Compensation Cafe

How to Budget Compensation Communications

Sitting down to do a budget that's going to have to last a year can feel overwhelming. After all, what if you get it wrong and run out of time and money? Who can see eight months ahead with any kind of accuracy? And where do you start, anyway?

You can't create a reliable budget without a reliable communication plan. Don't let anyone push you into just providing off-the-cuff estimates. "They" will end up sticking you with the preliminary numbers you provided, which will inevitably be lower than what's needed. (I learned that one the hard way with a six-figure budget!)

Here are some tips that should help. They are evidence- and reality-based. Choose the ones that apply to your organizational situation and adapt them.

First: Plan how to get a good budget. Make this a mini project, in and of itself. It can take up to three weeks. If you are hiring consultants, this should be their first assignment. Sketch out what may happen over the year--don't think about costs yet.

Don't know how to do a preliminary plan? Itemize the main events and list the high-level communication steps you would take for each event. Work backwards from the key project outcomes -- for example, if you are introducing a new pay program, start by identifying the materials to be used at the announcement. Next, outline the communication events that would need to happen after the announcement. Then it's finally time to turn back to list the preliminary, preparatory steps up to the announcement: focus groups, interviews, manager briefings, executive approvals and so on. (It's important to do these last since you can't be accurate about the building blocks for your final products until you understand them.)

Now you have a sense of scope. The next thing you need to do is estimate the time involved for you and others.

Second: Do a reality check. It's great that you have the beginnings of a plan worked out, but can it really be pulled off? To find out, check the amount of time that you (and others) will need to commit to the project as described. Each piece of writing takes at least three drafts before it is finalized, so sketch out the hours it would take to complete the materials listed in your plan.

Most projects of this type involve a team, so do the same for the team members. It doesn't need to be exact yet, just ballpark it. For instance, if you are not going to hire a communications consultant, who is going to create the drafts and how easy will it be to pull that individual away from other work. How will the dual responsibilities affect their time commitment?

Then consider how other departments or suppliers will help. If you are going to add materials to your intranet, who in Tech will need to be involved, and how long will s/he need to complete the work? Will you need a graphic design? What about an explanatory video?

Put all the information that you've pulled together away for the weekend. On Monday take a look again with fresh eyes. Still think it will all be needed? Can the company afford the investment of time and resources? Would the executive team approve your approach if you were asked to present it to them? If the answers are yes, now and only now, does it make sense to put costs down.

Third: Talk it over with your sponsor. All communication projects need an executive sponsor. Hopefully, you've been talking things over with yours by this step in the process. If not, don't wait any longer. Schedule a chat while you are in the midst of developing preliminary numbers. When you meet with your sponsor, make sure it is clear that you are asking for her/his input (rather than giving them a pinned down plan or budget). A frank, open discussion will make it possible to determine the steps to take for final approval.

Margaret O'Hanlon brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at everythingiscommunication.com.

Cafe Classic: Competitive Market Surveys Rarely Produce Identical Pay

Editor's Note: Jim Brennan brings us a Classic reality check on pay, the labor market and competitive survey data.

Compensation professionals love to cite “the open market,” while being less eager to admit that every market is different. Despite continual references to reliance on the free labor market, the competitive pay values established between and among employers almost never match. The reasons may be seem obscure to outsiders, but they are clear to those who follow the arcane practices of the wage and salary management field. There is no one single competitive market for pay, even though that phrase is frequently used justify recommendations that are almost always unique.

Organizations follow the competitive market the same the way people heed the outside weather. After considering the weather, you dress as you please. What is considered proper, comfortable and affordable by one is not the same for another. A glance at any sample of people walking by shows how others are dressed, allowing you to adjust accordingly. Examination of the official weather report offers more refined data with greater credibility. Once you check the more precise meteorological details, then you still get to decide what you want to wear. Of course, if you are running a marathon race, you will dress differently than a scuba driver, despite identical conditions of ambient temperature, wind speeds, amount and type of cloud cover, etc., in the area.

