The Changing Landscape of Rewards
Doug Sayed, SPHR, CCP, Applied HR Strategies, Inc.

The past two years has seen the quickest and most dramatic shifts in compensation (aka "rewards") practices ever.  In the past two years, we've witnessed "the sky is falling" near-collapse of 2008 to the "big one" recession of 2008 - 2009, and the end to entitlement compensation as we knew it (in 2009, when well over 50% of companies reduced and/or eliminated their salary increase budgets for the year).

Now that we're in allegedly in recovery mode, it is back to normal for compensation and  rewards professionals or something else (perhaps a "new" normal)?  I believe the answer is decidedly "something else."

Let's look at what's happening in some major areas of compensation and rewards, and you tell me if you think we're getting close to back to normal.

The Labor Market
Wow - what a mess!  Over eight million jobs were lost during the recession, and chances are that it will take at least three years or more just to get back to employment levels last seen in 2007.  The recent jobs recovery has been tepid at best, and when you take out government and temporary hiring there has been barely any job creation in the private sector.  Even though the official unemployment rate topped out at 9.9%, we've only dropped to 9.6% and without people dropping out of the labor market in frustration; I would wonder if unemployment has really dropped much at all.

Base Pay
Salary increase and "merit" budgets plummeted in 2009, and will remain at historically low levels (but higher than 2009).  If you were lucky enough to stay employed and get a pay increase, it was likely quite small by historical standards.  Overall, wages rose about 1.5% in 2009 according to government statistics.  If you include people who had to take pay cuts to land another job and/or take part-time or temporary work, the overall increase is likely close to zero.

With labor market weak and supply far out-stripping demand, wage growth will almost certainly be slow for years.  And with healthcare cost inflation continuing unabated; these increased costs will likely chew up most of employers' payroll increase budgets.

A few high demand areas will continue to do reasonably well.  Healthcare should remain firm, and many highly-skilled technology and biotechnology jobs are in good demand, relative to supply.  Overall though, there just isn't sufficient job demand to provide the impetus of anything but very slow wage growth in the near term.

Merit budgets will stay at historically low levels and employers are going to have to find other ways to "compensate" for the dearth of extra base pay dollars.

Employee Benefits
One of the biggest factors impacting employers' unwillingness to take their foot off brakes on trying to contain fixed costs are the unabated increases in the cost of providing healthcare coverage for their workforces.  While healthcare cost inflation has dropped a bit in the past year or two, it's still running at several times the rate of inflation, as it has been for most of the past two decades. 

Don't expect so-called healthcare reform to save the day (which was in reality, mostly healthcare insurance reform).  Employers will struggle to manage high healthcare cost inflation with competing compensation dollars for the foreseeable future.

Short-Term Incentives
One area that should show a nice rebound is in funding for (and payouts of) short-term cash incentives (often referred to as "bonus" programs).  The trend towards greater spending on short-term variable pay programs continues, despite a significant hiccup in 2009.

Budgets for variable pay have more than doubled as a percentage of payrolls since the early 90s and have continued to move slowly upwards over the years.  Hewitt predicts 2011 variable pay budgets will be between 11% and 12% of payroll, and forecasts 16% in 2020.  Of course, no one has a crystal ball, but I'm certain we are moving in that general direction.

Increased variable pay for results, rather than a return to more normal levels of merit pay for the masses are the general direction I see cash rewards going in the private, for-profit sector of the economy.

Long-Term Incentives
Long-terms incentives, typically provided in the form of stock/equity grants have been trending downward for non-executives for a few years now, starting well before the recession hit.  During the bear market for stocks everyone who received equity grants took a hit, but while stock-based compensation for executives may well rebound fully, they won't below the executive level, for a variety of reasons. 

In the post Internet bubble, post stock expensing world, the broad-based use of stock options has been declining for the past several years. According to one study by Equilar, the use of options in large public companies has dropped from 92.5% in 2004 to 77% in 2009. And while some other equity vehicles such as restricted stock had been on the rise during the same time period, their increase won't make up for the overall decline in equity granting levels that peaked early in the new millennium.

In addition to the reasons mentioned above, shareholders groups are generally unhappy with high burn rates (shares granted each year as a percentage of shares outstanding), high overhang (potential stock dilution from employee stock grants), and in some case the huge dollars that are spent re-purchasing stock to counter dilution from employee stock grants (in public companies).

