Compensation Cafe

Cultural Practices for a More Dynamic Workplace

Eric Mosley was quoted recently in an interview with Forbes, saying: “Organizations are changing. The way we work is changing. The top-down hierarchical approach is a dying legacy of the industrial era.” The implications of those dynamics are far-reaching for many HR and business leaders, especially those who are interested in improving upon the ways that modern organizations work.

Eric’s comments couldn’t be timelier, given teams-based research summarized in an Insights by Stanford Business article. That piece addresses the pitfalls specifically associated with top-down structures. I thought it helpful to summarize some of those findings, and speak to how I see organizations adapting to the changing face of business.

What are the 3 pitfalls of hierarchies?

According to the research mentioned above, when there is too much hierarchy:

1. Levels of participation are skewed. Those in leadership positions often take up a majority of airtime. When participation does come from others, it tends to be spent agreeing with the leader as opposed to adding unique value.
2. Individuals with the most applicable knowledge or expertise may not have the opportunity to contribute to decisions in those areas. Some of the research points to a tendency to listen to those with seniority over first-hand knowledge of the topic.
3. A rush to agreement, without a healthy amount of debate. In the presence of a hierarchy, individuals are less likely to critically or constructively examine the assumptions the team is making and what the most effective solutions could be.

Many of these problems could be exacerbated as traditionally hierarchical organizations face the need to address more collaborative and dynamic expectations of workers. Fortunately, there are several practices that can help build a culture that avoids those pitfalls and supports individuals in bringing their most productive selves to work.

3 Practices for a Dynamic Workplace

1. Leaders as coaches. While it is important for leaders to provide a clear and motivating vision of the direction the company or team should take, it is equally important to provide employees the autonomy to determine the specific path to that goal. This balancing act is critical in achieving greater levels of participation from a broader segment of the workforce.
2. Crowdsourced performance. Teams and organizations are successful when there is a shared understanding of who knows what, and who has which skills and abilities. As roles become more fluid, that level of understanding can be difficult to achieve unless the company has developed a scalable, social solution for employees to contribute and share that knowledge.
3. Recognition of differences and diversity. Constructive debate often comes from diverse perspectives and the ability to give voice to those perspectives. Greater participation and empowerment, as mentioned above, both help employees feel they have a voice. That sense is reinforced when peers are able recognize each other for diverse approaches that all contribute to organizational success.

Together, this set of practices can help create a culture of greater humanity in the workplace, ensuring that all employees can successfully participate, leverage their own unique skillsets, and provide their diverse viewpoints.

What is replacing hierarchy at your organization?

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: How to Save a Buck and Spend Two

Editor's Note:  Our own Chuck Csizmar with the Classic lesson on what it can ultimately cost to hire people "on the cheap."  Take heed!

Your company is seeking to employ a Financial Accounting Manager, and the leading candidate is currently "in transition."  Human Resources has pegged the market value of the job at $75,000 (midpoint), but it's known that the preferred candidate (Bob) will accept $65,000.  A seasoned and experienced professional, Bob was previously paid $ 76,000 by his last employer, but was caught up in a restructuring staff reduction.  He's been out of work for almost a year and is getting desperate.  Relocation is not an option, and he's worried about feeding his family and paying the mortgage.

When the decision point arrives, other less qualified candidates are already making $70,000 and asking for $75,000.  Some hiring managers would look at this situation as a no-brainer.  "Let's hire our "A" candidate and save $10,000 to $15,000" would be the smug decision.

That wasn't hard, was it?  An exceptional candidate has been gained at a low ball price.  The manager deserves a pat on the back for saving the company money, right?  But, wait a minute.  Perhaps it should be a boot in the butt instead.  You make the call.

A savvy professional like Bob will have a sense of the competitive market, so he'll be aware of having taken a significant pay cut to land this job.  So how excited will he be with the offer?  Today, he'll be delighted and will celebrate getting a job and finally having money coming in again.  Tomorrow, not so much.

How long before resentment grows that he was taken advantage of - gotten on the cheap?  What will happen to his enthusiasm, engagement, morale?  What will he come to think of the company, never mind the hiring manager?