The behaviors are parallel: reference information supplies guidance for your informed decision in each situation. But your final decision on how to dress is not based on just “the weather” any more than how you pay people is based on “the market.” There is no one weather report that applies equally well to all employers in all locations in all circumstances. In the same way, there is no one absolutely open competitive market for pay, just as there is not one single street address for “the competition.”

Even when peer organizations share details about their wages and salaries, each enterprise ends up applying the information differently. Each employer using an identical survey published by a reputable professional analytical organization ends up with its own unique number as the appropriate target. One would think that open market exchange of wage and salary information would produce fairly identical equilibrium points … but it doesn't.

Identical pay is highly unlikely. No two enterprises have exactly the same pay rates for any two jobs. Each firm has different reasons for its totally unique value systems. Steel mills don’t place a particularly high value on a mail room supervisor job, for example, while that position can be a critical profit contributor in a direct mail distribution center. Even if the pay planners at the steel mill and the mailing center referenced the exact same pay survey, they would probably draw different inferences from the reported figures and select different market reference points for internal use.

In addition, an employer may select different peer comparison groups for each work group and address them differently. Some set a policy line vector: to lead, lag or match their peers, frequently with refined definitions like “above average” or targeting the 70th percentile. Human organizations also have their own personal internal value structures. Job evaluation can then be applied for discounts or premium variances structured to reflect special priorities set by top management, created by historical precedent or required for internal equity.

Cash compensation supplies a number for comparison but it is still only part of the employee value proposition. Non-cash reward elements can't be reduced to simple numbers. Peer relationships, fringe benefits, perquisites, career progression prospects, working conditions and other circumstances like location also complicate the “total rewards” picture.

Starting with the same input information, each user can and will still come up with a different conclusion about what is right, proper, affordable and persuasive for their organization. The more we try to imitate each other, the more we vary in actual practice. No matter how identical the world we inhabit, we all live it differently. Vive la difference!

Don't hesitate to share this with someone who needs to know the reality.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in most industries.  After corporate HR posts and consulting CEO roles, 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 "Colourful Shopping Bags" courtesy of Hywards at FreeDigitalPhotos.net

SPAC Attack: Unwieldy Expectations, Proxy Time

Being a company involved in a SPAC is kind of like being a genius 6-year old or an incredibly tall 13-year old. While you are clearly able to do some amazing things, you are not yet fully ready to address all of the challenges of the grown-up world. But, unlike a kid, you don’t get the benefit of the doubt or have advocates arguing for people to give you a break while you mature. Maybe being in a SPAC transaction is more like those movies where a kid wakes up after a dream to find themselves a fully grown adult with all of the benefits and problems that it entails.

With about 300 SPAC Acquirors on the prowl for the perfect company to bring public, the SPAC wave has not yet crested. Many of you reading this post are either working for a company or being recruited by a company where a SPAC transaction is a real possibility. Most of those companies are not truly ready for that intensity of the spotlight but will need to perform on stage regardless.

Let’s start by discussing a couple of the new things where you will need to help. Publicly-traded companies need to produce a Compensation Discussion and Analysis (CD&A) and a Summary Compensation Table as part of their public filings. The CD&A is a narrative document that tells the story of your executive compensation program. The Summary Compensation Table details the prior three years of compensation for your Named Executive Officers (the Top 5 paid officers including your CEO and CFO.)

There are great guides and templates for your CD&A all over the internet, but you will still need to become a storyteller to get the job done. At the minimum, you must explain the objectives of your compensation programs as a whole, and each program as an element of that whole. You will need to cover:

• An overview of every element in your pay program
• The reason you chose those elements, and the specific way each is awarded to individuals. This included formulas, discretionary considerations, determination of amounts, etc.
• How each pay element fits into the overall compensation objective and how its efficacy is measured.