Other Rewards
The 2010s may well become the era of non-dollar denominated rewards, or "qualitative" rewards, as companies strive for ways to retain and engage their workers.  With relatively few new fixed compensation dollars to going into workers pockets, these more qualitatively oriented rewards focused more on employee development, worker psychology, corporate culture and the like are going to be the next wave of rewards, in my opinion.

After many years of increasing demands on workers, many in workforce today are fed up with the "doing more with less" trend.  Multiple workforce studies conducted in the past few years have shown declining morale, commitment and engagement with work, and north of 50% of employees that claim to want to change job for the proverbial "greener pastures."

With the general decline in morale and worker commitment, efforts to enhance and improve the work experience are where the action is at for more forward-thinking organizations.

We would love to hear your thoughts on where you see rewards heading.

(For a more detailed version of this post, including graphics, please contact the author directly at doug@appliedHRstrategies.com).

Doug Sayed is principal at Applied HR Strategies, Inc., a Seattle-area compensation consultancy.  Applied HR Strategies is also partnering with the Washington Technology Industry Association (WTIA) on the development of the new WTIA Salary Survey, due to be launched in the late fall of 2010.

As I start to write, I'm humming the Beatles tune of a similar title in my head. Their lyrics were  poetic and prophetic, even when it comes to matters of the heart at work, because money can't buy workplace love.

That's not to say that many a manager and employer haven't tried to use money to counter other deficiencies in treating/managing/leading/recognizing/rewarding their workforces, but it rarely works as intended. In today's world of commonplace mass layoffs, "doing more with less" and "working smarter, not harder" a few extra bucks isn't going to buy a Whole Lotta Love (I'm starting to hear another classic coming on..., but I digress).

Don't get me wrong; people work for money, and so market competitiveness, especially for base pay, is critical to the ubiquitous "attract, motivate and retain" objective we often hear mentioned. (Base pay is mostly for the "attract" part, and to a slightly lesser degree the "retain" element; not so much for the "motivate" part, but that's a post for another day). Because cash compensation is so important, it's critical to make sure the cash elements of your rewards programs are competitive with the relevant external labor markets in which you compete for talent.

But if you think you can buy workplace love, engagement, loyalty, or commitment, you're mostly dead wrong. Some people can be bought psychologically, but not that many (excluding politicians, of course!).

Substantial research confirms the disconnect between money and commitment or engagement at work. For instance, a recent study conducted by WorldatWork (membership may be required to view study results), in collaboration with the  Hay Group and others, confirms that indeed, non-pay elements of the total work experience are the key drivers of employee commitment and engagement.

The study, a survey of hundreds of compensation/rewards professionals, reports that organizations realized better outcomes in their efforts to "engage" employees if non-HR employees were also involved in the development of reward and engagement efforts.  Regarding key reward elements, "non-financial rewards, as opposed to financial rewards, are viewed as having more impact on employee engagement," says Tom McMullen of the Hay Group.  He goes onto say that "quality of work, career development, organizational climate, and work-life balance have a greater perceived impact on employee engagement than financial rewards." 

The perceived quality of managers and top leaders are also more important than financial rewards on impacting engagement.  "Quality of leadership has a profound impact on employee engagement and motivation" says Paul Rowson of WorldatWork, who also says that "organizations must think it terms of total rewards and not just financial rewards if they are to enhance employee involvement, commitment, job satisfaction - and performance."

Assuming your compensation levels are already competitive, the next time a weak manager seeks approval to use increased pay to enhance retention or morale, maybe we should be thinking about fixing the manager, rather than throwing money down the drain of worker discontent, especially with their management and/or leadership.

You may have heard the phrase that employees join companies, but they leave their managers - this is so true (just think about the last really bad manager you worked for).  Of course, some will leave for more money or opportunity elsewhere, for sure, but when people are poorly treated and/or managed, virtually all of them want to leave!

Once your workforce is paid fully competitively, additional reward dollars would be better spent on programs and actions that enhance culture, employee commitment and engagement, and ones that strengthen your management and leadership.

Don't try to buy employee love and loyalty; earn it instead.  It's cheaper, and more effective.

