Compensation Cafe

A Look at the State of Vacation and PTO

Had a conversation recently about the state of vacation and paid time off practices and how -- despite the press about some revolutionary steps being taken at a few companies -- it seems nothing much has changed recently.

New research from WorldatWork, however, reveals one interesting development.  It seems that the pendulum that has been swinging practice from the traditional buckets of vacation/sick/personal time off to the newer combo-pack of consolidated leave called PTO has stalled, with traditional systems looking to maintain their dominance of the landscape.  See image below.

The movement to PTO was driven by a lot of objectives, including:

• Providing employees with some flexibility and discretion in their usage of paid time off.
• Keeping benefits offerings competitive, as PTO programs grew in popularity.
• Reducing unscheduled absences by requiring that PTO days be scheduled and approved in advance except for illness and emergencies.
• Saving money. The WorldatWork research confirms that PTO systems typically allot fewer days than traditional ones.  For example, surveyed employers, on average, offer employees with 1-2 years of service a total 18 days under PTO systems and 23 days under traditional systems. (The idea, I presume, is that PTO plans give the employees more usable and therefore more valuable days.)

So what's happening to dampen the enthusiasm for moving to a PTO system?  Some possible explanations include:

• The transition cost, in terms of both dollars and morale.  PTO plan implementation may involve paying out some level of existing vacation and sick day accruals, presenting serious financial implications for some firms.  Additionally and depending on employees' sick time usage, the fewer available days under a PTO plan (as noted above) might create the perception that the change is a net takeaway.
• The oft-cited concern that many employees view and treat PTO as vacation time, leading them to come to work sick in order to preserve it, thereby exposing their co-workers to illness.

Additionally, there is a lot of experimentation going on in the paid time off space these days.  Companies like Netflix and Virgin America have gotten a lot of press for their unlimited vacation policies.  The idea here, of course, is that by treating employees like responsible adults, you'll get responsible adult behavior ... and appreciation to boot!

Does it work out that way?

Writing recently at HRZone, Craig Bryant (founder of software company KinHR) makes the argument that unlimited vacation policies are just hype.  One of his key arguments, beyond the better known one that these policies often result in employees taking less time off - not more, is that unlimited leave can create a big blind spot for employers.  He notes:

• Paid time off is an expense and, like any other business expense, it can be wasted and misused if left untended.
• Companies that aren't tracking time off may be missing the chance to make informed decisions about when its best for team members to be away from work, which is poor resource planning.
• If companies don't care whether employees get out of the office, what other aspects of work life are they not paying attention to?

All this is to say -- I think -- that there may not be one right approach to paid time off and that it might be wise for employers, as part of improving their overall talent management game, to do the due diligence necessary to match practice up well to business needs as well as worker needs, demographics and preferences.

In this day of data and analytics, shouldn't any review of time off benefits include a review of usage patterns?  Even -- perhaps particularly -- organizations with unlimited leave would benefit from knowing which employee groups/categories are using the most or least of their paid time off allotment.  For example, do high performers take as much of their allotment as average or low performers?  Does the organization make it too difficult for these valuable employees to take time away from their jobs?  Or are their different usage patterns by function or organizational unit breakouts?  Might there be a subculture or a particular leader that discourages taking time off?

Vacation and PTO might be an area ripe for more data-driven discovery, learning and practice improvement!

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force,  Managing Partner of Altura Consulting Group LLC, and a proud co-author (along with Cafe cohorts Margaret and Dan) of the newly published book Everything You Do in Compensation is Communication.  Ann serves as President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.

Creative Commons image "Vacation Texel 2012"  by Boudewijn Berends

Would You Like Mayo and Lettuce with that Noncompete?

Noncompete clauses are often hard to enforce, but sometimes they still make sense. Heck, youcan't really keep a person from making a living in their chosen field. But, a company has to be able to protect itself from employees who may steal customers, ideas, staff members or worse.

