IPO Companies Increasingly Using "Evergreen Provisions" to Bypass Public Shareholder Approval

A new survey published by Presidio Pay Advisors reveals an interesting and telling trend - a dramatic increase in the use of "evergreen provisions" to replenish stock option pools without need for public shareholder approval.

In its 2008 IPO Executive Compensation Survey, Presidio reports that the use of "evergreen plans" among IPO companies has increased nearly 20% each year for the past three years, a notable development in the midst of all the current hoopla around executive compensation (in general) and the say on pay movement  (in particular). 

More background on what it means to be "evergreen" from Presidio:

An “evergreen plan,” or a stock option plan with an “evergreen provision,” automatically gives boards of directors each year a renewable pool of stock shares to distribute to the company’s executives and employees as compensation. The term “evergreen” refers to the fact that the board needs to obtain authorization to institute the plan only once instead of every few years. ... Having an automatically renewable stock option plan removes shareholder oversight, and many see such provisions as a symptom of executive compensation excess.

Kyle Holm, a Principal at Presidio Pay Advisors, tells us a little more about what is going on behind the scenes in this trend:

About half the companies that went public in 2007 implemented "evergreen" provisions in their stock option plans prior to their IPO. Since they were still private when they implemented the provision, it only required the approval of their venture capitalists and board members, avoiding the stringent scrutiny from institutional investors and shareholder advocacy groups. On the other hand, when public shareholders buy the IPO stock, they are implicitly signing off on the evergreen plan.

This is a rather big deal, as our friends at Presidio make plain.  It will be interesting to watch how long/far the pre-IPO "evergreen" provisions are able to increase in prevalence, as awareness of their use and implications grows.

What HR Needs to Do NOW. In THIS Economic Downturn

A must-read.  Frank Roche, author of the KnowHR Blog shares his list of the ten things HR needs to do in this economic downturn.  Can you guess my personal favorite?  Number 7, naturally:

Listen to comp consultants who link metrics to company performance. And boot out anyone else who’s trying to sell you the comp plan du jour. When times get tough, fundamentals matter and gimmicks have to get kicked to the curb. Make sure you know the difference.

Really, this is solid advice in any economy, but critical now.  Are you paying attention?

Compensation Philosophy Plays Key Role in Family Businesses

Some of my favorite clients are family businesses.  These settings can make for some interesting twists and turns in reward plan development.  One area that can present particular pay challenges is setting the base salary levels of family members who work actively in the business.

I take the position that it is critical to establish and stick to a particular philosophy here.  The examples presented below - by no means an exhaustive list - represent a couple of alternatives that I have found to work well in this particular setting .

• Classic market-based salary ranges.  In the same manner that all jobs would be addressed in a classic market-based pay structure, the formal roles and responsibilities of active family members are defined and benchmarked, with base salary opportunities established accordingly.  With this philosophy, family members' base earning opportunities are set in line with what their skills and responsibilities will earn in the external market for talent.  Undeniably rooted in outside reality.  This may seem obvious, but in my experience this approach - probably the most straightforward and defendable - is often overlooked.
• One team, one salary range.  In situations where family members may have different specialties and roles, but function - largely or entirely - as a governing team, it may make sense to have a shared salary range for the group.  This serves to emphasize the importance of their shared interests over their individual contributions and assignments.  Practically speaking, we will typically set this range one of two ways - by finding the average of the market salaries for all of the different member roles, or by simply selecting a representative job to use in salary range development.   (This philosophy has application beyond family businesses; I have seen this particular approach used for the executive teams of private non-closely held, public sector and non-profit organizations.)

The appropriate philosophy is identified and adhered to in establishing base pay opportunities.  If adding a family "premium" is desired, then set and apply the premium consistently.  Ownership differences shouldn't need to factor into salary setting; presumably these are handled through distributions and the like.  To the extent that other special needs and circumstances must be addressed via base salary, my preference is to identify and define them separately. 

Pay is a sensitive and emotional subject in any setting; with family members working together under the same "roof", it can potentially be even more so.  A clear and transparent compensation philosophy can be a solid step in support of equity and harmony.