 What is the likely future for Bob?

It is always safe to presume that how an employee is treated will become known; otherwise you'll be stuffing skeletons into a closet - and you know how that trick never ends well.  So when Bob confirms the low ball treatment, what reaction can you expect?

• Angered by a sense of being taken advantage of he could continue with his job search - looking for a better opportunity - while still working for you

• His job performance will suffer, dropping from 110% to automatic pilot somewhere south of Satisfactory.  He'll be going through the motions - not exactly the dynamo you thought you had hired.

• Bob's attitude will turn negative and he'll become another disengaged employee - critical of the company and management, doing no more than he must in order to get by

• And yes, he'll ultimately quit, but on his terms and timing.  His anger will have kept simmering and he'll likely feel little concern as to how his departure affects the organization.

What you have now is a bad hire, in retrospect;  that situation is unnecessary and easily avoidable if you treat candidates fairly.  Look at it from the candidate's perspective; when your back is to the wall and you feel your "rescuer" is taking advantage, that feeling causes a pit-of-the-stomach resentment that lingers and festers.  And it costs.

Let's tally up the cost

The manager claimed a cost savings by the hiring decision.  But when you factor in the longer term ramifications of that decision, how do the initial savings hold up?

• The hiring decision saved $10,000 to $15,000 per annum by consciously underpaying the candidate

• What is the discounted value of a disengaged employee who doesn't perform as expected or desired?

• What is the value of time lost when Bob quits and the job is vacant while a replacement is sought?

• What is the value of hiring a potentially more expensive replacement (plus agency fees) and perhaps relocation?

• What is the value of productive time lost while a new employee gets up to speed?

• Finally, what is the subjective value of a discontented employee in your midst, possibly poisoning other employee attitudes?

So the next time a hiring manager proudly announces how to save a bunch of money on a candidate who's in transition, take a moment to think it through.  You may want to consider a boot in the butt instead.

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 greggoconnel

%-#-$ - Startup Equity: It’s Enough to Make You Swear!

Figuring out the right amount of equity compensation at startups is a challenge. How much should I grant? How big should the grant be? How should I size the grant relative to base pay? Investors, boards, executives, HR and compensation departments at start-ups have conflicts over these questions all the time. In the past I have written about the 11 Reasons Your Equity Compensation Survey Data is Wrong. This article focuses on three common ways to determine equity at startups regardless of your survey source.

% Percentage of FD Outstanding Shares

This is where most companies start. The first 10 or 20 key players at a start-up are likely to have their grants determined as a percentage of “Fully Diluted Outstanding Shares.” It is nearly impossible to determine the real value of a very young company. How much is an idea worth? How about a half working prototype that has only been seen by six people? Since values are usually flat out guesses, percentages make sense. Since values are also very low, it generally makes sense to grant stock options. Options offer more income and tax planning flexibility. Participants should expect these percentages to be diluted somewhat as the company brings in Angel and Venture Capital funding rounds. As value rises and more people join the company it becomes increasingly harder to grant percentages. Who really wants 0.0034123% of the company in stock options? The key is determining when to start changing your approach.

# Number of Shares

Traditionally this is the next step for most companies. This is especially true for grants to non-executives. Executive grants may be primarily determined as percentages until very close to the IPO. Some companies start as early as employee 50 or 60, others may wait until they have 200 or more equity holders. Numbers of shares is an easy way to grant equity. It is also wildly volatile and often very incorrect, especially when using stock options. As the company value grows, so does the option strike price. Then giving one engineer 25,000 stock options with a $0.03 strike price and a later hire the same number of options with a $12.50 strike price is a good way to create retention and motivation problems down the road. The earlier hire may have taken more risks, but in a fast growing company those risks may not represent the difference in future value. Consider this math. Assume the company goes public at $18.00 per share. The earlier grant would have a value of $449,250. The later grant would have a value of 137,500. Those are differences that are hard to squeeze into a compensation philosophy document.

