Compensation Cafe

Summer Work or Summer School

June is upon us, and teens are choosing summer school over summer jobs at an ever increasing rate. "The percent of 16-to-19-year-olds enrolled in summer school has tripled in the last 20 years, according to the Bureau of Labor Statistics."  With tougher high school graduation requirements, more pressure to attend college than ever before and greater competition from adults for minimum wage jobs, kids are increasingly spending their summers in classrooms rather than working for pay.

The 25% decline in the teenage labor force participation rate now matches their greater college enrollment rates. Kids remain busy, but they are engaged in schoolwork or taking other formal training rather than holding a job.

Some clearly prefer to study in air conditioned comfort rather than work in the outdoor heat. Others may end up seeking summer courses due to difficulties in getting hired. Researchers cite four reasons to explain why teens have a harder time finding jobs during the three-month break in American high schools classes.  

First, the rise of low-skill immigration in the last few decades has created more competition for exactly the sort of jobs that teenagers used to do—like grocery-store cashiers, restaurant servers, and retail salespeople. Second, older Americans stay in the workforce longer than ever before, and many of them wind down their careers in the sort of jobs that used to be the province of 16-year-olds in the summer ....

Third, the number of federally funded summer jobs, where students take temporary jobs with their local government, has declined. At the same time, the minimum wage has grown, which may have discouraged bosses from taking on young inexperienced workers who are only “worth” hiring at a salary that’s become illegal. Together, these policies have reduced the number of temporary paid jobs for teenagers in the public and private sector. Fourth, companies have caught on to the fact that if they want to hire teenagers, they don’t have to pay them, at all: There has been an extraordinary rise in unpaid internships over the last decade. Although these teenage interns are clearly working, they don’t count as workers in government statistics, because they’re not getting paid.

Longitudinal studies show that age 16 to 19 whites had a civilian labor force participation rate of about 45% during June, July and August of 2015 and 2016. It was 35% for Hispanics of the same ages, while black kids never reached the 30% participation level.

The reasons for the racial disparities are unclear. Fewer local job opportunities, fewer connections to land the rare openings and fewer outfits hiring someone not just like their kids are all possible answers. No compelling evidence has been presented yet to explain the discrepancies. Can't be a simple "majority versus minority" thing alone, since Hispanics are the largest racial minority in the USA but their workforce participation rate is much higher than that of black teens. Examination of the monthly graph rates shows that while Hispanic patterns closely track those of white kids for each month (similarly and proportionately spiking during summer months), black teen work participation rates are consistently flat year-round, almost never reaching the 30% level.

The last two years show exactly the same patterns as the civilian work participation rates of 1978 and 1979 ... but with rates about 50% less for each demographic group. Oh, and another potential cause for the declines can be postulated: summer work at dead-end jobs is no longer considered cool by this generation's peer groups. Perhaps taking make-up classes to assure graduation or cramming to achieve higher college entrance exam scores is more socially acceptable.

What do you think?  And what might it mean?

E. James (Jim) Brennan, former Senior Associate of pay surveyor ERI, recently returned to consulting. Author of the Performance Management Workbook and veteran expert witness in executive compensation trials, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

"Summer Job" image by haccord75, courtesy of Creative Commons

No Statue of Entitlement

There is no statue of entitlement, nor is there any law guaranteeing a right to anything you want.  Yet.  Maybe there should be a statute of entitlement, too, because that concept seems to reflect many popular expectations.  We compensation professionals have been slow to face the implications of how entitlement attitudes affect reward management practices.

Commercial advertisers are much quicker to apply practical knowledge about behavioral economic psychology than bureaucratic stuck-in-the-mud compensation managers. Note that the entitlement mindset underlies most advertising pitches. Ubiquitous TV ads promise this law firm will get you what you deserve. Your natural right of freedom to do whatever you want is broadcast every time you look around. The United Nations has declared access to internet service is a basic human right. Your entitlement to (fill in the blanks) is loudly proclaimed by every vendor of that product or service.

