Compensation Cafe

Who Impacts Stock Price: CEOs or Geeks?

Editor's Note: Today's post comes to us courtesy of guest contributor Jacque Vilet.

In a post I wrote a few months ago entitled Deja Vu All Over Again, the focus was on the weak link between CEO pay and performance.

In most of the analyses, stock price was the criteria used to gauge CEO performance.  It was found that regardless of whether the stock price rose or fell, the CEO’s pay increased --- therefore no positive correlation.

Stock incentives came into prominence during the 70’s when Boards realized that by requiring CEOs to invest a large portion of their personal wealth in stock, they could ensure that those CEOs had the same objective as the shareholders – maximizing stock price.  Not a bad idea. Therefore, stock incentives became the largest component of a CEO’s compensation package, and the link to stock price seemed to work well.  Over time, however, executive comp experts found poor correlation between pay and performance/stock price.

My question is this:  Do CEOs really have much impact on stock price today?

Think back to the 70’s and what the world was like then.  Compared to today, most people would probably agree that the business world was much less complex.  The term “globalization” was virtually unknown, there was little impact from economic disasters outside the U.S. and ---- Al Gore had not invented the internet yet!   Similar to the simplicity  of the banking industry as portrayed in the movie “It’s a Wonderful Life”.   

Now fast-forward to today.   Think about the difference ----globalization, economic upheavals with worldwide impact and high tech involved in every aspect of our lives.  

OK, so what does all that have to do with executive comp and performance/stock price? 
Most people don't know it, but close to 70% of the stock trades in the U.S. are no longer being made by human beings. They're being made by computers, capable of buying and selling thousands of different securities in the time it takes you to blink an eye.  

It's known as "high frequency trading," and has nothing to do with 'investing' in the classical sense of the term. These computers operate on highly secret instructions programmed into them by math wizards, who may or may not know anything about the value of the companies that are being traded and frankly don’t care.

They anticipate which direction individual stocks are likely to move in the next fraction of a second based on current market conditions and statistical analysis of past performance. They trade at blinding speed, in milliseconds, which means they capture opportunities that exist for only fractions of a second.  Some analysts call them the “new insiders” of Wall Street.

My point?   With computers running the market that don’t care about company financials, market penetration, profit, leadership, new products, acquisitions ---- is it conceivable that a CEO still has a big impact on his/her company’s stock anymore?  How can the Board assess a CEO’s true contribution when a company’s stock price can go up/down regardless of how good/poor the CEO’s performance?  Could it be that using stock to gauge CEO performance may have outlived its relevance?

Stock incentives --- regardless of how they are designed --- have made many CEOs wealthy  for years, and they would be a very difficult vehicle to give up.   But if CEOs have little control over stock price, is it really a fair metric of performance?

What do you think?  Is the issue raised here worthy of serious consideration? Is it an over-reaction?  Do you still see Jimmy Stewart whistling as he walks down the street?

Jacque Vilet, President of Vilet International has over 20 years’ experience in International Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology.    She has worked with both local nationals and expatriates and has been an expat twice during her career.    Jacque holds the CCP, GPHR and SWP (Human Capital Institute).  She is a member of WorldatWork,  Society of Human Resources Management and the Human Capital Institute.   She is co-chair of the Global HR professional emphasis group for the Dallas chapter of SHRM.  She is a regular contributor to HCI, HR.com and IHR Forum.

Image courtesy of rentageektt.com

Why Government Salary Data Is Conservative

Salary data from the U.S. government’s Occupational Employment Statistics survey is useful and free, but it is considered to be conservatively low for some business purposes due to a number of reasons.

Wage ceiling: The United States Bureau of Labor Statistics OES survey is more census than traditional survey.  It collects wage data as a head count by pay range within each of 800 broad occupational categories.  For example, the number of incumbent Statisticians paid between $47,320 and $59,799 (the current band for Range F) will be requested, but the top pay band (Range L) is open-ended, defined as “$90 per hour and above” or $187,200 per year. Yet, in actuality, some employees receive much higher pay.  Therefore, high-end outliers do not exist in the OES database despite their occurrence in the real world.  Restricting the highest rate recorded to the low-range bottom of an interval segment would reduce averages for executive pay below the salary rates actually paid, so other methods are used to impute averages or means.

Time frame:  This survey captures data on one-third of a sampling of established American employers each year. In total, it covers 1.2 million establishments listed in State Unemployment Insurance (UI) files.  Updating 400,000 entries once every 3 years means that upsurges in competitive rates can be missed. This makes the raw data to which OES survey applies standardized update estimates considerably antiquated compared to almost any annual private survey.