Doug Sayed is principal and founder of Applied HR Strategies, Inc., a Seattle-based compensation consultancy, and developer of the StrategicPay Series, a series of hands on, "do it yourself" guides for developing your own strategic compensation programs.

This guest post was written by Shannon Swift of Swift HR Solutions.  Thank you for your contribution Shannon!

You are the CEO, COO,CFO  or VP of Finance, or VP of Operations. You have a full plate, but you are also responsible for Human Resources.  Am I right?

As a VP of Operations you have projects to implement and an office to run.  As the CFO or VP of Finance you have a top line to watch and a bottom line to manage.  As the COO you have everything already mentioned and more than likely a sales organization to oversee.  And as the CEO you have it all and much, much more, as the buck stops with you.  So who has time for Human Resources?  Who has time for all that touchy, feely stuff?  Heck, who even has time to think about any of it today as we are all trying to do more with less?
 
You do, and you have to.  Why? Because, as the VP of Operations, you need strong, competent people to implement and manage those projects.  As the CFO or VP of Finance, you need a critical eye to examine ways to cut costs related to things like benefits and insurance without damaging morale, and someone to keep you compliant to avoid costly litigation and fines.  If you are the COO, you need everything already mentioned along with a solid strategic partner to help you with organizational design to put  the right people in the right places to ensure all are successful and, in turn, the Company.   And if you are the CEO, you need an experienced confidant and candid partner to help you through everything from layoffs to acquisitions and board meetings to executive coaching.  You need to know that every issue related to the success of your company that involves your people (which is nearly every one) is covered.

So, has your view of the value and need for Human Resources changed?  Been updated?  Been confirmed?  What do you need to know to put the right Human Resource program in place for your company?  Well, let's start with the stage of your company and go from there.

Top 5 things you need to know about Human Resources if your company is between 2 and 20 employees:

1.       Implementing best practices and philosophies early is the key to growing your company the right way.  What we mean here are things like foundational areas such as hiring practices, compensation and benefits philosophies, culture and values, etc.

2.       Ensure your benefits are in place and fit your company culture and budget.  A good Human Resource professional can help you do everything from implementing your first benefit package to evaluating an existing one to ensure you are getting the best value for the benefits you are providing and offering.

3.       Compensation is key to attracting and retaining the right people. Having a strategically thought out plan that fits your company's stage of growth, funding, and product stage, and is also competitive with the market, is key to keeping the team happy, as well as your investors.

4.       You never get a second chance to make a first impression.  Be sure that you have an orientation program that helps people quickly come up to speed on all the things they need to know to get started successfully.

5.       Have solid tools in place and an experienced resource to reach out to when you are in need of Human Resource support.  Attorneys are expensive, and don't necessarily fit your culture.  Accountants are not normally well versed in Human Resource requirements, so you need someone on your team who is focused on Human Resources and has the best tools to support you.  Utilizing a product like SwiftHR®-in-a-box affords the appropriate level of HR tools and resources needed in a cost-effective way for even the earliest stage employer

The Top 5 things you will want to consider if your company has more than 20 employees:

1.       If you currently have someone internally managing Human Resource ask yourself if they are tactical, strategic, or both.  If you have an Office Manager, for example, focused simply on tactical execution of the HR function, you likely are missing out on a number of important issues around such areas as compensation (including equity), benefits design, organizational design, leadership and executive coaching.  You may find that adding senior level Human Resource expertise leads to HR practices that more fully support business objectives and facilitate effective organizational growth.  This is a position ripe for outsourcing if you're not ready to absorb the cost of a full time professional.

2.       Make sure all of your executives and management are on the same page.  A good way to test this is to ask each what the mission of the Company is, along with the foundational values that drive the Company's behavior.  Will the answers be the same?  Ask them what the key business initiatives today are and what their role is in ensuring they are met.  Will they know?  Strategic Human Resources can help to ensure that these are clearly articulated and that all parts of the organization are aligning in the same direction.  Having everyone on the same page will allow the company to move toward success much faster and easier, and with fewer hiccups.

3.       Evaluate your compensation and benefits practices to make sure you have a defensible structure with strong evidence of internal equity.  Ensure that your capitalization table is up-to-date and that your underlying compensation philosophies are resulting in consistent hiring and merit procedures and outcomes.  Compensation is an emotionally charged area and one ripe for compliance and litigation problems.