Noncompetes are not only hard on HR and legal departments; they can also be an issue for compensation professionals. At the most basic level, comp pros are paid to at
tract, motivate, retain and engage employees. For nearly every great compensation feature or extra dollar that helps there is usually some other factor that detracts from the cause.  Sometime there are so many negative factors it becomes almost impossible for us to do our jobs. Companies with a terrible work environment or very restrictive pay practices are often forced to pay far more than their peers just to compete for similar talent.

But, how much additional pay is enough to justify something as punitive as a noncompete clause? One company says minimum wage is pretty close to enough. It also considers its competitors to be nearly every company in their wide-ranging business sector, and those businesses in a similar location that sell a small percentage of their key product. More impressively their noncompete applies for a period of two years after you leave their employment.

Now, I love me a good Jimmy John’s sandwich. Those things are pretty darned delicious. They have that bread part, the meat part, the cheese part, the produce part and the seasonings…all of the good stuff. But, I find it hard to comprehend how much EXTRA they must pay their employees to sign a noncompete that restricts them from making sandwiches elsewhere (or even working at a place that may sometimes sells sandwiches) for two years after they quit. To read more about this issue check this out.

Now, I admit that I have not spoken to the Jimmy John’s compensation department directly to confirm the story linked above. I guess it’s because I would be sincerely depressed if I found out that the company had such a rule and did not feel it had to pay an extraordinary premium. But, I do know that other companies have similar provisions going deep into their organizations. When so many companies are doing their best to find better ways to pay, how can there be companies that are trying harder to keep people from working elsewhere than they are to motivate employees to perform well in their current position?

What warrants a noncompete at your company? What type of compensation do you pay to make such a rule palatable to a new employee (or do you just hope it doesn't get noticed until after their start date)? Regardless of the obvious issues and costs with trying to enforce such a rule, does it make any sense to counteract every other component of your compensation program to put a noncompete in place for rank and file employees?

I would love to participate in a discussion with Compensation Café readers if I am way off base.  If I am correct in thinking this type of noncompete is over the top, I would also love to hear from you. Is a noncompete like this so noncompetitive that it should never be considered in the first place?

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with corporate strategy and culture. You know compensation communication can always be better so get your copy of the new book: “Everything You Do in COMPENSATION IS COMMUNICATION.”  Written by Ann Bares, Margaret O’Hanlon and Dan Walter. Dan has also co-authored of several other books you may be interested in including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, and “Equity Alternatives.” Please connect with him on LinkedIn and follow him on Twitter at @Performensation and @SayOnPay.

 

Trick or Treat? I've Emailed 200,000 of Our Coworkers about Our Compensation!

Maybe you've already heard about this. In early October, a Portland, Oregon-based Wells Fargo branch employee emailed CEO John Stumpf that it was time to take some of the banks' profits and turn them into employee compensation. The employee, Tyrel Oates, also cc'd 200,000 of his coworkers using all of the internal email addresses he could cobble together over a couple of days of fiddling around online.

Mr. Oates opened his email with the observation that:

With the increasing focus on income inequality in the United States. Wells Fargo has the opportunity to be at the forefront of helping to reduce this by setting the bar, leading by example, and showing other large corporations that it is very possible to maintain a profitable company that not only looks out for its consumers and shareholders, but its employees as well.

He goes on to belittle Wells Fargo's benefits and 401k contributions because they don't increase his income. He also mentions, "Though Wells Fargo does not allow the formation of unions, this does not mean we cannot stand united."  His proposal is for the company to take $3 billion of the company's reported second-quarter $5.7 billion net income and turn it into a $10,000 increase for each employee. Here's a link to the full email, which I encourage you to read.

To paint the complete picture, the story got picked up by The Charlotte Observer, The Huffington Post, The Washington Post, Business Insider, Time.com, MarketWatch and his local media outlet, The Seattle Times, just to name a few. Adjectives chosen include: "brazen," "ballsy" and "brave."

I imagine you're feeling some tension in your neck at this point. Yes, this could happen to you. To the compensation practices you've approved. To your company's reputation. You've heard from many of us at Compensation Cafe alerting you to the media's growing interest in employee pay, why employees have a point and what you can/should do to improve the compensation communications situation in your company.