Organizations surveyed: Only surveying employers on UI  lists eliminates new high-risk start-ups that offer premium pay but have not yet turned up to be surveyed once every three years. Instead, the survey covers larger long-established firms that tend to pay more modest guaranteed base pay in light of the greater total reward value of their benefits, perks, stability of employment, and career progression options.

Limited data variables: This survey is conducted across 335 broad industries. It does not track significant factors that cause variances in pay such as employer size and (in many cases) location, type of business and industry subcategory. The OES survey does not offer refined differentiation between for-profit and nonprofit organizations (which tend to pay lower salaries). In addition, it specifically excludes certain industries and occupations (agriculture, fishing, forestry, household workers and pilots, for example) while including government workers (except security forces).

It is a well-known fact that government pay is low. Government service at a professional level almost always involves a sacrifice in terms of current cash earnings.  Managers who leave public employment generally do so to receive private-sector pay that can be orders of magnitude greater than their public paychecks*. All those factors tend to produce conservative survey rates, particularly at upper income levels.

Are you aware of any other reasons?  BLS data can be very useful but must be applied with full knowledge of its limitations.
 
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.

*For more information, see the article: “Public Sector Pay and Performance.”

Defining Pay for a Compensation Unicorn

At a recent client engagement, the HR department described a specific position they were having a hard time trying to fill.  The position was incredibly specific and required knowledge and a skill set that was nearly impossible to conceive. They told me that they had been trying to fill the position for almost two years. During that period, the department in need had created “better and more specific definitions.” As I probed deeper it became clear that this position was more than difficult to fill, it was impossible. They were trying to hire a unicorn.

This position, like the unicorn, could only be filled in someone’s imagination. A unicorn is a beautiful, magical and entirely mythical animal. No amount of compensation could solve this problem. No amount of corporate culture, communication, philosophy and compensation instruments would entice the right applicant. The problem with the position was that it was, by design or accident, impossible to fill in the real world.

During the two years the job had been open, the “better and more specific definitions” had become a catchall compendium of the things that other people in the department could not accomplish due to a lack of time or skills. They just kept adding “requirements” to a single description because that super-person would fill all the holes in the department. Had the original position been filled quickly (itself a near impossibility), the following needs would have been attached to an entirely new role, or spread amongst the rest of the staff.

Unicorn positions are incredibly frustrating. They can even be career limiting for HR and compensation professionals. Since it is impossible to find someone that meets every requirement of a unicorn, anyone you hire will fall short of expectations. We often get caught in this rut because the requirements change slowly over a long period of time.  What was initially a difficult, but realistic, becomes an impossible to fill dream position.

As compensation professionals, we tend to see most problems as something that can be fixed with pay. We often assume that if we just sweeten the pot, the right person will come running. We raise compensation levels and work harder with recruiters. We get special approval for pay packages that stretch or break our compensation philosophy or structure. All of this effort is made in an attempt to do the undoable.

Take a moment and consider some of the high paying, difficult to fill, positions at your company. Some are legitimate senior level roles. Others can probably be filled with two or three people with lesser talents, and maybe a great manager. Take an even closer look. How many of them would be easy to fill if it weren’t for a unique and pesky set of skills required for an important short-term task? How many of those unique skills could be better filled by a qualified consultant?

Most unicorns are created by our imagination. Initially, we need a horse to do a typical task.  We then realize that sometimes we need an animal with a horn to do something on occasion.  Instead of looking for a horse and a rhinoceros, we combine everything into one crazy unicorn. A rhino might be tough to find, but there are tons of horses (no matter what the specific task is) just waiting for you to put them to work. Even the best compensation program cannot turn a mythical position into a real job. Before you consider a compensation solution for a troublesome long-term opening, take the time to find out if you are really trying to hire a unicorn when other solutions may give you everything you need.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid0-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.

Is Your Organization Ready To Go ROWE?

Imagine having the freedom to do your job when and where you want, as long as the work gets done. Sounds like a utopian workplace dream, but not likey to exist in the real world, right?

For some, this dream is a reality. An e-learning specialist at Best Buy completes an entire month of work in two weeks so he can spend the other two weeks following his favorite bands around the country. Sure, he checks in via email and cell phone, but he's out there livin' the dream 50% of the time.

