Compensation Cafe

Trust & Respect Top Drivers of Employer Reputation

Here’s a sad state of affairs. I’m at SHRM this week and preparing for my session on the Power of Thanks. I’m excited about the session and further sharing of what I am personally and professionally quite passionate about – the ability to choose our own attitude and influence that of others through simple (if specific) expressions of appreciation, praise and recognition.

And yet, I have mulling around in my mind a story recently told me by a member of my team. On a shared commute into work with her husband, the topic of conversation turned to seizing opportunity when offered. My teammate offered her position that any time an opportunity to contribute, learn, grow or do is given, she leaps to take it on. Her husband responded, almost without thinking, “Yeah, that makes sense when you actually trust your company to do the right thing.”

Then, catching himself, he said, “Wow. Did I really just say that?” His wife pressed, “What do you mean?”

He replied, “Well, for example, when Bob was offered a role with more responsibility, he was moved up from hourly (and the associated time-and-a-half) and put on monthly, which doesn’t have that. Yet he knew he’d be working more hours on average anyway. The company promised they’d do right by him. That was four years ago. He’s still waiting. So, no, I don’t trust leadership to do the right thing. So why would I seize opportunity when offered or go out on a limb for them?”

That is the definition of employee disengagement – someone who is capable of doing more, but choosing not to because they see no reason or motivation to do so. And lack of trust in and respect leadership is a clear marker for increased disengagement. It’s also a strong marker for recruiting and retention.

This story reminded me research out of the UK. A Business in the Community (BITC) survey assessed adult views on business behavior, finding that “the perception of a company being a good employer had a significant impact on whether someone wanted to work for it - 92% of respondents said that, if they were in a situation where they had two identical job offers, whether the companies treated employees with respect would be an important part of their decision making.”

It’s particularly interesting to me that how a company treats employees was the top ranking reason impacting perception of the company as a good employer, beating out whether they treated customers well (90%) and whether they made safe and reliable products and services (89%)

People choose to work for your organization or not based on your reputation. BITC Chief Executive Stephen Howard commented:

“It’s clear that the outdated idea of responsible business as being about giving cash or ad hoc CSR activity is over. While these things do have positive impacts, there is far more to being a good business then simple philanthropy and the public and employees know this. To be perceived as responsible a business must be authentic and have values that influence everything it does – from how it treats employees and uses natural resources to how it operates within the community and down their supply chains.”

Of course, people also make employment decisions based on fair and valid compensation, benefits and Total Rewards packages. But your reputation for trust and respect are equally powerful (if not more so).

What’s the public perception of your organization? Do you have a strong, positive reputation for how employees are treated?

As Globoforce’s Vice President of Client Strategy and 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. He is the co-author of "The Power of Thanks" and 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.

Some and Others

Some counts more than others.  I mean that literally.  The disproportionate influence of “some” is quite important to compensation people. 

Anyone making important decisions must realize that the ubiquitous “some” may have much more power over results than “others” does.  I’m not even talking about the identity of the “some” being described but just mulling over the tremendously powerful ability of that single small short one-syllable word to affect our understanding.  “Some” is paired with “others” so often that when you hear one, you almost expect to hear the other follow immediately.  That’s not doubletalk, either.

Juxtapositioning terms affects understanding in most languages, and English permits more such tricks than most.  Qualifying clauses like that can cost you money, too.

Using the wrong word, or using the right word in the wrong way, can derail a successful career.  For reasons that are never made completely clear, the term “some” seems to hold more authority than “others.”  Maybe it is because “some” sources of truth are typically cited before “others” are heard from.  First is higher than second, so being the first up tends to imply priority.  The order of position can imply that credibility, reliability or degree of authority follows the sequence of presentation:  i.e., the first citation is most persuasive and the second mentioned is a weaker idea.  The distance between first-rate and second-rate, for example, is clear by ordinal rank even though the interval scale remains unknown (that’s compensation talk).  Or the first is the best idea and the next is a usually contrasting afterthought offered just to give the appearance of even-handedness. 

Since we are now talking about “hands,” let’s consider how “some” can also be used as a sinister negative when it follows after a tremendously well accepted concept, in order to depreciate its accuracy.  For example, “experts say CEOs are overpaid, but some disagree.”  Insertion of a subsequent “some” after a declarative sentence introduces a contradictory element that undercuts the prior statement and drains it of its potency.  “The payroll budget increase was well received… by some.”  That final word just reeks of negation, doesn’t it?  Funny, the way the location of simple pieces of language changes implications and understandings.

Note that when “some” comes first, its weight (although generally unspecified) looms large in the mind of the beholder, so the “others” tend to be relegated to the ranks of a tiny minority of kooks.  Sentences beginning with “some” often slickly introduce a threatening idea in a manner that is difficult to combat because it is nebulously nonspecific about precise numbers.  “Some people are unhappy about their pay,” is a clever way to place pressure on HR to correct this apparently unacceptable situation.  “Some people” might only  be two out of thousands.

How you spend words may mirror how you spend money.  Is there any truth to the idea that those who are profligate with words are similarly generous in the way they dispense compensation?  I have never recognized any particular pattern that showed that prolix writers or babbling speakers are any different in the way they award pay than concise writers or taciturn speakers.  Some may be different than others, of course. 

Look for appearances of those two words.  How are they influencing the messages you deliver or receive?  As you handle rewards, some may be more important than others.  

E. James (Jim) Brennan was 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 "PComposition Of Attractively Smiling People" courtesy of stock images / FreeDigitalPhotos.net

Pay Differentiation without Performance Ratings: How's That Working for Us?

I'm picking up what might be an interesting pattern.  It's still a very limited data set, but I have now encountered several organizations who have seen employee satisfaction with compensation decline in the years following a decision to drop performance appraisals and performance ratings.

It's too small a sample and, of course, these variables are far from isolated.  Each of these organizations has a ton of other things going on that could impact satisfaction with compensation.  Nonetheless, it was enough to get me thinking.

Like Adobe (see Jacque Vilet's Café interview here), these organizations still have a merit increase process in place.  It simply functions without an explicit set of merit guidelines tied to discrete performance assessments.  Salary increases continue to be made and position-in-range examined with consideration of "merit" -- but said merit is now a largely discretionary determination or (in a few cases) determined via a separate process (e.g., 9-box, topgrading, etc.), the results of which are not explicitly shared.

So what's the problem?  I think it's this.  Employees are forced to draw judgments about the fairness of their pay in the absence of clear, unambiguous information about how well they are performing.  Given our collective inability to accurately gauge our own performance (either in isolation or in relation to others), it isn't hard to imagine that this might lead to a lot of people believing they are being under-rewarded for their contributions.  Hence the dip in pay satisfaction.

In my mind, it all boils down to the following:  Treating people differently (especially in a sensitive area like their pay) based on conclusions which you are unwilling to make explicit or clearly communicate to them is unlikely to be perceived by them as fair.

This raises questions about where we are headed with performance management and whether we will ever be able to reconcile the challenges of gauging people's performance contributions with the desire to reward them for those contributions.  I'm inclined to agree with my friend Tony's prediction that performance appraisal will likely survive our awkward and unhelpful attachment to "annual reviews" as well as our current romance with ratinglessness to become "continuous, 360 degree and closely monitored by both machines and humans."  Drawing on advances in data mining and analytics while not losing sight of the fact that (ultimately) people should make people decisions.

To the degree that we can arrive at this place, bring sufficient art to bear on the science and turn this information into helpful, meaningful, compassionate and actionable feedback, we will indeed have a solid platform for performance-differentiated rewards.

That's what I think.  You?

Looking for the definitive guide to compensation leadership? Ann Bares collaborated with Margaret O'Hanlon and Dan Walter on the ebook Everything You Do (in Compensation) is Communication.  Find it at www.everythingiscommunication.com.  Ann is the Founder and Editor of the Compensation Café,  Author of Compensation Force,  and Managing Partner of Altura Consulting Group LLC.  Ann also serves as past 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 "Piggybanks Eating Money Showing Financial Counselling" courtesy of StuartMiles / FreeDigitalPhotos.net

Ready, Set, Go, Go, Go!!!

I'm working with a small company with huge potential for growth. They are setting up another production location and we have been talking about how to make this work.

Like every company back to the Cro-Magnon period, they are starting out by looking at compensation. You've got to start somewhere and insight into compensation provides the newbie with a staffing study, organizational chart, large portion of operating budget and so on. Revs up your recruiting plans, too.

But I've seen a number of companies -- especially tech companies who are busy acquiring small businesses -- to leave it at that. Or, at least pretty much leave it at a cool handshake and a new payroll source for their founding employees.

Some tech companies are shopping for intellectual capital not people, so the cash commodity mentality could hold merit. But many others are just plain overwhelmed by the details of setting up a whole new business operations from scratch. After all, their experience has been to grow it bit by bit, relatively quietly; not shout, "Ready, set, go."

If everything we do in compensation is communication, what does the first paycheck say to these employees who you are relying on to get up to speed and deliver fast? It's worth a good deal of thought because this opportunity will never come again.

Many, many executives are prone to over promise in this situation. It feels like a high to have all that potential in front of you, so why not be unrelentingly positive? Truth is, that's a rookie mistake. It doesn't take a high IQ to understand that nothing ever turns out exactly as planned. It's better to get focused on specific milestones than to believe that the company will be listed on the NYSE any time soon.

So back to that paycheck. In a start up, a paycheck/incentive talks to the employee about the future as much as the present. How fast will we grow? Can the exec deliver? Do I have a career here? Will I get recognized for pitching in? Are the managers any good? Is this better than my last job?

Being prepared to answer those questions from Day 1 is really tough to pull off, but with emotions running that high, it's an investment with an amazing payoff. A common human reaction to excitement is engagement and hope. A common human reaction to disappointment is resentment. People will make do until they realize that someone's unwittingly (or deliberately) making it tougher for them than it has to be.

No matter how good that paycheck is, you'll all end up feeling ripped off by the second quarter if the leadership group doesn't walk in as prepared as possible to build relationships that work out well. Put that on your To Do list, and count on making a measurable contribution to new business results.

Summer reading or influence building? Get yourself a copy of  Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com, the convenient website where you can grab our popular eBook. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, Margaret was a Principal at Towers Watson.

ICYMI – Executive Pay Updates Mid-2015

This post is a roundup of recent and impending activity in the world of executive compensation.

Normally, this is the time of the year where we see the hand wringing and tearing of clothes that have come as a result of annual Say On Pay voting. But, let’s be honest, each year only 2% of companies fail and about 7 out of 10 companies receive support from at least 90% of their shareholders. Until something changes, Say On Pay is mostly interesting to the few companies who fail or are at the margins. Most of you probably breezed through (again.)

However, the last month or two have been a whirlwind of activity for executive compensation professionals. New regulations, clarifications and details have hit some of the major forces in the world of executive compensation. We all know that ASC 718 (FAS 123R), IRC 409A, Sarbanes Oxley and Dodd Frank have fundamentally changed how we account for tax, regulate and report executive compensation. April through June of 2015, we have seen new clarifications and proposals for nearly all of these.

This month also included receiving clarifications on accounting for equity compensation under ASC 718.This 105-page document is meant to simplify some common issues. It includes a new approach to windfalls and shortfalls associated with the APIC pool, a loosening of the restrictions on withholding shares to cover taxes due, more flexibility in handling forfeiture rates and some new approaches for privately-held companies. PWC provides an excellent summary here.

409A also had a recent touch-up.  Audit guidelines were updated and/or clarified. These involved when to include non-qualified deferred compensation in gross income, when employers can take a tax deduction and the proper timing of employment tax calculations. Michael Melbinger of Winston Straw sums it up nicely here.

And, one of the most anxiously awaited rules, the link between CEO pay and company performance, came even closer to reality in April. The SEC proposed new rules under Dodd Frank Section 953(a). These rules provide details on how companies must calculate and disclose the link between executive pay and corporate performance. You can read my recent post here.

Wait! We aren't done yet. There are apparently impending new rules under Dodd Frank sections 954 and 956. Section 954 covers the topic of clawbacks. Section 956 includes compensation reporting and prohibition rules for financial institutions. It has also been reported that we may see the final pay ratio rules this fall. You can read about a bit more about these topics here.

If you are reading this post, you’re already ahead of the game. Your insight is critical in shaping these rules to work well for companies, shareholders and participants in your compensation programs. You should take the time to provide comments to whatever body is requesting them (current the SEC for Dodd Frank Section 953(a)). If you think something will be a problem or can be improved, let people know. If you think things look great, let them know. Either way, it beats “them” operating in the relative darkness provided by a small number of pundits and experts who often have little idea of what really happens in the day-to-day world of executive compensation.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. A book AND project plan for communication? “Everything You Do in COMPENSATION IS COMMUNICATION”, by Comp Café writers, Dan Walter, Ann Bares and Margaret O’Hanlon, lays out a practical approach to communications (with helpful worksheets for each step). Dan’s new Issue Brief on Performance Equity will be available July 2015. Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

Where Have All the Raises Gone?

Last month The New York Times ran an article bemoaning the loss of pay raises in favor of one-time bonuses and non-monetary rewards. Cited in the article, analyst firm Aon Hewitt calls this a “drastic shift” based on the firm’s annual survey on salaried employee compensation.

“The share of payroll budgets devoted to straight salary increases sank to a low of 1.8 percent in the depths of the recession. It dropped to 4.3 percent in 2001, from a high of 10 percent in 1981. It has rebounded modestly since the recession, but still only rose to 2.9 percent in 2014, the survey of 1,064 organizations found. (These figures are not adjusted for inflation.)

“Aon Hewitt did not even start tracking short-term rewards and bonuses — known as variable compensation — until 1988, when they accounted for an average of 3.9 percent of payrolls. Ten years later, that share had more than doubled to 8 percent. Last year, it hit a record 12.7 percent.”

The article goes on to point out, “Over the past 12 months, real average hourly earnings have increased by just 2.2 percent.”

After reading this article (and now sharing it with you), I have two questions.

Why are we surprised that average salary increases are at 2.2% on average?

Merit increase structures have been low for years with very little differentiation between the top performers and the average. Indeed, I’ve seen many stories about merit increase budgets being split such that top performers reach a 3% raise, average performers a 2% raise, and low performers a 1% raise (if any). Considering research reported in Psychology Today showed “a merit raise needs to be about 7 to 8 percent in order for workers to feel pleased about the raise and motivated to work a little harder,” our current approach to raises is a long way away from achieving the goals of our investment.

That’s why I’ve long advocated for consideration of a new approach. Give all employees annually an across the board Cost-of-Living Adjustment (COLA) of approximately 2%. (COLA for 2015 in the U.S. was 1.7%.) Then create a strategically designed social recognition program in which all employees are eligible to recognize and reward others and be recognized themselves – in real-time – when they’ve contributed to or achieved performance-based metrics.

This is only practical, however, if we redefine what we mean by performance based rewards, which leads me to my second question.

Should we start thinking about performance based rewards in a new light?

“Performance-based rewards” needs to mean something different than “results or outcomes only.” The definition of “performance” needs to include the behaviors demonstrated in achieving results, the ability to contribute well in the face of trying circumstances, and wisdom to extract valuable lessons from failure quickly. Doing so broadens dramatically the reasons for which employees can be rewarded throughout the year in sync with the efforts being recognized.

Many companies are already moving down this path. The Aon Hewitt research showed, “Ninety-one percent of the companies surveyed have at least one broad-based reward program, up from 78 percent in 2005 and 47 percent in 1991.”

The positive psychological impact of raise lasts but a very short time. The positive impact of appreciation and recognition, tied to appropriate, calibrated rewards, lasts much longer with the added benefit of directly reinforcing behaviors and actions you want to see again and again.

Instead of bemoaning the loss of meaning merit increases, perhaps it’s time to rethink how we allocate our Total Rewards budgets.

What else should be included in a new definition of “performance?” How should we best structure raises in the era of Total Rewards?

As Globoforce’s Vice President of Client Strategy and 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. He is the co-author of "The Power of Thanks" and 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.

Compensation Whack-A-Mole: Dealing with That Problem Plan

Every organization has one (or more).  The compensation plan that simply isn't working.  What to do?  Do you fix it?  Do you put it out of its (and your) misery and replace it with something better?

How do you decide?

Inspired by an Harvard Business Review article on dealing with problem products (who knew there were such similarities between product development and pay plan design?) and adapting its wisdom to our field, I offer the following guidelines:

Scenario 1: A Plan in Search of a Purpose.