After all, many of us who write for Compensation Cafe believe that everything we do in compensation is communication. Here's a true life example of what our lengthy recession has done to many employees' belief in, and understanding of, our pay practices. If nothing else has, this Wells Fargo example should inspire you to act. It's becoming clearer that it's not business as usual any more and you can't remain focussed on  spreadsheets.

Get out of the office. Find out what's on people's minds. Listen carefully when they explain how and why they feel the way they do. Be sure you have sound reasoning behind your 2015 increase practices -- and make double sure that your managers are implementing (and talking about) compensation practices as recommended. If not, why do they feel the way they do?

Many of you do not have in-house communications professionals, so let me finish with a snapshot of how Wells Fargo is handling this case based on a short conversion I had with them today. To their immense credit, they reminded me that Mr. Oates was their employee, to whom they have a responsibility for confidentiality and privacy, and that this is an in-house topic. Their formal statement is:

Wells Fargo values and supports its team members. This is why we provide market competitive compensation that combines base pay with a broad array of benefits and career-development opportunities for team members. Team members receive an annual performance and salary review. And all of our team members’ compensation levels exceed the federal minimum.

It's not very satisfying, but take note. I am sure that their conversations with their Wells Fargo employees go far beyond these generalities . . . and I've invited a Wells Fargo representative to visit Compensation Cafe via an interview sometime in 2015. I really want us to continue to learn as much as we can about compensation as communication, so we can go out and make real improvements.

Margaret O'Hanlon, CCP is founder and Principal of re:Think Consulting. She brings deep expertise in communications, compensation and career development to the dialog at the Café. Before founding re:Think Consulting, Margaret was a Principal with Towers Watson. She's wondering if you've read what's on page 12 of Everything You Do (in Compensation) Is Communication? We're not talking about the same old stuff. Find out at www.everythingiscommunication.com. Margaret collaborated with Ann Bares and Dan Walter to bring this ebook into the world. Filled with innovative ideas, practical tips and experienced advice, it's a quick read and a valuable resource for building your influence as a compensation strategist. Come visit and tell us what you think!

Global Employee Benefits: I Wish I Had That

I’m an expert in employee recognition and rewards. I understand the nuances of providing strategic employee recognition programs around the world – and the nuances are many. (These posts highlight just how complex that can be in India and China, as an example.)

I am not, however, an expert on the wider field of global employee benefits, a critical component of comprehensive compensation package. Healthcare benefits alone are enough to give any global benefits manager a headache. Looking at various benefits offered in countries around the world offers a good case study in knowing and understanding local needs and wants if your goal is to offer a compelling total rewards package for your employees, everywhere in the world.

Mercer’s 2014 Worldwide Benefit & Employment Guidelines is a quite interesting report on what is offered around the world. The infographic below (from Mercer) highlights several particularly unusual offerings (at least to my Irish eyes).

Taking each in turn:

Romania: Heating Expenses – A terrific way to show employees you care about their (and their family’s) basic well-being. The additional focus on sustainable energy sources is an added incentive.

Russia: Extra Vacation – Perhaps not an unusual benefit overall, but targeting it to those who work in tough climates makes very good sense.

Brazil: Prison Pay? – If an employee of goes to prison, the family receives 80% of his or her salary. I had to dig into this one a bit more. In reality, it’s called “reclusion-benefit” and applies only to those with a valid work status who contributed to social security. The intent is to support the children of the imprisoned so they do not suffer unduly. With that context, this benefit makes more sense.

Saudi Arabia: Wise Medical – If you choose to engage in dangerous activities, don’t expect your company medical plan to cover any resulting injuries. My American colleagues can likely see the greater benefit of this “you play, you pay” (as Mercer calls it) medical policy.

Morocco: Wedding Benefits – I wonder if this one is a bit of social engineering, but parents also get time off for their children’s wedding. Considering how much more elaborate weddings seem to be getting regardless of country, I can see the appeal of this benefit.

China: Buy a Home Plan – I know many organizations will offer planning tools or even saving mechanisms to help employees reserve salary for expenditures of their choice, but China takes it further with mandatory contributions to the future purchase of a home.

