Compensation Cafe

Cafe Classic: Attitude is Necessary but Insufficient by Itself

Editor's Note:  How far can a good attitude take us?  What gets in the way of performance." Jim Brennan brings us his own Classic version of Why Employees Don't Do What They're Supposed To Do And What You Can Do About It.  Are we listening?

The right attitude won't be enough to guarantee success.  More is needed.

Since compensation deals with rewards for proper work results, how people accomplish their responsibilities and tasks is worthy of discussion. Performance appraisal and merit ratings are frequently (un)popular, immensely complex topics; but I simply want to address the widespread myth that a positive attitude (a favored evaluation factor in primitive management systems) will always prevail.

The inspirational message that if you keep trying you will eventually succeed is a popular dramatic meme in novels and movies. There, we call it fiction.

Victory over adversity through self-confident persistence is also a common theme in media interviews of sports stars. It may be true for the few winners who ultimately reach the spotlights and microphones, but most of those who compete fail to capture first place.

Compensation professionals need to understand that there are many reasons --some of our own making -- for performance outcomes that fall short of expectations. Confidence does not equal competence nor do aspirations assure accomplishment.

A positive personal attitude is only one of the useful ingredients in a complex recipe for goal achievement. While it certainly helps if you BELIEVE in your abilities, you still must objectively possess the relevant competencies. You also must operate within a working context that enables success. Many work environments block proper performance efforts despite the initial positive enthusiasm of the employees.

For two years in a row, while reviewing all the performance reviews in a large corporation, I read, "She never completed that night course I ordered her to take." Remembering that same depreciating comment about the same worker by the same boss last year, I checked to see why the supervisor never supplied effective contingent support to correct the deficiency. The employee did enroll in the night course repeatedly, but was forced to drop out each time. Her evening attendance was constantly prevented by unpredictable late-night overtime demands imposed at the last minute by that very same supervisor. He continually thwarted her legitimate attempts to comply with his instructions. Then he downgraded her merit increase because she obeyed his work schedule orders rather than disobeying those orders so she could comply with another order.

Never happen to you? Ha. Just wait. Contradictory orders are Catch-22 or Hobson's Choice dilemmas eventually experienced by almost every worker.

No matter how firm your conviction that you will accomplish your mission, your success is generally not under your full and complete individual control. Organizations exist to leverage group efforts, but the friction of human interactions can generate toxic byproducts with potentially destructive consequences. Many obstacles regularly impair the effectiveness of even the most confident and able performer:

• conflicting orders
• unclear instructions,
• absent or misleading feedback
• inadequate resources
• imbalanced consequences
• simple task interference

All those elements above that interfere with performance are external circumstances controlled by the organization. How many times are people punished for obeying our commands? "Finish that complicated report right now. Hey, answer that phone on the first ring!" Or placed in situations where failure is virtually assured? Sternly ordering a new hire to report any theft of company property will not overcome the peer pressure to ignore a veteran employee's flagrant pilferage of a handful of paper clips. Examples could fill large libraries.

When highly skilled workers who could perform properly if their lives depended on it fail the assignment, you can be sure there is something wrong with either the support system or the reinforcement scheme. Performance management is an evolving art rather than a rigid science, but there are still good principles that enable improvement.

Hope this inspires some ideas for better compensation practices. 

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.

SPAC Attack: The Emperor’s New Clothes?

SPACs (Special Purpose Acquisition Companies) have, for the past year or so, been the hottest thing since fidget spinners. They are a cost-efficient and rapid method for turning privately held companies into publicly-traded companies. They are also a way for founders, executives, and employees to extract some of the value from their efforts in building a company. And, of course, investors do pretty darned well too. It is a symbiotic relationship that seems to benefit everyone involved. What could possibly go wrong?

This morning it has been widely reported that the SEC has opened an inquiry into SPACs. This may be the precursor to a formal investigation. Some may ask why the SEC is concerned when everything seems to be going well. The fact is that when investors see something great, they often turn it into a controllable snowball rolling down a steep hill. This has tended to result in destruction (and some great movies). Look back at the collapse of financial firms a decade ago, or the now almost forgotten “Dot-com” crash at end of the 1990s. In both examples, it became difficult to separate the real value from the fake. When this happens, trust is lost and we lose access to both the real and the fake value.