A Quiet Pink Pay Revolution Underfoot?

I find it interesting to observe trends - demographic, political, economic - and consider their impact on compensation.  (And yes, I probably do need to get a life.  But anyway...)

Business Week Online has an interesting article on this week: "The Slump: It's a Guy Thing".  The article opens with the following:

They eat from the same dishes and sleep in the same beds, but they seem to be operating in two different economies. From last November through this April, American women aged 20 and up gained nearly 300,000 jobs, according to the household survey of the Bureau of Labor Statistics (BLS). At the same time, American men lost nearly 700,000 jobs. You might even say American men are in recession, and American women are not.

What's going on? Simply put, men have the misfortune of being concentrated in the two sectors that are doing the worst: manufacturing and construction. Women are concentrated in sectors that are still growing, such as education and health care.

The difference may be attributable to more than just the different sectors that men and women are concentrated in.  Some analysts argue, according to the article, that women are better suited to knowledge economy jobs than men (where supposedly feminine traits like sensitivity, intuition and willingness to collaborate are highly valued).

The article also points out, and rightly so, that the news isn't necessarily all good for females.  Much of the job growth in the sectors where women are concentrated - like child care workers and home health aides - offer lower wages and few, if any, benefits.

But I think there is a ray of sunshine here.  In my experience, market pay rates are heavily influenced (some might say entirely influenced) by supply and demand.  As the knowledge economy expands, and - particularly - as our population ages, there will be more demand for the kinds of jobs traditionally held by women.  And we will likely find that the supply of labor is a finite one.  Just look at what has happened with the field of nursing.  As demand has outstripped supply, not only have wages risen but - interestingly - the perception of the profession as a "female" one is shifting.  I know several talented, college age young men who have chosen to pursue nursing as a major and a career.  The influx of men into the field will also positively impact pay levels - this is a fact of life.

Is this a long-awaited solution to the gender pay gap?  Not entirely, unfortunately, for that is a complex, multi-faceted phenomenon.  But I would submit that there is a quiet pink pay revolution underfoot that does promise some relief. 

Do We Stink at Pay Communication?

Well, let's just say that there appears to be ample opportunity for improvement.

The results of a recent research study, Rewards Communication and Pay Secrecy, conducted by WorldatWork, Dow Scott, Ph.D. (Loyola University), and Hay Group, suggest that communication may indeed be the Achille's heel of our reward efforts. 

Select findings from the research indicate some troubling disconnects in the areas of base pay -

With respect to base salary practices, the majority of study respondents (WorldatWork members) indicated that "most" (60%-80%) to "all" (80%+) of their employees do not know or understand:

• The salary range for their own position, or
• The goals, rationale or intent of why base pay increases were distributed the way they were.

Further, 21% of study respondents reported that up to 40% of employees would not understand the amount of the increase they would receive.

The picture for variable pay practices is not much prettier -

While 70% of respondents do tell employees their variable pay targets, the remaining 30% either do not establish targets or don't make a practice of communicating them to employees.

And while a majority may communicate the variable pay targets few appear to communicate actual payout metrics, including:

• Payout based on performance targets (only 20%), or
• Payout for each level of performance (14%).

I find these results to be nothing short of stunning.  Recent research suggests that our number one priority for our reward programs is an increased emphasis on performance-based pay.  That being true, how on earth do we expect to drive employees' performance with pay when we are unable or unwilling to explain the basic mechanics of these pay programs to them? 

Clearly there is work to be done here, and the study does provide helpful information and insights on where to begin.  For example, respondents indicate that individualized compensation or total reward statements appear to be the most effective single method for communicating reward information - but that using multiple approaches (i.e., a combination of written, face-to-face and electronic) increases overall communication effectiveness.

The authors of the study will be examining results in more detail at the upcoming WorldatWork conference in Philadelphia (May 20-23), so if you're planning to attend, this might be a session worth checking out.  For more information on the study, contact WorldatWork.

HR's Quest for a Seat at the Table and HR Compensation

Yes, there is a relationship here.

That is what crossed my mind when a copy of the white paper The Role of HR in the Age of Talent (based on research by Vurv and Human Capital Institute) found its way to me.

This is a report that every one of us in the profession should read.  The news is not necessarily good.  It tells us that while talent management has become a top level concern for organizational leaders and boards, the HR profession has not yet made the necessary strides - in business acumen, prestige and influence - to earn the right to own this concern.  In the words of the study: "... its almost as if corporate leaders have made a collective, unconscious decision that talent management is too important to be left to HR."

Other key findings from the study:

• Across multiple measures of business proficiency and knowledge, there is an alarming lack of expertise among senior HR leadership.
• Despite the impact and importance of globalization, HR is on the sidelines. It is regularly involved and consulted on global strategy less than one-third of the time, even where it directly effects the workforce.
• Respondents’ top current challenges are attracting and engaging talent, succession planning, and leadership identification & development. Over the next three years, respondents expect specific skills shortages, finding leaders and successors, and retaining & engaging top talent to be their main challenges.

The connection to pay?  I believe there is a real one.  I think our profession's inability to demonstrate a deep understanding of business and garner leadership respect is depressing HR compensation.  I see this play out in my work, at the micro level, way too frequently.  Often it takes the form of subtle resistance to, or questioning of, market rates for HR talent (Does it make sense for us to pay this much?  After all, our HR function is primarily an administrative one ...).  And it is a well-known fact to many in the field that top HR executives - typically - don't command the same pay levels as most of their executive "peers".  This lower market rate represents, among other things, the market's consensus on our value - which is an unfortunate obstacle to equitable treatment for the HR leaders (and I know several) who are engaged and appreciated at a strategic level.

If a transformation of the HR profession is what's needed, we'd best get ourselves into the driver's seat and make it happen.  Our compensation is at stake.

Update:  Check out what other bloggers have to say about the Vurv/HCI report - Kris at the HR Capitalist and Deb at 3 Hours and a Lunch.

Rising Gas Prices and Employee Total Rewards

Seven bucks for a gallon of gasoline?  Sources tell us that this could be in our future, perhaps sooner than we think.  And the pain could be felt far beyond the pumps, impacting our ability to effectively attract, retain and reward employees.

Ryan Johnson's WorldatWork Blog highlights a great article by WorldatWork editor Bob King, which discusses the implications of the cost of gas for employment relationships.  He focuses particular attention on the total rewards implications, with expert advice on how to address the increasingly high costs of commuting as part of the overall employee value proposition.

From the article, Jennifer M. Verive, Ph.D., CEO of White Rabbit Virtual Inc., describes the concern:

Our employee surveys find that the cost of the commute is beating out ‘time spent in the commute’ as employees' number one commute concern.  Getting a job closer to home is no longer about time convenience; it's a $60 fill-up that takes money away from other personal and family needs. The first time we saw this was when gas was about $2.25/gallon a couple of years ago. The trend has increased along with gas prices and is especially strong among lower-paid employees, such as customer support representatives. Currently, a growing number of employers are worried about this, as they know employees are factoring it into their cost of living and net wages. In regions with high home prices where commutes are longer, attracting new employees is now even more difficult.

Experts warn (and I would second this warning) of the pitfalls associated with simply increasing base pay (in the form of a "cost of living" increase) to address these rising costs.  What happens if gas prices continue to increase indefinitely, and you've set a precedent for covering the cost?  And why increase pay to address fuel costs but not rising healthcare expenses?  Again, potentially dangerous and slippery territory to step into.

Alternatively, the article offers companies other options to help alleviate the burden on their employees, including:

• Transit subsidies
• Car pooling/van pooling (along with a contest and/or incentives)
• Flexible scheduling options such as a compressed work weeks or alternating start times
• Teleworking, where feasible, once or twice a week

The article also steps beyond rewards to examine the impact that this trend will have on organizations' overall ability to attract and retain workers.

Check out the article for more information and details.  This is an issue that will be calling for increased consideration by HR professionals.  Special thanks to Ryan and Bob for bringing it to our attention in such an informative and well-researched way.

Image:  Andrea Church