France: Please Leave – I labeled this one a bit tongue-in-cheek, as I think it’s quite a good idea. Innovation and job creation are essential to any country’s economic strength, but many people are afraid to brand out on their own with the safety net of regular paycheck provided by somebody else. France’s efforts to encourage start-ups helps alleviate this fear.

As with any global compensation plan, balancing the needs of the local market with the expectation of (usually) leaders in the country where your headquarters are located is quite delicate, indeed. Creating localized benefits plans that matter, ensuring leadership understands the value, and communicating appropriately to appropriate audiences (to avoid “I want that benefit, too”) is the reality many of you face very day. I must say to you, “Kudos and job well done.”

What’s the most unusual benefit in your organization? What’s the value in offering it?

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.

 

The More The Merrier?

It's fairly common to find articles written by those who advocate increasing the eligibility of employee incentives, to push inclusion further down the organization's hierarchy.  The argument is that all employees affect a company’s success, that every employee will chase the almighty dollar of variable pay, and that the opportunity for ever larger rewards will motivate them to do great things.  All of which would in turn deliver improved financial results for the company's bottom line.

Maybe.

And maybe it's not such a good idea after all.  Perhaps it's a bit of a crap shoot as to whether higher compensation costs would deliver improved financial gains.  Let's take a look at the challenges ahead when you consider a broader eligibility for your annual incentive program.

What's The Plan?

What do you consider an incentive when designing a compensation program?  My view is that a variable reward should be paid out for performance that goes above and beyond the norm, beyond what's expected.  Thus it shouldn't be a reward for performance that would have occurred anyway.  The intent of an incentive is to prompt a change in behavior, to get employees to do something they wouldn't ordinarily have done, and to get them to do it because they've been offered a financial reward.

That should be the plan.  Otherwise it's a giveaway.

You'd expect that the "above and beyond" objectives would differ from year to year as the needs of the organization evolve and adapt to changing business conditions.  This emphasis on annualized objectives reinforces the intent that incentives should be designed to reward effort beyond what's called for in the job description.  And they shouldn't be repetitive, the same objectives year upon year.  That's what the job description is for.

Incentive rewards shouldn't be provided simply because an employee performs their job well.  That particular carrot should be the intent of the annual merit increase.  In fact, such an exercise would be considered “double-dipping,” paying for the same performance twice.  You shouldn't be using an incentive as an inducement to get employees to perform their expected duties.  Again, that's paying twice to reinforce the same behavior.  It’s also using compensation to replace the leader’s own responsibility to manage their staff.

Is There A Company Advantage?

When deciding on whether to add a variable pay opportunity to an existing base salary compensation model, you need to ask yourself, "what will the company receive in return for the increased costs of an incentive program?"  If you're planning to increase targeted compensation costs by 5% or 10%, how will you answer the ROI question?

Caution:  Always provide a business (financial) rationale, and not subjective phraseology like “survey says” or “everyone else is doing it" or even “it’s the right thing to do."  Management tends to frown over such weak rationalizations.

Employees lower in the hierarchy have a reduced line of sight between their actions and business success.  Which makes it harder to create meaningful, quantifiable objectives for performance  that integrate vertically with department, functional and / or organization objectives.  If you don't integrate what you’re telling employees to do, you may find yourself paying out incentive rewards when the company as a whole hasn't been successful.

So ask yourself to consider the business urgency in your organization for lowering variable pay eligibility to those below the management ranks.

• Is the employee line of sight (performance / business results) direct, or remote?  If remote, what are you paying for?

• Can you quantify the expected ROI?  The wrong answer here suggests a giveaway.

• Can you balance the increased compensation costs against assured financial gains for the company? 

• Would the variable pay become strictly an added cost, or would any portion of base salary be at risk?  "No pain, no gain," or "no risk - icing on the cake?"

If you have a reasonable doubt on any of the above points, I suggest you think long and hard before implementing such a program.  It would be very difficult to dig yourself out of that hole.

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.  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 clowder of cats.