My least favored commercials are the ones with the background of that large green lady on the island in the harbor behind the sardonic pitch-person(s). The presenter gives a short tale of heart-breaking loss and then expresses indignation, sneering sarcastic aspersions against any insurance company too heartless to automatically provide 100% replacement cost coverage. They literally condemn any insurer who fails to issue a policy where the buyer assumes no risk. By the time the mockumercial ends, one would think that supplying exactly what was promised somehow cheats the consumer who deliberately chose it.

Forget that insurance actuaries would place an extremely high price on original-value reimbursement policy premiums, making them so expensive that no sensible comparison-shopping customer would ever pay it. No, the decision to take out a reasonably priced insurance policy with coverage for less than full original market value is considered the fault of the company that permitted it as one of its options. Every capitalistic enterprise is happy to charge you more for its most profitable product. But the priciest option doesn't get selected that often, except by the filthy rich for whom cost is irrelevant: to them, the greater the expense, the more bragging power it provides.

Normal people don't brag about paying high insurance premiums; neither do they consider actuarial statistics nor dwell on product pricing practices.  They certainly do not live flagrantly like the excessively wealthy who spend without regard for costs. Regular folks are conservative about incurring regularly continuing expenses to pay for something they never expect to need. Rather than commit to the most expensive insurance protection plan, middle-class buyers will routinely select a more reasonable policy with an acceptable deductible and coverage only for the depreciated value of their product. Yet, after the fact, everyone wishes they could recover the original full cost of their purchase. Everyone includes employees, too.  We are all influenced by those media-presented depictions of how we are supposed to react.  Blaming the supplier for giving you a choice you later regret is a hypocritical manipulation of the ever-popular entitlement syndrome.

Perhaps a new wind is blowing. A story about a mother instructing her child how to assert his own right to stand up to peer pressure and decline to share his toys has gone viral. The implication is that entitlement has limits.

Or I could be wrong. Maybe this is just a different version of the same old same old "I have a right," drumbeat, but merely inverted into an opposition to infringement of your right to be selfish and to refuse the demands of others. Put into a compensation framework, is everyone entitled to a raise? Does the employer even have a right to deny productive workers pay increases?

One way or another, workers absorb the attitudes of their society, so employers must be prepared to deal with those cultural expectations.   Professional progress is a lot easier when moving with the current rather than fighting against it. 

How have you most successfully coped with the entitlement expectation?

E. James (Jim) Brennan, former Senior Associate of pay surveyor ERI, recently returned to consulting. Author of the Performance Management Workbook and veteran expert witness in executive compensation trials, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

"Statue of Liberty" image by Demitrios Lazos, courtesy of Creative Commons

Female Overcommitment Is Not Rewarded

Women work differently than men.  One major difference leads to much mutual frustration because neither gender fully understands the viewpoint of the other. I have always called it female overcommitment.  It is rarely observed in men but frequently occurs among the hardest working and most unappreciated women.  The closest similar male behavior comes from the founding fathers of organizations; but their dedication to the well-being of their enterprises is generally recognized, prized and rewarded.  Not so for the female victims of this widely misunderstood syndrome.

Background:  Although controversy is no stranger to me, I have always carefully refrained from openly discussing this topic and thus exposing one of my longest held theories about women and work.  While unafraid of appearing sexist to those who know my distinguished history of comparable worth pay equity activism, strangers to my lifetime body of work could easily dismiss my admittedly purely subjective comments here as the erratic musings of a misogynist.  Again, not so, although I will admit to moments of erratic behavior. 

My professional friend Suzette Haden Elgin confirmed in a personal meeting what I had long observed.  Women are socialized in a unique manner even in traditional enlightened Western cultures.  Little boys and little girls are usually raised with distinctly different behavioral expectations.  Look at what is generally taught as the standard societal roles of each sex.

