Rewarding Star Performers at the Expense of Others

Friday, April 29, 2011

It is very difficult to make the argument that organizations should NOT pay for performance and with almost microscopic merit budgets, only pay the absolute top performers. For many years as a compensation analyst, planner, and manager it often fell to me to construct a typical merit matrix which allocated increases based on the employee’s performance and their position in range. And to that end, my designs generally reflected the common thinking that the higher the performance, the higher the increase. Even if that meant that low performers would receive nothing and a “Meets” employee would warrant a very small increase.

One organization I worked for prided itself on hiring “Race Horses”. These were highly talented individuals recruited away from large metropolitan areas to work in a long-standing regional billion-dollar bank. They often came from the large banking centers in Texas, Louisiana, Tennessee, and Georgia. We saw them as rising stars who were going to reshape our lending, trust, consumer or personal banking departments. They were enticed away from their current billion dollar banks with recruiting bonuses, large salaries, and promises of great growth opportunities. Initially all seemed well; they impressed our current customers, they brought in new customers, maybe even developed large business opportunities and integrated into what was really a one family owned bank.

However, after a respectful period of time, they left, they moved on to Chicago, New York, St Louis, and other banking centers. As it turned out, we were merely a stepping-stone in their career improvement plan. Once they moved on, it was quickly realized that they contributions were far less than once perceived, in the light of their departure. In the post analysis, we often found that the Race Horse had lots of show and very little go. The new business they developed was on referrals from existing employees who were merely “Plow Horses”, who had worked their way up from Item Processing or some other department. The organizational reshaping we had hoped for were the initiatives of other Plow Horses whose ideas had been appropriated by our star employee. Eventually, we concluded that what passed for performance and talent was superficial and that much of the talent we needed to succeed we already had, they just needed to be managed differently.

Once we came to recognize the difference between the appearance of performance and real performance we were able reshape our organization with the talent we had in place and do so through the relationships those Plow Horses had built and maintained for many years. Not that new blood is never warranted, it just has to be the right blood type, compatible with the organization and with a desire to do what it takes to succeed. A Race Horse that is only good for one race is not going to be able to sustain the organization for a full ten furlongs.

Is there a moral to this story? When rewarding and recognizing talent and performance, organizations need to make sure they are in fact paying for performance and not window dressing. True talent runs deep and is best demonstrated under pressure. When the faint of heart fold, organizations need to look for those left standing.

Organizational Culture and Talent Retention

Friday, April 22, 2011

Talent retention is often linked to tangible features such as pay, benefits, rewards, recognition, and promotional opportunities. Consider for a moment the potential impact of organizational culture in general on retention and specifically sexual harassment. An organizational culture which tolerates sexual harassment, even passively or unknowingly, opens the door to significant talent retention challenges, not to mention costly litigation. The key to remember with sexual harassment or any form of harassment is that it is defined in the eye of the harassed employee.

Organizations will spend millions of dollars in revenue to recruit and retain the talent they perceive will lead and manage their business enterprises to the top of the competitor list in their respective industries. Yet many of those same companies will fail to manage issues dealing with sexual harassment by ignoring the issues, thinking it will go away by itself, transfer the offending party, terminate the offending party or worst, terminate the harassed employee. Such behavior starts at the top, witness, “HP CEO resigns amid sexual harassment investigation”, ”Second Lawsuit Surfaces Accusing American Apparel CEO of Sexual Harassment” or “Exigen CEO Accused of Sexual Harassment”.

Now consider the disruption these events caused their organizations, the loss of goodwill, reputation, the fall out in turn and churn of lower level individuals, the employee reaction, the loss of direction and momentum within the affected enterprises. There is an interesting phenomenon going on in American workplaces today. Felix Verdigets, PhD, an organizational effectiveness consultant recently reported, “Despite national unemployment levels at five-year highs, top talent is leaving our organizations en masse. … Further, according to a study by Leadership IQ, 47 percent of high performers are actively looking for other jobs.” That means the co-worker sitting next to you is looking for a job somewhere else, outside of your organization.

While this may seem like a discussion about sexual harassment, it is really about management failing to “manage” the organizations which have been entrusted to them and thus risk the loss of key members of that enterprise. Many organizational managers are well trained, educated, talented, and experienced leaders, yet some will not “sweat the details”, “turn a blind eye” or “bury their heads in the sand” when it comes to a cultural environment which is hostile. Example, one UK employer was held liable for the failure of its management to act on first hand information and stop verbal abuse between co-workers.