Creative Commons image, "Handout," by DianeWorth

Increases as a Percentage of Job Value

The Percentage of Job Value approach seems far superior to the antique habit of awarding increases according to base pay.  Instead of giving a percentage of the base rate as the reward, make it a percentage of the midpoint job value or Market Reference Point (MRP).  That simple method completely avoids the many problematic issues of merit increase grids, which are complex systems, both difficult to create and hard to explain. 

Granting the same percentage of a common midpoint or MRP for the same performance is eminently fair.  Also, it is far clearer and easier to communicate than awarding weird personal awards that compound if not modified by an awkward merit increase grid. 

If two peers holding equally valued jobs perform at the exact same performance level for a specific evaluation period, it seems right for them to get the same merit-related cash reward.  Allocating increase amounts or bonus pools according to personal pay, on the other hand, can create terribly dysfunctional distributions.  Makes no sense to say that superior performance is worth more money to a well-paid incumbent than to a lower-paid peer, when logic would argue the opposite.  Great output results from a person working at a bargain rate would be remarkable, while such top levels of performance should be normal for a highly paid incumbent who has earned premium pay for a long time. 

The size of a personal salary accumulated over many years of past compounded base pay increases should have no relevance to the value of output results in a later period.  If retention is a concern, that should be a much bigger issue for the low-paid worker than for their compatriot who does the same work at an inflated rate that far exceeds the market norm.  People who have been historically generously compensated for many years by hefty guaranteed base rates have no right to an infinite entitlement to the largest increases. 

Merit increase grids are therefore used by many who apply increase percentages to base pay.  They can prevent uncontrolled compounding but have many drawbacks.  Merit grids are complicated to design, construct, administer and explain; and they earn criticism for “punishing” high earners by imposing lower increase percentages on those with higher compa-ratios.  There are many potential negative consequences to applying reward percentages to base salaries, and the traditional corrective matrix grid has accumulated a wide variety of defects over the years.

There is a better way.  Instead of referencing a complicated subjectively created table with projected estimates of frequency distributions to slow the range penetration trajectory for high-earners, you can just apply your increase percentages to the Job Value (or Range Midpoint, Control Point or MRP).  That much simpler approach provides perfect symmetry in absolute pay distributions that are controlled by the value of the position and the personal performance of the individual worker without regard to the size of their current wage or salary.  No table.  No cut-off points.  No arbitrary parameters.  No complexity.

A number of strings in various discussion forums cover this topic, generally findable under “using the Job Value” or “Brennan Payout” approach.   The practice has been around for a long time in both the U.S. and Canada, with instructions published various places (i.e., in The Personnel Journal and the Performance Management Workbook) in the past.  It has been extremely successful when used; yet many compensation professionals are unaware of the method.  

“Relatively absolute” payments computed against normative job values are far more equitable than percentages applied to personal base pay amounts.  Same job worth, same output value, same absolute reward dollars.  How could such perfectly fair treatment be wrong?

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. 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.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.

Image "Percent And Dollar Symbols" courtesy of renjish krishnan/FreeDigitalPhotos.net

The Politics of Performance

In my last post on leadership and what we can learn from Diddy, I explored the perils of the personal agenda in business and how the most valuable leaders are those who align team behaviour with the goals of the business.  

This week we're going to take a deeper look at how to identify the best performance managers in your company using data to make informed decisions about talent development.

Limitations with current processes

The typical performance management process has a few limitations that it's useful to keep in mind.

The first limitation is that most performance reviews are conducted by the manager, who has their own political agenda and frame of reference.  This means you aren't technically measuring performance, you are measuring the manager's stated opinion of performance.  The two may be the same but it's good to be clear about systemic bias that may lead to misleading results.

The second limitation is that if you are calibrating team performance, the manager is forced to rank people within a closed system.  The poorest performer in one team may outperform a top performer in another team but it's difficult to achieve an objective calibration of performance across the company with a subjective process.

The third limitation is that if you are rewarding performance on a budget, managers are forced to justify the rewards they want to allocate with a supporting performance rating.  That doesn't mean they will lie outright to give their protege a higher raise but the opportunity to game the system is there.

