Just Six Words ...

Paul Hebert of Incentive Intelligence has tagged me to write a 6 word memoir in the latest diversion circling the blogosphere.

I'm gonna go with ...

Setting, Believing in my Own Path

 

The rules are:

• Write your own six word memoir.
• Post it on your blog, including an illustration if you’d like.
• Link to the person that tagged you in your post and to the original post if possible so that it can be tracked as it travels across the blogosphere.
• Tag at least five more blogs with links (I am picking just three).
• Leave a comment on the tagged blogs with an invitation to play!

Who I tag for the next round:

Michael Haberman of HR Observations

Kris Dunn, Executive Editor of Fistful of Talent (c'mon Kris - a challenge for one of your new contributing bloggers!)

Wally Bock of Three Star Leadership

Image: P. Winberg

Momentum Continues to Build for Performance-Based Pay, Even as We Struggle to Measure Performance

Evidence of continued momentum toward performance-based pay streams in, from places expected and not-so-much so.

The #1 expected change in compensation plans cited by the 413 U.S. HR professionals surveyed by Deloitte Consulting for its recently released 14th annual Top Five Total Reward Priorities study was: "Increased emphasis on performance-based pay."

And from our nation's capital, we hear news of a 5-year pay pilot at the National Nuclear Security Administration, whereby the agency will depart from the traditional 15-grade government general schedule and move to a performance-based pay system which appears to feature broad bands (aargh).  It is hoped that the new pay approach will better enable the agency to compete for technical talent in a tight job market and motivate and reward those employees who perform well.

This is all good, I think.  I am a fan of paying for performance, if for no other reason than none of the alternatives strike me as good ones.  But I smile (or is it a grimace) at the irony that I see at play here.  As we drive ever more steadily - in all sectors of work, it appears - toward tying employee pay to their performance, we also increasingly wring our hands over our collective inability to do performance management very well.  As evidence of the latter circumstance, I offer up the results of the recent State of Performance Management Study conducted by WorldatWork and Sibson Consulting where only 5% of participating HR professionals gave their performance management programs a grade of "A".  There are also many who cry for the abolishment of performance appraisal - and their arguments have force and merit.

And so we find ourself with a bit of a dilemma.  Something I continue to reflect on, anyway.  Look for more thoughts on the issue here.

Steady as They Go: Most Organizations Hold Firm to Reward Plans (Salary Increases & Incentives) in Face of Economic Uncertainty

Most organizations are staying the course - from a reward plan standpoint - in the face of the current economic slowdown, according to the Compensation Force Spot Survey conducted over the past few weeks.

Full survey results reported below.

Salary Increase Budgets/Guidelines

Most organizations are holding firm to their originally established 2008 salary increase budgets and guidelines.

Question:  What impact, if any, are current economic concerns having on your 2008 salary increase budget/guidelines?

• No change since originally established and approved:  70%
• We are considering a reduction to our original salary increase budget/guidelines:  15%
• We have made a reduction to our original salary increase budget guidelines:  9%
• Other:  6%

Base Salary Freezes

Most organizations are not even considering freezing base salaries at this time.

Question:  Are you considering, or have you made a decision to freeze base salaries?

• We are not considering freezing base salaries at this time:  79%
• We are considering freezing base salaries:  15%
• We have frozen base salaries:  6%

Incentive/Variable Pay Award Levels

Most organizations have not changed originally established and approved 2008 incentive/variable pay award levels.

Question:  What impact, if any, are current economic concerns having on your 2008 variable/incentive pay award levels?

• No change from originally established and approved award levels:  70%
• We are considering increasing award levels from where originally established:  9%
• We have increased award levels from where originally established:  3%
• We are considering reducing award levels from where originally established:  6%
• We have reduced award levels from where originally established:  12%

Incentive/Variable Pay Plan Design

Most organizations have not changed the design of their 2008 incentive/variable pay plans.

Question:  What impact, if any, are current economic concerns having on the design of your 2008 incentive/variable pay plan(s)?

• No change from originally established and approved plan design(s):  64%
• We are considering changes to the original plan design(s):  27%
• We have made changes to the original plan design(s):  9%

* * * * * * * * * *

Comments from Ann:  For the most part, these results don't surprise me, and they mirror my personal experience in the marketplace to date.  The exception to this is the amount of change underfoot in incentive/variable pay plans; I am surprised by the fact that nearly 20% of participants are either reducing or considering reducing their incentive/variable pay plan award levels.  Since these plans, if designed and implemented well, should only pay off as a result of successful performance, they ought to reflect an ideal reward for difficult economic times - and, if anything, should be the focus of increased (rather than reduced) emphasis.  The decision to reduce awards suggests to me a lack of alignment; in other words, the plans may be designed to reward things that don't ultimately contribute to the organization's success.  A pretty serious design flaw, if you ask me - and a critical one to address, particularly in tough times.

