Compensation Cafe

Promotions Matter, Part 2

I thought I had finished with this topic in my last article, when I got a great note from one of our readers reminding me, ". . . to get managers to plan ahead for the financial part [of promotions] -- that remains a challenge." Of course, there is so much to cover on the topic of promotions, but Karen pointed out one important area we often overlook. Managers/supervisors are often promoted from front-line positions without much training in compensation practices. They typically learn about budgeting, coaching and awarding promotions on their own through trial and error.

Is Compensation making its best effort to support managers who want to give promotions? The last article on promotions encouraged us to mentor managers through the decision process. But what if the challenge starts earlier, in the basic understanding of how to use a salary budget? First-time managers face this scenario, and Compensation should be better at clarifying things right from the start. 

Let's look first at the pros and cons of the administration process that your company uses for promotions, so we can notice our  challenges.

• Some companies include promotional funds in the annual increase budget and allow managers to allocate promotions and increases from it with no specific guidelines. While this approach gives managers broad control, it can be a real challenge to those who haven't had to juggle dollars vs. employee expectations quite so candidly. In this scenario, it would be best to target first year managers/supervisors for coaching through the process. The foundational understanding that you give them will pay off in future years.
• Other companies communicate separate amounts for salary increases and promotions. This approach can be administered in various ways. Approval from Compensation on budget use is the most straightforward way, but it limits manager control. In these cases, managers will need coaching on how to manage employee expectations upfront, and possible disappointment further into the salary cycle. Alternately, some companies require no approval, giving the manager latitude to use the budgets at will. But what about the newbie manager who just doesn't have refined judgment yet--let's say s/he's not awarding promotions just to hold on to the money--how do you catch it? Another case for coaching first year managers/supervisors.
• Finally, there are some companies that do not specify anything but the company's annual increase budget percentage. This can be seen as giving managers a chance to make a business case for their department's chunk of the budget based on business performance/role in financial results. The con to this approach can often be that managers are so hard-driving that they promise promotions before their budget is approved, leading to serious misunderstandings. Here's where traditional communications can be the most help, to catch this problem early in the process. Let's take a look.

If the bottom-line is that promotions are tricky, and many managers need guidance (or refreshers) on the considerations that go into a promotion, coaching is the best technique for building insight most, but not all, of the time. Other communications--available on the intranet as needed--can cover the administrative tactics and lay out the decision making process.

• Tip sheets--Provide the latest information, highlight recommendations and how to's on a single page.
• FAQs--Cover the list of the most common, and also toughest, questions that you get on promotions.
• Worksheets--Walk managers through the decision making process, identifying forms and approvals needed at each step.
• Video--If you have the budget, engage managers in a short visualized story highlighting the decisions involved.

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: Relax at Your Peril

Editor's Note:  There's no coasting in compensation, as Chuck Csizmar carefully explains in his Classic post.

You’ve seen the company’s search ads and heard the pitch from your recruiters; you offer competitive wages.  You figure that that’s got to be a strong hook for attracting talent.

No.

Your pay structures are regularly updated based on competitive market trends, so the reward opportunities you offer employees are aligned with your retention and motivation strategies.

Smoke and mirrors.

Companies routinely advertise “we offer competitive wages” and candidates in return expect this of potential employers.  But what happens when your goal of offering competitive pay is finally achieved?  Are employees grateful?  Can companies rest in their efforts to attract, motivate and retain?

Not so much.

The Missing Pieces

What doesn’t happen when you offer competitive pay is that your recruitment problems don't magically disappear, your employees won’t be satisfied and your compensation programs have achieved little more than being average.  Isn’t that a “C” grade in school?  Is that how you want to position your compensation strategy? 

As far as aspirations go, it's only middle-of-the-road.

If your company does pay “the going rate,” that still means that roughly 50% of the companies out there are paying more than you.  That’s what average gets you, with half doing more and half doing less. You won't see that fact pointed out in recruiting campaigns.

No one quits for less money – so what you’ll hear through the grapevine is how so-and-so left and is now making more somewhere else.  And as it's human nature to hear only what supports your own notion  –  your employees won’t pay attention to the broader rewards package, just the points that confirm their opinion that your company isn’t paying enough.