In a sense, the SEC is asking if the Emperor is wearing any clothes. Many SPAC transactions have been completed successfully. Some have seriously less successful. This is to be expected and is not dissimilar from the traditional IPO market. Some succeed, some fail. But the SEC has seen overexuberance lead to disaster in the past and knows it does not have the processes and controls in place to avoid the same with SPACs. It sounds like they are trying to make sure the Emperors isn’t naked before we all need to be involved in cleaning up a mess.

What does this mean for compensation professionals?

First, it means we may in store for a bumpy ride on the stock market. You need to review your equity compensation granting practices and ESPP plans to ensure that you will not accidentally run out of shares if the stock price drops precipitously. ESPPs in particular are notorious for burning through their allotted shares when stock prices fall.

Second, it means you make need to look at where you have spent extra on compensation. Maybe you have built for a future that will be delayed or turn out differently than expected. There is no need to panic at this point, but a bit of research and planning can go a long way to averting something bad over the next year.

Lastly, it means that some of the companies who were hoping for a “stretch SPAC” (one where the company really isn’t fully ready) may need to dial back their expectations and plan on staying private for a few more years. Your SPAC dreams may still come true, but having a back-up plan seems prudent at this point.

In my next post, I will return to a more traditional fun, and cheeky post, but I wanted to make sure you had the early-warning you needed to properly avert your eyes. You never know if SPACs will turn out to be a doughy naked guy riding proudly down the street on an unfortunate horse.

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.

Management Style is Like a Box of Chocolates

With apologies to Forrest Gump but considering the variety of management styles out there can be like opening a box of assorted chocolates.  There are so many possibilities.  Some can offer a good experience for those on the receiving end, bringing a smile to one's face, while others can have you frowning with unfortunate memories and leave an unpleasant taste in your mouth.

Consider this scenario:  You as the hiring manager are in the middle of an interview with a candidate you like.  You want this person to join your organization.  The conversation is progressing well when, out of the blue you're asked, "Can you describe how your staff views your management style?"

Not how you view it, but those on the receiving end.

Tricky question, as it's possible that your staff considers your approach to leadership in a different light perhaps than how you view yourself in the mirror.  This is like the "weakness" question, a potential trap for the unwary.   What are you prepared to say about yourself?  To admit about yourself.  Provide the wrong answer here and if the candidate has other options they might look elsewhere.

The Name Game

The possibilities to describe who you are as a manager, while they have several names, can be sorted into a limited number of personalities.   Do you consider yourself . . .?

• The Team Manager: "We're all in this together, folks" is the credo of this collaborative style leader.  While we may be a homogeneous team as an aspirational goal, sometimes this manager may decide that group needs outweigh that of high performers.   Rewards may be skewed toward everybody, vs.  toward individual achievement.  Also, can tough individual employee decisions be made, ones that might impact the team?

 

• Absentee Manager:  Like an absentee landlord this boss lets you get on with it, whether you have the tools, guidance, or knowledge enough to achieve your assigned tasks or not.  They don't bother you, even when you need to be.  They're out to lunch a great deal.  You're on your own, until you mess up.

 

• Micro Manager: "Here's how I would do it" is a common phrase that gets old quickly.  This is the manager who can't let go, who stifles creativity and will always remind you how they used to do things when they had your job.  There is only one way to do things.  Did I mention stifling?

 

• Wind Under Your Wings Manager:  This is the supportive manager who focuses on developing the career of everyone on the team.  This leader will have your back and will work with you to develop yourself, but sometimes at the sacrifice of their own performance.   Senior leadership may have other expectations.

 

• Textbook Manager:  Pick a management text or self-improvement guide and you'll find this manager is there, whatever the term used.  The paragon of management styles does everything right and by the book; they are principled, delegate and communicate well, know the business, and know how to lead the team by example.   However, this person may not really exist outside of those same textbooks.  Perhaps they’re too good to be true.

 

• Political Manager:  Sometimes known as the "SOB."  This is the glad-handing boss who knows everyone higher up on the organization chart.  They may find it difficult to voice opinions or make decisions without first checking the impact on the preferences and attitudes of affected higher ups.  They can't say no to the politically connected, even when no is what should be said.  Not much of a backbone here, so core beliefs can be a bit wishy-washy.  You might be tossed under the bus for the sake of political correctness.  You cannot rely on this manager to do anything but what is in their own self interest.  Often the idea of employee turnover starts here.