Men:

• defend and protect
• obey instructions
• handle designated responsibilities
• complete assignments and achieve specific objectives
• receive praise for exercising initiative and doing more than required

Women:

• nurture and cherish
• respond to needs
• are responsible for everything
• must make everyone happy
• are criticized for acting outside the limits of their jobs

A guy completes his list of tasks, then retires to the man cave for a beer and a game on TV; but the woman is expected to continue to toil indefinitely, sacrificing her time for family welfare until absolutely nothing remains undone.  The female role -- to please everyone -- is an impossible task.  Granted, these are broad generalizations with limited examples, but hey ... this is a blog article!

Human resources professionals who deal with distributing compensation rewards come into constant contact with the many victims of self-imposed female overcommitment.  I have found them in every type of organization:  government agencies, military units, major universities, multinational conglomerates, regular corporations, private companies, neighborhood businesses, charities and foundations ... literally anywhere women work. They are typically upset with their employer, frustrated by the organization's lack of appropriate appreciation for their dedication.  Even when paid on the high side of their job's earning range, they still rage at what they see as unreasonable limits on their continual attempts to go the extra mile ... to fix those nagging low-priority problems ... to spread their arms to encompass uncompleted (or badly done) tasks dropped dismissively by others (typically men).  "He doesn't LET me do what is needed!" is the war cry of the excessively over-committed woman. It is usually a guy who blocks their constant attempts to do too much. 

Their male bosses just don't get it.  They only see workers straying beyond their boundaries of authority.  Following the male method learned from the crib and reinforced in every social situation throughout their lives, they attempt to constrain the female determined to do what is "not her job."  The bewildered women guilty of this offense have similarly absorbed the very different lesson that they are supposed to fix whatever is wrong.  THAT is their self-perceived real job description. 

Overcommited women find it virtually impossible to accept my usual advice:  Just do your job.  You care more than they do, so take pride and comfort in your superior occupational dedication that goes far beyond the required or even appreciated work output standards.  He doesn't WANT you to do so much, work so hard or care so deeply.  The intensity of your concern about the welfare of your employer is unhealthy for you exactly because it is unappreciated.  Don't expect to be rewarded for doing what they don't want done.  In fact, anticipate correction, criticism or punishment for exceeding your boss's expectations.

Female managers who respond in the "male" manner are exceptions.  They will prosper in the workplace.  Am I right or not?

E. James (Jim) Brennan is a total rewards advisor with extensive multi-industry corporate HR and consulting experience.  Past Compensation Editor of the Personnel Journal and last Senior Associate of pay surveyor ERI, he is consulting again. Author of the Performance Management Workbook, and frequent expert witness in executive compensation trials, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

"Frustrated Woman at Computer With Stack of Paper" image by Goldi Bajpai, courtesy of Creative Commons

Behavioral Control Through Big Data

Even people who are not motivated by compensation can fall prey to behavioral controls based on big data. Modern society has entered a period where technology is already running much of your life; and it will get worse.  A very long article with quite disturbing implications was recently published on the topic.

What floats your boat, what drives your life, what influences your actions ... all those unique personal motivations can be identified, predicted and manipulated on an individual basis by sophisticated refined analyses of enough data about your habits and preferences. Human nature reveals itself through the choices we make, and modern technology is just beginning to collect that information for clues about each of us.  Big data offers answers about how to influence each of us.  

Back in The Day, a lot of time-consuming laborious work was required to discover what is now knowable in seconds about individual people. Final candidate assessments required questionnaires, tests, in-depth interviews, employment reference checks, academic record reviews and other intrusive investigations. It took many days of effort, study and a certain artistic touch to write a well documented narrative report summarizing a job applicant's credentials, skills, interests, potentials and probable future behaviors. No more. Those difficult "manual" research procedures and the interpersonal communications techniques of Richard Fear's The Evaluation Interview have been rendered obsolete by technology.

We leave electronic bread crumbs behind us wherever we go. Discrete innocent factoids can be combined via "deep learning algorithms" in search engines for chilling insights.  Past choices reveal mental and emotional patterns that predict your future choices.