This dream is made possible by ROWE: Results Only Work Environment. What is ROWE? According to Jody Thompson and Cali Ressler, the creators of ROWE, it's a management strategy where employees are evaluated on performance, not presence. Thompson and Ressler say that by focusing on results - and only results - the organization's performance increases while creating the right environment for people to manage all of the demands in their lives.

Here are the 'Nine Commandments' of ROWE:

1. We do not post office hours or core hours. Our employees know where to be when they need to be there. We don't dictate it. Everybody has complete control over how they spend their time. All the time.
2. We do not track time for our exempt/salaried workforce. We track work getting done.
3. There are no hours-worked expectations for exempt/salaried employees. We do not talk about how many hours we work or demand 40, 50, or 60 hours out of people.
4. We do not have a tele-work policy, handbook or tele-work rules. Tele-work is so 1970's, Work is just work. It doesn't need a location label, And, we don't have flextime.
5. We do not track PTO (vacation, sick time, personal time, holiday time). It's not a benefit. Unlimited paid time off as long as the work gets done is the contemporary benefit that matters.
6. Nobody asks permission to go to an appointment, event or any other personal activity. Ever. And they don't have to inform the team or management in an effort to be polite.
7. We have adopted the Sludge* Eradication Strategy - NO SLUDGE in our workplace.
8. We NEVER put 'mandatory' on a meeting invite. Every meeting is optional.
9. We don't have any limits put on how or when we can work: "No E-Mail Fridays" and "No Meeting Wednesdays" don't exist in our organization. 

Sounds like a good idea, right? In the right environment it can be. The philosophy lends itself easily to knowledge work. Implementing ROWE in service or industrial environments is more challenging. Best Buy, the original adopter or ROWE, has implemented this strategy in most departments at its Minneapolis headquarters. They've discussed bringing ROWE to the retail floor, but haven't yet figured out how to make it work.

The success - or failure - of ROWE also depends on the people. This strategy can only be effective if managers are goal-oriented. In traditional work environments, employees often complain that they can't be measured by results because their managers don't articulate what they want them to accomplish. ROWE only works if managers figure out what they want done and effectively communicate that to employees.

Employees have to do their part too. ROWE requires self-motivation. Managers aren't "supervising" - employees are essentially supervising their activities and how they spend their time themselves. Not all employees are up to this challenge. Two years after implementing ROWE, Best Buy's involuntary termination rate in three ROWE departments increased an average of 77 percent.

Not only do you need the right kind of people for ROWE to work, you need to figure out some regulatory issues. For non-exempt workers, ROWE appears to be in direct conflict with wage and hour laws. If employees don't track their time, employers won't know if - or how much - overtime pay is required. The FLSA makes it impossible to implement a pure ROWE strategy for non-exempt employees.

Is ROWE right for your organization? It's hard to say. On paper it seems like a great idea. In reality, there are some serious issues that have to be figured out to make it work. 

*According to Thopson and Ressler, sludge is "skeptical, critical and often downright passive aggressive comments made by others who don't understand what a Results-Only Work Environment is all about." Examples of sludge can be found here.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than twelve years, she's been working with business and government agencies like the DOJ and the FBI, providing expert analysis. Stephanie's articles have been published in Bloomberg Law Report, Corporate Counselor, and other professional journals. She has appeared on NPR to discuss the gender wage gap. Stephanie is the host of The Proactive Employer Podcast and is the founder of Thomas Econometrics. Follow her on Twitter at ProactiveStats.

Are You A Minimalist Employer?

In recent months I have dealt with several US clients who faced an overseas challenge of high employee separations coupled with difficulties in recruiting qualified staff.   These companies were at a loss to understand the cause of their problems, as each felt that they were already paying out a great deal more in Total Rewards (compensation, benefits, etc.) for employees then they were accustomed to in the US.

A quick study revealed that, while the client’s international employees were indeed receiving a great deal more than their American counterparts, in many areas they were in fact being given no more than the minimum benefits mandated by statutory requirement.  How do you attract, motivate and retain quality staff when the message of your actions is that you are only willing to offer what the government says you must?

You don't.

One client bemoaned having to grant four weeks of vacation upon hire, because it was the law in that particular country, only to find out that the normal practice granted five or more weeks.   By focusing on only statutory requirements and ignoring competitive practice they found themselves paying a steep price in struggling to build a quality staff.  They had also earned a reputation in the local market as a “minimalist employer”.

And like first impressions, a company's reputation is hard to change.

Human Resources to the rescue?