The positive aspects for the personalities described above sound great and are fine to be offered up as your opinion to that questioning candidate in our scenario, but the actual question was . . . what does your staff think?

Note: I haven't lectured about which management style is "bad."   I trust that designation is self evident.  Hopefully, those who see themselves as needing to make a change - will do so.

Who Is Really Out There?

Have a care here.  It's very likely that your own management style doesn't neatly fit into one of the above labels.  Instead, most personality styles are a combination or composite of several of the attributes we've listed, and more characteristics, for good or ill, can likely be named.  Chances are, though, that each manager, each personality leans toward one label or other; this is the 70 - 30 majority rule.  And that leaning is where reputations are built.  Where labels stick.

Employees react to how they're personally affected, and by what they hear from those they trust or perceive to be "in the know."  So as well intentioned as you might be, it's always wise to check the pulse of your staff.  You might have a reputation that surprises you.  And while you might think they have it wrong, you're not the one who gets to decide.

By being truthful to yourself and to that questioning candidate you increase the likelihood of a good hire and a long serving employee.

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.

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Cafe Classic: How is Compensation Like Dating

Editor's Note: How is your compensation program's relationship with your employees going ... smooth sailing or entering rough waters?  In her Classic post, Margaret O'Hanlon shows us how to rethink this relationship by considering how employee compensation is a lot like dating.

"Wanna grab lunch sometime?"

When we're hiring, we offer far more allure than a one-time, get-to-know-you over lunch. Our immediate goal is to court talent that we are attracted to as if we want to go steady with them. In addition to trying to impress them with all we have to offer, we're on our best behavior, listening closely to prospective hires and doing our best to understand their needs.

Out of this phase of our relationship comes a job offer. It typically includes a salary we believe will persuade the prospective hire to go steady. And once we start going steady, our goal -- in HR-speak -- is to build Engagement.

While our type of Engagement doesn't involve a diamond, it does represent a relationship that needs as much daily attention as those with our families and friends. But when, after a bit, our employee/date brings up compensation, it quickly becomes clear that the courtship is over.

We tell our employee that s/he should be happy with the total (reward) package we've given them. At the same time, we tell ourselves that we are a great find and the employee should realize it. The employee couldn't get the same benefits or as great a work experience with anyone else.

Then our employee/date says, "But I really want to feel better about our relationship. Show me that you've heard me by giving me more of what matters the most to me -- cash compensation." Suddenly, we are speechless.

This back and forth has gone on for decades, while consultants keep showing us research findings that make it hard to tell whether we and our employees are actually in a full-fledged relationship or on the brink of breaking up. Recent findings are more blunt. Engagement seems to be getting harder to come by, especially when we hook up with younger employees who are new to our game and rebelling against dating rituals.

When the data shows that we keep doing the same thing -- and getting away with it -- there's no need to change. But if you're paying attention to the last few years of U.S. news, odds are we may not be able to get away with our same old compensation habits much longer.

It seems time for some real self-examination and closer attention to our employees' compensation concerns as part of our ongoing relationship. Or have benefits become the new compensation, as I read somewhere recently? If so, we should come clean.

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.

How HR Can Help Build the Organization of the Future

The Covid year(s) are teaching our organization how significant Human Resources is to its operations. When the pandemic hit and we all needed to change fast, there was no question that HR would be at the table, relied on for strategic advice. (Notice how different this was from the recent past, when C-suite support could be fickle.)

As McKinsey & Company points out in their recent paper, "Organizations have by and large met the challenges of this crisis moment. But as we move toward imagining a postpandemic era, a management system based on old rules--a hierarchy that solves for uniformity, bureaucracy, and control--will no longer be effective." HR, and Compensation in particular, needs to be alert to the leadership opportunities coming out of our strict lock down. We have learned a lot about cutting through hierarchy and it's just about time to start speaking to senior staff about the evolution that has been unfolding before our eyes.

Here are just a few of the changes that HR can foresee from here, if we give ourselves time to think strategically. We can use this foresight to brief executives, and enlarge on the inroads we made in these relationships earlier in the pandemic.