$ 409A Value, Investor Value and Potential Realizable Value

Dollar value is where most compensation professional are most comfortable. With big, established companies this is often a great starting point. With startups this has always been difficult. In today’s world pre-IPO companies may be valued anywhere from less than $1Million to more than $10Billion. Companies may also move to Restricted Stock Units (RSUs) as dilution becomes a concern. Getting rid of the strike price changes the entire equation. But, let’s start with the multiple ways a start-up is valued. First is the IRC 409A value. This value is usually determined by an outside professional. Most companies use the most conservative assumptions they can to keep the value low. The “Investor Value” is typically the price from the last round of funding. This can be significantly higher than the 409A value. Investors are seldom thinking of a conservative, low value. They look at the current value in light of what they hope to gain in the future. It is not uncommon for the Investor Value to be ten or more times the 409A Value. Many investors believe this is the value that should be used for equity compensation. It reflects the value of their investment, regardless of whether that investment may later prove to be overly exuberant. The Potential Realizable Value is based on the value the company hopes to have at IPO or Change in Control. This is the number(s) on the business plan projections. This is best modeled in a variety of scenarios. With some pre-IPO companies now being valued in the billions the difference between reality and hyperbole can be hard to estimate. In the end this is the value that determines a baseline of what participants will “own” at the time of a corporate event.

Detailing all the vagaries and issues with the above would take too many words for this blog. None of these methods is foolproof and I generally recommend that companies model all three methods (and sometimes others) from fairly early in their growth cycle. Modeling each requires many additional considerations including; 1) the number of additional rounds of funding and dilution will be needed to get to an exit, 2) whether there will be a need for a forward or reverse split prior to the IPO, 3) the time that the company expects it will take to achieve its goals, 4) the strength of the IPO or M&A market for their industry, 5) the number of employees they believe they will need at exit and many other factors. There is no simple solution to such a complex set of equations, but understanding all of the above is a good place to start.

If you would like more information on startup equity, please comment below and I will work on creating a series of articles to expand on this topic.

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 industry resources including the recent Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and a few other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

Employees Care About the CEO Pay Ratio? Really?

Pay for performance can be defined simply as, "a system of employee payment that links compensation to measures of work quality or goals." But each time an employee thinks about how and why they are paid, they are looking for more than a straightforward quid pro quo. Instead, employees are hoping to learn about a more promising way to get what they want out of work -- more skills, more money, new responsibilities and so on.

They want to know what HR is planning to do, so that they can decide if the plans will fulfill their own desires. Whether they're at their desk, or at the mall, our employees (like all human beings) are desperate to have their expectations met, which we often forget when we talk with them about compensation.

Why bring this up now? Because I want to encourage you to think carefully about CEO Pay Ratio communications, giving yourselves a lot of time to test ideas out. Employees will have easily predicted tendencies to have immediate, knee jerk reactions to CEO pay topics, even before you begin any explanation. Take the following examples to heart, they are just a small sample.

The CEO makes so much money that s/he has multiple houses, pools, house staff, vacations in Fiji -- and this income gets in the way of the company affording what I want out of work.

The median employee makes what I make. Is the company doing enough for our career opportunities? Shouldn't we be able to make more?

The median employee makes more than I do. I should know how to get to that average pay level, shouldn't I?

The median employee makes less than I make. I must be more important. Shouldn't I be offered more career opportunities than I have been?

Ignore these perceptions at your peril. This is an abbreviated list. You should make a complete list for your own employees, because their feelings will be real. And recognize that the detailed explanations that you will need to provide about the CEO Pay Ratio will only encourage these emotions to grow as you are sharing the required information.

Behavioral research indicates that we have, in general, two modes of thinking and acting. Mode #1 is immediate, emotional and involuntary (as you can identify in the question list above). This mode is inborn, since like any other animal, we have survived by constantly screening the environment for threats, ready to react. We must be able to respond in an involuntary way to what shows up in front of us. The most important thing to notice -- because HR often gets tripped up in our planning -- is these emotional responses are involuntary, and as a result take place outside of our consciousness.

Mode #2 is the rational aspect of our thinking. This is how HR tends to address a topic like the CEO Pay Ratio, to create an explanation that carefully and deliberately takes employees through the details and rationale. It's is our go-to mode in HR communications -- to laboriously explain. The thing is, we have misled ourselves about its effectiveness.

