own say on pay? Here's your chance to be heard! It takes less than five minutes to get it all off your chest.

Click here to take our survey about your pay.

We're planning to turn up the volume, encouraging everybody who wants to to share their opinions. Pass the link along, tweet it, mention it at meetings. Anyone who has a full-time job is welcome to participate.

And you can depend on us to listen. The findings will be shared at this year's WorldatWork Total Rewards conference and reported here at the Cafe.

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin. Margaret is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University. Creative writing is one of her outside passions, along with Masters Swimming. 

Executive Compensation: The Political-Taxation Conspiracy

We hear the cries every day. “Executives make too much money. Let’s raise their taxes!” “Executives are  our job creators. Let’s cut their taxes!” Perhaps key members of both sides of this argument are keeping the focus on compensation levels to deflect from where taxes and political contributions come from. Are there underlying reasons for politicians to avoid strong support for performance-based compensation?

In this election season, we are all aware that the large contributors to political races are often people who make large sums of money. It’s no surprise that some people believe that politicians favor the needs of those who provide funding for their campaigns. Tax season has just begun and it has its own political links.

Not so surprisingly, the individuals who pay the largest amounts in tax dollars are generally those who are the highest compensated. Most people, even those who are paid these large amounts, would say that this is a fair system. But, what happens if compensation levels drop, as will more frequently happen as companies focus compensation on pay for performance?

A Feb 29, 2012 article, “Bonuses Dip on Wall St., but Far Less Than Earnings,” in the DealBook section of the New York Times, discusses how Wall Street bonuses are forecasted to drop 14% at a time earnings are forecasted to drop more than 50%. The article was essentially a discussion about the lack of linkage between pay and performance, but a small section caught my attention. It talks about the impact of the 14% bonus decrease on New York State and City budgets.

“Still, a dip in year-end cash compensation is cause for concern for New York government officials. Before the financial crisis, Wall Street accounted for 20 percent of the state’s tax revenue. Last year, that tally was 14 percent. For New York City, the share dropped to 7 percent of tax revenue from 13 percent over the same period.

“The city budget is dependent on a very small group of people — the 1 percent, if you will,” said Nicole Gelinas, a senior fellow at the Manhattan Institute. “If the 1 percent isn’t doing well, the city’s not doing well.””

Imagine, that instead of a 14% decrease in variable compensation, companies didactically followed “pay for performance” to the exact level demanded by some of its most ardent supporters. In the case of Wall Street in 2012, this would mean a drop in related taxes of 53%. In terms of real dollars, we can use the estimates provided by the article. It claims that in 2011 “New York firms paid roughly $20 billion in year-end cash compensation.” First, this specifically removes the changes due to equity compensation, which us comp pros know is a big piece for this level of employee. Second, $20 billion generates a lot of tax revenue. New York State income tax is about 6.85%. New York City income tax is about 3.65%. That gives us a combined local rate of 10.5%. 10.5% of $20 Billion is $2.1 billion in tax dollars. That’s a lot of school lunches and road repair. Cutting this in half, to match corporate performance, would mean tax losses of more than $1 billion! And, that’s just in the city and state of New York!

Of course, this isn’t just a Wall Street problem. Local newspapers around the country regularly create lists of the highest paid executives in their area. Pay for performance decreases would impact the contribution potential of every one of these people. In states, or other areas, with income taxes, pay decreases would also directly impact local budgets. Consider the case of California, where the budget was decimated by the fall of the stock market and subsequent lost tax income that stock options and other equity compensation provided.

As long as we have political races, we will have at least some level of conflict with reductions in executive pay. As long as we have taxes, we will have additional conflicts between the needs of the public and executive pay. Since neither of these issues is going away in our lifetime, perhaps we should get them out in the open and start discussing how to plan according on all sides of this equation. The title of this piece uses the hyperbolic term “conspiracy.” I believe that is a gross overstatement. The political and taxation ramifications of pay for performance are simply realities that we have yet to fully address. It will be interesting to see how this works a decade from now.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay

Executive Compensation and the Great Wizard of Oz

Executive compensation holds as much mystery and magic as the Great Wizard of the Emerald City.  Of course, if the curtain were to be pulled back, the real magic would be found in how a lack of information, combined with fear and imagination, have colored the pay of all executives with the same brush. Remember that when Dorothy and Toto met the wizard he was just as unhappy and scared as they were.