The fourth limitation is that companies tend to take a snapshot view of performance, rather than looking at it over time.   If a consistently high performer suddenly stops performing in conjunction with a management change, this may be worth investigating.  

The fifth limitation is that current processes are prone to false positives, i.e. rewarding and developing people who are likely to leave the organisation for greener pastures and/or will not be able to succeed at the next level.

I could go on but you get the idea.  The point is that current performance management and rewards processes tend to put the manager in the driver's seat without clear insight into who the best performance managers are.

Enhancing the performance assessment

Social feedback provides an opportunity to enrich the performance review with objective data points.  For example, if you have a tool that permits peer feedback, you can monitor internal feedback from peers as well as who is most active at promoting the contributions of others.  You can also look at how employees are networked and influential within the organisation using tools like Chatter.  

Identifying the best managers

The Institute for corporate productivity​ (ic4p) published a research paper called the People-Profit Chain in which three key metrics are recommended to help companies identify and develop their best leaders.

• Quality of hire measures th​e contribution and success of external hires by a variety of factors, such as tenure, time to promotion, performance, added skills and cost.  As a former boss of mine used to say, A players hire A players, B players hire C players.
• Quality of m​ovement tracks the career trajectory of e​mployees during their time with the company.  The best leaders create opportunities for the people on their team.
• Quality​ of attrition assesses the quality of people leaving the company based on skill, performance and criticality of role.  The best leaders tend to retain great people, who want to work for them.

You can't completely separate politics from business but you can strengthen the performance assessment process with neutral data points and put more rigour around how managers are selected, measured and developed.

Laura Schroeder is EMEA product marketing director at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, designing, developing, implementing and  evangelizing global Human Capital Management (HCM) solutions and holds a  certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

ISS’s New Approach to Equity is Better and Worse

Institutional Shareholder Services (“ISS”) is one the most powerful voices in how companies and their investors view executive compensation. In the never-ending quest to properly evaluate, value and measure the impact of equity compensation, ISS has once again changed its policies. Elizabeth Ising and Ronald Mueller of Gibson Dunn have summarized the proposed changes in an excellent article. A quick summary: what was once a beautifully simple and critically flawed up or down vote is now a beautifully complex and differently flawed scorecard with a super-cool new acronym (the Equity Plan Scorecard (“EPSC”).

On the bright side, ISS has heard the calls and complaints from both companies and shareholders. They have gone back to the drawing board to design something better. The bad news is that “something better” is much like the various attempts at building “flying machines” before they were actually perfected. While the effort is valiant, the finished product is probably not something you would use as your preferred resource over the long haul.

The EPSC incorporates three main elements (please refer to the Gibson Dunn article for more details.)

Cost: Determined using ISS’s proprietary Shareholder Value Transfer (“SVT”) calculation. SVT is now to be calculated two ways. 1) Shares approved but unused plus any new shares requested. 2) The prior plus any unvested or unexercised equity currently outstanding.

In theory, this will be a welcome change as it looks both forward and backward to some extent.

Plan Features: Includes key vesting provisions and how a company reuses shares from awards that were cancelled or expired.

None of these considerations will feel new to public companies.

Grant Practices: Includes actual 3-year burn rate, more vesting considerations specifically for CEO equity, clawback provisions, holding periods and estimated duration of the plan.

Good news is companies no longer have to commit to a future burn rate. Bad news is that some of these considerations will be somewhat subjective.

The ISS will mix the results of these into some sort of equity compensation slurry and come up with a “For” or “Against” vote.

Overall, the better aspect is that the approach is less didactic than it has recently been. This means a bit more wiggle room to shape your company's approach to suit your objectives. Frustratingly, the things that make this better also make it worse.

When all is said and done, most boards want their executive compensation professional to provide them with a solid answer of "this will work." The new approach once again will leave many saying “I think this will work, but it will depend on how some people I don't know (and who don't really know us) interpret and evaluate the information we put in our filings. What is the best way to balance cost, plan features and grant practices for your company and investors? I have no idea right now."