Results of this inaugural Spot Survey reflect the responses of 35 participants - Compensation Force readers as well as Altura Consulting clients.  Thanks to all who took the time to participate!

Seeking Balance in Your "Portfolio" of Rewards

When considering an organization's overall reward program, I find it helpful to look at total rewards as a portfolio of sorts.  Like the elements of a sound investment portfolio, each reward element can and should be designed to accomplish a specific objective or purpose.  Taken together, there should be a sense of balance in the design and interaction of the different reward plans. 

To help illustrate this idea, I find that a picture like the one below to be helpful in generating good discussion about overall reward program design.

Consider, for example, the organization that retained my firm to review its current management incentive plan and make recommendations for improving it, as appropriate.  After examining their plan in the context of their overall reward program, I drew a diagram like this:

All elements of their current reward program were designed to recognize and reinforce individual performance.  In an organization that claimed teamwork, particularly among its senior managers - was essential to its success, this was a strategic gap.  As an initial step in addressing this gap, we introduced a set of organization-wide performance measures to the management incentive plan, so that this reward element served the purpose of signaling the importance of the top team working together to accomplish organizational goals.

And then there's the case of the organization with the overloaded incentive plan.  The diagram I drew for them looked something like this:

Every behavioral change and performance outcome possible was written into this incentive plan.  It was as if this plan, and this plan alone, held all responsibility for steering and managing employee performance.  All other reward elements had been overlooked.  It was way too heavy a load for one plan to carry.  Our task there was to reach a clear consensus on the one or two objectives that we could reasonably expect the incentive plan to accomplish, and to assess whether other objectives could be assigned to other elements of the overall reward program.

To make things more interesting, the diagram can be expanded on the right side to include other elements of total rewards (i.e. benefits, training opportunities, etc.) and on the left side to include other desired outcomes (i.e. skill/competency development, cultural change, etc.).

What would a reward diagram for your organization look like?

New Blog "Fistful of Talent" Hits the Scene

Kris Dunn, who many of us already know as the intrepid author of the HR Capitalist, has launched a new blog!

Fistful of Talent features a collection of regular contributors, covering all things talent.  The group includes some seasoned bloggers already well-known in the space as well as some brand new voices.

As Kris puts it:

Rather than just trot out my own opinions on these topics, I've asked a talented, yet motley crue of recruiters, HR pros, consultants and corporate-types, who deal with talent issues on a daily basis, to pitch in weekly.

So drop by, check out the concept and meet the new crew. 

Congratulations, Kris!

Executive Compensation Predictions: 2008 & Beyond

In a recently released statement, Mercer HR Consulting outlined what its executive compensation consultants see as the trends most likely to shape how executive compensation programs are designed and pay decisions are made in 2008 and beyond:

Pay for performance gets the spotlight. All of the factors shaping this proxy season are converging in one important arena – paying for performance. Shareholders want it, the SEC wants companies to disclose specific measures and targets, and companies are looking closely at how performance could be affected by an unpredictable economic environment. We expect to see ”disconnects“ – where awards based on 2007 performance are reported in 2008, a time of depressed share prices and perhaps poor Q1 earnings and revenue reports. Companies will have a difficult time getting their pay for performance story heard.

Goal setting and performance measures revisited in an economic downturn. Uneasy with the volatility of the market, companies are taking a hard look at the drivers of real long-term economic value, reassessing their performance metrics and realigning their variable compensation with financial, strategic and operational measures, as opposed to more traditionally used metrics such as “earnings”. But with so much uncertainty created by the financial market crisis, companies are struggling – more so than ever – with setting credible goals. While some companies can use a relative approach (tied to the performance of an external index or industry group), they need to be prepared to pay, and possibly pay well, for negative absolute performance.

Continued changes in long-term incentive strategy. Surprisingly, the pace of change in the long-term incentive arena doesn’t seem to have slowed. The experimentation with a mix of equity vehicles continues as companies add vehicles or change the allocation among options, restricted stock, performance-based equity and even cash. Some companies have looked at an uncertain economic future and made the decision to reduce or even eliminate performance-based equity until the economy stabilizes.