4.       Review your Organizational Chart.  Look for areas that no longer make sense, or may indicate potential problems are looming.  Common problems include too many direct reports (i.e. > 5-7), a strong individual contributor who has somehow managed to build a large base of direct reports but has no leadership or management skills, functional sub-groups under the wrong group, "holes" in a department, or "equal partners" with no clearly defined authority points.  Keeping an eye on the organizational chart of a rapidly growing business and making corrections before they're needed is essential to effective execution.

5.       Know what your people care about. When you started out, the team was all young, single, and didn't care about things like health benefits or EAPs or even having a 401(k) plan.  Does the group still look the same now, 2 or 3 or 4 years down the road?  As demographics of the team change, the package offered should reflect the members you're trying to keep on board, and also those you're trying to recruit.

So where do you start in regards to getting your Human Resource initiatives on track or in place?  The best place to start, if you are an established company, is with a complete Human Resource Assessment.  This process and resulting document will help you determine and address areas of non-compliance, both state and federal, and will also identify areas of deficiency in best practices and gaps in your HR program.  Another consideration in your evaluation of how you're doing as an employer is to invest in a culture assessment.  What aspects of the Company and their job are important to your employees?  What do they say outside the company walls about the company? What would they do differently if they were in charge?  The answers to these questions are all things that help you as an executive anticipate and proactively avoid issues that could slow your company's progress down, or in the worst case scenario, bring it to a halt.
 
Tell us what you are doing to ensure Human Resources is a priority in your company.  What are you doing creatively that you can share with other executives?  What questions do you have that we might be able to answer?

Shannon Swift is the Founder and CEO of Swift HR Solutions, an HR Consulting firm that supports early and mid-stage companies in the Northwest through its talented Human Resource consultants and its SwiftHR® in-a-box product and surrounding services.  For more information contact Shannon at Shannon@swifthrsolutions.com or via phone at 888-768-5920  X701.

The StrategicPay Series authors and selected expert guest presenters are offering several intensive half-day workshops for HR and compensation professionals/managers. For certified professionals, HRCI credit is pending for the upcoming events.

The cost of each session is $295, but there is a $50 discount (per session!) for those signing up for two or more. In addition, participants receive a coupon code for 20% off on the purchase of the Base Pay Toolkit, worth half cost of attending alone!

Compensation, Rewards & Employee Engagement Trends - 2010 and Beyond

With Doug Sayed, and Theresa Chambers of Recognition Works

Note: approved for 3.5 hours of HRCI credits!

Date: May 13th, 2010 8:00 AM
Location: Bellevue Harbor Club
Cost: $295.00

Register for this Event

Organizations are struggling to keep up with changes in salary and compensation trends. As the economy recovers, what is the future of pay and employment? What can employers do to retain and re-engage talented employees? In this half-day session, participants will explore 1) the latest compensation trends and future rewards thinking and 2) the elements of a successful employee engagement and recognition strategy. Participants will take away low-cost tools, ideas and resources to build a culture of appreciation within their teams and organizations. Workshop instructors include StrategicPay Series creator, Doug Sayed and Chief Motivation Officer, Theresa Chambers of Recognition Works. The program will be held at the Harbor Club in Bellevue from 8am to noon. The program includes a continental breakfast, parking validation, as well as a discount coupon to purchase the Base Pay Toolkit worth one-half the tuition cost alone.


Utilizing Market Data & Conducting a Competitive Pay Analysis

Note: approved for 3.5 hours of HRCI credits!
Date: June 10th, 2010  8:00 AM
Location: Bellevue Harbor Club
Cost: $295.00

Register for this Event

This half-day program will focus on how to conduct a market-based pay analysis, including selecting and using pay data sources, grading jobs into a salary structure and evaluating how the company measures up.  This is an advanced, in-depth course.  Participants will walk away with a working knowledge of the subject matter, as well as
the tools and templates to execute in their company.  The cost includes a continental breakfast and parking validation, as well as a discount coupon to purchase the Base Pay Toolkit worth one-half the tuition cost alone.
 