Capture speed in decision making from the crisis operations we have become used to. We shouldn't be thinking about how to get back to the way it used to be, before the crisis. We have been able to make decisions quicker in a flatter organization than ever before. How has that been organized, and how can we turn the best of what we've learned into "the way we do things around here?"

The Covid year(s) have taught us what it really means to be a "learning organization." We changed quickly and adapted to new ways of doing things, sometimes under duress. Were training and communications used to facilitate needed shifts, or were needs so apparent that the changes happened on their own? If so, what kind of environment was created to inspire that level of engagement and how did you support it? Are there takeaways that should be discussed and applied?

We were able to scale quickly, but do we understand where this agility came from? Certain functions responded to the Covid crisis better than others, embodying the strategic concept of "agility." Analyze their capabilities from the standpoint of people, processes, and structure. Identify which of your findings can be applied on a larger scale.

Notice how much you needed an easy-to-use digital platform. Was your intranet a tool or an obstacle? How about your administrative systems? Was Tech able to be responsive? Now that you know how much pressure these processes can tolerate, are there updates that you can introduce to make you better equipped for the future.

Think deeply about talent--being able to assign who you need when you need them, and developing them to ensure high career returns. For years we have been focusing our attention on top talent, but recent experience should have showed that even more insight into talent management was needed. It is certainly important that we identify how top talent's behaviors distinguish them from other employees. But these insights need to be turned into development opportunities for others, now that we have been reminded how much we need to be able to rely on everyone to succeed.

In addition, we need to admit that job architecture is crucial if we are looking to improve our flexibility and responsiveness. It prepares HR, managers and employees to be flexible about work assignments, to make shifts quickly and to understand how to move to (and talk about) the next level of leadership in a career path.

These are some of the shifts to consider. I am sure you can name others, especially related to the importance of the employee experience. The next few years should be exciting ones for Human Resources. Take the reins by understanding how HR has evolved, and can evolve, in leadership. 

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: Tradition! How to Derive Great Value from Your Company’s Historical Lore

Editor's Note: Irishman Derek Irvine shares a Classic lesson on what St. Patrick's Day can teach us about celebrating the traditions and lore of our own organizations.

Around the world, St. Patrick’s Day has become a reason to celebrate the Irish in us all (and considering the size and breadth of the Irish diaspora, there’s more literal truth in that statement than you may think). And the traditions seem to be fairly universal – parades, shamrocks, green standards, Guinness (though green beer is purely an American invention, I assure you).

So, on the occasion of St. Patrick’s Day, let me ask you – what organizational traditions are celebrated across your organization? What defining moments, sayings or beliefs in your company’s history have become part of your company lore?

Turning these historical moments into regular celebrations are a strong bonding element for employees to rally around. Think of them as unofficial but powerful elements of your employer brand. What might this look like? IBM’s wild ducks is a terrific example. The phrase “don’t tame your wild ducks” has become catch-phrase meaning:  “Don’t stifle innovation or innovative thinking. Always keep reaching for the stars.” It comes from former IBM Chairman Thomas J. Watson’s telling of the story of wild ducks, once tamed on a farm, could no longer fly and rejoin their wild cousins. He said: “You can make wild ducks tame, but you can never make tame ducks wild again.”

Now, there’s a public LinkedIn group and I’m sure many internal groups I’m not privy to dedicated to wild ducks and an entire internal culture built around ensuring wild, innovative, leading-edge thinking is always encouraged at IBM.

Zappos’ customer service culture is another example. They are fully committed to the happiness of their employees and, through them, their customers. That means all employees are 100% focused on quality customer service, whether the "customer" is a shopper on their website or a colleague down the hall. Indeed, Zappos leadership is so committed to continuing the appropriate culture, they offer customer service trainees several thousand dollars to leave after completing many weeks of training. If you’re willing to accept the money and leave, then clearly you do not understand, accept or contribute towards the needed culture.

These traditions are as powerful as any compensation, recognition or retention strategy. What are your company’s traditions that have become deeply embedded in your organization? How can you better use them to drive needed outcomes and results? 

As Globoforce’s Executive 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 a leader in the WorkHumanmovement and 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.