The only way to avoid this scenario is to become the premier payer in your market or industry – and can you afford that cost?

It's also important to differentiate between having grades, salary ranges and midpoints that provide competitive rate “opportunity” and actually paying employees at those rates.  Some describe this as whether the company is “walking the talk.”  I recall a client quite boastful that their salary ranges were continually adjusted to mirror market rates, but was later embarrassed to discover that their actual pay practices fell well below midpoints.  The company said one thing by their pay structure, but did another by the way they implemented that structure.

For their own part, employees relate to the pay they receive, not the midpoint of a salary range or other such declared “opportunity.”  For them the company’s competitiveness can be more illusion than fact; especially if they’re experienced and long service.

Bad Practices Can Evolve

Typically it's not an organization's strategy to avoid paying at competitive levels, but more likely a series of practices that have evolved over time.

• Some candidates will accept a below value hire rate and managers tend to view this as a cost savings. Though it is more like putting a skeleton into the closet and hoping it doesn’t jump out at you down the road.  One day these employees will change their minds.

• Once you’ve started down the slippery slope of paying some employees below market rates the practice is soon compounded by internal equity. Managers will resist paying similarly qualified new people more than existing employees.

• Reward systems have a hard time keeping up with the increased marketability of employees. A minimally qualified employee hired at the minimum rate will gain knowledge and experience (thus marketability) faster than the company’s annual merit system can recognize.

What’s the answer?  Management won’t agree to be the premier payer in your area, so consider instilling more flexibility into your pay practices.  Consider targeting key jobs (highly skilled, difficult to replace, mission critical, etc.) and make sure those jobholders are well paid.

And don't forget to pay attention to your customer-facing employees.  For many a customer those folks are your company.

Other positions you have deemed less skilled and more easily replaceable could continue with your “competitive opportunity” strategy.  This approach is akin to ring-fencing key talent, protecting them against poaching while recognizing and rewarding those with the most potential impact on your business.

Bottom line?  Be careful when you claim how your company provides competitive wages.  You may not be correct, but if you are – big deal.

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.

Consultants, Pick a Shoulder!

Compensation consulting is an odd profession. Companies hire consultants for all sorts of reasons. Some are looking for greater bandwidth. Others are looking for more extensive expertise. Some are checking a box on their “best practices” list. Others are truly looking for the guidance needed to solve a current problem or avoid one in the future. And there are those companies who are looking to get the answer they want, and only the answer they want. Knowing which of these companies you work for is a key to your consulting success.

Consultants, like a person’s horned and haloed conscience speaking into either ear in cartoons, usually pick a shoulder to sit on and stick to it. Some focus on doing what clients need, while others choose the shoulder of doing what clients want. Each shoulder provides different types of risks and rewards. The shoulder your consultant chooses is likely to be the reason you choose them.

Before we get into the details it is important to note that consultants cannot make the company do anything. A consultant simply provides information and the experience on how they feel that information can best be used. The final decisions and actions are up to the company or its Board of Directors. This is exactly how things should work. A company must have the autonomy to make the final choices. A good consultant contributes to whether the company understands if they are making a good choice.

Giving people what they want is the path of least resistance. Just like some parents choose to be the “party house” where high school kids can get together and drink while underage, some consultants will support almost anything. Being a cool parent usually leads to happy kids and popularity. Occasionally it leads to something more tragic. Consultants who choose this shoulder are often highly sought after. They make executives rich and allow HR professionals to defend virtually any decision. But the risks are real.

Many consultants provide a more authentic answer to any project deliverable. This can put them at odds with the people who hired them. Unlike the parent who will let their kids use the car to go to the party house, consultants can only point out the risks of partying and driving and hope that the message is heeded.

Here are some good considerations when you are hiring a consultant.

1. Are you looking for guidance or agreement?
2. Do you want a consultant to provide recommendations on what you want, or what you need?
3. Have you discussed this topic internally, to ensure that the consultant’s recommendations will be supported as recommendations move up the approval chain?
4. Have you been absolutely clear about the objective for the project? Some clients will take any work. Some will only take work that fits their own approach.

With these questions properly framed and answered you are likely to have a successful consulting relationship. Too often an HR or Compensation leader sees something wrong and brings in a consultant to “prove” this wrongness to people who do not want to hear about it. Make sure your stakeholders are on board with your plan before you bring the consultant in the door. The best consultant in the world cannot change things that leadership is unwilling to change. Getting stakeholder buy-in is the secret to less frustrating and more successful consulting engagements.

It is critically important to note that many consultants have convinced themselves that they are always sitting on the right shoulder. Defining your project and making sure you have the correct stakeholder support are the most effective method for ensuring you get the right guidance from any consultant.

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 the Chef Visits Your Table

Editor's Note:  Some of us in the reward profession struggle to get our heads around sales compensation, having never been in a sales role ourselves.  In this Classic sales compensation post, Dan Walter helps us look at and consider the role of a sales person through a new and intriguing lens.

Sales compensation is an uncomfortable area for many compensation professionals. Many of us have never been professional sales people. Many of us don't have the technical modeling expertise to flesh out these plans. The plans don't operate the same way as most incentive plans. Sales people do not react to pay programs the same way as most other employees. Sales managers often are simply great sales people who have been put in charge of similar, but less great, sales people. Often we are tasked with supporting or communicating a plan when we have had little interaction during the fact finding and design phases. With all the being said, let’s talk about sales comp!

I recently spoke to a company that is really doing great. They are growing. Their clients love them. Their employees like working there. Even though they are doing well, they are still looking for new ways to grow better and faster.

The company basically has three types of sales.

1. Ongoing: These are clients who are pleased (often ecstatic) with the value they receive. They renew cycle after cycle. These clients are mainly handled by non-sales account managers. Their satisfaction level is so high that the company considers each to be almost a guaranteed ongoing relationship and, basically, an annuitized revenue flow.
2. Incremental: These are clients who are so pleased with the value delivered that they add on to their legacy business. Like ongoing clients, these are handled by non-sales account managers. Sales professionals are brought in only to close the incremental increase and provide contracts.
3. New: These are where most of the company’s growth currently derives. It is sales people’s jobs to educate and convince these companies to become clients. This is where the lion’s share of any increase in sales pay comes from.

The company wants to grow. It also knows most legacy clients will renew and some will add-on a bit of new business. The sales people are focused mainly on finding and closing new clients. That's where the money is. Incremental sales have historically happened simply because they happen. They account for a small percentage of total growth. It became clear that this was a lost opportunity.

I asked how often the sales team interacted with ongoing clients. I learned it happened rarely unless the client requested incremental new business. They explained that their clients loved what they delivered so much that there was little need to interact with them unless they were changing something. I simply asked if they had ever been to a truly great restaurant. They all said yes.

Truly great restaurants can often survive on the food, service and ambience. People tend come back because the great experience. New customers generally come because they read reviews or are dining with friends who have been there prior. This is much like the ongoing client experience. If you’re good, you will get return business. But what happens if you are GREAT?

I asked if any of the great dining experiences included the executive chef and/or owner visiting their table and if that experience changed their enthusiasm for the restaurant. Everyone agreed that the table visit was the most memorable part of that meal. Owners and executive chefs are motivated to interact with their customers. They know it’s what sets them apart. This company provided nearly no motivation for sales people to interact, so they simply didn't make much effort.

Our sales compensation solutions usually focus on the “close”. Sales people receive minimal incentive to inspire the old clients to new heights. Your best sales professionals know this and fill the gap. But your lower tiers of sales may need some help. Compensation plans can be a great way to communicate the importance of this. Provide rewards for your sales team beyond commissions for new business. In a competitive market incentives that motivate your sales people to check on people “while they eat” can make all the difference in growing your sales team and your revenue.

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 You Say, What They Hear

When compensation practitioners face the need to develop their first program recommendation for senior management a common mistake often made is for the practitioner to not consider what the audience expects to hear – which can be a fatal mistake.

The inexperienced often presume that they will be viewed as the acknowledged expert, and that their recommendations will carry a great deal of weight.  If they are fortunate, that will be true. However, more than likely running with an ego puffed up with notions of “expertise” will steer you straight into a brick wall.

I know.  I still have the bumps on my head.

What You Say Matters

In my experience members of senior management may not be familiar with compensation techniques, which is probably why they have a need for you.  However, they will still possess a series of personal biases of likes and dislikes, a basic knowledge of company-centric pay philosophies, and those well-developed internal cultural preferences that they feel “work” for them.