Compensation Trends & Salary Planning

Note: HRCI credits anticipated. We will apply for them as the date gets closer
Date: September 23rd, 2010 08:00 AM
Location: Bellevue Harbor Club
Cost: $295.00

Register for this Event

This program will provide an update on current market trends, including merit increase budgets, salary structure movement, etc., and instruction on salary planning, budgeting and merit plan design.  Participants will walk away with a good picture of the current market conditions and several ideas for merit plan design, as well as the tools and templates to develop, model and implement in their companies.  The cost includes a continental breakfast and parking validation, as well as a discount coupon to purchase the Base Pay Toolkit worth one-half the tuition cost alone.

Good riddance to 2009! It's onto 2010 and beyond...

For many of us, the second half of 2008 and most of 2009 was like a bad bad dream that was all too real: massive layoffs/job losses (over 6 million) and skimpy (or no) pay increases for those that survived the crunch; terrible business conditions and plummeting sales and profits (if you were lucky enough to have profits!); tapped out consumers and losses on real estate and retirement holdings, to name a just few fond memories of the past 18 months.

Indeed, let's move on. Here's a brief summary of the current outlook for 2010 for us HR and compensation professionals, with links to additional information.

Employment and Hiring

The most recent national employment data is encouraging, and indicates we are in a bottoming phase, if not getting ready for a slight rebound in early 2010 (don't expect a barn-burner turnaround anytime soon).  Job losses in November 2009 were only 11,000 nationally, which is by far the lowest total in well over a year. The U.S. unemployment rate dropped from 10.2% to 10.0%, and 36 states reported slight to moderate drops in their unemployment rates for November as well.

The recently released Manpower Employment Outlook Survey also reveals some encouraging trends and data.  While 12% of employers expect a decrease in employment in the 1st quarter of 2010, an equal percentage expect an increase.  While this may seem less than inspiring news, when the data is seasonally adjusted for typical seasonal employment patterns, there is a net 6% increase in expected hiring over historical employment trends for the 1st quarter.

When compared to a year ago, employers in the Western U.S. are the most confident, but all areas show improved employment outlooks. Using the seasonally adjusted data, all regions anticipate moderate quarter-over-quarter increases in employment levels.

Bottom line, the outlook is from flat to improving in the first quarter, depending on who you ask, but compared to the past 18 months, this is a huge improvement, and should provide encouragement to job seekers and businesses alike.

For more information on the labor market, see my recent post at the Compensation Cafe.

Base Pay Compensation Trends

While merit budgets for 2010 will be near to historical lows (2.5% to 3.0% in most studies we've reviewed), at least there will be pay increase budgets for the vast majority of employers, unlike late in 2008 and in 2009. (See earlier posts from this blog for more specific information).

2009 merit budgets (most commonly implemented in late 2008 or in the first quarter of 2009) were slashed or eliminated by large numbers of employers.  Depending on the study, 25% or more of employers had 0% pay increase budgets for 2009, and many actually cut pay.  Well over three-quarters of all employers reduced their original planned merit budgets for 2009, but we do not think we will see anything close this type of wholesale budget-slashing in 2010.  Recently completed studies (Mercer, Hewitt, Culpepper, etc.) suggest only about 10% of employers are planning 0% budgets or pay reductions for 2010, and we expect these percentages to drop further, assuming the nascent recovery continues.

Incentive Compensation Trends

Incentive compensation/variable pay budgets (but not necessarily payouts) are holding strong, despite the weak economy and labor markets.  Variable pay is getting more and more ingrained into the foundation of compensation plans in the U.S. (and internationally too, just more  slowly than here). Hewitt, who does a major survey of variable pay trends each year, reports that variable pay budgets dropped a very modest 0.2% (from 12% of payroll to 11.8%) in their latest research on the topic.

Despite this minor drop, the long-term trend toward increased variable pay budgets remains intact.

Executive Compensation in 2010

Executive compensation is the fastest moving target in the world of compensation.  From rapidly evolving reporting and disclosure requirements, to increased government intervention in executive pay, to shareholder activism concerning perceived excesses in executive compensation, it's been a wild past few years for anyone who follows this topic, and the pace of change isn't likely to slow down anytime soon.

