Compensation Cafe

Bad Karma --- or Bad System?

Recently Microsoft CEO Satya Nadella said something that upset a lot of women. At the Grace Hopper Celebration of Women in Computing he was asked how women should go about asking for a raise. His response was that women shouldn’t ask for a raise but trust good “karma” and know/have faith that the “system” will take care of them.

Hours later, Nadella corrected his comments saying he was wrong and that when a woman thinks she deserves a raise she should ask for it. 

To my mind there are two issues here:

• The high tech culture and its impact on women’s pay
• The system that women need to trust that will correct their pay

High tech culture and its impact on women’s pay

I want set something straight.  This issue can/does exist in other industries.  But the high tech industry has been in the spotlight lately.

High tech has been dominated by men for years.   STEM jobs have not attracted women as they have traditionally been known as “male” professions. 

• While 57% of female graduates are women, only 12% are in computer science.
• Women make up half of the U.S. workforce, but hold just 25% of the jobs in technical or computing fields.
• A 2011 report by the U.S. Department of Commerce found that there has been no employment growth of women in STEM jobs since 2000.

For women who do get hired by tech companies, they enter a sexist culture.

Men aren’t shy about asking for raises. Women are. They don’t self-promote but are much more likely to believe that if you simply work hard and get great results, you’ll get noticed and promoted.  But many companies penalize women when they do ask.  They may be labeled as bitchy or pushy.  This is largely due to preconceived notions about gender roles in the workplace. 

The result:  a pay gap exists on every level of STEM jobs. In Silicon Valley, men with bachelor’s degrees earn 40% more than their female educational counterparts, according to an analysis of census data from the 2014 Silicon Valley Index.

Some tech companies have been known to take advantage of this. At an Australian tech conference in September, startup founder Evan Thornley said that a perk of hiring women is that their salary is still “relatively cheap compared to what we would’ve had to pay someone less good of a different gender.”  

What?  Realizing that women are undervalued and then paying them less than men because you know you can isn’t a solution that any company should adopt.  That’s like reading a nutritional study that say saturated fat might not be that bad for you after all and then running out and eating an entire stick of butter!

The system works --- except when it doesn’t

Why tell women to accept lower pay in the short-term for the promise of the system correcting itself later, when that same system in general has been shown to act unfairly? 

• Since 2009, corporate profits in the US have increased by 84%, one of the largest five-year increases ever.
• From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937%, a rise more than double stock market growth.  
• From 1978 t0 2013, pay for American workers have increased by 10.2% despite record productivity.

A challenge for pay transparency

As we move towards more pay transparency this will be a big red flag that will have to be fixed.   Companies need to get ahead of the curve and correct the problem. If they do, not only will engagement increase, they’ll have a competitive advantage.

The Fairness Pay Act has been struck down twice; however, some version of it will likely be passed in the future.   Among other things, the first two versions held companies liable for “pay disparities” that have occurred due to a past history of pay discrimination in an employee’s career.  This would include not only the current employer but past employers as well.   But that will have to wait for a future post.

My point?  We don’t need to wait until it becomes law.  We know the problem exists --- let’s fix it.

Thoughts?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

Don't Let Those Crucial Project Sponsors Slip Away

I  ran into some really good advice that I'd like to pass on. It's especially useful to those of you who often find yourselves leading or joining plan design projects.

Most complex plan design projects have "project sponsors."  Engineering and IT projects have a long history with project sponsors, but in many larger companies HR does, too. A good definition of a project sponsor is:

 . . . a manager with demonstrable interest in the outcome of the project who is responsible for securing spending authority and resources for the project. The Project Sponsor acts as a vocal and visible champion, legitimizes the project goals (and more) . . .

In my experience, a strong project sponsor can really matter, especially to months-long projects. Particularly if the outcome of your project is going to make some of the people (fill in: Department Heads, Division Heads, Plant Managers, Engineers, and so on) uncomfortable for a period of time. Either because your plan design really is an innovation or because you uncover a sore spot that the group has ever so carefully been covering up.

The other part of my experience with project sponsors is that they are always going missing. Especially when you need them. Granted they are usually line managers who can't always put compensation on the top of their priorities. But now that I write that, I think, "Really???"