If you are like the compensation professionals at many private-held companies, you may have a general idea about the answers to these questions. You have probably never had to put things into words that will be scrutinized by investors and the media outside of your tight circle of “friends.” Writing a first concise and compelling CD&A is critical. It becomes the first chapter in a series of annual CD&As as your company matures.

As for the Summary Compensation Table, you may be at a company where the “clean-up” of historical records has been on your “to-do” list for a couple of years. With a SPAC transaction, you have a few weeks to wrap that up. You need to understand every employment agreement, every weird one-off offer letter. You need the details behind every pay element given to Joe or Sally because they “demanded” it, or were somehow related to the CEO or founder. Once you have all of this you will need to put it into a very prescriptive table with footnotes explaining every unusual or interesting number. None of this is impossible, but all of it will feel very foreign if you haven’t done it before. On top of all of this, you will be working with Legal, Finance, and a bunch of outside consultants and attorneys. It is a good idea to make a friend or two on the team. Things will be bumpy at times.

Once again this is a cliff-hanger because I have run out of room! If you have been through a recent SPAC feel free to comment on anything that you found particularly difficult or surprising about getting prepared and making yourself look good during the challenging process. My next post is in March, so feel free to reach out if you want information before then!

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to 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 other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Cafe Classic: When It Isn't There

Editor's Note:  Classic and practical advice from Chuck Csizmar on pricing jobs in countries where data is scarce or simply unavailable.

I was asked the other day to market price several positions in Nairobi, Kenya, and Chao, Chile. The client was seeking to open field operations sites and wanted to get a sense of the marketplace in which they would be seeking to hire talent. So the project was to ascertain the local competitive marketplace for their positions. What is everyone else paying?

However, in the world of compensation survey sources and available pay data Kenya and Chile are not exactly major players. In fact, one might be hard pressed to uncover reliable information from which to gauge anything remotely like a "marketplace."

What's The Problem?

This is what I explained to the client.

• Commercial surveys are scant: When you're dealing with either a small country, or a third world nation or somewhere you can't find without a map chances are good that readily available survey sources will not be available. That's a research dead end.

• National data is the only show in town: When data is available, in any form, it's usually only for the national average. You can essentially forget about industry slices, or revenue size. What you'll get is national data and have to make the most with it.

• Your "special" jobs are missing: Limited data will condense around benchmark jobs, in an effort to gather up as much information as possible. So unique, industry-specific or even extra career ladder jobs may not be represented.

• Algorithms anyone? Sometimes the anecdotal data that you'll come across won't be based on incumbent data, but projections and formulae. So if job "A" pays "X" and jobs "B" pays "Y", then we project (guess, really) that job "C" must pay "Z." Do you want to fall on your sword defending that rationale?

• Look behind the curtain: Some sources will offer, at a hefty price, what appears to be a thorough per-job analysis that essentially fills out a detailed template form with all sorts of data on the country, including 25th, median and 75th percentile data for a job that you couldn't have found elsewhere. The appearance of precision and thoroughness may be masking a simple algorithm coupled with generic data taken from the internet. Did I mention the big price?

This is bad news, I'm thinking, so how can I help the client anyway? They still need something from which to base their compensation strategies for these remote locations.

What Are You Gonna Do?

Presuming that the client's budget is limited, taking the route of custom surveys or high priced per-job analysis is not likely a solution. Nor is spending thousands of dollars for a single country survey (if available) from one of the major commercial survey houses. Even with that expense the reality of scant data, even when prettied up and blended with reams of extra information, is going to be of limited use. Presuming that the client wants more than a number, but a "good" number.

A few practical suggestions:

• Compensation data can be found, usually through the internet, though it is often self-reported and / or government supplied. So try to gain multiple sources to see if a trend emerges. Avoid relying on a single source.

• When commercial surveys fail you, or your budget won't allow it, look for local staffing sources (i.e. Robert Half, Roberts Walters, etc.) for generic job matches.

• Regional data might be available (i.e., Employers Federation of Europe, Gulf Business Survey [Middle East], etc.), with country-specific breakdowns.