And while we’re talking communications, remember that it’s a two-way street.  Just telling someone something is not communicating if they don’t understand or have different perspectives.  So have a care of tripping up when communicating with the decision makers in your senior leadership.  Some terms to be cautious with:

• Average: Compensation practitioners may argue that, in many cases, the use of a Median figure is technically more accurate. But your audience likely may not know the compensation distinction, as in their minds they are thinking Average. Educating them on the difference, especially if slight, will distract the presentation away from its key points while still not changing anyone’s thinking.  You can avoid this potential glitch by using Average.

• Market Data: Most clients will presume that the market data you present is for their own jobs and within their own industry. Often this is not the case, what with generalist surveys, title match challenges and potential restrictions on how finely you can slice the data (industry, revenue size, geography, specific titles). Clarify your market analysis to avoid misunderstandings and later challenges.

• Incumbent Data: Your client will assume that your survey data represents a counting of actual employee incumbent pay rates across your survey sources. They will not understand the usage by some surveys of algorithm formulae to guess/presume/estimate pay levels.

• Quality of Data: Not every survey will deliver the same quality standards that you, and your client, will assume as a given. Small surveys, geographic cuts, industry-centric vs. general surveys and even self-reporting surveys (employees complete the questionnaire) should not be considered as providing data of equal value. But unless you qualify your sources your client may presume that they all offer the same credentials, or if questions arise, leaders may criticize all your sources as flawed.

• Survey Limitations: For many clients, just listing a series of survey sources can be enough to elicit nodding heads at your thoroughness. But every survey is a composite of a list of participating companies who try to match as many job titles as possible.  Therefore every survey will show a different number for the same job. Again, your client will (initially) give you the benefit of the doubt, lacking the knowledge to make critical assessments of the diversity of potential survey sources. It will become your role to educate them.

• Midpoints vs. Market Rates: Many times, a client will automatically presume that the midpoint of a pay range (within the organization’s pay structure) is the going rate (market rate) for that position/title. That they should be paying employees at that rate. Again, your role as educator is to explain the difference between a pay range midpoint and a market rate. And why every employee should not necessarily be paid at the midpoint.

• Smoking Gun vs. Pricing Guide: It will help your education process if you can get senior leadership to understand that survey data is not the holy grail of compensation analysis. That the figures representing your marketplace analysis are not a “smoking gun” but limited data that suggests that many employees (certainly not all) are paid at a particular average rate. In my view this data should be used as a “pricing guide” to aid the organization’s decision-making as to appropriate next steps. The data is NOT an “Aha! moment” that tells you what you should be paying.

As you can see, an ongoing responsibility sitting on your shoulders is to educate the decision-makers on how best to view the market data within your proposal/recommendations.  If left to their own devises your senior leadership may head off in the wrong direction, primarily because of their own biases and because they do not understand your behind-the-scenes analysis.

You need to make sure that they understand. Such educational success will make your job easier.

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 "Mother," by Christopher Wray

Total Rewards Professionals – Real “Financial” Change Stewards

Editor's Note:  Please welcome new Cafe contributor Reena Paul.  We are excited to have her join the team!

We are familiar with the total rewards model. It is a symbolic diagram profiling the key elements of a rewards strategy.  Each component is aiming to strike a balance between employee wellness, performance and organization success.

I view total rewards as something that is integrative and holistic in nature.  From this perspective, I am struck by the possibility that our model may be missing the emergence of a new puzzle piece – financial wellness.

As rewards professionals, fixated on the numbers and market positioning of things, are we missing a key strategic element to what we do?  Should we be the change stewards to promote opportunities for real education around the financial literacy of our workforce? 

I question whether the value of striving to be a market leader in the industry and providing above normal pay is being actualized in reality, especially when disposable income provided to employees diminishes as quickly as it is deposited.

This begs the question: Do our fellow colleagues really know how to effectively manage their pay? Take for example the competitor next door, who pays at median and in turn has a more productive and happier workforce, all because they considered financial planning and access to tools to be a necessary element of the rewards package. 

