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Executive Comp Programs Shouldn’t Make You Blush

November 30, 2009 Charlie Judy Leave a comment

The Wall Street Journal had a great article this morning entitled “No More Executive Bonuses.”  The author’s argument is that “the problem isn’t that they are poorly designed.  The problem is that they exist.”  Now I’m an “executive” in my company – you can read about what my bonus plan is by picking up a 10-K.  I can assure you that said plan has not been terribly lucrative in the recent past.    As the plan’s primary architect, I have to say it does a fairly good job of matching stakeholder value with annual rewards to executives.  But I can also tell you that even as someone who stands to profit from this plan, I have always struggled a bit with one element in particular.  What it doesn’t encompass is the tremendous amount of work executives – and all employees – put forth even when the business is in the tank (especially when it’s in the tank for reasons beyond the company’s control).  In other words, company success does not always equate to level of effort, sacrifice, and contribution on the workforce’s part.  This particular issue relates to some of the “faulty assumptions” highlighted in the article - fault with which I cannot argue.  These faulty assumptions border on “criminal” when it really gets right down to it.  And it demonstrates an age-old issue in Corporate America…we do things because it’s always been done that way. 

Why not simplify the approach we take to paying our executives…and senior management…and managers?  Why not focus more on total compensation through base pay.  It may mean more variability to base pay from year to year, but no reason company performance and individual contributions can’t be incorporated into base pay planning.  It means the Board of Directors and Management need to have the cojones to hold others accountable for their contributions (or lack thereof) – something they need to get better at any way.  It means we’ll have to attract executives who aren’t necessarily in it for the selfish, ego-boosting reasons – a good thing for sure.  But it also means there’s a bit more equal footing on pay-for-performance.  It’s time that corporate America wake up to the fact that no one person – or exclusive group of persons – is solely responsible for an organization’s success.  I’m not talking about socialism here – I’m just talking about realism.  I’m also not saying executives shouldn’t be paid a lot of money – I’m just saying the moolah should come with sustained results measured by factors other than what can be derived from a set of financial statements. 

The only problem – well, the biggest one – is that the executives themselves usually create these plans (with the help of the Board of Directors and Compensation Committees who are all cut from the same cloth.)  What’s going to change that?  It starts with the selfless initiation of the executives to “get over it.”  They might as well because I’m convinced the time is rapidly approaching when the market realizes their lofty compensation expectations don’t have to be met in order to attract exceptionally gifted leaders.  Then perhaps…just perhaps…HR/Recruiting can get back into the game by a) actually finding and hiring those people and b) designing a pay-for-performance comp plan which is easy to administer, understand, and doesn’t make you blush.

Categories: Compensation, Talent Acquisition, Theory Tags: Board of Directors, CEO, Compensation, Compensation Committee, Executive Bonuses, Executive Compensation, Get Over It, Pay For Performance, Performance, Wall Streen Journal, WSJ

Where’s my Agent?

October 22, 2009 Charlie Judy 1 comment

Show me the MoneySo I have this idea about how we set base compensation every year – I’ve floated it in front of Execs and HR pros alike.  More often than not, my idea is met with some question about how much crack I smoked before I came into the office that day.  I usually take this as a good sign, though.  So here it is:

What if we asked our people to tell us what THEY THOUGHT THEY SHOULD BE PAID as another data point in our comp planning process every year? 

Now give me a chance on this one…

1)  The compensation planning process is already perceived to be a smokey back room exercise to begin with; more transparency is good; this level of transparency might be great.

2)  You still run the normal analysis re: market, banding, performance, company projections/budgets, economics, etc.  You still come up with a recommendation by employee, but…

3) You compare your recommendation directly to what the respective employee thinks they should be paid. 

4) If the employee thinks they should be paid more than what you’re recommending, then it requires further investigation – if it’s off by a bunch, you either reach the conclusion that the employee is delusional or you understand what it is you’re missing.  At the very least, you’re in a better position to then explain to the employee why it is you came in under their expectations. 

5) If the employee thinks they should be paid equal to or less than your recommendation, then you know you’re going to have a happy customer on the other end.  I’m not suggesting that you would lower your recommendation to their’s (and that’s something they’d have to trust you on). 

6) This allows you to identify that population that’s going to need a bit more hand-holding and thoughtful communication when compensation is announced.  It may also identify those people who need to set their expectations more appropriately – maybe they aren’t getting the right feedback on their performance or on their value to the organization.

Might every employee “high ball” their input – sure. Might you piss some people off because you didn’t give them what they want - sure.  But that would have happened any way -  at least now you’re out in front of it. 

Ultimately this approach allows you to heighten transparency, level set expectations, and involve your people more directly in the decisions that effect them.  That’s all good stuff…right?  Compensation is the most widely discussed topic in the workplace (I only have anecdotal evidence on that one), why not ask your employees – better yet give them permission – to talk about it with you?

Categories: Compensation Tags: Communication, Compensation, Compensation Director, Crack, Employee Satisfaction, Human Capital, Pay Practice, Performance, Poll, Retention, Salaries, Salary Planning