When American companies first establish operations overseas Human Resources faces a number of challenges that they are unaccustomed to back at home.  Every country is a separate and unique entity, with differences in HR policies, practices and statutory requirements, each of which must be acknowledged and addressed in order to maintain a successful operation.   On top of that you will find that the myriad employment laws (little standardization here) is a major cost and operations consideration, both in complexity, strictness and required documentation. 

In addition, you must deal with the vagaries of the competitive compensation marketplace, where the same job is paid differently from Rome to Oslo to Buenos Aires – usually coupled with social charges and benefit distinctions as well.

Operating under the guidance of US employment law and US-based corporate practices is a failed strategy.  Maintaining such a US focus (usually for ease of administration) will bring you grief; grief from your employees, from those you hope to hire, and most of all from local governments whose laws you have ignored or bypassed.

If you decide that your business strategy requires you to maintain a staff presence in a particular country, then I would advise you to treat that operation the way you would its US counterpart; provide competitive terms and conditions that will attract and retain the right caliber of employee in that country – and ignore how their reward packages might compare with US or other country counterparts.  If you are not willing to make that commitment, from an HR perspective you would be better off not to engage employees in that country.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Image courtesy of liberalmind1012

What Real Compensation Do You Pursue?

Let’s talk about real compensation.  What do you live for?  What constitutes the most important reward in your life?  What do you seek that is most critical to maintain and enrich your existence?

It probably is not money.   Pay received in exchange for your services as an employee is both a reward and a tool for further rewards.  Money allows you to buy things and support a certain lifestyle.  It can free you from some concerns and it can constrain you with others.  Cash also functions as a scorecard, but that simply makes it a method rather than the objective itself.   Pay is a means to an end.  People don’t live for money.   They live for other things: some can be purchased, others can be rented, and a few can only be earned other ways.

Louis L’Amour wrote:  “All life is divided into two parts:  anticipation and memory, and if we remember richly, we must have lived richly.”

As people strive to survive and prosper, to achieve and flourish, to grow and develop, they can lose track of what they are trying to accomplish.  Take a moment to pause and consider things in context.   If your current path does not serve your objective of what constitutes a  “richly compensated” life, maybe it is time to change direction.  Otherwise, you will end up right where you are heading.

What are you accumulating for your future memories?

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 drorzunz.com

3 Reasons Why Recognition Is a Powerful Component of Total Rewards

A question I occasionally hear is: “Why should employee recognition be included in a total rewards program? Compensation and benefits are how we reward employees for the work they do.”

A recent interview in The New York Times “Corner Office” column (a favorite of mine) offers an instructive answer from Exelon Corporation CEO John W. Rowe.

1)     Recognition and reward reinforce desired messages more frequently and more clearly.

Mr. Rowe makes it clear that giving orders is far less effective across a large number of employees than setting a direction.

“It turns out that you can give orders far more easily if they’re very detailed and precise. But telling people that this direction is really important takes a whole lot of work to get people to follow it and implement it. And so I’ve learned the importance of conveying a clear direction and the need to reinforce it, day in and day out, in what you do, whom you promote, whom you give bonuses to, what’s rewarded.”

Ordering employees to achieve company strategic objectives and goals will never be as effective as explaining to them what those objectives are, how every employee can contribute to achieving them, and recognizing employees every time they do so. There’s no better way of making those often abstract objectives very real in the day-to-day tasks of each employee.

2)     Specific recognition based on company values – encouraged and sponsored by the CEO – extends the CEO’s ability to influence thousands of individuals.

It’s just as important to reinforce the company’s values as it is the strategic objectives.

“It’s important to explain to employees that these principles [company vision statement/creed] really do impact how we function in our business. … Because you can’t actually influence 17,000 to 18,000 people on a personal basis, day to day. So that’s one thing I try to do. I can look at people and say, ‘Here’s how each one of these lines affects something we do in our business.’”

If you focus solely on achieving strategic objectives and not on the manner in which those objectives are achieved, you’ll end up with another Enron situation. It’s not enough to just state your values on a plaque on the wall or on a card for employees to carry. You must also make these values real in employee’s daily work.

Therefore, just as in point one above, it’s important to recognize employees every time they demonstrate a company value in contribution to achieving a strategic objective. This ensures employees understand, for example, meeting financial expectations will not be rewarded if doing so cut corners or violated the company value of “protecting the environment.”

3)     Regular reinforcement of key values through recognition is more effective than waiting to do so through a promotion.

Promotion of employees who demonstrate your values is certainly a powerful method of recognition and reward as Mr. Rowe describes.