Although I have seen executive level perquisites that include financial planning services – I bet the employees just below your c-suite could benefit from the same resource.  The Financial Wellbeing Index measures and benchmarks year over year financial health statuses of employed adults and is a metric used by many organizations.  Most commonly observed is the direct correlation between financial stress/burden and overall employee wellbeing and work productivity.  Nearly 1 in 5 working Canadians state that their current financial situation is an influencer of their work productivity.

As Reward Professionals, I believe we are in a position and have the opportunity to evolve our rewards model and alleviate some of the financial stress bearing on our employees.  What do you think?

Reena Paul (CCP, GRP) is a Senior Consultant with Morneau Shepell’s Compensation Consulting Team.  She is passionate for all things “total rewards” and has experience in dealing with all stakeholders of an organization and strategizing optimum client focused solutions.  A lover of data and the story it tells, Reena enjoys the exploration of presenting and discussing compensation with a fresh perspective.  Connect with Reena on LinkedIn, or contact her directly at [email protected].  

Creative Commons Image "Financial Plan" courtesy of REIC Vietnam

Promotions Matter

In many organizations, the Compensation Department meets a manager's promotion request with skepticism. We automatically doubt the truth of the request, sure that the manager is only after a higher salary for a demanding employee. Of course it's our job to keep salary administration on the up and up. But think about the atmosphere that we create by challenging a manager who has contacted us with a genuine request. It's contentious, plus it demeans the manager's judgment. Bottom line, we're immediately setting up practical and emotional roadblocks to collaboration.

Why do we need to build collaboration with the manager when Compensation has the final say? In practical terms, we need the manager's cooperation in the way the decision plays out because we may have to say no, and we don't want the decision to seem unfair or divisive. We also need to support the manager through the entire process since the impact on the employee is such a sensitive issue, both when the promotion is not approved and when it is.

In a broader sense, immediate skepticism of a manager's promotion request undermines the value proposition we have worked so hard to build. If we want employees to think the company believes in their career development, a balanced treatment of promotion requests is crucial. Instead of thinking about a promotion request as a transaction, we should consider shifting our thinking to career development, with the employee's understanding and acceptance of their current and future roles as our goal. We should coach managers to this mindset as well.

How can things be done differently? Meet manager requests with a scheduled discussion using a career architecture framework, if available. Ask the manager to itemize examples that illustrate how well the employee qualifies for the new level of responsibility -- rather than allowing them to follow the natural habit of outlining successes in past performance. Then identify the behaviors needed at the new level of contribution and discuss whether the employee can currently be relied on to perform at that level. If your organization encourages career movement, discuss whether this is going to be a growth assignment instead of a comfortable match for which the employee has already qualified. 

Commit to mentoring managers through the decision process and, if needed, through their discussions with the employee. If you need to say no to a promotion request, don't just leave it at that. In alignment with the career development mindset, discuss where the employee's behaviors and performance need to improve, and help them strategize how to talk over the development plan with their employee to support the emotional and engagement dimensions of promotion requests as well.

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: How to Spread Innovation

Editor's Note: How can you encourage innovation to thrive in your organization?  Derek Irvine provides some Classic tips.

I was thinking back to an old New Yorker article recently. In the piece, Atul Gawande (of The Checklist Manifesto fame) analyzes the types of attributes that make some innovative ideas spread quickly and others spread much more slowly. It’s an interesting take on the progression of medicine, but has some great insights for organizations as well.

One of the key points that he makes is that adoption of innovative ideas depends in large part on face-to-face social diffusion processes – “people talking to people.” These interactions complement and ultimately amplify other diffusion processes (such as technology or incentives) to fundamentally shape the norms or culture of an organization towards new ways of thinking and behaving.

As organizations become increasingly complex and employees more globally distributed, a challenge for leaders is to ensure that solutions are in place to help people communicate, share ideas, and adopt innovative practices across the entire company.

One of the ways in which this challenge manifests itself is through the localization of innovation. I’m sure that many companies have pockets of excellence where the norms are towards continuous improvement and innovation, as well as pockets where that behavior is less common. Unfortunately, there are any number of barriers that prevent diffusion and scaling of ideas across the boundaries of those pockets.

Businesses are increasingly recognizing that technology and incentives are no longer sufficient drivers to overcome those barriers; instead, a holistic solution is needed that emphasizes human-centered technology and empowering rather than restrictive, compliance-oriented policies.