SPAC Attack – Welcome to the Starting Line

I have been doing this compensation stuff for a while now. One important lesson I want to share is that you haven’t made it until you have. And to be clear, making it through a SPAC doesn’t mean you’ve made it. SPACs, much like IPOs, are like the Olympic Trials. Winning the race simply means you get to compete in the Olympics. It doesn’t mean you have really won anything on the global stage.

In 2008 Equatorial Guinea sent Eric Moussambani to the Olympics to compete in the 100m freestyle swimming event. He made it to the event without achieving the minimum qualifying time. Heck, he made it without ever having swum in an Olympic-sized pool! This, of course, was a personal accomplishment to be proud of, but it didn’t mean he was ready to swim in a real competition. In fact, his time in his only race was nearly double that of the eventual gold medal winner.

Eric went to the Olympics for the experience. He was fully aware that he was not competitive and understood where he stood relative to the full-time, life-long, competitive swimmers from around the world. Over the years I have found that many IPO and SPAC companies and their employees are much like Eric Moussambani, but believe they should be treated and paid like Michael Phelps. To them, I say “Welcome to the Starting Line.”

As hard as being a pre-IPO company can be, there is little else like the scrutiny you receive as a publicly-traded company. At a private company, you do what is legal and what your shareholders will support. Usually, those shareholders are very close to the company and see themselves as integral to the company’s success. When you are traded publicly the shareholder experience is far, far different.

First, your competitors are the other publicly traded companies. Think of the biggest company in your industry. THEY are your competitor. Think of the compensation professional you love to hear speak at conferences. The one who has the experience and insight you hope to have someday. They are now your direct peer. Most importantly, think of the companies you have heard go public and soar over the past decade. Nearly every one of your executives and employees views that that the only example for their own success.

It can be hard, but it is absolutely necessary, to temper expectations. Yes, a SPAC is an exciting opportunity. No, it is not a guarantee that people are going to get raises, or that their equity compensation is going to be worth millions. Yes, the stock price may jump up and valuations may seem dreamy. But there is no guarantee that the price will stay inflated, and no way to know if or when it may fall.

Rather than stress the inherent risks in a quick path to IPO, try to remind people who they will be compared to once the company is publicly traded. Provide your staff with examples of companies that have weathered five or more years of post-IPO media and investor coverage. Explain what those companies did right and how your company can do similar things. In the end, a SPAC is just an invitation to the starting line. How you run the race depends on preparation, execution, and just a bit of luck.

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: Equity Compensation - I Have the Cure You Seek!

Editor's Note: Equity plan need fixing? Dan Walter's Classic post reminds us that diagnosis should always precede the application of any "cure" (no matter how many companies are leaping on that particular bandwagon).  

Is your equity program on the fritz? Are your stock options in the dump? Could your RSUs use a bit more pep? Are your stock appreciation rights feeling a bit more like wrongs? I have got the cure for what ails you!

Like the snake oil salesmen of yesteryear there is always someone pitching some unique feature or approach that will solve all of equity compensation’s potential problems without having any side effects. And, just like the people who purchased those sometimes poisonous and sometimes pointless solutions, the buyer had better beware!

Welcome to another installment in my “Stock Options on the Precipice” series. Let’s hope I finish before things go over the edge! Other articles in the series can be found here: 1, 2, 3, 4.

My guess is that those long-gone concoctions probably had one or two real uses and hundreds of purported uses. The trick was knowing which was which. I am sure that there were probably some decent furniture polishes marketed as cures for the vapors. There were probably some drug-enhanced flavored syrups that were marketed as a cure for “tiredness.” This happens any time people are feeling desperate and the topic is hard to understand. People sell ideas that were designed to do one specific thing as cure-all solutions for every problem.

Equity compensation drives these types of “search for a cure” every three to five years. The market turns, new regulations get rolled out, or the tax regime changes and companies, investors, plan participants, politicians or the media start calling for equity compensation to be “fixed.” In response, solutions and bad ideas spring up all over the place.

I will cover just a few of these combination solution/bad ideas currently being bandied about and some of the doozies from the past. But, pay attention, because all of these ARE solutions for some companies and ALL are bad ideas for others. The key is understanding your company’s needs before you start slugging down mouthfuls of potential poison.