Fundamental to an organizational culture supportive of talent retention is the education of all enterprise members as to their role in preventing a hostile work environment. In today’s leaner and flatter organizations, there is no luxury to be had when top talent leaves prematurely.

Improving Economy Signals CEO Compensation Growth

Friday, April 15, 2011

According to an April 12, 2011 report by Towers Watson, the human resource consulting firm, 2010 CEO compensation improved as the economy gathered steam. The primary growth factors were base pay and “discretionary” bonuses, a form of variable pay tied to the performance of the CEO’s organization. This uptick in pay is now under the eye of the say-on-pay provisions of the “Dodd-Frank Act” and the regulations of the Securities and Exchange Commission, which has oversight authority on executive compensation. While it may be hard for the average line worker to feel sympathy for their million-dollar bosses, the intent of the Dodd-Frank Act in to engage shareholders in having a “say” in determining the executive staff’s compensation.

Compensation, whether for the CEO or the forklift operator should be aligned with and tied to the long term health and well being of the organization. While that relationship may vary by several degrees, nevertheless, if neither the CEO nor the forklift operator are performing their roles, the overall performance of the organization will suffer. To be clear, the financial impact of these two roles is certainly different by several factors of magnitude. Failure to load a truck in a safe and timely manner may lead to a late delivery, or at worst, a lost customer. Failure to secure financing for a new plant, equipment, product line or supplies may result in bankruptcy.

In general, CEO compensation and that of other executive and C-Suite employees is set in a similar manner to that of any other position, beginning with an organizational compensation philosophy. What is the “peer” compensation of positions within a similar industry, in a similar organizational design, of similar size, similar responsibilities, and similar revenue? The actual compensation “menu” is made up of base pay in the form of salary and variable compensation made up of annual bonuses, stock, short and long-term incentives, and prerequisites, such as auto and travel allowances, club memberships, … etc. Information about executive compensation is available through human resource consulting firms in the form of annual or bi-annual survey results. The key to effective executive compensation setting is finding the right balance between base pay and variable compensation and aligning that balance with the organization’s business requirements.  PricewaterhouseCoopers and its Center for Board Governance clearly states: “The focus is on how pay policies align with performance, risk, and a company’s long-term growth”.

Once the organization establishes executive compensation there has to be a way to measure how well the company has performed under the leadership of any executive memeber. The simple answer is, did the organization make a profit this year? Unfortunately, a onetime profit may not be an indicator that the organization will continue to prosper in the future. In the case of start-ups, it may be several years before the braekeven point or profitability is reached. Each organization will need to identify its own metrics for evaluating performance and these measures may change over time as the business and it environment changes.

Baby Boomers Face Retirement, Workforce Faces Impact

Friday, April 08, 2011

With some 76 million baby boomers who began attaining age 65 on January 1, 2011, many will be faced with a decision to remain in the workforce or exit with limited defined benefit pensions and diminished defined contribution plans. To see the potential impact of such a monumental change on the current labor force, in 1978 Boomers made up 45% of the work force. Now consider the knowledge gap that Boomers will leave in many organizations if they elect to exit either into full or partial retirement.

As a paradox, even in the current period of persistent high unemployment, organizations are struggling to fill skilled and professional level openings. An article published on CNNMoney.com, by Chris Isidore, a senior writer, dated March 11, 2011, reports that employers in the manufacturing section are having trouble filling skilled jobs such as “welders” and “laser cutters”. It is not an issue of a lack of applicants; it is an issue of a lack of applicants with the required skill set.  In the same manner that organizations plan for business continuity in the event of a natural or even man-made disaster; organizations must plan for the potential skilled labor shortages.

One approach is to outsource certain sub assemblies of a job to smaller nearby shops. Issues concerning quality control could be addressed by establishing a long term working relationship with several of these “feeder” organizations. Another approach is to maintain a working relationship with former employees who now may be retired. Offering those employees an opportunity to return to the workforce, even on a part-time basis, could be one source of trained workers to supplement an organization’s regular employees. In an article posted to the, December 23, 2009 issue of Benefits and Pensions Monitor, a Canadian publication of Pension Fund Investment - Employee Benefits Management, the Desjardins Financial Security's ‘2009 Rethink Retirement’ survey reported that employers appear to be seeking out retirees in an effort to fill vacate positions left by departing baby boomers. Consideration will have to be given to any potential impact on retirees’ current retirement benefits and the accrual of future benefit credits.