I find it amusing and frustrating that there is so much misinformation about executive compensation. Let’s state the givens: Yes, there are many CEOs who make more money than most people can comprehend. Yes, executive compensation is a complex arena with many assumptions and estimates being made at any given point. Yes, companies spend a lot of time and effort on disclosure. So why am I frustrated?

Everyone discussing executive compensation has some type of an agenda. Companies don’t want to upset their shareholders or fight with the media. Journalists want a story that stands out among the noise of the day. Shareholder advisory firms want to show their knowledge and ability to shift practices. Consultants want to defend their past practices or point out their superiority when compared to pay at non-clients. Survey data providers want information that can be easily understand and digested. Politicians want to look good to their constituents without upsetting their contributors.

Each perspective leads to a different approach to the positives and negatives of executive compensation. Companies tend to paint things grey and play it safe. The media tends to hyperbolize and point out the outliers. ISS and Glass Lewis point out new issues to remain relevant and gain new clients. Consultants point out their successes and explain their failures as “beyond their control,” or “not their fault.” Survey data is defended as holistic even when it is often made up of a tiny fraction of representative companies. Politicians focus on the obvious problems and talk about them like they represent the majority of pay practices (but, they seldom act in the same way.)

All of this posturing has turned the topic of executive compensation into a kind of omnipresent wizard with terrifying powers and a capricious temper. It’s spoken about in hushed terms or artificially confident booming voices. The curtain is never really pulled back, since everyone already “knows” what’s behind it.

Imagine if the wizard had simply invited Dorothy behind the curtain the moment she arrived. Consider what his life would have been like had he rejected the mysticism of his new role from the day he arrived in Oz. Of course, he wouldn’t have had the power over people that mutual fear and misunderstanding granted him. Perhaps he wouldn’t have also had a lonely misunderstood existence that made him miserable.

When preparing this year’s proxy disclosure, say on pay voting and overall communications regarding executive compensation, consider pulling back the curtain on your pay. If you give people the truth only the crazy will find a way to dispute it. If you give people the whole picture you will lose the power of mystery but, in return, gain the power of understanding.

(Dear Readers: Yes, I know that I have used the Wizard of Oz twice in recent posts. No, I don’t know why, since I have not seen the movie in several years. Who knew it was created to inspire compensation articles?)

 Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Prepare for Compensation Meetings Like an NFL Broadcaster

Like many of you, I have football games playing on my TV during most autumn Sunday afternoons. Also, like most of you, I  pay a lot attention to the big plays, but little attention to the broadcast itself. This past Sunday, for perhaps the first time ever, I focused on the incredible preparedness of the professionals producing the television events. It got me to thinking. What if compensation professionals prepared themselves in the same way? Our meetings with Executive Management and Compensation Committees would be short, enjoyable and incredibly effective.  More importantly, our programs would evolve more quickly and represent our companies more completely.

Consider any NFL broadcast. The announcers have spent all week studying the players and game plans of each team. Research assistants have put together statistics with such specificity that they make my wife laugh almost every weekend. “That pass sets the record for most passes to a running back, under 5’7” during the third quarter of a game in the twelfth week of an NFL season.” Cameras are set-up to cover the play from nearly every angle. They know where family members are sitting and where they’re from.

A great example of this attention to detail was a recent game in which Carson Palmer, quarterback for the Oakland Raiders, threw an interception that was run back for a touchdown. Almost immediately, there were replays from three or four different angles. There was nothing surprising here, just expected levels of great work.  Then came the doozey. Within 30-45 seconds of the play the announcers started talking about Mr. Palmer’s tendency to throw interceptions that were returned for TDs. While they spoke, a series of at least eight prior interceptions from the full length of his 8 -year career, played on the screen.