Why was this particular pay plan created?  What purpose does it serve?  Does anyone know?  Not infrequently, we HR and compensation pros can get enamored with a particular idea or approach.  Perhaps we picked it up at a conference or read about it online.  In an effort to be at the forefront of our field and do what the cool kids are doing, we bring it to our employers.  Or someone in the leadership suites comes down with a directive to implement a particular plan because it was a hero at his/her previous employer.

But are we clear and in agreement about the problem it is designed to solve?  The types of behavior and outcomes it is meant to inspire?  How will we measure success?

Fix or Kill:  If you can't identify a compelling business need that the plan is designed to address, something critical enough to warrant the investment of precious discretionary pay dollars, kill it and start over.  Begin this time with strategy and problem definition.

Scenario 2: Poor User Experience.

"Usability" -- according to author Moe Kelly -- is a top killer of new products and services.  This is true for compensation programs as well. Often they are aimed at the right business priorities and problems, but designed with no sense of the user (managers, employees) experience.  Does the plan make sense to managers and employees?  Do they understand why it was put in place and how it works? Does it send messages that are in alignment with stated intent?

Fix or Kill:  Fix.  Get out of your office and away from your spreadsheets and PowerPoint presentations and spent some time discovering what managers and employees experience when they have an "encounter" with your plan.  Can you make that user experience better, so that it allows the plan to speak to and deliver on its intent and purpose?

Scenario 3:  Poor Strategic Fit.

The plan is a perfect fit -- to a business reality that existed 5 years ago (or once upon a time in the designer's imagination).  If you can't articulate how the plan drives and supports strategic priorities, there's a pretty good chance that it actually doesn't.

Fix or Kill:  Usually kill.  Chances are this plan has lost all credibility, so your credibility may hang on disposing of it quickly and following up with the design of something that has clear strategic relevance.  (And then, vow not to allow this one to slip into auto-pilot mode.)

Scenario 4:  It's an Idea, Not a Plan

This is a classic product development problem -- a grand vision of an emerging market opportunity in an exciting new space that the company gets all giggled up about but can never completely execute on.  In the compensation space, we are familiar with this as a version of analysis paralysis.  You define an emerging critical business need and imagine a reward scheme that has the potential to produce exciting and tangible talent results.  Meeting after meeting is held, ideas are flying, but no traction is being gained.

Fix or Kill:   Here's what product development wisdom has to say:  Either get clear, focused statements of purpose and objectives and a plan (with milestones, responsibilities and deadline) on the table or kill it.  If a real program does not then emerge according to the plan, kill it.  This takes real discipline, especially if you have (or your culture has) a tendency to fall in love with and get stuck on ideas that never come to fruition.  Moe Kelley describes this process as "Whack-A-Mole" since the same half-formed ideas keep popping up even after you "smack them down."

Agree or disagree with any of the above?  What would you add to these guidelines?

Looking for the definitive guide to compensation leadership? Ann Bares collaborated with Margaret O'Hanlon and Dan Walter on the ebook Everything You Do (in Compensation) is Communication.  Find it at www.everythingiscommunication.com.  Ann is the Founder and Editor of the Compensation Café,  Author of Compensation Force,  and Managing Partner of Altura Consulting Group LLC.  Ann also serves as past 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 "Whack-a-Mole" by Sam Howzit

It's About More Than Numbers

I’ve never been particularly good at mathematics, and yet have made for myself a successful career in Compensation.  Now, why is that?  One would think that we’re all numbers people, focused on statistics, surveys and regression formulae.  People just expect compensation practitioners to be a whiz at figures.  On the other hand, such so-called math experts often fail to rise to the top of the profession.   That's a quandary to ponder over.

Why do some compensation people succeed (climb the specialist ladder) and others don’t?  Likely there are several reasons, but I think persona has a lot to do with it.

Changing view of compensation

Effectiveness in Compensation isn’t (or shouldn’t be) all about the numbers, but about the people affected by the numbers.  A successful practitioner should understand their company’s business and the pulse of the employees, who are not just figures on a spreadsheet.   If you consider the human factor as little more than boxes on an organization chart, then your ability to solve problems will be limited by your ignorance of the employee relations impact that naturally follows your recommendations.