Some software platforms are moving towards "persuasive computing." In the future, using sophisticated manipulation technologies, these platforms will be able to steer us through entire courses of action, be it for the execution of complex work processes or to generate free content for Internet platforms, from which corporations earn billions. The trend goes from programming computers to programming people.

Those who know your decision tree can easily shape compelling arguments that press your hot buttons.  Even without any conscious thought, those persuasive messages can trigger carefully tailored preselected choices. Maybe such "big nudging" has already been done to you.

Access to manipulative methods can change the way that people make decisions. The results could include "digital scepters" wielded by politicians, criminal abuse, corporate exploitation, cyber warfare, product pricing trickery or social choice suppression, just to mention a few. Some would argue that all those possible outcomes are pretty much the same thing. All are based on restricting self-determined access to information. If we are the products of what we know, controlling data inputs or (even worse) crafting them to cleverly trigger personal biases could lead to a form of mind control.

When enough big data is sufficiently analyzed, we may find that motivation has moved from being a mere human resources concern to being a vital computerized top management tool. I'm not in a rush, though. I can wait.  But now I'm a little worried about how I came to that decision ... and exactly why I made most of my last important choices. 

E. James (Jim) Brennan, former Compensation Editor of the Personnel Journal and Senior Associate of pay surveyor ERI, recently returned to consulting. Author of the Performance Management Workbook and frequent expert witness in executive compensation trials, Jim also serves on the Advisory Board of the Compensation and Benefits Review. 

"Big Data Analytics Framework" image by Jim Kaskade, courtesy of Creative Commons  (click on it to enlarge)

Compensation Conundrums and Commas

You may have been warned to, "Watch your commas, Ps and Qs to be safe from compensation disaster." Or perhaps it was a warning to, "Watch your commas, Ps, and Qs to be safe from compensation disaster."  Did you spot the subtle difference?  A mistake about grammatical meaning, as simple as an extra comma, could cost you, big time.  Those Ps and Qs might also be pennies and quarters, Benjamins or megabucks.

A state overtime exemption language interpretation by an appeals court may cost a dairy over ten million dollars in back pay. The compensation issue came from confusion over a series of exempt categories.  Ambiguity led to conflict over the identity of the exact gerunds referenced in a state law that said overtime rules do not apply to:

The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of:

(1) Agricultural produce;

(2) Meat and fish products; and

(3) Perishable foods.

The NYT article continued, summarizing the difficult grammatical issue.

Does the law intend to exempt the distribution of the three categories that follow, or does it mean to exempt packing for the shipping or distribution of them?

Delivery drivers distribute perishable foods, but they don’t pack the boxes themselves. Whether the drivers were subject to a law that had denied them thousands of dollars a year depended entirely on how the sentence was read.

The Maine Legislative Drafting Manual that applies to this legal provision discourages use of the Oxford (extra) comma when defining a series but also warns about the risk of ambiguity. Well, that ambiguity sure created a pileup crash of dairy and truck drivers here. Gee, what exactly did I mean by "dairy and truck drivers" there? Did a dairy collide with its drivers? Did drivers run into the dairy?  Did dairy drivers and truck drivers have an accident? That might illustrate the problem.

Which groups are referenced remains unclear in many normal communications. A lack of clarity that is acceptable in everyday conversation becomes a land mine when encountered in a law.   Misinterpretation of a regulation can (and inevitably will) produce chaos which results in litigation. Preventive measures should be simple. A list separated by semicolons, a reference in the law to the number of exempt categories, inserting an example, adding a citation or a footnote can clarify the intent. Sounds easy, because nothing is impossible for someone who doesn't have to do it.

Pay must be precise. The rules governing compensation should be clear. Whenever regulations are vague, confusion will ensue. The moment any party to an economic transaction feels shortchanged, they will usually protest. When a labor union represents employees, push-back is likely if not guaranteed. I was going to say, "push-back is likely and even guaranteed", but I worried that I would be misunderstood, criticized and embarrassed or humiliated. Now I'm unsure if I feared three possible negative reinforcements or four ... or some other number.