It is not an employee's go-to mode, and so HR is eternally frustrated by compensation communications because employees never really seem to "get it." Focused thinking cannot occur until we earn employees' attention by first addressing their emotions and desires (as described in the perception list work that I recommend). Even though this one's about the CEO, we in HR will need to help our employees address and resolve their own strong expectations. Only then, will we finally have their attention and -- don't kid yourself -- we'll need a plan for keeping their attention, too.

Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create the DIY guide to compensation leadership, Everything You Do (in Compensation) Is Communications @ https://gumroad.com/l/everythingiscommunication . 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, performance management and compensation implementation discussions at the Café. Margaret is a Board member of the Bay Area Compensation Association (BACA). Before founding re:Think Consulting, she was a Principal at Willis Towers Watson. 

Everything Will be Alright

. . . is not the same as "everything will stay the same."

Most folks will tell you that change is good; that new ways of doing things, new ways of thinking and new ways of viewing the business environment are all for the good.  And then they pat themselves on the back as forward-thinking examples of the modern age.

But how about when those very same changes affect them?  When their pattern of activity is disrupted?  When what they were comfortable with now becomes alien to them?  When the advantage of the knowledge they once had is gone, and they have to learn again?  When their advantage over other employees disappears as everyone is changing at the same time?

What about when their feelings of self-confidence, of superiority in some cases, are dashed?

Then perhaps they might not feel so warm and fuzzy about change.

That's just how it is with the human condition.

When Change Occurs

Imagine if you will the manager / leader / boss who sits comfortably within their world-at-work, their office (or wherever) environment.  They've been around the block several times so they know how things work.  They know the policies, the procedures and even all the right players that they have to deal with.  They can answer most any question that comes their way, or can at least bluff their way through.  When problems arise they can choose to either deal with it or kick the can down the road.

Self confidence is the hallmark of their work persona, in that they feel that they're sitting on top of their work world - and they like the view.

Then suddenly the planet shifts on its axis.  Word comes down from above that a major new program is going to be implemented, utilizing new technologies, new forms and procedures and a whole new way of thinking.  Policies will be changing and leadership expectations are suddenly going in a whole new direction.

Oops.  Now your world has been rocked, because now you face a learning curve similar to that faced by many of your peers and colleagues.  Now you no longer have the answers, but are left with a series of questions - like everyone else.

Now your self confidence has been shaken, your warm bubble of comfort shattered.

Perhaps you go through a step process of bafflement, anger, denial, resentment, and then what?  Baying at the moon isn't going to help, so you'd better get your new act together.

Dealing With the Dark Days

First off, I never recommend keeping your head in the sand and hoping that the bad dream goes away.  Or to play the passive resistance card (lukewarm interest and support, all while keeping your fingers crossed).  Good leaders don't go there.

What I suggest is that you embrace the change, as best you can.

• First onto the boat gets to pick the seat, so an early and visible advocate gets to be seen as such and able to position themselves well going into the future.  You also get to present yourself as still in leadership mode, this time leading the charge into the unknown.  "Come on, follow me!"  Good management technique.

• Let's face it though, learning new techniques, new technologies, the cutting edge of anything can serve you well in your career.  So you have to deal with a short (?) period of uncertainty, but likely you'll come out ahead when the changes are implemented.  Otherwise, being seen as a legacy player has limited appeal to your senior management - who are watching.

• A corollary to the above is that, by throwing your weight behind the change you position yourself well politically (like that's not important?).  Early supporters of new initiatives get noticed and remembered by executives pushing those changes.  Not a bad thing for you.

• Even if the change doesn't work out as planned (when does it ever?), there's likely little downside for you to have played along as a team player.  When the dust settles and the score is counted it's usually the passive resisters and active critics who are remembered in a negative sense.  Senior managers have memories too.

Someone once said, "The only thing that's constant is change," or words to that affect.  Which means that sitting on your bum for too long can be harmful to your professional career.