The changes are so numerous (and in some instance convoluted) that we won't even attempt to describe them here, but here are a few thoughts as to where we are likely heading:

• New and increased executive compensation disclosure requirements for public companies (see "A Holiday Present from the SEC - New Proxy Disclosure Rules!"  from our friend William Parsons at CompWiser).
• Greater intervention/intrusion by the Federal Government into the executive compensation arena in general (already a very heavily regulated area).
• A greater focus on pay/performance linkages and increased transparency for executive compensation plans.
• An expectaion from various stakeholders (shareholders, unions, shareholder advisory groups, etc.) to see reduced excesses in executive compensation (expensive perquisites, tax gross-ups, huge "parachute" payouts, etc.).  This is already starting to happen, but this one has a ways to go still.

Longer-Term Compensation and Related Trends

• Continued historically low merit budgets. Don't expect a surge back to more normalized merit budgets, even after the labor market gets back to a more healthy supply/demand balance. Some are predicting a long period of historically low merit budgets, and we largely agree, as we see a greater willingness of companies to invest in variable pay than increasing their fixed costs via base pay increases.
• An on-going upward bias towards increasing variable pay budgets, in lieu of larger merit budget pools.
• Pay for performance (real pay for performance) will continue to increase in prevalence and intensity, and will become the the new "merit pay."  Only this time, it will be delivered via various incentive vehicles, rather than via a slight up-tick the annual base pay increase. Follow our friend Paul Hebert at Incentive Intelligence for daily lessons on all things incentive and motivation related.
• Taking better care of people psychologically (not just financially) will become more in vogue, and for good reason: most people desire more feedback and appreciation, and respond positively to it. Increased communication and various forms of recognition can help to build and maintain a healthier workplace. To get you thinking more about recognition and related concepts, see "12 Gifts for Cash-Short, Recession-Weary Workplaces" and "All I Want for Christmas" plus two recent recognition postings here at the StrategicPay Blog from our friend Theresa Chambers at Recognition Works.

Well that's about it for now.  Hopefully you haven't fallen asleep while reading this. We at the StrategicPay Series will continue to keep you informed of the latest information, thoughts and research in 2010.

Until then, here is wishing everyone a happy and safe New Years, and great start to 2010!!

As an occasional writer/blogger for the Compensation Cafe, I must say that I'm really impressed with the content that comes from my fellow writing/blogging colleagues.  Since a lot of innovative thinking and informative writing comes from this exceptional group, I thought I would pass on links to a few of my favorite posts from the past several weeks, for your reading pleasure and edification.

• Retaining Your Top Talent, by Darcy Dees
• Talking with Employees About The Cost of Living, by Margaret O'Hanlon
• The State of Pay for Performance, The Future of Salary Increases, by Ann Bares
• Coffee's for Closers (on the state of incentive pay and "merit" increases), by Laura Schroeder
• Can't You Just Convert the Currency? by Chuck Csizmar
• 7 Keys to Designing a Sales Comp Plan That Delivers, by Becky Regan
• Engagement & Turnover in the Recovery, by Doug Sayed

Subscribe to the Compensation Cafe to receive daily content from this team of compensation pros, who also happen to be excellent writers.

"White House Appoints "Czar" to Oversee Executive Pay"

My jaw just about hit the floor when I saw this headline several weeks ago in the NY Times and Wall Street Journal.  I know we have a drug czar, and an auto czar, but a compensation czar? (And aren't czars from old-world Russia?).  What's the world coming to? 

Now that the new Pay Czar is firmly in place, he's making his impact felt.  In addition to reviewing and setting guidelines for many of the largest bailout companies, he most recently got departing Bank of America CEO Ken Lewis to forgo his salary and bonus for this year.  While I'm certain not a fan of Mr. Lewis, it does raise government intervention into individual pay determination to to a new and disconcerting level.

The mixed messages and changing tunes on executive compensation coming out of Washington these days are enough to keep my head spinning, but this is a case of the Feds clearly over-stepping its bounds (and its expertise).

It seems to me that there has been a lot of attention (obsession?) paid to regulating executive compensation, instead of the far larger issues of regulating the the reckless use of financial leveraging, structured investments, securitization, and the rating agencies that helped create all of the "AAA" rated mortgage securities (that many turned out to be nothing close to investment grade).  And what has happened to the "risk management" profession (which was completely asleep at the wheel on this one)?