Idea 1: Extending the post-termination exercise period to be the full life of the grant. There is a story about a company named Amplitude and how they transformed their equity in two steps. Post-termination life extension can work in limited situations, but if you are going to be around a while, expect to get additional rounds of financing or will require a very large staff before your liquidity event, then this is likely to be a pretty bad idea. How will you be able to provide grants to a new officer if an old officer leaves and keeps his equity position? How many investors want to invest in a company with a cap table that may have thousands of individuals? How will you have any equity left for employee number 2500 if every former employee is still holding his or her old stock options?

Idea 2: Formulaically granting equity on an annual basis pursuant to someone else’s formula. The best example of this is probably the “Wealthfront Equity Plan.” This solution proposes a fairly specific approach to granting and layering equity compensation. It sounds great and actually can work well for some companies. But, this approach does not scale well over time or company size. The use of equity over time is too high to be sustainable at many companies, especially in this age of Mega-Pre-IPO companies.

Idea 3: Creating a variable or liquid pool of grants where participants’ holdings may change up or down each year. A great example of this approach is in the book “Slicing Pie.” This is another idea that works in limited scale and with specific facts and circumstances, but quickly becomes unworkable in rapidly growing or VC-backed companies. There are also some serious communication hurdles with this type of program.

Idea 4: Granting new RSUs as if they were actually granted at values from days long gone by. This is a solution that is reportedly being done at Twitter. The company is apparently trying to make up for value lost on stock options granted in prior cycles. This is another innovative solution that requires some serious buy-in from the Board and possible investors. If the market bounces there is real risk of an individual essentially ending up with double-value equity. If the market doesn’t bounce, this could be a genius first strike.

Idea 5: Ceasing to grant equity and instead giving cash. Cash is great and nearly everyone loves it. But, cash is finite and nearly every company needs it when times are tough. If you are sitting on a horde of cash and believe that your company’s market and prospects have nowhere to head but up, this may be a solution for you. But, if you are a typical company, your sales pitch to the C-Suite is likely to make you look like a fool.

And a couple of classics…

Idea 6: Granting stock options that can be transferred to other individuals. This was a “trend” that was heavily promoted at the end of the 1990’s. It truly only benefited people who had gobs of money to spare, but the sales pitch was effective enough that at one point more than 25% of plans had this feature (it doesn’t even show up in survey data anymore.)

Idea 7: Providing a market for individual to sell their underwater stock options to a bank or other investor for a predetermined price. This was the “Microsoft Solution” in the early 2000s. JP Morgan agreed to purchase outstanding underwater stock options for a given time period. The company had to change the terms of the options purchased by the bank to allow them to be held by a non-employee and for a longer period of time. The value provided to optionees was nominal, but given the company's specific circumstances and budget to cover the administrative costs this solution was viable. You know who it wasn’t viable for? Nearly any other company ever. But, that didn't stop several banks from trying to sell this idea to many companies for years after the fact.

The important thing is knowing that another company's solution is very likely to be risky or worse for your company. This post is already far too long, so I will have to continue this series in my next post on March 28, 2016. Thanks for hanging in there through this complex topic and I hope that if you have questions you will feel confident enough to post them in the comments area.

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.

Compensation Managers Need to Manage

Having technical smarts isn't enough to manage either the staff or the function.

I once supervised a strong performing technical compensation analyst who was eager to work his way into a management role.  This fellow was a whiz at spreadsheets, data analysis, and survey modeling.  When you needed a number, you knew whom to ask.

However, he was not so good at explaining compensation matters to internal clients and often experienced stumbling difficulties with personal interactions when required to deal with contentious issues.  Relying primarily on his technical background he was all about the black-and-white numbers with those he dealt with, even when the landscape turned grey, and the client needed new thinking - an alternative approach.

The career challenge this fellow faced was being able to morph from an objective in-the-trenches technical analyst into a broader, more visionary, and subjective role, one that required a comfortable understanding of the "big picture."

The challenge was too much for this fellow and he was not promoted.

Job Growth

A long time ago, when I was a Compensation Analyst myself, I worked on a lot of spreadsheets and job evaluations.  When I became a Compensation Manager I dealt with fewer spreadsheets and fewer job evaluations, because someone else helped.  Then, when I became a Director of Compensation one of my subordinates was assigned to the spreadsheets and job evaluations.  I remained accountable but was able to assign the responsibility elsewhere.