But, here’s where there is a fantastic opportunity! The ISS wants to know what you think about this new approach. You have until October 29, 2014 to submit your comments to [email protected].

Here’s the interesting thing about comment periods. Most of us don't turn in comments. We wait until the approach is final then complain when things aren't how we’d like them. So, take a few moments TODAY and reach out to your executive compensation consultant and get their thoughts (if they don’t have any, you may want to take that into consideration). Then, TOMORROW, ask your legal counsel, CEO and CFO where they might have problems with the new approach. On WEDNESDAY, write a short email expressing your concerns or issues where you have more questions than answers. Finally, THURSDAY, stop thinking about this until the final version is released.

If every executive compensation person who reads this also sends in a comment it will likely be the most original statements ISS has ever received on equity and executive compensation.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with corporate strategy and culture. You know compensation communication can always be better so get your copy of the new book: “Everything You Do in COMPENSATION IS COMMUNICATION.”  Written by Ann Bares, Margaret O’Hanlon and Dan Walter. Dan has also co-authored of several other books you may be interested in including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, and “Equity Alternatives.” Please connect with him on LinkedIn and follow him on Twitter at @Performensation and @SayOnPay.

To Innovate in Rewards, Get Outside the Rewards Profession

There appears to be general agreement among reward professionals that the compensation approaches and protocols which have dominated practice for the last few decades are ripe for reinvention.  That disruptive change in the field is necessary and inevitable.

I also sense an assumption that we will be the change that we have been waiting for.  That we will lead the revolution, just as soon as we get those year-end budgets and plan changes completed and find the time to get our innovation game on. 

Not sure it will pan out that way.

A recent article in The Atlantic Why Experts Reject Creativity takes a close look at the bias we all have against new ways of thinking.  Senior Editor Derek Thompson asserts that not only are our brains hard-wired to distrust creativity, but that the more knowledge and expertise we have on the subject, the more hostile we are to new approaches.  And he highlights a number of research studies that support his claim.

In one study, 142 world class researchers from a leading medical school were randomly assigned to evaluate proposals for research funding.  Sometimes the faculty were experts in the subject matter being considered, sometimes not.  The experiment was triple blind, so that evaluators didn't know submitters, submitters did not know evaluators and evaluators did not talk to one another.  What the researchers found: New ideas -- those that "remixed information in surprising ways" -- got the worst scores from everyone, but were particularly punished by experts in the subject matter.

Thompson goes on to demonstrate that, in reality, most of us dislike new ideas, regardless of what we say or believe about ourselves.

A 1999 study found that teachers who claim to enjoy creative children don't actually enjoy any of the characteristics associated with creativity, such as non-conformity. A famous 2010 study from the University of Pennsylvania showed that ordinary people often dismiss new ideas, because their uncertainty makes us think, and thinking too hard makes us feel uncomfortable. "People often reject creative ideas even when espousing creativity as a desired goal," the researchers wrote. People are subtly prejudiced against novelty, even when they claim to be open to new ways of thinking.

Which means that disruptive change, innovations that move the field of play and introduce new compensation management solutions, will quite likely originate outside our profession.  It will come from business leaders and others with talent management smarts (but perhaps not the "credentials") -- particularly (but not exclusively) those in emerging and fast-growth organizations and industries -- who are willing to experiment, put new ideas to work and learn from their efforts.

It will happen out at the edges and beyond, outside the perimeter of "professional" reward practice.  And so our mission, if we choose to accept it, will be to discover, devote attention to and learn from what is happening outside the core of our field.  And then to bring those ideas in, adapting and piloting them in our own organizations.

A few years ago, I had an interesting conversation with a couple of key leaders at our own esteemed professional association.  I shared the observation that all of the Association's focus and attention was centered on very large organizations, the Fortune 500 and their ilk.  I was informed that this was the case because it is at these big employers that the leading edge of reward practice takes place.

Disagree.