I do agree that change can be a pain in that bum, and usually inconvenient to many of the affected.  But we need positive and constructive change to progress as a business, as a society, and as an individual. 

It's going to happen with or without you.  Let's make it happen with you.

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,"Big Changes Are Underway," by milena mihaylove

What Are Your Accidental Values (And How Much Are You Paying For Them)?

I make it a point to ask about organizational values in every compensation philosophy session and in every discovery conversation at the front end of a problem solving engagement.  Of course, the responses can vary from "Values? I can't remember but I think you can find them on our web site" to a passionate soliloquy on the guiding principles of how people behave and make choices there.

Some of the more interesting - and frankly most helpful - exchanges I've had about values have been centered on the concept of accidental values.  Renowned author and speaker Patrick Lencioni first coined that phrase in his book The Advantage: Why Organizational Health Trumps Everything Else in Business, where he takes the notion of organizational values and breaks it into four distinct categories:

1. Core Values. These are the deeply ingrained principles that guide all of a company’s actions. They serve as cultural cornerstones and must never be compromised. They are the source of a company’s distinctiveness – their brand identity.

2. Aspirational Values. These are the values a company needs or wants to have to bring future success, but currently lacks. Aspirational values are beneficial, yet they need to be carefully managed so that they don’t dilute the core.

3. Permission-to-Play Values. These simply reflect the minimum behavior and social style of team members. These values qualify candidates for acceptance on a team, yet they are not the defining characteristics that set an organization apart from its competition.

4. Accidental Values. These arise spontaneously within a team over time, without being
cultivated by leadership. They can be beneficial, but can produce negative forces, even to the point of being team toxic.

The concept of accidental values can be particularly important to those of us who practice in the field of rewards because reward delivery - who and what gets reinforced with rewards - can be a key signal of an accidental value.

For example, one leadership team realized that they had an accidental value of minimizing their investment in front-line workers, paying their customer facing employees as little as possible.  How did they discover this?  By realizing (and a credit to them for their honesty and willingness to look without flinching at their decisions) that they had a long history of making the lowest investment in wage and structure adjustments that would still get them in "a competitive range" for these roles.

Another company's leadership group came to realize that they had an accidental value of reinforcing those who stop at nothing - including stomping all over their colleagues and subordinates - to maximize their personal revenue generation.  How did they know?  Because these toxic individuals - well known to everyone in the organization - consistently earned the biggest awards under their incentive program (and scored the biggest merit increases as well).

You won't find accidental values framed on the boardroom wall or memorialized on the website, but employees know that they are there and their presence may mean that you are investing precious compensation funds in actively undermining your desired culture.

I find that using the framework of company values and particularly the concept of accidental values is a useful approach for confronting leadership teams about reward practice disconnects - gaps between what they are saying and what the organization is doing with its compensation spend - in a way that hits them where it hurts.

With that, this can be a good addition for all of us to carry in our mental toolbox.

Any experiences you can share about accidental values in your workplaces?

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

Creative Commons image "Car Scrapyard" by Alexander Baxevanis

Titles and Pay - External Necessity Vs Internal Parity

Job titles don’t determine pay, nor does the external market, really.  It is internal equity that matches or exceeds market mandates.

Despite claims referencing the outside competitive market, no two employers pay precisely the same rates for any one job. While organizational chart rank has a strong correlation with compensation, no one particular internal status relationship precisely matches the outside world.  

Parallels exist, but survey comparisons are always imprecise. Every job title tends to describe functional area of competency and level of responsibility. But how those levels of responsibility relate to an internal value system of status, reporting relationships and compensation are still up to each employer ... and each does its own thing.

Most pay rates generally follow external competitive market mandates, to a certain extent, although people are constantly frustrated when they try to match free market dynamics with internal status clustering. Outside reality is never exactly the same as inside practice. The external competitive marketplace usually operates in ways that have very little in common with your enterprise's historical traditions and past preferences for setting and maintaining internal peer relationships. For one thing, the external world changes a lot faster; it also shows no respect for unique enterprise tradition. When past internal advantages have continued long enough to be assumed permanent infinite entitlements, the movement of the outside world become secondary to perpetuating organization-specific peer equity considerations.