This is certainly a growing trend across varied areas like performance reviews, feedback, and social recognition- spheres where technology is enabling a better quantity and quality of human-to-human interaction. In these cases, emphasis is placed less on prescriptive rules and more on exemplars of positive development and achievement. These solutions are able to capture all of this and spread it more widely throughout the organization.

Take for example a performance review process that highlights a team member’s innovation in completing a challenging project that the rest of the team can learn from. Or take the example that is provided by peer recognition of how a colleague has taken her own area of expertise and applied it to a new area in the company with positive results. Finally, consider the feedback that a manager offers to demonstrate improvements on a core process that each team member can adopt.

These types of solutions offer a new view of the organization, where the spread of innovation through “people talking to people [through technologies and processes]” is strengthened and pockets of excellence grow. Returning to the article that opened this post, it is an approach that requires people to be “on the ground” to ensure that these dynamics become self-propagating.

How would you set up your company to thrive based on the spread of innovation?

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: Looks Like We’ve Made It!

For the past several weeks I have been writing about SPACs and their impact on compensation. Much of that information has been cautionary, and some of it may have been overwhelming, but there is a real upside. Once you have navigated everything discussed in my prior articles (listed below) you will find yourself in an entirely new, and often lucrative, publicly-traded world.

If you’ve been with your company a while this may mean a small pot of gold at the end of the rainbow. Of course, SPACs are unusual, so yours will seldom end as quickly as finding the mythical leprechaun’s fortune. Let’s cover the last few unique hurdles and get on to the good stuff.

With the De-SPAC complete, your company will begin trading publicly as part of the new entity, but unlike a traditional IPO, the transaction will not yet be complete.

1. You will likely be dealing with a mostly, or entirely new Board of Directors. Approval processes will probably change along with the personalities that must be navigated.
2. You will not be able to roll out an ESPP and have the shares registered under an S-8 until at least 60 days after the De-SPAC, and only if the new Board approves the new plan that you hopefully were designing during the de-SPAC.
3. Your employees are unlikely to become super-rich, super-fast. They may expect this. They may also expect that they will get entirely new amounts of base pay after the transaction.
4. You will need to deal with all of the disclosure, reporting, and competitive poaching issues that are a challenge for every popular public company.

But the main benefit of being a compensation professional at a publicly-traded company is that all of your pay tools, and some new ones, can now work in the ways employees expect.

1. You will likely have the cash available for some sort of predictable Short-Term Incentive Plan. This plan may not rival larger companies, but it should give you a confident pay element that may have been a bit sketchy in your pre-SPAC days.
2. Equity compensation plans will have planned and predictable liquidity. Employees will have confidence in knowing that when their shares vest there is a way to turn them into money, or at least cover the cost of taxes owed.
3. You will finally know how much your peers pay their executives…with specificity. Your peers will need to report their pay data just like you will need to report yours. Learning to navigate and use this data and turn it into useful information will include a learning curve, but you won’t be guessing anymore.
4. All of the above puts you on more equal footing when trying to attract, motivate and retain high-quality staff. Less imagination and more evidence mean less guessing when pricing a specific job.

The list, of course, goes on. You can read many of the other 3,000-ish posts on the Compensation Café to learn more about those topics. The point is this: SPACs are rowdy, hard-playing corporate transactions that will stretch your skills and talents and ultimately make you a better compensation professional. Some people estimate that as much as 70% of the “heavy lift” in a SPAC involves compensation (I honestly think it’s more like 50%.) In the best case, you will do a year’s worth of work in four or five months. Let your imagination define the worst case.

SPACs are unlikely to go away. They are likely to slow down and may even have a crash sometime during the next year. But, just like the Dot-com crash did not end the use of IPOs, the potential SPAC-crash will not end their use. They will become more refined and predictable. There will be better data that allows better decisions. There will be more people with experience who can guide you through them. And this series of articles will become a quaint reminder of the past, much like a sepia-toned picture of Billy the Kid reminds us of the old west. Until then feel free to reach out and ask questions and exchange ideas!