“We really do promote people based on what’s in here [company vision statement/creed]. So trying to convince people that the creed has meaning is part of what I do that affects a lot of people.”

But it cannot be your only – or even primary – method. Promotion occurs too rarely in most organizations to reinforce your values and objectives as frequently as necessary. Rather, recognize and appropriately reward employees regularly – and encourage people at all levels to do so as well – to see the most profound impact on your company culture.

Do you include strategic employee recognition as part of your total rewards package today? What shape does it take in your organization?

As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

How Much Money to do a Job You Don’t Want?

Companies are trudging their way through this slow and often painful economic recovery. Reorganization has become a mantra of survival, but where do your employees and their compensation fall into the mix? Recently both friends and clients have been telling me about their troubles at work. Many aren’t really complaining about their compensation, they are griping about the job they are doing for the pay. 

A common refrain goes something like this: “I used to love my job, but I don’t even know what I am supposed to be doing anymore.” Or, “The job they have me doing now isn’t something I was hired to do. I think they’re trying to get me to quit.”

In all of my years in this profession, I have known very few instances where a company was “trying” to get someone to quit. It happens on rare occasion, but generally companies are striving to get people to stay. Even if that means having them do a job that doesn’t fit their skills set perfectly.  Even if the compensation they are making is too much for said job. So where’s the disconnect?

Consider every job at your company. Is there a job, or a location you wouldn’t accept at your current compensation? Think harder, is there a job you wouldn’t do no matter how much it paid? I bet the answer to both questions is “yes.” In our scramble to keep our companies afloat and moving in the right direction, we sometimes think that people will be happy with any job, rather than no job. Generally that’s true, but sometimes we forget to ask the question and end up subverting our strenuous efforts. 

Taking this to the next logical step, sometime it’s not the position; it’s the work environment. Either the culture has changed significantly or the person in charge has created an environment that leaps from evolutionary to revolutionary. While revolutionary ideas are sometimes the impetus for great positive change, they can often be the motivation for angry uprisings. It is important for us to monitor the revolution as it’s happening or we may be literally forced to pay people more money to do the same job…worse.

Compensation is a great motivator and equalizer, but market data seldom includes the job satisfaction quotient of the companies involved. You may be able to pay less money for more work by simply having people do the jobs they think they are being paid to do. More importantly you may not ever be able to pay people enough to do a job they don’t want to do.  This is just a friendly reminder from your thoughtful neighborhood compensation consultant.

Dan Walter is the President and CEO of Performensation an independent compensation consulting firm focused on the needs of companies not in the Fortune 1000. 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.

Right To Know... Transparency in Classification

Transparency seems to be the watchword of 2011. And it's not just corporate transparency - thanks to Florida's Sunshine Law, we've had more transparency about the "Tot Mom Trial" than most of us would care to see. But there's more transparency on the horizon, and it has implications for wage and hour compliance.

In its Spring 2011 Regulatory Agenda, the Department of Labor announced its plans to update the record-keeping regulations under the Fair Labor Standards Act in order to enhance the transparency and disclosure to workers of their status as the employer's employee or some other status, such as an independent contractor, and if an employee, how their pay is computed. 

According to the Department of Labor, this update - in the form of The Right To Know Under the Fair Labor Standards Act - is necessary because "essential information about an employee's earnings and employment status should be made available to the worker, and that this greater transparency will provide employees with essential information about their earnings."

We won't know the exact details of The Right To Know until the Advanced Notice of Proposed Rulemaking is issued later this fall, but what we do know indicates that there's likely to be a lot of classification analysis required. Based on available information, the employer would be required to analyze each exempt job classification, as well as each independent contractor position. The employer would have to document and retain the information used in the classification analysis, along with the justification for finding that workers are properly classified as exempt or independent contractors.

Here's where the transparency aspect comes in... Employers would have to provide the classification records and information to employees, so that the employees can assess the classification analysis and see if they agree. 