Once compensation reaches a level sufficient to attract, retain and engage competent talent, internal peer relationships typically prevail beyond that point. If you lose good people and can't get competent replacements for the same price, then everything shifts upwards. When pay increases for one job, all others seen as peer positions tend to benefit also. That rising tide created by external circumstances lifts all boats floating in the same pool. Letting one set of occupations move upwards while others long considered comparable languish becomes unthinkable.

As long as internal compensation exceeds the market-clearing rate, no one will protest ... except maybe:

• customers watching prices rise;
• taxpayers funding the generous practices;
• owners who see their profit margin threatened;
• sales people challenged to develop new markets;
• designers ordered to find cheaper production methods;
• workers displaced by to automation or offshoring; or
• behavioral economists questioning irrational decisions.

Outside conditions only become relevant when they undercut routine maintenance of the inside status quo.   Regardless of the fact that you can find adequate replacement talent at lower rates, it is considered unacceptable heresy to threaten historical peer relationships by allowing internal pay to sag in line with outside reality.  Habit can overwhelm the best intentions.  

The obsession with relative internal continuity seems troublesome for the long run. We may be marching in lock step towards disaster.   Or do you see it otherwise?

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After corporate HR and consulting roles in most industries, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

Image courtesy of cjansruebsri at FreeDigitalPhotos.net

 

A Tale of Two Schedules…

Companies and municipalities are struggling with some thorny issues around the best way of scheduling work that supports both the humanity and productivity of employees.

Earlier this month, Jim wrote a post for this blog on Seattle’s “secure scheduling law,” aimed at creating more predictable hours at the cost of flexibility that some desire from those jobs. Then, there was this short piece on Inc., describing one startup’s move to eliminate hours tracking in favor of greater flexibility and a focus on results. According to the post, it’s a strategy with some positive results for major retailers as well.

It is interesting to see the divergence of solutions that address the same fundamental question: how can we improve employees’ experiences of work?

In practical terms, that question means meeting the unique expectations of workers while encouraging greater performance and meeting the needs of the business. No small feat given the rising pressures in today’s fast-moving environment.

It will take some time to know what type of approach will ultimately be successful, but there are some practices that are sure to play an important role.

The truth is the employee expectations-experience relationship will never be homogenous across the workforce or even among teams. Some employees will want more stability from their schedules and some greater flexibility to manage their own unique set of work and life responsibilities.

Approaches that emphasize individual voice and empowerment, as well as the option for flexibility, seem to be well-suited to meet a diverse range of expectations like that, while also encouraging employees to find efficient ways of working that fit their own personal style and preferences.

Organizations will also need to emphasize practices that replace the diminishing role of structure and hierarchy. Instead of formal processes, the role of continuous conversations around feedback, recognition, and coaching will become increasingly important. The startup’s CEO from the post above reaffirms that point:

We're not saying any of this is easy. Nor should it be. It requires over-communicating feedback, setting specific goals that are measurable, and vetting new team members that you trust will thrive.

Public policy will also need to evolve, to give organizations the flexibility to provide a positive employee experience rather than mandate a specific practice at the expense of another.

Perhaps a part of that evolution is legislation that can shift from metrics that have traditionally defined the work experience (such as hours worked) to metrics that more accurately capture a flexible and modern experience. We may not be there yet, but I feel that we may also not be that far off from such a possibility.

What are your thoughts on meeting the expectations that employees have of their work experiences?

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.

The Disability Pay Gap: Earnings or Total Compensation?

We hear a lot about the gender pay gap, but do you know about the disability pay gap? Would it surprise you to learn that the raw earnings gap between individuals with disabilities and individuals without disabilities is 36%? 