This meant that someone had just prepared for this unique opportunity. Carson Palmer has played more than 128 games in the NFL.  He has thrown 2,560 passes. Of these, eight or nine were intercepted and returned by the other team. Someone on the broadcast team gathered these into a package that was immediately accessible. The director knew the package was there. The researchers knew how to call it up on demand. The announcers were fed some statistical information to support their innate knowledge. And, in less than a minute, everything came together on screen in compelling support of this specific tendency.

Imagine if you were this prepared every time someone asked you about your compensation plans. “Hey, what’s the rule on Change-In-Control for the 2007 Stock Option Plan and does that conflict with the COO’s employment agreement that he received when we was hired at that company we acquired in 2009?” What if you had an immediate (correct) answer every time someone asked, “Why do we have that feature?” or “How much cash and equity should we offer a Senior Software Programmer, in Chicago, IL?”

If we all prepared and stayed organized like NFL broadcast teams, much of the stress of our jobs would be gone. The stress of leaving a meeting with more things to do than when you walked in.  The stress of providing the wrong, or no, answer in an executive meeting. The stress of correcting administrative errors due to assuming we knew a rule, rather then knowing the rule exactly.

Of course, we’ll never get to a point where we simply have a team of specialists to help us get prepared. We do not work in an industry where there is always accurate statistical data, or in a world where our rules are applied exactly the same way every time.  But, we can, and should, consider making this our goal and begin working toward achieving it.  You never know when that one thing that has only happened a couple of times in the past will happen again, but you would likely be compensated and respected more if you had a ready solution when it came up again.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” , “If I’d Only Known That” and  “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Compensation In the Eye of the Tornado

In a world of swirling regulations, opposing forces of needs versus budgets and increasingly pressing deadlines, it is far too common to get caught up in the tornado that is our everyday work. Generally, when a tornado comes the best plan is to get out of its way. When that is not possible and the tornado takes hold, our survival instincts immediately look for a way out. I am here to propose a better plan. 

Think about it. What happens as you move towards the edges of a tornado? The winds move faster and faster and eventual you get flung out in an unexpected direction. Often this causes great harm to you and/or anyone or anything near the tornado. If you stay in the swirl of the tornado, the vortex may steal your breath away and items within the storm may catch you unaware. Since we know that escaping a tornado is a recipe for disaster and being tossed about is also a great risk, we should aim for a completely different plan.

When caught up in a cyclone of work and accountability, I suggest that you move quickly to the eye of the storm. The idea may be terrifying and opposite of your instincts, but the eye of a storm is calm and focused. You can operate from the eye while reaching out plucking from the melee those things that you absolutely must get done. You can focus on critical tasks and let the storm rage around you until, like it always does, it calms down and fades away.

An Executive Compensation Tornado

Year-end is approaching. The company just hired a new CEO, and at the same time the Board has brought in a new compensation consultant. A month ago your company announced that it would be acquiring a major competitor that has operations almost exclusively in countries where you don’t. The performance equity plan from three years ago will pay out at around 75% at the end of the year and the system you use only partially supports this transaction. Since the end of the last quarter you have had changes in three of your top five institutional investors. At least one of them uses an evaluation methodology you are not yet familiar with. On top of everything else you have been told that your HRIS system is going into lockdown for 6 months for an upgrade. Inevitably, the IRS has just rolled out another of its “almost year-end” rule clarifications.  Have I mentioned your compensation analyst is out on maternity leave and the SVP of HR is going through their first year-end at your company? The tornado is almost upon you (again), what will you do? 

1. Remind yourself of your priorities.
2. Focus on your priorities while reaching out to those around you for assistance.
3. Get the key items done while keeping an eye on the lower priority items. In short, do the most important things well, rather than doing everything poorly.

As we move into the final quarter of the year and prepare for the maelstrom that is typically called year-end, it is important to have a strategy to come out the other side as unscathed as possible, while still fulfilling the necessities of your position. Of course, afterward there will be a great mess to clean up. The difference is you will be able to address the mess instead of being part of it.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay