Compensation Cafe

Is “Annual Incentive” a Contradiction in Terms?

Many organizations rely on pay for performance programs to help drive employee behavior. In the best cases, these schemes are designed to differentiate among performance levels, rewarding effort and results with annual merit pay increases and other annual incentives. Unfortunately, some recent data suggest that they may not be as effective as originally believed.

The results from a recent Willis Towers Watson survey suggest only 20% of organizations find that merit pay is an effective driver of individual performance, while 50% say the same of their annual incentive programs.

There is a design element to explaining the ineffectiveness of annual incentives. Looking across the report, companies do not believe that pay for performance schemes effectively differentiate performance levels. Instead, pay increases and incentives are more commonly tied to market-based wage increases and overall organization’s performance, than they are to variations in individual performances. As a result, these incentive schemes are often viewed as “a standard adjustment disguised as a pay-for-performance program.” Practically speaking, everyone gets an increase, regardless of actual performance.

Operational realities aside, there is even a more basic contradiction in terms underlying this notion of an “annual incentive.” First, incentives can be broadly defined through the following equation: “something that motivates an individual to perform an action.” We also know that for incentives to be effective, the time horizons of the “something” must match the timeframes of the action itself and the motivational drive to perform that action.

In the case of annual incentives, our new definition could be interpreted as: “something [given annually] that [annually] motivates an individual to perform an [annual] action.” Perhaps these types of pay for performance schemes might be perfectly suited for long-term projects or even jobs where there is stability in both the work and performance levels over time (especially over the course of an entire year!).

But often, work responsibilities are dynamic and performance is variable across much shorter timeframes with similarly greater fluctuations in motivation. These facts implicitly change the timeframe of the second half of the equation (the motivation to perform an action) without altering the first half (the incentive frequency).

So what do annual incentives mean at this point, especially from the perspective of the employee? What exactly is being incentivized, is it aggregate performance or a few examples of exemplary performance over the prior year? How much information is lost in connecting annual incentives to daily or monthly behavior? Most importantly, what is the motivational impact of the answers to these questions?

For differentiating performance levels, a more frequent approach to employee motivation is required above and beyond the more traditional annual incentives or pay adjustments. This is where effective rewards and recognition programs can play a strong role: catching exemplary performance as it occurs, tightly coupling the actions being performed with the incentives being given. Through these types of programs, we reset both sides of the incentive equation.

How well does an annual incentive versus recognition and reward influence your own daily or monthly performance at work?

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.

Cafe Classic: Why Are Outsiders Paid More?

Editor's Note:  In this classic Cafe post, our own Chuck Csizmar takes on the perennial question of why outsiders are so often paid more than insiders, when filling an open position.  Great food for thought for recruiting and compensation professionals alike, plus any of us who are looking to make an advantageous climb up the inside ladder.

Take it away, Chuck!

Have you heard this one?  “The Company would rather pay more to an outsider than give one of us insiders a decent promotion.”

The complaint is that, when considering two individuals for the same job someone on the inside oftentimes will be offered a lower salary than if the company went outside to hire a stranger.  To compound the insult, it is not unusual for managers to ask insiders to train and orient the new ‘wunderkinde” in how the company operates.

Aggrieved employees feel that an insider already knows the company, the people, the products / services as well as the policies / procedures.  That knowledge and experience is an advantage, they say, shortening any learning curve and cultural orientation.  Taking on the role and responsibilities of the new position and not being paid the “going rate” seems unfair – actually a penalty for being an insider.  It’s as if the company realizes they don’t have to pay as much for an existing employee, that the time spent in the company somehow reduces their market value and limits a willingness to pay a competitive wage.

Prevailing practice is that when a company looks to the outside recruiters will be instructed to search for someone who already meets the qualifications of the job; an experienced candidate who has already performed the job, whose only learning curve would be a brief acclimation to new policies and procedures.  Outsiders are considered to be free of “baggage”: no biases, preconceived notions or social network, and are thus considered more reliable as agents for change within the company.

Note: if someone already has performed the subject role the chances are good they are already being paid about the competitive rate.  If that is the case then the company would be forced to pay a premium to attract such qualified talent.  They would likely have to pay above the going rate (or above the midpoint in some companies).

So, what’s an insider to do?  How can you best position yourself for the inevitable comparison with an outside candidate?  

Compare yourself against the description or requirements of the new position and try to be as honest as you can with your internal assessment.  Can you do this job from Day 1, or how much of a learning curve would you need?  Are there aspects of the new responsibilities that you haven’t experienced before?  The results of this assessment will give you an opening for your talk with HR.  They in turn will push the “we’re giving you an opportunity” angle, and you both know they could always go outside for a better qualified candidate.  In fact, an advantage you have is that you are likely a cheaper choice for the Company.  So don’t push the pay issue too hard, or you risk throwing the baby out with the bathwater.

Here’s a checklist for you to remember when you’re doing your self-assessment: 

1) Are you already familiar with company policies, procedures and personnel? 

2) In your present role have you already demonstrated an ability with the technical side of the new position? 

3) An advantage: internal promotions look and sound good to other employees, and managers know this

4) Can you develop an inside track with the manager (the all-important “fit)

5) You are likely a cheaper option than hiring from the outside.  Use that fact to your advantage.

Don’t be afraid of compromise.  Your plan should be to gain visibility for your performance and value, though it may take some time for a positive result to work its way through the bureaucracy.  No matter what you gain from your initial conversation (short of complete victory) suggest a follow-up salary review in three months.  Managers know they’d have a better chance of getting an adjustment approved after the initial hire / promotion, when it’s more likely an exception would be approved.  A manager who agrees to that review (and who will be thankful to avoid a contentious meeting) is already halfway to approving an adjustment down the road.

By being aware of the restrictions your managers are operating under you may be able to help them help you.  Do not beat yourself against the wall of bureaucracy, but plan for your next step; use your insiders knowledge to your eventual advantage.

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.

Image: Creative Commons photo by Photos8.com

Equity Compensation Triage Assessment (Stock Options on Precipice Part 2)

The first article in this “Stock Options on the Precipice” series covered some of the main issues that are currently impacting employee stock options (check it out here). This article will discuss some of the paths you might take if you are having stock option concerns. For many executives, human resources and compensation professionals, this may be the first time to experience the trials and tribulations of stock options. For others, the questions below and the assessment process may be a new way of addressing this issue.

Luckily, the medical field deals with potential disasters so frequently that they have devised a methodology for triage assessment called START (Simple Triage and Rapid Treatment.) A version of the START flowchart can be viewed here. I have created the modified version below to assist you in evaluating whether you need to perform corrective actions on your equity compensation plans.

The Equity Compensation Triage assessment identifies three priority levels.

1. Non-Priority: If your equity awards have a value of at least 70% of the initial objective for the award, you should probably focus on more critical compensation issues. These awards may have lost some value, but they are in a range that most people would consider recoverable. This is especially true when the grants are unvested.
2. Low-Priority: Check the flowchart to determine if your equity issues are low priority. Low priority awards should be reevaluated monthly or quarterly to ensure you there are no surprises. In a volatile market, these awards may recover fairly quickly or may fall into a hole that drives corrective action.
3. High Priority: Refer to the flowchart to determine high priority equity issues. The impact of these awards requires immediate attention. The strategy you choose and tactics you employ should be carefully considered. While these types of corrections often flow in waves of similarity, that similarity is seldom equally beneficial to every company following the same path.

If you identify high priority equity compensation issues what should you do?

1. Should you jump into the pool early and take advantage of positive (and/or negative) press and attention?

• If your correction is obvious and fairly simple, you may be a great candidate to become a “first mover”. Performed and communicated correctly, a swift correction can garner great press and give your employee base confidence. But, early movers will also get the lion’s share of attention for any program that is deemed too unfriendly to investors.

2. Should you wait until there are enough others in the pool so no one notices that your body is not really “swim-ready”?

• Being part of the crowd can work well for corrections that follow the lead of successful early movers. You may lose the benefit of the press coverage and employee goodwill, but you won't have to be part of the risk taking vanguard. If your need is truly urgent, you may not be able to wait until the crowd has started executing their programs.

3. Should you stay the course and hope that you can avoid the pool altogether? Is there another philosophy to consider?

• In every past period like this, there have been many companies who moved too early only to find that a recovery or rule change has made their decision a bad one. The opposite is also true. Many companies wait for the perfect moment only to find investor sentiment no longer supports any type of correction. These companies must then try and survive with an equity compensation program that does more harm than good.

And, finally, what is meant by “correction program”?

Correction programs can take many forms. They range from fairly subtle approaches with no need for external communication to programs requiring full-fledged SEC filings, public announcements and shareholder approvals. Early identification of issues is the first step to success. Understanding your correction options (no pun intended) is equally important. The next article in this series (2/24/2016) will explore some of these subtle and not-so-subtle programs.

Would this Equity Compensation Triage Assessment work for your company? If not, what would you add or remove to make this tool more useful? I look forward to exploring this issue as we navigate the choppy waters ahead.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and has been deeply involved in equity compensation for a long, long time. Dan has written several inustry respurces including, Performance-Based Equity Compensation and “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. He has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives” and a few books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

Pay for Nothing

What would you do with a guaranteed income and no financial obligations? If a benefactor granted you an adequate living wage, how would you spend your life? Would you continue doing exactly what you do now, or would you drastically change your behaviors? Volunteer for causes close to your heart? Sit in a lounge chair eating bon-bons and watching TV? Devote your time to family-intensive matters? Tackle that exciting challenge you never had the time or leisure to attempt?

You may have a chance to find out.

This is no longer an academic theoretical question, because someone actually wants to offer money for nothing, just as an experiment. Some managers may sarcastically comment that they already pay people to do nothing, but this is a serious proposition.

The president of Y Combinator, a Silicon Valley venture capital firm, made this announcement recently:

We’d like to fund a study on basic income—i.e., giving people enough money to live on with no strings attached.  I’ve been intrigued by the idea for a while, and although there’s been a lot of discussion, there’s fairly little data about how it would work.
 
It’s true that we have systems in place to give people resources, but the bureaucracy and qualification requirements make it a very imperfect approximation of what most people mean when talking about a basic income.  We have some examples of something close to a basic income in other countries, but we’d like to see how it would work in the US.

This is an exciting opportunity to discover if lessons of the past work in the present or are useful for the future.  A guaranteed basic income is not a modern idea but actually a retroactive return to the age of privilege. In bygone ages, it was generally accepted that the better class of people did not work for a living but instead “received an income.” Gentlemen did not soil their hands with brute labor or toil behind desks performing commercial tasks directed by others; no, they simply lived on the income from their property holdings. In return, they lived well and benefited society by dabbling in the liberal arts. They consumed by free choice rather than produced from obligation.

Sponsoring the finer aspects of humanity was once considered the role and responsibility of the upper classes. The original “Idea of a University” came from an 1852 seminal book by that name advocating a cirriculum embracing the totality of the liberal arts. Behind it was the theory that basic education should exist in order to learn how to live well. Trade schools (like medical or engineering schools) existed for any advanced specialized practical knowledge required to earn money. But the mercantile class who engaged in commerce were generally disdained as inferior money-grubbers. The expectation that people should be obliged to earn their livings applied to commoners and was not something for the gentry or ruling class. Gentlemen and ladies read, discussed and explored the classics, applying that background to enrich and refine society via music, theatre, philosophy and other forms of art.

Such leisurely and self-indulgent attitudes seem anachronistic and out of place in the modern world. Perhaps they had value; but we won't know without realistic practical research. The sponsor is recruiting for a scientist to design and conduct the research project over a five-year period.  Interested?

The results of the study should be fascinating. Actual controlled experimental findings in real-life settings will have important implications for compensation people. When money has been taken off the table as a motivator, what will people choose to do? Academic theories drawn from student behaviors don't really explain why people work for a living. Selected case examples drawn from isolated exceptional situations in other cultures also fail to reflect normal American work environments. Valid patterns might be discovered by careful study of what actually happens when external pressures to work for a living are absent.

What do you think?

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution. After corporate HR jobs in chemical and pharmaceutical manufacturing, he consulted at retail, government, energy, IT, tax-exempt and other industries throughout North America before becoming Senior Associate of pay survey software publisher ERI until returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook) and speaker, Jim gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service and also serves on the Advisory Board of the Compensation and Benefits Review.

Creative Commons Image, "Lazy Harbor Days" by Karen

Cow Tipping

Most of us start to feel a shade uncomfortable once we step away from our comfort zone, from whatever it is within our normal environment that we're accustomed to doing, behaving or surrounding ourselves with. We're creatures of habit, and feel that those habits came to us honestly, after much repeated practice. That, plus something out of the ordinary might challenge us, shake up our routines, and even point out weaknesses or flaws in how we look at ourselves.

What's Comfortable For Us

It's like my clowder of five cats at home, who each prefer to repeat the same behavior (wanting their food at a certain time, sleeping in the same spot, wandering the house [or yard] by following the same route), day in and day out, the routine pattern feels . . . normal. It feels right. It's what we've grown accustomed to doing and would likely prefer to continue.

Following the same patterns at work can be equally comfortable for us, as after a time the job repetition becomes easier and our continued success assured. The thinking is: Let's follow the same steps as we followed last year; just change the calendar and repeat the process; we can do it with our eyes closed. Have you ever watched a movie or situation-comedy endless times, to the point where you can mouth the dialogue (you know who you are!)? This habitual practice is the office equivalent of the administrative EASY button.

Are your annual merit increases processed using the same steps, the same forms and the same written communications? Only the date is different? Has your annual management incentive process become more bureaucratic (get those appraisal forms in on time!) than the originally intended critical assessment of objective accomplishments? Is your biggest worry the payroll deadline?

Have you overheard yourself telling someone, "We've always done it that way"? Ouch!

Like being burrowed into a soft leather easy chair, we relish the comfortable, the familiar. We don't like to be disturbed. There really is a phrase, "If it ain't broke, don't fix it."

Breaking The Habit

Now I admit that there's nothing wrong with a tried and true routine, especially when things work, but sometimes change for the right reason can be a preferable strategy. Like when things aren't working so well anymore. Or when the business environment surrounding your routine has shifted. This thought process is called "continuous improvement," among other buzz terms.

Every now and then, don't you get the urge to try something different, to break out of your mold and jump the shark? It could something simple, like going to Chick-fil-A instead of McDonalds, Dunkin Donuts instead of Starbucks, or maybe to implement an improved reward program at work.

This shake-'em-up attitude is called "tipping the cow," where sacred cows, our tried and true and forever ingrained behaviors or practices are suddenly challenged. This is heady stuff, cutting against the grain or marching to the beat of a different drummer. This is sticking your neck out for the betterment of the organization.

Now I'm not talking about change for the sake of change, or rushing off into the unknown because you read some article by compensation "experts." I'm talking about continuously striving to improve yourself, the programs you work with and the organization you work for. There is always a better way, and those who search for improvement will reap personal and professional reward.

But there are also risks out there for the unwary and the administrators. There are nay-sayers, passive resistors and doubting Thomas'. So have a care. But if you want to manage compensation, never mind lead or direct it, you have to stop playing follow the leader.

Ever see a line of elephants? Each holds onto the tail of the one in front of them.

Are you one of those elephants?

Or are you ready to venture forth and tip a cow?

 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,"Cow Tipping," by Mike Licht

Strategic Job Descriptions Anyone?

What if we could help managers focus on select leadership behaviors singled out to improve our organization's health? That's right. Instead of roaming through the lengthy list of things that "effective" leaders do, we could tell our managers which practices would produce the best outcomes, given our organization's challenges. Wouldn't you use that information to define job expectations, craft MBOs and so on, so your HR practices metamorphosize into the strategic business practices with predictable outcomes that we all want to deliver?

It turns out that McKinsey & Company has research findings that can lead us to that level of effectiveness. While manager responsibilities are wildly complex, it turns out that analyzing their importance in relation to an organization's health provides much more practical insight. 

Consider the broad categories of organizational health used in the analysis. Is your company digging out of a serious difficulty? Or, on the opposite end of the continuum, does your organization belong in the elite class of business performers that far exceed their competitors' results? Then consider the performance level in the middle of the continuum, where more organizations' performance would be classified -- moving up, but not performing at full potential.

McKinsey has isolated the manager behaviors that can transition your company from its present state to the next stronger, more effective level.

This clarity is especially valuable because organizational health shifts over time and we are constantly asking managers to adapt. As the authors point out, "Effective situational leadership adapts to these changes [in organizational circumstances] by identifying and marshaling the kinds of behavior needed to transition a company from its present state to a stronger, healthier one."

You need to read the article, study the research and so on -- nothing this important is as simple as this looks. Nonetheless, I hope the graphic gets your attention the way it got mine.

In overview, there are baseline manager behaviors that are essential in any circumstance. (Even this insight is valuable, by the way, since we typically don't recruit managers for these behaviors, but for more operational ones.) Then, there are a "staircase" of behaviors that will lift an organization from one level of organizational health to the next. "For people seeking to lead companies effectively and for organizations seeking to develop managers who can deploy different kinds of leadership behavior when appropriate, recognizing and responding to a company's health is far more important than following scripts written by or about great leaders."

Notice the insights that HR can use to help line managers deploy to achieve results. Managers who are working in an organization that is digging out of a difficult situation are going to help move things along if they streamline their priorities to focus on problem solving, fact-based decisions and the ability to roll with the punches (and learn along the way). Managers whose organizations have moved to a better, but still less than optimal performance level, will have impact when they balance a results-focus with team collaboration, speed and agility. Managers in "elite" organizations that have achieved reliably outstanding operations can impact organizational performance the most by motivating and coaching their team members.

Odds are, we in HR can have real impact on business performance by looking more deeply into these findings and using them to educate managers and executives. Alert and caution! Don't use guesswork to decide your organization's current functional level. " . . . we find that leading executives typically have more favorable views of its [the organization's] health that do its line workers -- who are, after all, much closer to the true center of gravity."

Now there's a topic that HR already has a world of data on!

Planning to dig out from serious difficulties with compensation communications? Base your 2016 strategy on the popular ebook, Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com. 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, communications and leadership to topics like the CEO Pay Ratio and performance management discussions at the Café. Before founding re:Think Consulting, Margaret was a Principal at Willis Towers Watson.

Cafe Classic: The Heart of the Matter

Editor's Note:  As the holiday of l-o-v-e approaches, this Cafe Classic -- coming to us via our own communication guru Margaret O'Hanlon (circa March 2010) -- reminds us about a critical but often overlooked aspect of pay communication.  This is a lesson that you ignore at your own peril; think of it as an early Valentine's Day gift!

Over the last week or so at the Compensation Café, we've chatted about a range of critical compensation communication issues – being sure to cover what’s in it for me, explaining what the outcomes will be so I know why the compensation practices work the way they do, and doing my best to make the communications simple and clear.

I’m going to add another requirement of compensation communication that, in my experience, is overlooked and underplayed far too often. Emotion.
 
Words are critical to a shared understanding of what is important, but they are rarely enough to compel behavior change. Chuck Csizmar has gotten us thinking about a “Compensation Diet.” Diets are a great example of the challenge of behavior change, so let’s see what we can learn from them.

When do we start dieting seriously?  When we:

1. Finally look at the scale or the mirror,

2. Realize we have gone too far and could develop health problems,

3.  AND feel like we can make the commitment and see it through.

The final, essential ingredient? Emotion – we need the electricity that feelings give us to get ourselves moving. How does this apply to compensation communication? It’s the heart of the matter.

For example, I can understand the case HR makes for measurable performance goals, but will I put in the effort to make sure they are measurable? First, I’ve got to trust that HR has made a case that the line managers support. I’ve got to believe that good goals will matter to the success of the organization. I’ve got to feel confident that my manager will give me the time to do goals well, and will support my effort, and so on. I’ve got to sustain my determination to achieve my goals and earn recognition and an increase.

What about compensation basics? You can tell me my pay is competitive. You can show me how you went about making sure it was competitive. But if you don’t give me a chance to share my skepticism in the open and talk over my concerns, you’re not going to earn my trust or support.

In my experience, the organizations that are most satisfied with their compensation communications are not afraid to deal with the emotional dimension.  They realize that they have to earn employees’ trust, and are willing to talk about it in the open so their employees will be motivated to act.

Planning to make a name for yourself in 2016? Base your strategy on the popular ebook, Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com. 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, communications and leadership to topics like the CEO Pay Ratio and performance management discussions at the Café. Before founding re:Think Consulting, Margaret was a Principal at Towers Watson.

The Tricky Business of Incentive Compensation

Modern businesses must respond to increasingly fast-paced changes in today’s VUCA environment (an acronym that stands for increased volatility, uncertainty, complexity, and ambiguity). The impact of these changes can be felt throughout the organization, from senior leadership teams responsible for successfully planning around those challenges to the front-line employees who adapt their roles and deliver on those plans.

The linchpin connecting these two groups are middle managers. It makes sense, then, that organizations should be crucially concerned with the performance of these managers, especially when it comes to encouraging them to adopt new behaviors and take risks to improve the firm’s bottom-line.

One solution has been to implement incentive compensation or “pay for performance” plans. For adherents, incentives can motivate managers to engage in behaviors that are slightly outside the scope of their everyday role and tackle risks that are more directly aimed at improving performance.

Given concerns about the low performance of incentive compensation schemes, though, when and how such incentives truly motivate behavior has remained an open question. A recent study in the Journal of Organizational Behavior seeks to provide some answers to this question. In fact, the authors of this study were guided by this overarching observation:

“Managers, and people in general, have inertia where they tend to do what they feel comfortable doing. The thought is that if companies provide managers with incentive pay, which is closely related to firm performance, then managers will be willing to take more risks. […] We asked ourselves, ‘Does this always work? Do all managers always take more risks when offered incentive compensation?’”

What they found was that incentives largely worked… but only for certain people and in certain circumstances. For example, they found that managers who were more ambitious or who tended to devote more attention to task performance also tended to be more responsive to incentives, and in turn were more likely to take more risks (as measured by strategic investments or changing course when necessary). The researchers also found that incentives were more effective when overall organizational performance was declining, as opposed to growing.

One practical solution from these results is a recommendation for personalized and dynamic incentive plans that can take these sorts of variables into account. Where this is possible, one can reasonably expect a high degree of success from incentive compensation. Where this recommendation is less practical, however, alternative approaches of motivating behavior may be needed.

If companies are primarily concerned with behavior that aligns to performance, shifting focus away from pre-designated incentives structures towards “surprise” programs that can recognize and otherwise reinforce those behaviors may be a valuable path forward. For example, if managers are recognized and publicly celebrated for a willingness to take risks like those mentioned above, the signal may be that much stronger for others to overcome that initial sense of inertia. Especially if there is a culture that values rather than penalizes those types of behaviors. Recognition can also reach across individual or circumstantial differences, valuing the unique contributions of those who are less ambitious or task-focused, but who nevertheless contribute to performance.

How does your company help motivate manager performance?

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.

Who Do I Work For?

On January 20, 2016, the U.S. Department of Labor’s Wage and Hour Division (DOL) issued an Administrator’s Interpretation describing the standards it will use to determine “joint employment” under the federal Fair Labor Standards Act (FLSA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

Companies that use staffing companies, independent contractors or outsourcing firms may now find themselves to be joint employers of workers – and liable for FSLA and MSPA violations.

Although not legally binding, this new DOL guidance broadens the employer-employee relationship to working arrangements that haven’t traditionally been covered. Now the focus is not so much on the amount of control that a company has on a worker but whether it meets the definition of “employ” meaning “to suffer or permit to work”. This change in focus makes the interpretation of joint employer much broader.

There are two scenarios that can result in the determination of joint employment: “horizontal” and “vertical”.

An example of vertical joint employment would be a worker placed by a staffing company to do housekeeping work at a hotel. An example of horizontal joint employment would be an employee jointly employed by two restaurants that are organized as two different companies but share operations.

According to the Wage and Hour Division (WHD), provided that requirements of joint employment are met in both cases, all employers in the chain would be individually, and jointly, responsible for any FLSA violations committed by the other(s) in the chain. Example: Joint employers must combine all of the hours worked by the employee in a workweek to determine if the employee worked more than 40 hours and is due overtime pay.

The possibility of joint employment has emerged as a major issue in the franchising business. It would impact McDonald's, Burger King, Hilton Hotels and every other company that relies on a franchise business model. In the case of McDonald's, roughly 90 percent of its locations are actually run by franchisees, who are typically considered the workers' employers.

The NLRB determined in 2014 that McDonald’s shares responsibility with franchise owners for managing such employees. McDonald’s has appealed the decision and the case will go to court in 2016. If the court upholds its decision it will have far-reaching impact on hundreds of thousands of franchisee workers.

Unfortunately the devil’s always in the details. When regulations are created, they almost never bother with the “how-to’s”. Usually the how-tos end up being settled in court when someone brings a lawsuit.

Here is a sampling of questions that have yet to be resolved:

1) If joint employers have completely different terms and conditions such as work schedule and sick pay, which employer’s policy prevails?
2) Who would the employee talk to when there is a complaint? Even though it is with only one of the employers, claims will be charged against them both.
3) Will both employers feel compelled to offer the same benefits that their regular employees get? Which company’s benefits? What if both companies have different benefits?
4) Which company’s general employment policies apply?