• Take what national data you have and presume that such figures are 5% to 10% higher than secondary locations in the country and 5% to 10% lower than what might be expected in the capital city.

• If the data needs to be aged forward (likely) use country inflation rates to estimate pay growth. A common practice is to the discount the annual inflation rate by ~.5% to 1%.

At this point it is critical that the client is made to understand how this anecdotal information from secondary sources is not a smoking gun, but only a price guide to aid their thinking. Because when more reliable data is simply not available all that you'll be able to provide is a rough guide. From there you can advise how they can use such limited information to develop a useful and practical local strategy.

Chuck Csizmar CCP is the 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,"I Don't Know," by Lourdes Nightingale

I Don't Trust You

An often-heard complaint about an organization's performance appraisal program (PA) is that the employees don't trust their manager to conduct a fair assessment of performance.  That view is also the common response when asked why a company doesn't use a PA or even Pay-For-Performance (P4P) program to recognize and reward employees.

Isn't that a sad situation?  I don't trust you.  I don't trust the management of my company.  What does that attitude say about your performance culture, or the state of morale or employee engagement when the workforce has such negative feelings for their leadership?  How many successful organizations out there have an employee workforce that doesn't trust them?

On the other hand, should you instead simply throw out the baby with the bath water - stop conducting performance appraisals - and instead dole out general pay adjustments just for showing up for work?  Sort of like an attendance award.  Which essentially rejects the idea that individual employee performance levels can vary, and that such a variance is worth recognizing and rewarding.  Can you afford to treat "Super Joe" the same as "Joe Average?"

Or instead, if faced with this crisis of confidence should you take the more difficult road and make a serious effort to fix the core problem?  Perhaps you should train your managers in how to accurately assess employee performance.  Perhaps you should hold them accountable.

Lack of trust can be an avoidable problem if you're paying attention.

Where Managers Fail

The list below highlights the common concerns that employees often complain about, where some managers fail to be objective.  Where they can distort performance ratings, one way or another, by committing judgment errors that are based on personal bias, sloppiness or simply not caring enough about the process.

• Halo Effect: Generalizing ratings based on one positive achievement or strength; usually something recent.
• Horn Effect: Generalizing ratings based on one negative experience or weakness; again, usually recent.
• Recency Effect: Rater emphasis on only very recent event(s), ignoring older experiences.
• First Impressions Effect: Generalizing later ratings based on an initial impression (which is usually emotional rather than objective).
• Different Than Me: Giving lower ratings to those employees whose methods, interests, attitudes, etc. differ from your own.
• Just Like Me: Giving higher ratings to those whose interests, attitudes, methods, etc. are like yours.
• Central Tendency: Evaluating all employees as average even when performance varies (the classic easy way out).
• Carry-Over Effect: Score during one performance period influenced by ratings from a different period.

Likely you've all seen or heard of these examples.  But when such abuses are left unchallenged by an organization's leadership (all hail the status quo!) the natural result is that those on the receiving end grow to no longer trust the rater or the rating.  Or the process itself.

Did I say sloppiness?  When managers act as if they can't be bothered by the performance appraisal process (too busy, better things to do, consider it a painful process, already know the answer, etc.), the resultant impact on your workforce will go beyond the ratings themselves.  How long before the employee(s) says, "They don't care about me.  Why should I care about them?"

Is It Time to Kick Butt?

Small problems left unresolved will eventually morph into larger problems.  Ignoring a problem that is large enough that it can alienate your workforce, disrupt employee engagement, morale and ultimately productivity, turnover and your performance culture, that is a concern that you need to address - to root out at its core.  Or pay dearly for the consequences.

Managers who cannot/will not conduct proper performance appraisal reviews are not doing their job.  It should be viewed by supervision as simply as that.  And if they are not performing such a key managerial responsibility then they should be held accountable for that lapse.  Their own performance ratings and subsequent rewards should be negatively impacted.  Repeated offenses should put their jobs at risk.