Anyway, here's the great advice. If the sponsor asks, either to begin with or mid-project, "Can I delegate?" have a candid heart-to-heart talk, or get yourself another sponsor, quick.  Here's the problem definition. I've run into it so many times:

. . . If a vice president delegates sponsorship to a director, for example, the director may not be able to make the decisions that the vice president could. This creates an artificial bottleneck when the director has to go to the vice president, explain the issue, why the decision needs to be made, etc. Not a good place for the project to be in. Especially one that is fast moving with critical timeframes.

I don't know how much more clearly the picture can be painted. You know, the one where your project team is waiting to get on someone's calendar in order to make a presentation to find out if there is support, let alone approval. In other words, bringing your team to a screeching and painful halt -- and putting your whole project in peril. It all must sound familiar.

Now I know, because I've read about it, that I need to trust my instincts, speak up early, just when my project sponsor begins to drift away. The advice above is passed on by a veteran project manager called Russell Harley, who has been writing about project management on the Web recently. If your 2015 holds a sales compensation redesign, or plans for variable pay, or a new stock plan design, or, or, you could learn a lot from Mr. Harley. I know I have.

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 31 of Everything You Do (in Compensation) Is Communication? Find out at www.everythingiscommunication.com. Think about it as you get ready for your 2014 self assessment. 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!

Automatic Pilot Is Too Easy

With the fall of the Autumn leaves the attention of most senior management personnel shifts to the upcoming changeover of the business year.   And that click of the fiscal year calendar is accompanied by the beginning of their new annual incentive plan cycle.  So while the left hand is busy processing performance assessments and award payouts as an end-of-year project the right hand is getting ready for the new cycle. 

In many companies this fresh start is automatic, an administrative process not given much thought past doing what they did last year, and the year before.

Here's a thought.  Instead of issuing another rubber stamp copy perhaps now might be a good time to review your annual management incentive plan and take the opportunity to breathe new life into it.   Because if left on autopilot too long it’s surprising how many extra names find themselves added to the incentive-eligible rolls, slowly adding up what can become significant costs, often without proper review.

Eventually senior management will notice the ballooning costs and clamp down, either by reducing eligibility in a broad-based fashion, and/or by reducing incentive payment opportunities.  Perhaps both.  You don’t want to get to that point.

The Sneak Attack On Your Payroll

Has your company made too many people eligible for the incentive program?  Take a quick look at a 3-year growth curve of positions and employees being included.   Would you consider all these deserving?  Is someone making that decision, or has title or grade designation become the deciding factor?  Meanwhile, can you explain the ROI for the growing cost of management incentive pay?

Employees deemed eligible for an incentive opportunity should have a line of sight between their performance against measureable objectives and award payments.   If they don’t, what are you rewarding?  Your plan shouldn't be a profit-sharing scheme, where eligible employees light a candle in the window and hope that the company does well.

Companies typically use the “Manager” title as an eligibility cutoff, but perhaps what you name a position shouldn't be the sole criteria.  What about those whose responsibilities include managing people, versus individual contributors who manage a budget or a specific responsibility?  Sometimes they're all called "Manager."

Using a grade designation can have its own problems; is everyone in a grade eligible, and if not how do you differentiate between positions, when the company has already deemed each to be similarly valued?  Slippery slope here.

If you’re suffering from title inflation and have granted puffed-up titles for certain employees, are these Managers actually managing or are they only supervising, or are they really technical experts with a gratuitous title?

Have a care that your pay-for-performance management incentive program doesn’t evolve into an entitlement program.

Where's My Check, Please?

Something else to look at: is the incentive award at risk?  How many of your eligible employees don't receive an award each cycle?  If practically everyone receives an award perhaps instead of an incentive plan what you have is a delayed reward program; managers put in their twelve months and expect a bonus payment.

Does your incentive program require behavior above and beyond, with objectives linked to broader company goals?  Or are your objectives only finalized at the end of the cycle, simply to comply with some Human Resource assessment form?