Given that this classification transparency is coming, now is the time to start looking at your classification process. The "hotspot" seems to be misclassification of independent contractors. There are a variety of tests used by courts and regulatory agencies to determine whether an individual is an independent contractor or really an employee. The tests vary across courts and agencies, but there are nine common elements. Here are those elements - in flowchart and in list form - to help you get started on your independent contractor classification review:

1. Right to control. An employer has the right to control the performance of an employee's job duties. A company does not control an independent contractor's method or manner of performance of services.
2. Right to discharge. An employee may be terminated with little notice, without cause, or for failure to follow specified rules or methods. There is no right to discharge if an independent contractor produces an end result that doesn't measure up to contract specifications.
3. Termination. An employee has the right to terminate the working relationship with the purported employer at will and without incurring liability for non-completion. Independent contractors agree to complete a specific job and are liable for failure to complete the job.
4. Compensation. Employees are paid by the hour, week or month and the employer sets and monitors the work hours. Employers reimburse business expenses. Independent contractors are paid on a job basis and pay their own overhead expenses.
5. Availability to the public. Employees make services available only to their employer. Independent contractors make services available to the general public.
6. Realization of profit or loss. Employees typically have no opportunity to share profits or losses of the business. Independent contractors are in a position to realize a profit or suffer a loss.
7. Substantial investment. The furnishing of all necessary facilities, tools, clothing and instruments by the employer indicate employee status. A substantial investment by a person in facilities or tools used in performing services indicates an independent contractor status.
8. Company responsibility. Employers are responsible for the negligence, personal behavior, and work actions of employees who are in contact with customers and the general public while the employee is working, but not the actions of independent contractors, unless the contract specifically says so.
9. Services fundamental to the business. An employee's services are necessary to the fundamental business purpose for which the organization exists. An independent contractor's services typically are not, as they have the right to substitute services of others for their own.

If you have questions about proper classification, consult with legal counsel - it's always a good idea to get expert legal advice on any questions you may have about classification or other wage and hour issues.

 Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than a decade, she's been working with businesses and government agencies providing expert analysis. Stephanie has published several articles on examining compensation systems with respect to internal equity, and has appeared on NPR to discuss the gender wage gap. She is the host of The Proactive Employer Podcast, and is the founder of Thomas Econometrics. Follow her on Twitter at ProactiveStats.

Innovate or Perish: The Role of Rewards

Innovation is the topic du jour, an imperative in today's fast moving business environment, a top concern of executive teams around the world and - increasingly - a key agenda item for HR.  If today's watchwords are truly innovate or perish, how does an organization hardwire innovation into its culture and what role can rewards play in creating a climate conducive to innovation?

From Minnesota's 3M and i4cp comes new research and some data pertinent to the question of rewards.  Their recently released report Innovate or Perish: Building a Culture of Innovation brings us some interesting findings, including some on whether and how high performing companies (those that excel in revenue, profitability, market share and customer satisfaction over the course of the previous 5 years) recognize and reward innovation.

A few outtakes from the research:

High performing companies reward innovation.  High performers are more than twice as likely as low performers to report that their organization rewards innovation.

Nonfinancial recognition is the most commonly used innovation reward approach by high performing companies.  More than half of high performing companies (57%) recognize innovation through the use of nonfinancial rewards.  Only 36% of low performers use nonfinancial recognition to reinforce innovation.

High performing companies are significantly more likely to tie individual bonuses and salary increases (45% versus 26%) as well as team bonuses (29% versus 10%) to innovation than low performers, although these reward practices are reported by under half of high performing study participants.

High performing companies are also more likely to reward innovation with more challenging work or autonomy (44% versus 34%) or promotional consideration (42% versus 31%) than low performers, although the differences here are less noteworthy.

These findings, of course, don't reflect an assessment of the effectiveness of these practices at driving innovation - only their prevalence.  Clearly, though, high performing companies are much more likely to be using their recognition and reward budgets and practices to help create a culture of innovation.

My personal philosophy around rewarding innovation has been that it is best done broadly and indirectly.  Programs that are very direct and narrowly focused presume that we know and can predict exactly the kind of behavior and efforts that will generate the next breakthrough in process, product or service - and that we're likely to get there by focusing and constraining people's actions accordingly.  A faulty assumption at best.  Better, I think, to:

-Set the stage with the right mix of resources, opportunities and freedom.

-Use recognition (financial and/or nonfinancial) to celebrate victories and right steps along the way, when they occur.

-Focus on group, rather than individual, efforts and results in order to discourage silos and encourage collaboration and communication across groups and organizational boundaries.

-Reserve more significant financial rewards for the purpose of sharing the economic success created across the responsible group(s) - economic success that depends on innovation as well as performance in other areas.

Some parts of the 3M/i4cp results support my worldview, others do not.  I admit to surprise at the degree of emphasis on individual innovation rewards that high performing companies claim.  But I also know little about the particular approaches or mechanics they use to accomplish this.

What's your reaction to this research?  What surprised you - what didn't?  Consistent with your worldview - or not?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares. 
 
 Image courtesy of ideachampions.com