These people are poisoning your workforce.  That should not be allowed to continue.  But how often do you see a manager penalized for not effectively managing their staff?  It does seem that sometimes senior leadership itself isn't interested, or certainly not focused on negative employee attitudes and perceptions as a cause of concern.

Employees who don't trust their management to treat them fairly will never deliver the kind of performance, the kind of drive that will bring the organization success.

I have a prediction for you.  The clamor to throw out PA programs will continue to grow and fester if an organization doesn't address the core problem of delivering objective performance ratings for its employees.  If leadership turns a blind eye to how managers assess and rate employee performance those affected employees will continue to resent what they consider a flawed and unfair system.  And how motivated is a resentful employee?

You must deal with bad managers if you wish to retain/regain the trust of your employees.  You leave these bad apples alone at your peril, and the cost can ruin your organization.

"I don't trust you" is a warning sign that the Wraith of Business Failure is knocking at your door.

Chuck Csizmar CCP is the 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 "Cat-reading-glasses-with-paper," by Floho67

Cafe Classic: Time to Work Out Your Chicken Legs

Editor's Note: Top heavy pay plans and design emphasis? Missed opportunities for investment in your broader workforce? Might be time for your company to work out its chicken legs, as Dan Walter notes in his Classic post.

We have all been to the gym or have seen this guy walking down the street (here’s an example). He’s the guy with those big arms, broad chest, and a narrow waist looking like a cartoon superhero. The guy is impressive in a t-shirt but carried around by skinny chicken legs. It’s obvious he puts in the work. It’s also noticeable what he likes to do and what he doesn’t.

More and more companies have compensation programs that look like this guy. Pay for executives is muscular and impressive. It has outpaced pay at lower levels for a long time. Despite how strong and impressive these companies’ pay look, the truth is they are vulnerable to a competitor kicking their legs out from under them. Heck, some of these companies have such weak foundations that they could easily trip themselves, tumbling straight to the ground.

Money spent on pay innovation, research, and consulting is first focused on executives. If there is anything left it trickles downward and disappears quickly. These chicken leg companies seem to believe that performance is based on a strong upper body. Any athlete will tell you this isn't true.

Great athletes in almost every sport first have incredibly strong core muscles. The middle supports and directs every movement while allowing for long-term growth above and below. Next, come powerful legs. These are the foundation of any great performer. They create stability, speed, and maneuverability. Only after these components are working at peak condition does it make sense to build the upper body. Even then the goal is lean usable strength not gaudy restrictive size.

Doing squats and sit-ups isn’t much fun. The results from these efforts are far less visible in everyday activities. Convincing management that the rank and file should receive a bigger percentage raise than the executive is even less fun. The results are also unlikely to be as immediately visible as a great executive incentive plan. But, once the effort has been made consistently for awhile, you will not only see a difference but, it will allow you to be better at a wide array of other things. The path of least resistance is undeniably seductive when you are already swamped with other projects. And, the people who need to approve your ideas are the same people who will feel the most negative Impact. Try it anyway.

Look at your company in a mirror and determine if you are this guy. Tell your executives you read about this on the Internet. Tell them other companies are looking into it (and they are). Heck, use me as the bad guy. But, mostly tell them that you are passionate about doing the best you can to help the company succeed. Right now, that means doing the tough legwork.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to 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 other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

What Does a Bonus Mean?

Can your employees tell the difference between a raise and a bonus?

For most, the only difference is that one of them is a lump-sum that they can use to buy that refrigerator they've been needing. After all, we often don't make much of a communication effort when we award bonuses. No wonder employees typically look at them as a gift, as the behavioral economists tell us.

Most employees don't really understand that business performance affects merit budgets. Why should they, since we don't talk about the linkage that clearly or candidly? And really, don't competitive practices drive the budget number as much as business performance does?

Employees understand the competitiveness factor, in a backhanded way. They want confirmation that the merit budget is the same as the one their neighbor's company--as well as your local competitors--is awarding. So, you could say that they are also checking that your company's performance matches your competitors, although not deliberately.