At the lower limits of incentive eligibility some companies start with an incentive target of 5%.  However that low a reward opportunity isn't a carrot for anyone.  For that small amount of reward you won’t change anyone's behavior, never mind maintain their attention for 12 months, so why bother?   If behavior isn’t going to change, if you’ll receive the same performance as before, but now for an additional  5%+ cost increase, what's your ROI?  In my view this money is wasted.

Now is the time that you should have a look-see at the effectiveness of your annual management incentive plan - and to suggest meaningful improvements.   Because once the current payment processing cycle is complete the pressure will be on to roll-out the 2015 program.  And at that point the die will be cast until the following year.

It'll be too late.

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, "Easy Button," by Civilian Scrabble

What About Performance Transparency?

I find it interesting that we are witnessing a much publicized push for pay transparency at the same time that we are hearing increasingly passionate calls to do away with performance reviews and ratings.

Does anyone else see the irony here?

I have yet to encounter an organization whose leadership seeks to pursue a talent strategy involving identical investments in all employees regardless of how well they perform and regardless of the commitment they demonstrate to development and improvement in their roles.  They want and expect differentiation.  How does the organization get there without performance evaluation and ratings?

In his recent TLNT.com article Why High Performers Really Like Performance reviews, Dr. Steven Hunt reveals an inconvenient truth:  They don't.  As he says...

Companies that claim to be eliminating performance evaluations are usually just hiding the evaluation process from the employees.

From what I've observed while working with organizations who've gone "ratingless" and what I've read about those who've made news for taking the bold step of eliminating ratings, I think Dr. Hunt's assessment hits pretty close to the mark.  These organization  do not treat everyone the same.  They do make differentiated investments across employees -- in base salary increases, in bonus awards, in development and promotional decisions, etc. -- which are based on somebody, somewhere making a summary judgment about the employee's performance and potential.  It's just that those judgments happen outside the realm of a formal performance management process in a manner that is often discretionary and opaque -- and without the use of descriptive labels.

In other words and to summarize, many of us are pushing for transparency and clarity in pay decisions at the same time we are seeking to back-room the judgments used to inform those pay decisions.

How two-faced are we?  Are we even seeing the incongruity?

In an earlier article, Performance Management: We Won't Fix the Problem by Ignoring It, Dr. Hunt calls our attention to the two essential tasks that have traditionally formed the core of performance management:

1. Classification — Assessing employee performance to support decisions about where to invest scarce resources such as pay, promotions, or limited development opportunities (e.g. job assignments, expensive training courses).
2. Development — Assessing employee performance to provide feedback and coaching that will increase employee engagement, performance and career growth.

Classification, of course, is the more difficult of these tasks because it forces us to deal with the reality that some employees perform at a higher level than others. 

It is easy to understand the temptation to yank classification out of the process and focus exclusively on the more pleasant and affirming development element.  To completely avoid the stressful, difficult and potentially emotional context of a classification conversation.  Except that there is a fundamental dishonesty that happens when you make and act on tough judgments without ever clearly owning them or sharing them with the affected employees. 

Transparency and clarity?  Not so much.  Courageous and bold?  Not sure I see it that way.

Bottom line, conducting performance appraisals in an honest, transparent and -- yes -- appropriately humane manner is tough and uncomfortable.  Really tough and uncomfortable.  But I'll venture a prediction that it will be those organizations and leaders who step up to the plate and do the very difficult work of getting this right that ultimately succeed and prosper in the Age of Talent.

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.

Image "Business Hide Confuse Emotion" courtesy of pakorn/FreeDigitalPhotos.net

Pay as Recognition

Money was found to be the most significant form of recognition received by workers responding to a Labor Day survey conducted by the Harris Poll for the American Psychological Association.  Employees were not particularly happy, even though their attitudes are critical for engagement, motivation and retention. 

Key findings are summarized for those who don’t want to skim the press release, read the executive summary or study the complete detail.

• Only about half of the U.S. workforce (51 percent) say they feel valued by their employer, more than a third (36 percent) haven’t received any form of recognition in the last year and just 47 percent say recognition is provided fairly.
• The most common form of recognition their employer provides is salary increases based on merit (39 percent). Less than a third (31 percent) said that direct supervisors express verbal or written appreciation and only about one in four (24 percent) reported that their organization uses performance-based bonuses or promotions as a form of recognition.