Do you remember seeing an HR fellow with a pocket protector and a bunch of pens in the shirt pocket, walking the hallway while laden down with survey reports?  That was the traditional view of “the comp guy.”  This was the master technician who lived with the charts, graphs and regression formulae, but who failed to understand the people impact of their work.  Everything was about the numbers.

Best practices are different these days.  Compensation staff are no longer confined to a cubicle or an out-of-the-way office, but increasingly are stepping out among the employees, developing their knowledge of how the business operates, all the while increasing their ability to partner with internal business clients.

Sensitized practitioners know that compensating employees should be about the rewards as well as the process, about how rewarding employees can influence behavior, for good or ill.  Therefore the success of the solutions provider is in being able to creatively assist managers with achieving their objectives, while at the same time adhering to consistent policies / procedures.  It is not about quoting policy with a shrug of the shoulders.  It's about being engaged in the process.

What’s the color of your hat?

Something else to think about; what role does the Compensation function play in your organization?

• Policeman vs. Gatekeeper:  The role is not to say yes or no, but to encourage an open process of ideas and practices that operate within established policies and procedures.  Nobody likes the fellow who can offer little more in the way of help than quoting from the company policy manual.

• Numbers vs. People:  Are your thought processes people-oriented, or is the understanding that employees are affected by these policies and procedures lost on you?  A business-only focus that ignores the human factor in driving success is inevitably tripped up by lower morale and disengaged employees.

• Policy vs. Flexibility:  Are you one to quote policy as a supposed answer to every manager’s question, or are you open to creative possibilities?  When you tell a manager that the decision remains with them, that you’re only offering advice, you'll be able to actually see their body dynamics relax.   At that point you can reach them, because their defensive barriers will be down and their minds open.

• Analysis paralysis vs. solutions-provider:  Being able to make timely decisions vs. being caught up with a constancy of analysis that never seems to move to a decision point.  Do you have a reputation as a decision-maker or an analyzer?

When you consider the compensation people you deal with in your organization, are they the good guys or the bad guys - the white hats or the black?  Which are you?

You don't have to be a numbers whiz to be successful.  You just have to know what the numbers mean, and how to use that knowledge to help your clients.

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, "Calculations," by marco_1186

Compensation’s Role In Acquisitions

Much has been written about acquisitions and Compensation’s involvement in them.  Many of us have participated in one or more --- either as an acquirer or acquiree.  

Regardless of whether the target company will be an autonomous operation or fully integrated into the parent company, Compensation in the acquiring company has work to do.

Types of Acquisitions:

Full integration:

There is hardly an acquisition where both companies have the same overall compensation system.  Compensation professionals must understand the target’s entire system --- cash and non-cash components, job titles, policies (both written and unwritten), special financial agreements, etc.  In full integration the target’s employees are moved on to the acquiring company’s system.  Sometimes Compensation decides to throw out both companies’ systems and start over, building a single one from scratch.

Autonomous Operation:

Even though there is no integration, compensation’s role is to fully understand the details of the target’s system. A complete audit is recommended to insure legal compliance --- including international operations if they exist.   Job titles of the target’s management may change to be in sync with the parent company’s titles.

So it goes with traditional acquisitions.  In both situations, the acquiring company buys and keeps another complete company --- products, technology, services, back-end support, etc.  

But not all acquisitions are like this.  Today the technology sector is doing something new:  “acqui-hires” and “lift-outs”.

Acqui-hires:

This is the practice of acquiring a company for its talent rather than its products.  It’s all the rage in Silicon Valley thanks to the war for technical talent.

Most acqui-hires are start-ups because they’re the easiest.   Many are having trouble getting financing and are facing shutdown.   Being acqui-hired provides a nice exit strategy and allows the founders to look like they were successful.  They may look like traditional acquisitions because the whole company is purchased. But the giveaway is that only key people are kept --- everyone/everything else is discarded.

Yahoo has done quite a bit of acqui-hiring --- 26 since 2012. 

Lift-outs:

A lift-out involves hiring an intact team from a company that works well together and can come up to speed in a new environment with minor disruption.   It’s less complex and avoids the headaches of an acqui-hire. Only a specific team of people is hired or “lifted out”.  Call it a group hire.

This is easy because it’s voluntary.  The team makes the decision. They may believe their current company doesn’t view their product as critical, they feel hamstrung by bureaucracy or they see more synergy with the new company’s products/services.