Remember, this is a bad place to be, when a compensation professional doesn't know for sure what number applies!

E. James (Jim) Brennan is a total rewards advisor with extensive multi-industry corporate HR and consulting experience.  Past Compensation Editor of the Personnel Journal and last Senior Associate of pay surveyor ERI, he recently returned to consulting. Author of the Performance Management Workbook, popular speaker and frequent expert witness in executive compensation trials, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

Swift and Certain Consequences Are More Effective

Today, some government bureaucrats seem to have a better handle on behavioral psychology than many of us who claim to be experts on reward program practices. The usually backwards and dilatory criminal justice system may be ahead of the American compensation profession.

Strange, how idle reading can trigger synchronicity. Browsing through my local County Jail Report to see how many friends have been ... I mean ... what notable incarcerations occurred in my area (where lockup decisions are strictly limited for numerous reasons), I found an unfamiliar phrase: "booked on a swift and certain warrant". Being an ever-curious researcher, I quickly discovered it was a non-traditional approach to deter criminal probationers from re-offending. It resonated quite strongly. The National Institute of Justice report about early experimental findings matched my experiences, my studies, my readings and my convictions.

(Hawaii's) program is strongly grounded in research that shows that crime generally is committed by people for whom deferred and low-probability threats of severe punishment are less effective than immediate and high-probability threats of mild punishment.

"Swift and certain" punishment for violating terms of probation sends a consistent message to probationers about personal responsibility and accountability. Research has shown that a swift response to an infraction improves the perception that the sanction is fair and that the immediacy is a vital tool in shaping behavior. "

This information should have swept through the field of behavioral psychology to impact the design and administration of employee reward systems. The Department of Justice program is neither new nor is it hidden from sight. Yes, it was initially tested in only four counties nationwide, but our human resources communities should have been on top of this for years by now. Granted, negative reinforcement is unpopular among "people professionals", but the implications seem obvious that you can maximizing the prospective effectiveness of positive consequences by using the same methods.

The best compensation programs are positive, immediate and certain. The motivational impact of a consequence is directly proportional to the immediacy of its application. Consistency enhances trust in fairness. I thought we all knew these things about the most successful reward approaches but were continually blocked by unbelieving top executives.

A body of behavioral evidence now can be cited to overcome resistance to practical everyday approaches that apply "fast response for stronger impact" principles. It is important to recognize that proof exists that reinforcement flaws can be corrected, better methods work well and superior systems can be successfully substituted for failed ones. Instead of passively surrendering to the easy temptation to cravenly abandon the fight for excellence in our trade, we can stand behind this shield of credible facts and launch new improved initiatives to better manage human resources.

But where are those new proposals?

Am I so out of the loop that I have missed the active academic and practical debates that normally would have accompanied such dramatic findings? At present, undeniable evidence of the enhanced effectiveness of fast and certain but modest reinforcement is available from public agencies. They are conducting these behavioral modification experiments with taxpayer funds; so potential commercial users of the knowledge can reap benefits (and profits) from applications without any research costs. One would expect many conference workshops to spring up featuring implementation experts eager to sell their newly copyrighted tools and procedures. Did they? Why haven't the usual big consulting firms mounted their typical national pushes to market nifty bundled (and ideally cloud-based) solutions requiring the purchase of many lucrative billing hours?

Have we missed another train? Or have I merely been asleep at the switch?

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. 

"Mousetrap" image by Jarod Kearney, courtesy of Creative Commons

Merit Deserves More than Mere Money

Money is not the only reward available to serve your compensation program.

You can't rely on cash alone, anyway, in these times. During this current long period of relatively flat or tiny incremental salary increases, human resources people have already squeezed as much as possible out of very small discretionary annual increase opportunities. Margaret O'Hanlon wrote eloquently earlier about the current weaknesses in annual pay increase programs.  This is an excellent time to expand your thinking beyond the limited boundaries of payroll budgets.