While “atta-boys” by the boss were valued, cash remained king. 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).

The survey also explored the positive relationship between effective recognition programs and employee morale, engagement and retention.  Employees who said that recognition practices are fair, that direct supervisors provide recognition effectively and that they value the recognition they receive reported a variety of positive outcomes, including higher levels of job satisfaction, a greater likelihood to work harder because of the recognition they receive, stronger motivation to do their best and a greater sense of feeling valued. Those who received recognition more recently also reported higher levels of job satisfaction and motivation to work hard.

Although 40% reported working remotely at least sometimes, no significant differences about satisfaction, morale and retention were found among remote workers.  There were some gender-based differences.  While both men and women gave equal importance to recognition (87 percent), men were slightly more likely than women to report being satisfied with their employer’s practices and to believe that recognition is provided fairly by their organization and by their supervisor. 

Recognition is a mechanism for engagement, which is vital for the success of any human enterprise.

“When an organization makes people feel valued and appreciated, that not only creates a better work environment, it also affects whether employees want to stick around and help the company achieve its goals,” said David W. Ballard, PsyD, MBA, assistant executive director for organizational excellence at APA.

The way people react to the communication methods used by management has a critical impact on their performance.  Unfortunately, the reality discovered in the APA survey seems pretty dismal.  Far too many workers feel unappreciated.  They see little personal positive feedback beyond merit increases, and most don't even get those.  Relying on pay to be the prime recognition device may be misguided and overly optimistic.  Regardless of the validity of this report, it should be a cautionary warning that we need to do better.

There is obviously a lot of room for improvement in the total rewards profession. If these findings are worse than what you see at your enterprise (or at your clients), count your blessings!  You might want to share this article, showing how this survey contrasts with your superior achievements.

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.

Creative Commons image "The Art of Being Happy" by Chi King

The Secret Life of Equity Compensation at IPO

The IPO market has remained strong for a while now. Equity compensation is a huge part of compensation at IPO. Yet, for all the publicity stock-based compensation receives, it is still mostly a mystery to those involved. Most of us know that an Initial Public Offering is a way to get your company's stock into the hands of outside investors. But, how does this process impact equity compensation?

This is a bit simplistic, but for many it will be eye opening.

Many people don't realize that a company sells only a portion of its outstanding stock into the public market. Sometimes this portion isn’t even a majority of all of the stock held. Founders and early investors will include some or all of their shares in the offering. Much of the stock held by founders and insiders prior to the IPO will remain in their possession for months, years or longer.

The shares that are offered for sale must be priced with two considerations. First, the bankers and company must determine the total value of the company and the value of the shares that will be sold in the IPO. This is the expected value of the IPO to the company and its investors (and bankers). Second, the price per share is then determined by dividing the expected value by a reasonable IPO offering price. For most companies (not the outliers like Facebook), the IPO price will be between $12 and $15 per share.

All of that seems obvious to those who watch the IPO markets. So, how does this impact stock options, restricted stock units, employee stock purchase plans and other equity compensation?

It is important to note that most companies perform some sort of reverse stock split just prior to their IPO. This means the number of shares outstanding will go down. In some cases, privately-held companies may have billions of shares outstanding prior to their IPO and will need to do a reverse split of 1:10 or far more to get the number of shares to a level where the per share value equals the IPO price.  When the number of shares goes down, the relative exercise price goes up.

Those stock options with an exercise price of a penny or two may end up having a strike price of several dollars. RSU awards with hundreds of thousands of units may end up being just a few thousand. This can surprise participants who are doing back of the envelope calculations and planning on retiring to their new yacht when the final value of their grants may only be enough for a down payment on a mid-priced car.

In addition to the reverse split and IPO pricing adjustments, many companies have preferred stock that converts to common at unusual ratios. All of this can make it nearly impossible for an employee (or compensation professional) to accurately predict the potential value of equity compensation. Add this confusion the simple fact that these calculations will be different for nearly every company.

As the IPO market continues to power forward, you need to start planning at least 12 months ahead of your hopeful IPO date. For some companies, this means dialing back equity usage and preparing for the inevitability of newly minted millionaires leaving the company. For other companies, it means adjusting compensation philosophy to prepare for a talent battle of post-IPO proportions. It may also mean communicating that “thousandaire” is still a pretty good goal.

While an IPO is a great thing for most companies that achieve it, it may not always mean something spectacular for employees. It is important to fully understand your company’s capitalization table, and potential IPO value and the impact it will have on grant sizes and values.

With a goal of keeping this to a reasonable length for the Compensation Café, I will wrap it up for now. Please feel free to join in the discussion in the comments and I will expand and provide details where it makes sense. I can always make this a multi-part series if the interest warrants it.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with corporate strategy and culture. If you appreciate Dan’s thoughts on compensation you might want to get a copy of the new book from 3/8^ths of the Compensation Cafe: “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 including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, “GEOnomics 2011” and “Equity Alternatives.” Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay.

Rewarding Ideas As Well As Results

Tim Sackett is on my list of “must follow” bloggers. His blog, The Tim Sackett Project, is a consistently good and informative source of HR wisdom. One recent post was on properly weighting the importance of the “idea” over the “work” required to turn the idea into reality.

Here’s an excerpt:

I would come up with an idea.  A really, really good idea!  I would then work to make this idea a reality.  I would spend a lot of time, energy and resources making this idea come to life.  The work became more important than the idea.

Someone really smart would come along and want to change my work.  It would frustrate me. It would anger me.  I didn’t like them messing with my work.

I fell in love with the work.  With the process.

The work and my processes became more important to me than the original idea.  I was blind to see that those who were coming to me, to try and get me to change my work, were in love with my idea, but not in love with my work.

It took me a long time to understand the value wasn’t in the work, it was in the idea.  Anyone can do the work.  The work can be done a number of different ways to get the same result. But the idea was the creation, the start.  Without it, there wouldn’t be any work.

This post rang true for me in many ways. In the context of the Compensation Café community, let me ask you this. What gets rewarded in your organization? The idea or the work?

In our pay practices, I would argue, we tend to focus far more on the work than on the idea. Even recognition and reward programs often emphasis the work – the process, the progress made, the contribution, the end result – more than the idea itself. And that’s not good. As Tim so eloquently points out, without the idea in the first place, none of the rest would be possible.

I think this particularly resonated with me when I read it last week because I had just heard my CEO, Eric Mosley, discuss his favorite core value from amongst our four values at Globoforce. Our values are imagination, determination, innovation and respect. As Eric explained,

“‘Imagination’ is a special value because it talks about the original idea. All the innovation that has come from Globoforce has come from an idea that somebody had where they imagined something new. And one of the most rewarding things as CEO is to look at the journey of those ideas as it went from the imaginative spark to true innovation. That’s why ‘imagination’ is my favorite value.”

Ideas don’t have immediate value to the organization. It may take months or years for any benefit of an idea to show up in the bottom line. But without the idea, the business stagnates. We need to recognize and reward ideas, too, before we see the benefit to the organization and often before we know if we’ll ever see a benefit to the organization. This approach is particularly important if you want to create a culture of innovation.

But does that mean we ignore the work behind bringing an idea to reality? Of course not! But how we reward that work should perhaps be re-evaluated as well. Consider Tim’s perspective in his story. When recognizing and rewarding the work – the efforts, contributions and results – that turns an idea into reality, be sure to:

• Emphasize how the work contributed to achieving the bigger idea, or making the original idea even better. Tie the effort back to the big picture to ensure both relevance and reinforcement of the importance of idea generation (innovation) as well as work effort (results).
• Acknowledge when appropriate the efforts of the team or multiple individuals involved in the work. Nearly every project of any real merit or value to the organization will involve multiple people with various skills and talents. Recognize them.
• Praise evolution, too. Often initial ideas are a spark of creativity that requires iteration to bring to fruition. That iteration process, and those who contribute to it, should be recognized for their own innovative ideas along the path to realization.

What gets rewarded more in your organization? Ideas or work? Imagination or results? Which do you consider more important?

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.

Global Medical Tourism

What are your thoughts on medical tourism?

Would your company pay for medical/surgical procedures done overseas? Would they do it if they could save 50% or more? Would they do it if the quality of care was the same if not better than the U.S?

In the United States, the term “medical tourism” generally refers to people traveling to less-developed countries for medical care. 

Popular types of medical care are not just the typical face-lift or tummy tuck anymore. They include orthopedic and sophisticated heart surgeries; ophthalmologic care; and organ and cellular transplantation.

Common destinations include Thailand, Mexico, Singapore, India, Malaysia, Cuba, Brazil, Argentina, and Costa Rica.

Using U.S. costs across a variety of specialties and procedures as a benchmark, average range of savings for the most-traveled destinations:

• Brazil: 20-30%
• Costa Rica: 45-65%
• India: 65-90%
• Malaysia: 65-80%
• Mexico: 40-65%
• Singapore: 25-40%
• South Korea: 30-45%
• Taiwan: 40-55%
• Thailand: 50-75%
• Turkey: 50-65%

Many hospitals have doctors and surgeons who have trained in the U.S. or Britain, which is a great comfort to American patients. The irony is that 25% of physicians in the U.S. got their education abroad.  Escorts Heart Institute and Research Center in Delhi, for instance, was founded by an authority on robotic cardiac surgery, Dr. Naresh Trehan, formerly of New York University.

Patients usually stay in a country a total of 15 to 17 days to allow medical treatment, recovery and follow-up. Conference calls can be held with the patient’s U.S and overseas doctors prior to and after the patient gets home.

Some insurers and large employers have alliances with overseas hospitals to control health care costs, and several major medical schools in the United States have developed joint initiatives with overseas providers, such as the Harvard Medical School Dubai Center, the Johns Hopkins Singapore International Medical Center, and the Duke-National University of Singapore.

Overseas health care facilities are now being accredited by the Joint Commission International (JCI). JCI is the international division of the Joint Commission Resources, a US-based, not-for-profit affiliate of the Joint Commission that certifies health care facilities in the United States. As of July, 2014 the JCI has accredited 600 international hospitals and the rate of accreditation is growing at 20% per year. 

The accounting behind the interest in medical tourism isn’t complicated. Many major employers in the U.S. are self-insured, which means they pick up the tab for much of their employees’ medical care. So company cost is greatly decreased by its use.

Some companies will share up to 25% of savings with their employees that are saved from the outsourcing. Get a new hip and a rebate.

Companies with traditional plans are also taking the initiative. Over the past few years, some U.S. insurance companies have announced plans to include foreign medical procedures among those covered by health plans.

As companies search for providers who offer maximal value and quality care, medical tourism is likely to become an even more attractive option.

Patients Beyond Borders, a respected source of consumer information about international medical and health travel, estimates the worldwide medical tourism market is growing at a rate of 15-25%.

As Princeton University healthcare economist Uwe Reinhardt stated: "This has the potential of doing to the US health-care system what the Japanese auto industry did to American carmakers."

“Flight 2318 is now boarding for Bangkok!”

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

What Can Costco's Pay Practices Teach Us?

I ran into a really interesting business case today that I thought you'd like to noodle over, too. The Business Insider has had a couple of articles about Costco recently and earlier in the year. Seems Costco has consistently outgrown Wal-Mart and Target, its main competitors, every year since 2008.

Oh bargain-hunting colleagues, if you look closely at your retail experience in each of the stores you'll know why. In MBA-speak, the assessment that The Motley Fool offers is that, "Costco is materially outperforming competitors such as Wal-Mart and Target thanks to its differentiated business model that allows it to charge competitive low prices for its products."

Key word is, of course, "differentiated." Costco makes most of its profits from membership fees. This allows them to sell at about a 12.5% profit margin, compared to profit margins of 25% to 30% at those other stores. That's right, less than half the profits. You've got to admit, that's a pretty shrewd way of running a mass-merchant retailing business.

The difference in their strategy doesn't stop there, of course. They do other things like limit their range of product offerings. You can choose from breath freshening, tooth whitening or dental sensitivity toothpast at Target, but don't expect to do much comparison shopping at Costco. Odds are you'll find a multi-pack of the most recent version of Crest, and that's about it. Of course I buy it happily, along with some pre-estimated subset of their membership.

I love the customer service at Costco, and I'm not alone. Costco has the highest customer satisfaction rating in the industry.