A very good article in the WSJ (subscription may be required to view article) on "Risk vs. Executive Reward" says it well.  Not even the experts (the people who work with and manage executive compensation plans regularly) can agree on cause-effect relationships of risk vs. pay, and when risk becomes "excessive."  A recent study by Watson Wyatt even debunks many of the conventional belief systems around risk and reward.

The keys issue to me are:

• The government has virtually no expertise in executive rewards, incentives, or compensation (just look at their own reward and performance management systems!).
• Companies should determine their own compensation plans (within the tons of rules and regulations that already exist), period.  It's called self-determination, and the feds want to take that away.  Let the "Say on Pay" movement handle shareholder dissatisfaction with the plans that are developed for public companies.
• Let Washington regulate the financial markets, and financial risk within financial and related institutions, but how a business chooses to drive performance and pay for that performance should be (mostly) none of their business.
• Executive compensation is already one of the most heavily-regulated and complicated areas in business already, with the intersection of financial reporting and disclosure, accounting regulations, taxation issues, securities law, all focused on this topic already.

Of course, there certainly have been some abuses, and most have taken a beating in the press (and other places) for it. But since when has just about anybody in Washington shown a true facility for running a real business, or determining how to incent performance?  Best I can tell, the Feds haven't even learned how to manage non-performance at the federal employee level yet, let alone managing business performance, or managing a business that has to earn a profit to survive (unless you're bailed-out by the Feds, of course!).

Granted, virtually all of this was happening under the noses of the executives currently being excoriated, but it certainly wasn't their compensation plans that lead us to the mess we are in today (and while many made millions during the latest bubble, they also lost many millions more when that bubble popped as well).

There is a lot of hard work that needs to be done to fix our financial system, but regulating executive pay is a bit issue compared to multi-trillion dollar mess than was created by horrible risk management, irresponsible business practices, the over-use of leverage and fancy Wall Street financial packaging that should all be regulated more closely.

OK, I'm getting off my soap box... Whew! I feel better already...

The latest research by Watson Wyatt shows that many employers are actively continuing to alter their hiring and pay plans and planning based on recent economic and business developments.  The just published study, shows the rapidly evolving adjustments employers are making in this recession, the deepest in decades, when compared with similar studies done just a few months ago.

The good news is that many employers seem to think the worst is over or at least that we're near a bottom.  The bad news is that some of the hiring and pay freezes and/or reductions aren't going away anytime soon for many, as the graphic below shows.

"We're not going to go back to the status quo," says Laurie Bienstock, national director of Watson Wyatt's strategic-rewards practice. Perhaps most revealing, of the companies surveyed, only 22% expect to have higher levels of employment 3 to 5 years out, 26% expect no significant changes, while 52% see lower staffing levels.

The survey offered a few hints of good news. About a quarter (24%) of participating companies said they believe their companies' results had already "bottomed out," compared with 13% in a similar survey conducted by Watson Wyatt in April.  And over half (55%) of companies that have frozen salaries or hiring said they plan to lift those freezes over the next 12 months.

It's looking like this recession may leave more of a lasting impact hiring, pay practices and plans than other recessions in the past few decades.

"White House Appoints "Czar" to Oversee Executive Pay"

My jaw just about hit the floor when I saw this headline last week in the NY Times and Wall Street Journal.  I know we have a drug czar, and now an auto czar, but a compensation czar? (And aren't czars from old-world Russia?).  What's the world coming to? 

The mixed messages and changing tunes on executive compensation coming out of Washington these days are enough to keep my head spinning, but this is a case of the Feds is over-stepping its bounds (and its expertise).

It seems to me that there has been a lot of attention (obsession?) paid to regulating executive compensation, instead of the far larger issues of regulating the the reckless use of financial leveraging, structured investments, securitization, and the rating agencies that helped create all of the "AAA" rated mortgage securities (that many turned out to be nothing close to investment grade).  And what has happened to the "risk management" profession (which was completely asleep at the wheel on this one)?

A very good article in the WSJ on "Risk vs. Executive Reward" says it well.  Not even the experts (the people who work with and manage executive compensation plans regularly) can agree on cause-effect relationships of risk vs. pay, and when risk becomes "excessive."  A recent study by Watson Wyatt even debunks many of the conventional believe systems around risk and reward.