When pay increase guidelines limit good workers to 3% and outstanding performers to 4%, the difference is hardly worth the lifestyle cost penalties accepted for an extra 1%. Why bother killing yourself for a hardly noticeable pittance delivered long after the performance that earned it and trickled out in each future paycheck? You can get a much bigger boost in earnings by switching jobs.

If other jobs exist with higher salaries, why don't people quit to take those higher-paying positions more often? The answer to that simple question is also the answer to the motivational dilemma. Money is not the only reward prized by workers. Consider some of the other elements of total reward systems that are in greater supply than cash. Some of them are also easier to apply and can win much more appreciation than a few extra dollars disappearing into a bank account.

It does seem impossible to achieve a credible pay for performance (merit) system with lean payroll budgets constrained by low increase authorizations. Merit is not properly recognized by a mere 1% differentiation. Such tiny distinctions are virtually imperceptible, below the level of notice. Let's consider some solutions.

Merit is actually being reflected in retention and movement today. If they are good, you keep them; otherwise they are shed, one way or another, with minimal muss and fuss. If they are outstanding, you prize them and should shower them with (hopefully appropriate) reinforcements. Money is frequently the least available to offer, the most expensive reward element and often the least effective.

The optimal reward is being treated as a treasure rather than as a resource to be exploited. Imaginative total reward options are always possible and sometimes vital. Let's think of some ...

• Valued talent should be encouraged to stick around by frequent positive feedback from the immediate supervisor.
• Can the employee's work schedule be adjusted for maximum ease and convenience? (THEIR ease and convenience, not yours.)
• Could this person's talents, skills and abilities be enhanced for mutual enrichment by another assignment that would please the worker while simultaneously increasing the positive leverage they can supply to organizational output results?
• Are there any training courses, professional societies, sabbatical programs or task-force memberships that would serve both parties well? What new experiences do they seek that will serve their long-term career interest?
• What goods and services does this employee purchase with after-tax income that you could provide while deducting the expense from your taxes?
• It might be informative to ask your tremendously valuable top performers what they would like as a reward. Bet it will not be the same thing from each of them, either.

Rewards can and should be personalized as much as possible, because your workers are all unique human beings with individual hopes and dreams. If compensation people are to succeed in our ambition to effectively manage and administer total reward programs, we should both recognize that fact and act accordingly.

Those who visit this site are probably the most likely to cope effectively with this challenge. What say you?

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.

"Dreams" by Noah Coffey, courtesy of Creative Commons

What Do You REALLY Know About Pay?

Before there were photographs, sailors would return from long trips and describe animals to artists who would then create “official” images. These images helped people feel like they understood what was “out there”. But, in reality, provided almost no useful information. Check out the drawing of the rhinoceros.

You get reports from the Big 4 and compensation consultants. They have pretty charts and easily digestible info-bites. You get market data from survey providers and professional organizations. They include tons of little boxes of information on enormous spreadsheets. There is enough granularity to make you feel like you have everything and can build anything new with grains of sand that are at your fingertips. You have articles from established and new media. They provide insight and new perspective that allow you stay ahead of the trends. You follow twitter and read blogs.

But how much of what you know is factual? You may be surprised.

An article published by Bloomberg on July 1, 2016 discussed Alphabet’s new type of equity awards for their many companies. It was reported that these awards were based on the performance of individual business units, each with their own valuation. Each business unit can choose to use their own synthetic equity or the equity of the parent company for employee grants. It sounded both cool and complex. Right up my alley. I contacted friends there and after a couple weeks they let me know that, even with an NDA in place, they would not be willing to share any details with me.

Secrets make you competitive. I get it. But, what does this mean about what YOU know?

Consultants are notorious for presenting what they are doing and what their clients report back into their survey data sets. It is not coincidence that the predictions by some of the biggest firms are then followed a years or two later by data showing those predictions to now be trends. Consultant recommends client do X. Client does X. Client submits survey data a year or two later. X shows as a new trend in survey data. Presto.