And here's why I thought you'd like to know more about Costco's winning strategy. Costco's average hourly wage is $20.89 per hour, according to Business Insider, almost TWICE Walmart's average hourly wage. High fixed costs cut into profits, some of you may say; what's going on here? Others are thinking, happy employees mean better customer service; that's why they are doing it, isn't it?

But here's what I thought you'd really find interesting, given all the variables we kick around at the Compensation Cafe every day. I'm passing along some thoughts on Costco's pay practices from Megan McArdle of Bloomberg View:

Paying workers more than the going market rate for their skill level can bring a lot of benefit to your company. You get lower turnover, and arguably, better on-the-job performance. . .

If all the employers of minimum-wage labor followed Costco's lead and paid higher wages and benefits, Costco would be less profitable, because the quality of its labor force would revert to the mean.

Anyone have experience in wage wars that can lend some war stories to the conversation? And how about comments on a quote from another of her articles:

A strategy of paying efficiency (marketedly higher) wages to attract, and retain, a higher-quality labor force is by definition a business model that cannot be followed by everyone in the market.

Us consultants tried to begin a lot of conversations until 2007 on just that point. We can tell you how effective a conversation starter that was . . . but how great it is to hear it said out loud now, in public. Don't you think?

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 8 of Everything You Do (in Compensation) Is Communication? Find out at www.everythingiscommunication.com. Think about it as you get ready for your 2014 self assessment. 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!

Use And Abuse of "Retention"

In some circles the word "retention" has an identity problem.  Some would say that, if you don't want someone to quit your organization, any extra money you give them as an inducement to stay can be considered "retention." 

When you don’t want a valued employee to leave your organization, one who might otherwise do so, what are you going to do?  You’re going to make it worth their while to stick around. You’re going to offer them more money.  I say offer, because you need to put a carrot on a stick – an inducement to get them to remain while it might be otherwise in their best interests to leave.

This concept is very broad, and if not applied carefully can be used to justify any manner of increases for any manner of employees.  It can become the opposite of what you intended when you designed your reward programs.  Wide discretion and rationale subjectivity could replace pay-for-performance, internal equity and the balanced foundation of your structured reward programs.

What a retention should not be, is an end around effort to give employees more money; a callous attempt to “beat the system” of annual pay increases – to find another way to give selected employees more money - outside the system.  The game is played by throwing down the fear card; talent will leave us.  We can't have that.

So have a care.

And then there's the retention bonus

When should you consider a bonus as a retention tool?

• You’re selling a business or a piece of your organization.  If the performance of the business falters during the sale process the value of that business could be negatively impacted, so you need people in place to maintain proper operations.

• When you’re closing down an operation and laying off the workforce.  Someone has to stick around to make sure that the operation remains as effective as possible for as long as possible, and then to turn off the lights.

Employees who manage an operation that’s been offered for sale are typically considered as part of that operation, so they'll be leaving the parent organization.  In effect, they're being let go with the rest of the for-sale operation.

If perchance these leadership employees might still be retained by the parent organization their efforts should be considered a project.  So you should consider a retention bonus when you’ll be losing the employee(s), not when it's simply a project for them.  Projects can be a great objective for the annual management incentive plan.

You have to offer a large enough incentive that they'll remain until the end. Too little and they could be lured away by a new employer's offer.  You could phase in retention bonus payments, in stages, but always keep the largest piece until the end.

You could also tie payments to results; otherwise you might pay out monies for someone who is simply sitting there, working on their resume and playing computer games.

How much is enough?  Enough to get and keep their attention, so a hefty percentage of their annual base salary is a good place to start.  It would be money well spent, so I’d advise you consider up to 50% for the leaders, and ~25% for senior staff.

How many should be included in the program?  Keep it small, only those deemed critical to continued operations.

To be clear, any offer of a retention award would be forfeit should the employee leave prior to the agreed upon date, or if their performance is considered “poor.”  Note: you might have trouble in a failing or “for sale” business to determine gradients of performance.  But obvious failure to perform (against your pre-established objectives) should have a penalty.

Retention as a concept can be a slippery slope, so be careful where and when you step.

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.

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