Other articles in this series

1. SPAC Attack: Intro
2. SPAC Attack: 5 Critical Equity Compensation Issues
3. SPAC Attack: Executive Compensation Top 10 List
4. SPAC Attack: Unwieldy Expectations, Proxy Time
5. SPAC Attack: Who’s On First?
6. SPAC Attack – Welcome to the Starting Line
7. SPAC Attack: The Emperor’s New Clothes?
8. SPAC Attack: Bridging the De-SPAC Gap

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.

The Dilemma of the Tenured Employee

The other day I was trimming the landscape of several plants that had outgrown their space (in Florida everything grows, all year long) when my wife asked me, why are you cutting down those plants?  They look nice and the blossoms have a sweet scent.  Can't we keep them?

They were ginger plants, and true enough they were pretty and did smell nice - but they had also overgrown the area where we had planted them.  Slowly spreading outward, they were crowding out other plants and starting to transform our attractively designed landscape into what would soon become an overgrown jungle.   The plants were no longer providing the same value to us as they had done for several years previous.  It was time to cut back or cut out.

Which got me thinking; how hard is it for managers to tell someone "it's time to go"?  Sometimes employees stay too long at a particular job, year after year racking up higher pay levels while not really delivering more in terms of performance than they did the previous year.  You find them performing the same activities, repeatedly - but for increasing pay.

Reliable workers?  Good workers?  Yes.  Expensive?  Yes, to that, too.  Is their value to you increasing?  Perhaps not.

After a while you will start to realize that, while good old reliable Bob is doing a fine job, someone else can perform that same job for a lot less money.  So, what do you do with Bob?

Ignore him?

Think about it.  If a loaf of bread is priced at $2.00, would you be comfortable with paying $3.00?  Or even $2.50?  For the same product, the same taste?  Would you consider that additional expense well worth it?  Or would you start searching the store shelves for a loaf of bread that costs less and tastes the same?

Creating the Problem

How did you get into this fix, having long serving and overpriced employees on your staff, stuck in the same job, year in and year out? 

The answer is often simple and straightforward; because they are comfortable, to the point where they see no reason to change the status quo.

• They like it here; they like the job, their co-workers, the work environment.  They like everything about their situation.
• They know everything about the job(s), as well as the company, and so the stress level is not a concern, and they feel able to focus less effort to do the job.  They could do it in their sleep.
• They are comfortable doing what they do and have little motivation to do more.  They are not compelled to break out of their mold.  They do not see themselves as being in a rut, but comfortably situated.
• The pay is good, or at least satisfactory, so why leave and start fresh somewhere else - where they would have to prove themselves all over again?  To this way of thinking job search is a real bother, stressful too, and should be avoided until necessary.

That is why some employees stay in the same job, content to remain on their own private treadmill.  It works for them.  But why do their managers allow this problem to develop?

A Management Issue

Why are some managers reluctant to act with these employees; to cut them off or promote them up and out?  Because many times taking such actions is not perceived as being in the best interest of the manager.  And there lies the rub.

• The cost and headache of obtaining a replacement; the time it would take, the disruption to schedules, the added stress.
• More work would be created for themselves, filling in for planned projects that still must be completed; their timelines may be negatively impacted.
• The perceived damage to the manager's reputation (employees have quit them), and leadership is watching - and perhaps wondering, why?

What is a manager to do, then?  Moving someone along when there isn't a performance problem is a tough decision to make and to implement.  Though sometimes it's the right thing to do, both for the company and for the employee.

• Encourage employees to learn and grow within the company - preparing themselves for better positions.
• Be open to losing an employee to another department, one that may be able to better utilize their capabilities.  Holding on to someone too long does not help either party.
• Managers should expect and demand continued and improved contributions from all their employees, no sitting back and coasting.
• Managers should plan to move employees up or move them out as part of managing an evolving staff.

Ask yourself, where is the balance - of contribution provided (performance) versus value paid out (compensation)?  When the balance tips too far in either direction, it's time for action.  When an employee recognizes that there is more contribution on their part than value received (more work for less money), they look for the exit.  However, when the manager sees that there is more value (reward) provided than continuing performance contribution, perhaps it is time to consider moving such employees along.

I'm just saying, the day will come - for some employees.  When it does, will you recognize that it is time to pull the plug?

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 "Skeletons," by Chris Charles