When it comes to bonuses, the understood link with business results is often sketchy, too. Employees remember their multiplier. When you communicate their annual reward, they want to know if they are getting that much or more. But does the bonus mean anything else to them? Anything about annual business performance, say?

If merit increases are about individual performance, bonuses are about team performance on the organizational level. The bonus should say to employees, "Look what we've achieved together!" But we often miss this chance by limiting the bonus communication to a five-minute, close-the-door-a-second chat on the run, where the manager tells employees their award and updates their performance feedback, and nothing more.

We miss this chance to build business knowledge, engagement and trust by treating bonuses this way. Companies that are effective at building a cohesive culture set the stage for bonuses by having the CEO talk with employees about business results before bonuses are awarded. They customize the messages to the Division or Function, if the bonus design deserves that kind of breakout.

Since everything we do in compensation is communication, we can count on our employees looking at their bonus as a gift (not earned, not achieved) until we start talking with them differently. Don't let the execs tell you that they can't help you with communications until the books are closed. They can give you enough of the big picture to get you started crafting a communication approach that will set the stage for bonuses in your organization. Business performance improves when employees know how their performance will impact business results--how's that for a rationale?

Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at everythingiscommunication.com.

Cafe Classic: Strategic Job Descriptions Anyone?

Editor's Note: Can job descriptions and other tools be refined to signal key behaviors for improving organizational health?  In this Classic post, Margaret O'Hanlon shares interesting research with intriguing potential for HR leaders and professionals.

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!

Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at everythingiscommunication.com.

SPAC Attack: Executive Compensation Top 10 List

If you are reading this series (SPAC Attack 1, Equity Compensation) of articles closely, you are probably working at a high-growth, privately-held company with aspirations of being an even higher-growth publicly traded company. A SPAC transaction is an easy, exciting, and invigorating path to your goals! Just kidding. It’s like being told to race up a hill dragging a giant piece of meat while being followed by your hungry, but loving dogs. While you are running up the hill you will need to go ahead and change nearly everything about your executive compensation and be ready to explain all of that, in writing, to a group of shareholders and Board members you have not yet met. Congratulations!

Just a few things you will need to finish in about 30-60 days:

1. You will probably want to address and update your Compensation Philosophy.
2. You will need to create a new peer group of publicly traded companies who kind of seem similar to you, but don’t overshadow you. Sort of like the first day of high school, but with compensation details.
3. You will need to completely revamp your equity compensation programs. Completely. New plans. New details. New methods for granting equity. The works!
4. You will need to learn how to evaluate executive compensation using publicly disclosed proxy materials. Yes, even if you hire a consultant. Otherwise, you won’t know what they’re talking about.
5. You will need to review every single executive offer letter and employment agreement and make sure you understand even the smallest details.
6. You will need to determine what happens to every piece of legacy compensation at the time of a transaction that is unlikely to be a Change of Control. Then, you will need to explain this to executives who often believe that it IS a change of control.
7. You will need to help come up with a new Board compensation package. Since you are the “comp person” you will probably be asked to contribute to the Compensation Committee Charter, and help get them up to speed.
8. You will need to do a full analysis, using your new compensation philosophy, and newly collected proxy-sourced pay data. You will need to defend, set, or correct base, bonus/STI and LTI pay levels, design elements, and links to performance.
9. You will need to review every historical equity transaction and the compensation that was created. Your stock administration system will need to be spotless. This is even more fun if you just have spreadsheets.
10. You will need to work with Legal and Finance to identify their new needs for executive compensation. How will insider trading and/or preclearance be set up and managed? Who will perform Golden Parachute calculations? Who will be in charge of determining the compensation expense each quarter? Who will own the tracking and finalization of any performance metrics linked to executive pay?

Oops, ran out of space!