Reemergence of stock option repricing. Changes in stock price put stress on equity compensation programs, particularly those relying on options. Some companies are examining whether there is a compelling rationale for repricing stock options for all holders, not just executives. The new twist on this old strategy is that now it requires shareholder approval. It remains to be seen whether shareholders will acquiesce at a time when their returns are down.

Market fragmentation: A shift away from “typical” practice. As companies focus on implementing compensation programs tailored to their individual strategies, culture and priorities, we no longer see a “typical” compensation structure employed by the majority of companies – even within an industry group. Even the tech sector, where options were once the only equity vehicle used, now displays a wide array of approaches, using cash and a variety of equity vehicles. Larger companies were the first to break from this norm, but smaller and mid-size companies are quickly following suit.

Shareholder optics has an impact. In light of increased disclosure requirements for greater transparency and specificity, companies are re-examining their total executive rewards. The result: Compensation targeted to the 50th rather than the 75th percentile, more rigor around establishing peer groups for comparing market practices, increased use of clawback, anti-hedging and other policies intended to protect shareholders, and decreased use of perquisites and benefits. Further, the increased pace of executive turnover has had the unintended consequence of affording boards the opportunity to revisit and reshape the terms of employment, including change of control and severance arrangements.

Reward Plans in the Face of Economic Uncertainty: Final Call for CF Spot Survey

Our own Compensation Force Spot Survey - Reward Plans in the Fact of Economic Uncertainty - has been up and running now for nearly two weeks.  If you haven't already clicked over to our brief (only 4 questions) survey questionnaire to participate, I urge you to do so now by clicking the link below:

Click Here to take survey

I'm going to keep this going for a few more days, in the hopes of collecting as much data as possible, and then I'll post a summary of results early next week.

It is not my intent with this survey to send more negative energy out into the marketplace (heaven knows that there seem to be plenty already dedicated to that task), because I do believe that we - as consumers and as businesspeople - all contribute to the creation of our own good or bad news.  It is my hope that we all have mostly good news to share in this regard.  But I also know that many of us - including my readers and clients - are facing questions about what changes, if any, are underfoot.  By sharing "where things are at" within our own organizations, I hope that we can help each other get a handle on the bigger reward landscape out there.

Thanks to all those who have already participated - and thanks in advance to any who haven't, but will take a minute to do so now!

For Fewer Compliance Headaches, Avoid FLSA Status as a Reward Criteria

There are plenty of challenges involved in getting (and keeping) positions appropriately classifed as to their FLSA (Fair Labor Standards Act) status, so there is no reason that I can think of to make life even more difficult for ourselves by doing things like:

• Making exempt status a criteria for incentive plan eligibility.
• Providing a higher level of benefits (e.g., more vacation or PTO days) to exempt employees.
• Creating an artificial salary ceiling for nonexempt employees (e.g., reserving certain salary grades - such as Grades 10 and up, for exempt positions only).

Many of us already face pressure from employees and their managers who see the awarding of the "exempt" designation (despite our best educational efforts) as a status thing, an acknowledgement of professionalism, or - ironically - a way to get more money.  But we make the problem worse by creating - or exacerbating - this demand through turning exempt status into a hurdle that must be crossed in order to participate in the company bonus plan, get better benefits, or earn a competitive salary.

My message:  Delink!  Make FLSA status solely about compliance with overtime laws.  If you have reward programs where you simply must limit eligibility, you'd better find a different, genuinely business-related criteria to use instead.

The Carnival of HR is Up!!

Wally Bock of the Three Star Leadership Blog hosts the current edition of the Carnival of Human Resources.

As Wally says: "You will find posts full of wit and wisdom that will delight, amaze, and educate. But wait, there's more. You'll also discover new blogs you'll want to read."

So stroll over to the Midway and check it out!

Heartache Leave

Out there on the bleeding edge of employee benefit offerings, Japanese firm Hime & Company has announced its plans to provide employees with "heartache leave".  According to an article in the Economic Times (India), and timed to coincide with February's "season of love", the Tokyo based company offers those who've broken up with a partner:

• One day off per year for those younger than 24
• Two days off per year for those 25 to 29
• Three days off per year for those over 30

Interesting to note the underlying assumption about the resiliency of those of us over 30. 

The company's CEO Miki Hiradati had this to say about the new benefit:

Not everyone needs to take maternity leave, but with heartbreak, everyone needs time off, just like when you get sick.