Retention:

Regardless of the type of acquisition, retention plans will be needed for key employees. Compensation needs to work closely with top management on this.

Defining key people:  That’s pretty easy to do with lift-outs.  A specific team has been hired because they are considered key. The real issue here is with acqui-hires and traditional acquisitions.

To determine who is key, look at the impact each person’s departure would have on the business.  Then decide how long each person needs to be retained --- 6, 9, 12 months?  People --- especially from start-ups --- may not want to stay long in a large company environment so retention plans need to cover the period of time it takes for knowledge transfer to occur.

Plan design:  One-size-fits-all retention packages are usually unsuccessful with a diverse group of key employees. Ideally they need to be tailored to insure success.

In most cases money or stock will be the answer.  If the desire is to retain some key employees indefinitely, retention plans may mean providing an opportunity to work on special projects, job rotations, focused overseas assignments, etc.  Each person’s motivation needs should be considered separately.

Acquisitions are becoming more complex with business becoming more chaotic and competition becoming more intense.  It’s more important than ever for Compensation to be involved from the very beginning to insure the right decisions are made.  A key component to an acquisition’s success  will be measured by how well Compensation performs its responsibility.

Would anyone like to share their acquisition experience?

Jacque Vilet, President of Vilet International, has over 25 years’ experience in Human Resources.  In her current role she works with start-ups and multinationals on both domestic and international HR issues including compensation, learning/development, talent acquisition, workforce planning and mergers and acquisitions.  Jacque has an M.S. in Psychology and an MBA from Southern Methodist University.  She has been a speaker at conferences in the U.S., Asia and Europe.  She is also a regular contributor to various HR and talent management publications and conducts frequent webinars. 

7 Amazing Facts that Could Change Your Mind

Change your mind about what? About what really matters in our work, of course.

1.  "The essence of strategy is in the activities -- choosing to perform activities differently or to perform different activities than rivals. Otherwise, a strategy is nothing more than a marketing slogan . . ."  This tiny excerpt from Michael Porter's seminal HBR article says so much that is valuable to our work: The value of identifying performance drivers, the importance of line of sight, the value of insightful MBO cascades, how employee competencies can be optimized to differentiate your company from your competitors, just to name a few. You could use this simple (but profound) concept to drive a groundbreaking pay-for-performance reboot, if you think about it and are willing to learn some new stuff.

2. One of those activities is compensation, another is communication. After all, "Everything we do in compensation is communication." Ann, Dan and I can give you many war stories about companies struggling to turn their compensation philosophy from a marketing slogan into a real business practice. That's why we encourage everyone to realize that compensation = communication -- and to invest thought, time and money if you want a measurable ROI.

3. Companies that excel at communication are 3.5 times as likely to significantly outperform their peers. As Towers Watson has illustrated through their research, there's fortune and fame to be found in understanding that pay-for-performance is more than midpoints, forms and ratings. It could really help your career, too.

4. "You need to defer to your audience because if they don't engage and believe in your message, you are the one who loses. Without their help, you idea will fail. You are not the hero that will save the audience; the audience is your hero." On any given day, you can replace the word "audience" with  "manager."  Do you know, with confidence, how much your managers believe in your compensation message? If not, look at how much you are putting in jeopardy.

5. You don't persuade your employees -- they persuade themselves. You're bound to be frustrated with your employees until you respect this fact. But imagine what you can accomplish if you really get the hang of it.

6. Information doesn't persuade employees -- requests that are "congruent with [their] values, self image, and future goals" persuade them. Or as the author rephrased it, "In other words, people are easily persuaded of that which they wanted to do in the first place." The thing is, how much do you really know about what your managers and employees want? 

7. What really matters to employees? Research tells us that, at work, there is an equal balance between: My company, my customers, my team, me and social good. Even the authors of this research call this an "inconvenient truth." There is no single button to push that will motivate employees. That's why alignment helps to make sense out of things for us.

I find these all to be amazing facts that are worth reading and thinking more about. If you don't agree at first glance, I'm hoping you can persuade yourself of at least a few.

Want to learn more about how you can turn these facts into actions? Get yourself a copy of  Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com.The convenient website where you can grab our popular eBook. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, Margaret was a Principal at Towers Watson.