If an employer is now considered a joint employer with greater cost than before, what reason is there for a middleman? Questions like that could cause companies to revisit their hiring practices.

Experts say that in 2020 the contract or contingency workers will make up 40% of our workforce. This includes not only the traditional arrangements such as staffing agencies but also freelancers and B2B transactions where companies share employees (loaning employees from a company with a temporary decrease in demand to one with a temporary need).

One thing is certain.

The employee/employer relationship continues to break down and become more uncertain.  One thing is certain --- employment regulations will have to struggle to keep current and relevant in today’s business environment.

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. Jacque has an M.S. in Psychology and an MBA from Southern Methodist University. She speaks at conferences in the U.S. and overseas, contributes to various HR and talent management publications and conducts frequent webinars.

Employee Stock Options on the Precipice?

I am declaring February “Stock Option Month” at the Café (at least in relation to my posts). For more than 20 years I have been directly involved in the ebb and flow of employee stock options. When they are great, they are the best. When they are not great, they can be truly destructive. I will call it right now. We are, once again, on the precipice of the downfall of stock options. Consider the headlines below.

Stock Volatility has Shut Down the IPO Market: 2/1/2016, Quartz.com

Yahoo is letting employees cash out stock options sooner to stop the brain drain: 1/22/2016, Business Insider

The Truth About “Employee-Friendly” Financing Deals: 1/29/2016, The Information

Foursquare Lets Employees Swap Out Underwater Options: 1/19/2016, The Information

Square Adopts Worker-Friendly Stock Option Policy: 10/14/2015, BuzzFeed

Each article tells a story about employee stock options that are not working as planned or hoped. Every article explains alternative solutions. None, as of yet, announce the death of stock options, but if history is our teacher, the obituary is already written and waiting for a slow news day.

Here are some of the main issues:

1. Companies are staying private longer and with more value than ever before.

There are many companies who are private today that would have already had their IPOs years ago if the market worked the way it had for the past 15-20 years. Bigger companies equal more employees. More employees equal higher equity overhang. Higher equity overhang equals issues. This is especially true when there is little or no way to open up more space (typically accomplished at IPO by people exercising options and vesting in IPO trigger-based RSUs). In addition, companies are increasingly using more RSUs and less stock options.

2. Private company values as a whole are seeing a negative response to “unicorn” valuations.

Big, visible institutional investors have taken material write-downs on some of their “unicorn” investments. Valuations of privately-held companies are often based as much on confidence as they are fundamentals. When big companies are called into question, mid-sized companies are often hardest hit. This is true for both public and private markets.

3. Equity compensation data is less reliable than it has been in decades.

Survey data, in relation to equity compensation, is sort of all over the place. Virtually none of the data includes the details that are required to truly compare equity from one company, or grant date, to another (stock price history and expectations, terms of awards, etc.). Virtually all of the data is as volatile as the underlying markets. This makes it very hard to know that your company is truly doing the right thing.

4. Early moves from stock options to RSUs leave little room to maneuver.

15-20 years ago, companies simply repriced stock options to give employees a better deal. 5-10 years ago companies exchanged underwater stock options for full-value RSUs to provide value for their employees. Repricings are basically dead. Replacing bad options with RSUs is a tough sell when a company has already been granting RSUs. Changing option terms has been one new and popular move, but it requires a level of communication achieved by few companies.

5. The public market has been less than enthusiastic about many IPO companies after the deal is done.

There were no IPOs in January 2016. It’s the first time that this has happened in more than 5 years. Companies that have gone public have seen less meteoric rises in their value. Many marquee IPOs over the past 3 years are seeing flat or decreasing stock prices. Limited IPOs means limited liquidity. Flat or declining IPOs means little room to grant new options as burn rates become a concern.

So what should you do? Should you jump into the pool early and take advantage of positive (or negative) press and attention? Should you wait until there are enough others in the pool so no one notices that your body is not really “swim-ready”? Should you stay the course and hope that you can avoid the pool altogether? Is there another philosophy to consider?

There are potential risks and rewards in each of these strategies. Luckily this is an ongoing blog and we can explore some of these alternatives, and others, over the next several weeks (or more). If you have opinions on this issue, please share them in the comments section.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture. Dan recently wrote a detailed isse brief on, Performance-Based Equity Compensation. Dan also cowrote “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And believe it or not, he has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.