The keys issue to me are:

• The government has virtually no expertise in executive rewards, incentives, or compensation (just look at their own reward and performance management systems!).
• Companies should determine their own compensation plans (within the tons of rules and regulations that already exist), period.  It's called self-determination, and the feds want to take that away.  Let the "Say on Pay" movement handle shareholder dissatisfaction with the plans that are developed.
• Let Washington regulate the financial markets, and financial risk within financial and related institutions, but how a business chooses to drive performance and pay for that performance should be (mostly) none of their business.
• Executive compensation is already one of the most heavily regulated and complicated areas in business already, with the intersection of financial reporting and disclosure, accounting regulations, taxation issues, securities law, all focused on this topic already.

Of course, there certainly have been some abuses,and most have taken a beating in the press (and other places) for it, but since when has just about anybody in Washington shown a true facility for running a real business, or determining how to incent performance?  Best I can tell, the Feds haven't even learned how to manage non-performance yet, let alone managing performance, or managing a business that has to earn a profit to survive (unless you're rescued by the Feds, of course).

Granted, virtually all of this was happening under the noses of the executives currently being excoriated, but it certainly wasn't their compensation plans that lead us to the mess we are in today (and while many made millions during the latest bubble, they also lost many millions more when that bubble popped as well).

There is a lot of hard work that needs to be done to fix our financial system, but regulating executive pay is a bit issue compared to multi-trillion dollar mess than was created by horrible risk management, irresponsible business practices, the over-use of leverage and fancy Wall Street packaging that should all be regulated more closely.

OK, I'm getting off my soap box... Whew! I feel better already...

Where is your organization on the compensation transparency continuum?

It's an especially relevant question in today's world of instant access to just about anything. For those of you working in the HR/compensation field for more than 10 years, you probably remember when pay data was something that only a small number of  people in your organization ever saw or even knew about, and it was kept in a locked file cabinet. Today, pay data is everywhere (of course, a lot of this data isn't particularly valid, but that's a post for another day).

Some organizations are remarkably open about their pay programs and pay philosophy/strategy, while others remain tight-lipped about anything related to how compensation is determined and communicate accordingly.

Today, while reading an excellent white paper on the subject put out by the folks at KnowledgePay, it got me thinking that its time for the more "closed" organizations to re-think the whole openness and transparency issue.

To me, openness and transparency, while similar concepts,  are not exactly the same. Openness refers to the degree that the company is "willing to open up" with regard to the details of its compensation philosophy, strategy and program(s).  Openness is more of a strategic issue that HR and senior executives struggle with (what and how much do we communicate?). 

Transparency, however, refers to the degree that program participants can "see" how their compensation program works and how it impacts them.  Openness certainly contributes to this, but transparency goes a step further, referring to what we call the "what's in it for me" question ("WIIFM").  All rewards-related communications (base pay, incentive, benefits, etc.) efforts should keep the WIIFM question in mind as the communications plans are developed.  It's really the one question that virtually everyone thinks about when you communicate to employee groups about anything pay related." (Base Pay Toolkit, 2009).

Research has shown that greater openness and transparency can create greater levels of trust, which is a desirable state for any organization. For instance, studies done by Watson Wyatt have shown that companies with greater levels of management/non-management trust have achieved significantly higher levels of total shareholder return than organizations that have low levels of trust.

Am I arguing for total openness and transparency?  Absolutely not!  But I am trying to argue for enough openness and transparency to foster understanding, greater levels of trust, and so employees can answer the WIIFM question that all employees want to know.

"A lot of the debate about pay transparency is misframed.  Too often it is focused on what employees are paid and the idea that employee pay data should be made more public.  This is not transparency - this is an invasion of privacy. An appropriately transparent pay program is one where we have communicated with employees the why and how of the organization's pay practices." (Ann Bares, Altura Consulting Group).

My feeling is that if your organization has built a competitive rewards program based on sound principles and analysis, what's to hide?  Share the news!

So, in today's' world of instant communication and information accessibility, what is the "right" or "correct" amount of information that should be shared with the workforce?  Ultimately, that's up to your organization's comfort level, but we do know that with greater openness and transparency, it is likely that your organization will help to foster healthy levels of trust, and likely a stronger ability to attract and retain the talent you are seeking to move your organization forward.