Although we have been talking about welders, the same could be true of software developers. The U.S. H-1B Visa program allows upwards of 65,000 foreign professionals sponsored by a U.S. employer to work in certain specialized occupations. The visa can be valid for up to three years and may be extended for another three-year period. The H-1B Visa program has been and is currently used extensively in the technology industry.

Certainly one option is to retain current skilled workers within an organization. That is often difficult during periods when there is insufficient work to accommodate all of the workers. Faced with losing valuable skill sets, organization may consider reduced work schedules, as many did during the recent downturn. Ron Scherer, a staff writer for The Christian Science Monitor, reported on February 8, 2009 that one organization had reduced workers’ hours in an effort to retain those skilled employees.

With indications that the US economy will continue on a sluggish path to recovery, that recovery may not be complete for several years into the future. That being the case, organizations may need to review and redefine their talent acquisition and retention model to include alternative recruitment and retention practices.

US Supreme Court Finds Oral Complaints are protected under Labor, Fair Labor Standards Act, Anti-Retaliation

Friday, April 01, 2011

On March 22, 2011 the US Supreme Court ruled that oral complaints made directly to an employer are to be considered protected behaviors under the Fair Labor Standards Act (FLSA) § 215(a)(3) of the Act. Citing numerous examples of the use of oral complaint procedures allowed in local, state, Federal rules and regulations, as well as legislative and judicial processes; the Court concluded that both written and orally presented directly to an employer are to be afforded the same level of protection.

Kevin Kasten, a former employee of the Saint-Gobain Performance Plastics Corporation was discharged for failing to clock in and out on numerous occasions while employed at Saint-Gobain. Kasten alleged that he was discharged in retaliation for making oral complaints to Saint-Gobain about the placement of time cloaks. Kasten’s complaints dealt with the time clock’s placement that failed to allow for the recording donning and doffing time to put on and take off protective clothing at the beginning and ending of work shifts. Prior decisions by the courts have held that such donning and doffing time is to be considered time worked requiring workers to be paid.

The Court cited that at the time of the Act’s passage, “20.8% of manufacturing laborers in 1940 had less than five years” of education. Thus to require only written complaints would have imposed a significant hardship on such workers. Saint-Gobain countered that to protect oral complaints would expose employers to “a state of uncertainty about whether an employee (particularly an employee who seems unusually angry at the moment) is in fact making a complaint about an Act violation or just letting off steam”. Nevertheless, the Court concluded that the Seventh Circuit erred, sent the case back to the lower court, and vacated the Circuit court’s judgment.

How will any organization separate and distinguish between an employee “just letting off steam” and a valid and concerted compliant? First, every organization should have fully vetted policy in place to address employee complaints whether written or oral. Second, supervisory and management team members need to be trained in the handling of employee complaints. Third, organizational policies addressing employee complaints should be well communicated to current and prospective employees. Fourth, every “compliant” should be taken seriously, investigated thoroughly, and well documented. Does this impose an undue burden upon the organization? Yes, it does, but so does the thousands of dollars spent on legal fees, lost productivity, and the potential for fines, penalties, recovery of lost wages, loss or employee and community goodwill.

Kevin Kasten was discharged from Saint-Gobain’s Portage, Wisconsin facility in December 2006. Since that time Saint-Gobain’s management and its legal team have most likely spent hundreds of hours defending their position over the placement of the time clocks when earlier court decisions clearly indicated that donning and doffing time is to be considered time worked requiring workers are to be paid for that time. Furthermore, all evidence indicated that Kasten had raised the issue of time clock placement on numerous occasions over the three years he worked for Saint-Gobain. Had Saint-Gobain addressed the issue early on in Kasten’s employment, Saint-Gobain would not have been faced with public exposure in Seventh Circuit, the Supreme Court, and now a repeat of the entire process.

While I am sure that Saint-Gobain is well known for many innovative services, products, and processes within their industry; I am not sure that they what to be known for landmark decisions in the area of employment and employee relations, particularly when they were on the losing side of those decisions.