Interestingly, controlling for educational attainment doesn't really reduce the raw gap by that much. In fact, the gap widens as educational attainment increases:

Educational Attainment	Without Disability	With Disability	Difference
High School	$29,471	$22,966	($6,505)
Some College	$31,104	$26,489	($4,615)
Associate's Degree	$39,968	$32,768	($7,199)
Bachelor's Degree	$58,822	$46,103	($12,719)
Master's Degree or higher	$87,771	$66,899	($20,871)

Source: An Uneven Playing Field: The Lack of Equal Pay for People with Disabilities, American Institutes for Research (December 2014)

Even after controlling for education, experience, race, marital status, occupation and type of disability, gaps in earnings still persist. But these gaps are reduced when we look at total compensation instead of earnings:

Source: Hallock, Jin and Barrington "Wage Gaps and Total Compensation Gaps by Disability Status", Cornell University Working Paper, 2013 

These findings suggest that individuals with disabilities may be making difference choices about tradeoffs between wages and salaries and non-wage-and-salary benefits. For example, individuals with disabilities may prefer a job that has more generous health insurance coverage but a lower annual salary to a job that has a higher annual salary but less generous health insurance coverage. It is also likely that tradeoffs between wages and salaries and flexible scheduling, telecommuting, etc., differ between those with and without disabilities, although this question has not yet been fully addressed in the literature.

October is National Disability Employment Awareness Month, so take some time in the next week or two and think about your mix of compensation between wages and salaries and non-wage-and-salary rewards. Ensuring that you have the right mix of monetary and non-monetary benefits can help you tap into the valuable pool of talent that is individuals with disabilities. 

Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University. She teaches undergraduate and graduate courses on economic theory and labor economics in the College of Arts and Sciences and in Cornell’s School of Industrial and Labor Relations. Throughout her career, Stephanie has completed research on a variety of topics including wage determination, pay gaps and inequality, and performance-based compensation systems. She frequently provides expert commentary in media outlets such as The New York Times, CBC, and NPR, and has published papers in a variety of journals.

Broadway Acts on Sharing Success

You build it. You buy it. This may become the new mantra on Broadway. The original cast of Hamilton was recently followed by the new cast of Disney’s Frozen in receiving a share of the success of the shows they helped create. Similar to a great tech company building towards an IPO, a Broadway company has to do a whole lot of work before it ever gets to the starting line. Beyond the original idea, words and songs are the testing, tweaks, enhancements and embellishments that can make or break a show.

For years the formula worked like this.

Broadway Show Technology Startup Idea Idea Workshops Proof of Concept (POC) Raise Money Raise Angel Funding Auditions Build Core Team Rehearsals Turn POC into Beta Tryouts Get more money Previews Get Market Ready, including Revenue Flow Opening Night IPO Running on Broadway Trading on the Public Market

The processes to create a successful Broadway show and a thriving technology company are not so different. But, until now, the pay structures followed different paths.

For more than 25 years, tech companies have used equity to share ownership and motivate people to perform better and augment (sometimes) under-market base pay. Before this, company stars sometimes did well, but those who came in early and helped turn a good idea into a great company received little more than experience and the pleasure of the job. Broadway companies are finally seeing the benefit of sharing more than just acclaim.

About a year ago, the cast of Hamilton negotiated a piece of the pie. According to reports, the producer of the show (translate this to the investor of a tech company) advised the cast not to follow this path, but eventually relented. Apparently, lump sum amounts were offered, but the cast understood the long-term value of sharing and held tough until a deal could be met.

Similarly, it was announced last week that the original cast of Disney’s new show, Frozen, will share in their show. It should be noted that these incentive plans are true incentive compensation. The show must reach a defined level of success before the sharing kicks in. This is much like recent equity plans at pre-IPO companies that delay vesting until a successful IPO or other liquidity event. The early performers in these shows have far bigger roles than those who play the same roles later in the shows life. This is also a lot like working at a start-up. You may be writing code one day and designing a company logo the next. When a serial producer like Disney adopts a new practice, it has the chance of moving from unusual to a best practice very quickly.

Lastly, it should also be noted that, much like start-ups, most Broadway shows will not be successful. The producers and investors take big risks when providing early funding. The performers also take big risks. These new compensation programs are unlikely to have an impact on most performers, but they will have great impact on a lucky few. This, lest we forget, is also much like the world of equity compensation at start-ups. It is the risk that drives the big rewards when it comes to equity compensation.

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 industry resources including the recent Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and a few other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.