The things listed above are common topics during an IPO process, but for that, you have a year or more to prepare. They are also common in nearly every normal merger process, but for those, you have an acquiring company with their own strong policies and procedures that you just need to follow. In a SPAC you will be challenged in new ways, and very quickly. It is important to ask tons of questions upfront. Once it gets moving there will be little time for major course corrections.

In a publicly-traded world, everyone has an opinion about your executive’s compensation. You will far more visible, internally and externally. If this type of transaction is potentially on your horizon, the time to study is now. If you have gone through a SPAC transaction, please feel free to add your own thoughts in the comments.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to 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 other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Cafe Classic: Behavioral Economics and Benefits

Editor's Note: Jacque Vilet explores the intersection of behavioral economics and benefits, and the questions that it raises, in this Classic post.  How do  feel about nudging?

Why do so many employees fail to exercise in spite of the well-known benefits of doing so? Why do employees skip medications that could prevent serious illness and improve their quality of life?

Behavioral economists rely on psychology to explain human behavior and they have a few theories.

One is "loss aversion" --- that is, the tendency to care more about the possibility of loss than the possibility of gain. This is important in explaining why it’s so difficult to encourage healthy lifestyles. There’s immediate loss when people switch their habits to eating less or exercising more. Let’s face it --- junk food tastes good and exercise is hard. The long-term gain --- better health --- doesn’t seem like a gain because it’s not immediate.

That may be why the wellness programs some employers offer have not produced the best results. Example: The promise of charging lower medical premiums if employees quit smoking (a future gain) and charging higher premiums to employees if they don’t quit (a future pain). According to a recent RAND study offering rewards after the fact has led to only modest behavior changes and limited cost savings.

By using the principle of “loss aversion” employers might be better off providing upfront rewards such as immediately charging lower medical premiums to people who commit to quit smoking. For employees who don’t live up to their commitment and quit, premiums are raised. This has proved to work in other situations.

Another theory is Kevin Volpp’s “automated hovering”. It’s a cost effective way to monitor patients and give feedback. Studies show that patients don’t always take their medication as prescribed following a serious illness. Even making it free may not be enough to motivate them.

Researchers are now using telemedicine tools to monitor patient behavior and encourage compliance with prescribed treatment. In experiments, patients who take their medication are eligible to win daily cash prizes. This practice recognizes the importance of immediate rewards.

A third theory is Thaler’s “choice architecture”. Thaler describes “choice architects” as those who help shape situations where people have to choose. They can be “nudged” to make decisions that are good for them. Example: At a cafeteria, the first thing in the line is the salad bar. That’s a good thing --- it’s healthy. If mac and cheese and French fries were placed at the beginning of the line, people might load up on them and not take any salad.

Back to employee benefits. Employees are being asked to become more involved in their own healthcare. Behavioral economics can offer insights into employee behavior which can be useful for Benefits professionals in designing benefit communications. Employee choice is important, but the need for help in understanding those choices is more important.

Marketing has long used choice architecture to nudge customers towards specific brand or product decisions. Consider a supermarket that puts certain brands or products on shelves at eye level versus on the lower shelves. Customers are nudged to take the ones on eye level. This technique is good for the company that wants more of its products sold.

There are, however, ethical questions to be considered when attempting to influence employee behavior. It’s one thing to nudge customers toward a certain brand of spaghetti sauce and quite another to nudge employees toward a specific medical plan.

To what extent should people be nudged into doing things that are good for them? In a free society, shouldn’t people be allowed to be obese, smoke, skip their medications, or choose questionable medical treatments?

Here’s the bottom line: We are all for employee rights to make their own benefit decisions. At the same time, we also want employees to make choices that are in their best interests. Behavioral economists say that as long as employees are allowed free choice --- both good and bad  --- then it’s OK to help them make decisions that for their long term good. In other words, it’s OK to nudge.

Behavioral economics has intuitive appeal --- it seeks to work with human limitations instead of fighting against them. But there needs to be more research before employers launch into full-scale practice.

When all is said and done though, I still have a problem with nudging.

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