To paraphrase the wisdom of Gordon MacKenzie, author of Orbiting the Giant Hairball: A Corporate Fool's Guide to Surviving with Grace (and only the best book on business creativity every written!), we won't be able to truly push the boundaries of practice until we figure out how to escape the Hairball -- our entanglement with the policies, assumptions and practices of the past.  Orbitting -- escaping the gravitational pull of the Hairball enough to observe and embrace original ideas and lessons -- will require that we read and interact outside the boundaries of our profession. 

Irritating, inconvenient and messy, for sure.  But that's what the road to discovery typically looks like.

That's what I think.  You?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force,  Managing Partner of Altura Consulting Group LLC, and a proud co-author (along with Cafe cohorts Margaret and Dan) of the newly published book Everything You Do in Compensation is Communication.  Ann serves as President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.

Creative Commons image "An Idea" by aloshbennet

Employee Recognition: The Psychology Perspective

What do employees value most for recognition? What do companies (and managers) actually do well for same? What does the research tell us?

I’ve certainly written about several surveys on this topic – from the academic, industry analyst and vendor perspectives. But here’s a new one that intrigued me. I’ll admit it caught my attention primarily because of who conducted the survey – the American Psychological Association (APA) Center for Organizational Excellence. (This article also summarizes the report quite well.)

A few findings to highlight:

1) A better recognition experience leads to better business outcomes.

When these conditions are met:

• Recognition practices are fair
• Direct supervisors provide recognition effectively
• Employees value the recognition they receive

Then employees reported:

• Higher levels of job satisfaction
• A greater likelihood to work harder because of the recognition they receive
• Stronger motivation to do their best
• A greater sense of feeling valued

All of that points to elevated performance and productivity, with direct impact on the bottom line. Another bottom-line impact comes from increased retention. As readers know, replacing employees can cost 50-200% of a position’s salary, which can run into the millions of dollars quite quickly. In terms of retention, the research showed:

“Employees were most likely to plan to leave their employer in the next year when they felt less valued, had lower perceptions of fairness regarding the organization’s recognition practices, and experienced lower overall job satisfaction. Working Americans who reported high levels of supervisor effectiveness in providing employee recognition and valuing the recognition they receive were more likely to say they plan to stay with their current employer 3 years or longer.”

2) Fair pay matters most, but don’t rely on that too much.

Unsurprisingly, pay matters most. As I’ve said before, base compensation (and deserved pay increases) must be fairly given for the work done. The APA research bore this out:

“More than a quarter of working adults (28 percent) said that written or verbal appreciation from their direct supervisor is important, but when it comes to the types of recognition that working Americans say are important to them, money tops the list. Six out of 10 employees (62 percent) cited merit-based salary increases as important, followed by fair monetary compensation (47 percent), performance-based bonuses (43 percent), and promotions or advancement (38 percent).”

My concern with this type of result lies in “who defines fair?” Readers of this blog know far better than I the good and the bad of information availability through sites like Salary.com and the movement for pay transparency. And merit-based pay may be well on its last legs (the differentiation just isn’t there anymore).

Additionally, cash as the primary form of recognition becomes an entitlement or an expectation. We can’t keep giving out the same raises every year. The budget just won’t allow for it. Recognition in other forms must fill the breach.

3) We rely too much on manager recognition.

In the survey, all conclusions drawn about the importance of the frequency or amount of recognition focus on that given by managers. But the survey shows only 31% of employees say their organizations offer recognition in the form of verbal or written appreciation from supervisors. Even fewer (17%) peer-to-peer recognition. This is a tremendous missed opportunity. Even the best managers can’t see all the good happening around them. And let’s be honest – what percentage of managers in your organization would you classify as “best?” Take the burden off managers alone. Empower all employees to notice, appreciate and recognize excellence in their colleagues every day and those benefits described in point 1 above will skyrocket.

One last observation – why would a psychological association be conducting this research? It’s a bit of an obvious and “common sense” answer – because whether or not we’re recognized for what we do all day impacts our psychological well-being. And that’s also a bottom-line impact – the health and wellness of our employees.

What do recognition practices look like in your organization? Which approaches are most successful in terms of business outcomes (productivity, performance, retention, engagement)?

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.