A client asked me to review a recent report provided by one of the Big 4. The data showed incredible year over year changes in certain areas. My client hadn't experienced these same levels of changes. Reports from other firms didn't show the same level of changes. I called a friend at the firm and he acknowledged they made material changes to their methodology for their annual report, but had not reported the change. The year over year growth was essentially fabricated by comparing two different data sets.

Survey data sets are amazingly accurate, but notoriously incorrect. The data is parsed and reviewed, often by very qualified professionals. They work through anomalies, make corrections, throw out “bad data” and report on the rest. But, what data do they get? Is the data you report 100% perfect? Do you think that Alphabet submits the nitty gritty details of pay programs they believe offer a true competitive advantage? Would you? Even with all that detail, you can't know what's missing.

Pay is a big media topic. It has been for years, but the last few have seen an explosion in pay articles from both old and new media. These articles are often based on information from one or two, often disgruntled, employees. We are all aware of how well employees understand compensation. Throw in an axe to grind or a new program with real complexity and the details can get confused. Even when the details are correct, you may not see them in data or reports since companies, like Alphabet, like to keep their coolest programs fairly secret until they have moved on to the next cool thing.

So, what’s a compensation professional like yourself supposed to do? First, remember that you have access to the same information as everyone else. But, now you know that you should analyze with a very critical eye. More data sets are better than less, because they allow you to compare and contrast. When in doubt, go to the source. If you ask, they will usually try and help. Lastly, do what makes sense for your needs and use the data as a basic set of guidelines that define the far edges of potential reality.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and has been deeply involved in equity compensation for a long, long time. Dan has written several industry resources including the recent Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and a few other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

SEP Street and WIIFM Way

Performance problems hang out in specific locations. All the dysfunctional behaviors seem to gather in a toxic cluster at the intersection of SEP Street and WIIFM Way. The road named for "Someone Else's Problem" is a narrow corridor twisting between solid walls that block off views on either side. The "What's In It For Me" path gets more traffic. It also attracts much attention because it is a slippery surface that manages to run downhill in both directions. WIIFM Way dead-ends at the SEP Street garbage dump labeled The Selfish Indifference Center.  Kindred spirits congregate there.

Funny, that a few months ago I had drafted the core of these thoughts about how patterns form in the ways things go wrong, when lo and behold, fellow regular Chuck Czismar posted on the same topic.

Rather than discuss one example of sensible economic behavioral bias, let's consider the process as a journey. Which path was the start? Which is the finish? My theory is that SEP Street travelers arrived there from WIIFM Way. Those indifferent to consequences affecting others (those who are "not-me") find themselves sliding down the easy greasy slime of WIIFM Way to the crowded but lonely Selfish Indifference Center at SEP Street. The home of the heartless is filled with like narcissistic egoists all obsessing each about themselves, incapable of empathy with their fellow bottom-dwellers. They find it natural to exploit and victimize others because they lack the emotional stability or psychological governors that monitor and control normal behaviors.

Self-centered people obsessed with personal advantage can be remarkably callous to the needs of others. As far as they are concerned, no one else on earth comes before themselves; and they act accordingly. Innumerable observers have noted that people always do exactly what they want to do. Unfortunately, not everyone is capable of benevolence or concern for others. Even worse, a number of those soulless unfeeling walking dead have learned how to simulate socially acceptable behavior. Sociopaths can intellectualize to imitate emotions that are instinctive in normal personalities.

Modern technology has popularized evil and made its presence more overt today. While deleting the usual scam emails I receive each day, it became obvious how the Internet has simplified criminal behavior. Just a matter of a few keystrokes ... maybe the application of a language translation program ... and a few thousand deceptive solicitations are launched into the ether for global distribution. Sending out electronic thieves is easy. No need to leave the comfort of your home to loiter sweating or shivering in a dark alley waiting for a potential victim to pass, either.