Thus, the higher I rose the hierarchy the broader my vision of compensation needed to become, moving from looking straight down my nose at the desk in front of me to over the employee's heads and onto the horizon and beyond.  Which meant that, as I dealt less with compensation details on a day-to-day basis, the required tools and competencies of my role changed.  My role became part of management.

The process of managing Compensation usually consists of two levels:

• Manage the staff: You have subordinate employees whom you are responsible to lead.  This means hiring, firing, assessing performance, making staff pay decisions, assigning work, training and developing and in general making sure that your employees get their work done in a proper fashion (done right and on time).  Your own manager should be measuring you at least as much as a leader of employees as for the individual contributor role you used to play.
• Manage the function: In addition to the above, here your responsibility is to lead the compensation function; to take control of the company's reward programs and either administrate them or convert them to better support business objectives.  Here lies the responsibility for vision, persuasiveness, and higher-level personal interface.

If your role is administrative in nature, to keep the ship afloat and maintain what's been done before, you can manage the staff without having to manage the function.  Vision will not be expected of you.  On the other hand, I've seen bad managers who were good at the vision part, but hopeless when it came to people skills (their staff and clients).

The harder task is to lead, to have the perspective and the confidence to drive the function forward.  It means taking reasonable risks, being able to defend and justify your recommendations and being able to influence senior leadership to move in the general direction you espouse.

And by the way, having great technical skills in no way guarantees that you'll have similar success with management skills.  Workplaces are littered with the false dreams of those unable to adapt to a new set of required competencies. 

Likely we've all seen folks who can “talk the talk” but cannot “walk the talk.”

I, Manager

The point is that, whichever role you find yourself in, being an effective manager requires that you focus on the people side - your employees and your clients.  It means that, to a large extent, you need to separate yourself from those technical tasks that you personally performed earlier in your career.  You should delegate detail work to subordinates while you deal with the broader issues and more direct interfaces with clients and management.

It will entail you learning a whole new set of skills - management skills.

But some folks don't like to leave their spreadsheets and survey analyses behind.  These are those who fail to fully embrace their management responsibilities but continue to play an individual contributor role - as if their title remained an Analyst, not a Manager or even a Director.

The Brits would ruefully shake their heads; poor form, poor form.

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 "Friday cat photo," by jim_mcculloch

Cafe Classic: In the Beginning . . .

Editor's Note:  Too many of our compensation programs follow the ultimately unhelpful trajectory described in Jacque Vilet's whimsical Classic.

In the beginning was the incentive plan.

Its construction was akin to other plans in prevailing fashion.

And then came the doubts and assumptions.

And the doubts and assumptions were without form.

And the incentive plan was without meaningful substance.

And darkness was upon the face of the employees.

And they spoke among themselves saying,

“It stinketh. It will worketh not. We must reveal this to management.”

And the employees went unto their managers and said,

“This plan is a pile of dung and we know it will worketh not.”

And the managers went unto their managers and said,

“It is a pail of manure and the smell is very strong, such that none can abide it.”

And the managers spoke among themselves saying,

“This is not a good report and our directors will liketh not to hear it. We should provideth our directors with a more tolerable tale.”

And they went unto their directors, saying,

“It is a vessel of fertilizer and none can abideth its strength.”

And the directors spoke among themselves, saying to one another,

“It containeth that which aids growth and is very strong.”

And the directors went unto the vice presidents, saying unto them,

“It promotes growth and is very powerful.”

And the vice presidents went unto the president, saying unto him,

“The new plan will promote the growth and vigor of the company with powerful effects.”

And the president looked upon the incentive plan and saw that it was good.

And the plan became policy.

_______________________________

While this may be an amusing tale, there is a kernel of truth here. Good leaders are hungry for information to truly understand how to make their companies and employees more successful. But unfortunately unpleasant news can get filtered as it goes up the leadership chain.

Here’s the disconnect. Employees know their jobs better than anyone in the company. They understand what works and doesn’t work. Managers should know that too. They should also understand what motivates their employees. All of that information should be passed to Compensation who develops the plan. And Compensation should focus on this input instead of relying on what other companies are doing.

Do you agreeth?

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.