Hate to admit it, but there are some seriously bad people out there. Given enough time, you will encounter them. They will show themselves by their actions.  If employees, it becomes our responsibility to deal with them: to identify them and to deflect or  discourage their offenses.  Moreover, we need to create tripwires and maintain defenses against the depredations of exploiters who see all others as potential victims.  Hope that falls within your Total Rewards skill set!

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After corporate HR jobs in manufacturing, he consulted to various industries throughout North America, became Senior Associate of pay survey software publisher ERI and returned to consulting in 2015. A prolific writer (author of the Performance Management Workbook) and speaker, Jim gave expert witness testimony in many reasonable executive compensation cases and also serves on the Advisory Board of the Compensation and Benefits Review.

Image courtesy of Chris Dobyns

A Chrome Panda Predicts Demise of Stock Options

On May 7, 2016, it was reported that a giant chrome panda predicted the imminent crippling of stock options in the Silicon Valley. Dropbox has been a star of the unicorn sector. But, in October of 2015 and again in April of 2016, their value was written down by major mutual funds, including Fidelity. With their unicorn value and subsequent write down, they have become a high tech “canary in the coal mine” for employee stock options.

Just last month Dropbox moved into new digs in San Francisco. In their lobby, they installed a giant chrome panda (their mascot) that is meant to welcome guests with an iconic Bay Area flair of irreverence. The bad news is commissioning and installing an expensive statue does not show that you understand or agree with the recent write down of your value. The good news is that DropBox understands this and added a sign next to the panda that explains the panda wasn’t “the right call”.

In the name of responsible spending, the company has announced it is cutting back on a range of non-cash perks and conveniences. These are smart moves but we compensation professionals know the real money is in base pay and long-term incentives. Base pay is the last thing to be touched, so that leaves LTI if the current measures aren’t enough.

The purchase of the panda and the recognition of it being a mistake are pretty accurate metaphors for the over-reliance of stock options and other forms of equity in the tech sector specifically in the San Francisco Bay Area. (You may notice that since I grew up in San Jose, I often distinguish between San Francisco and the Silicon Valley, which are two fairly different places that share VC money, equity compensation and little else.) As I have mentioned throughout this “Stock Options on the Precipice” series (earlier articles: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10), equity compensation often relies on suspect survey data and company values. This is never more apparent than when the funding dries up, IPOs slow to a trickle and pre-IPO companies become easy acquisition targets for those companies who have already survived the gauntlet.

What most people don't discuss is that the fairly easy gains that come from IPOs often help drive the growth in values of publicly traded companies in those same sectors. When the IPO pace slows it usually takes about a year for the same pressures to drive down publicly traded stock prices. This can be devastating to compensation programs that have been built on the expectation of long-term continuous growth. The current bull market has pushed forward for around 7 years. Historically, these types of markets seldom last more than four years.

When these boom periods end, we see compensation programs implode and companies scramble for foothold in a world where survey data means nothing and history provides no indication of the future. Smart companies are currently working to determine how they will handle underwater legacy equity, compensation philosophies that depend on data that no longer exists and equity plans that have never been used in a down market. Thought is being put into how to protect current Employee Stock Purchase Plans and create new ESPPs that are better suited for a different environment. Performance metrics are being tested and plans are being reviewed for flexibility.

But, mostly, stock options are being scrutinized. Do you stop granting them now in anticipation that they will just end up underwater? Do you shorten the lives of new options so they expire and return to the plan much faster if they do fall underwater? Do you change your method for determining grant sizes since processes based both in dollars and numbers of shares may not work when your stock price is half, or even a tenth, of the current price?

Just think, all of this predicted by a chrome panda that probably should have never been created in the first place. I can't wait to hear about the fun and maybe ridiculous things that your companies (current or former) threw money at when it turned out not to be a good idea. Even better would be the stories of escaping from equity compensation that was no longer compensatory and likely demotivational.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and has been deeply involved in equity compensation for a long, long time. Dan has written several inustry respurces including the recent Performance-Based Equity Compensation. He has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives” and a few other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.