Archive for June, 2009

Wall Street Compensation Collusion

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 Posted in www.SenseonCents.com July 30 , 2009 by Larry Doyle

Gaining market intelligence is one thing. Colluding with market participants in business practices is an entirely different issue. The Wall Street compensation process has always operated dangerously close to that line, and would appear to have gone over it in 2008.

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H1N1 (Swine Flu) Update #4

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expert perspective telescopeExpert Perspective by Robert Cirkiel

In the past few days H1N1 news has come in tidbits.  Each on its own seems like no big deal but when considered together I don’t like the trend.
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SEC may tighten executive pay rules: sources

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Published in Reuters  June 30, 2009 by Rachelle Younglai and Jonathan Stempel

WASHINGTON/NEW YORK (Reuters) – U.S. securities regulators are considering changing how companies are required to disclose stock options awarded to executives, people familiar with the Securities and Exchange Commission’s thinking told Reuters on Tuesday.

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Towers Perrin and Watson Wyatt to Merge

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Published in The Wall Street Journal, June 29, 2009 by Jeffrey McCracken and Joann S. Lublin

All-Stock Deal Reflects Pressure Firms Face as Companies Reduce Spending for Consultancies. 

Two of the country’s largest human-resources consulting firms, Towers Perrin Forster & Crosby Inc. and Watson Wyatt Worldwide Inc., agreed to merge in a deal reflecting recession-induced consolidation in the consulting industry.

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Concerns Brew About Integration of Watson Wyatt, Towers Perrin

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Published in Workforce.com June 29, 2009 

Experts say the creation of such a large company will end up diluting the services that clients get—at least in the short term. The combined company’s new president says processes are in place to make the integration go ‘as smoothly as possible.’

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Concerns Brew About Integration of Watson Wyatt, Towers Perrin

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Published in Workforce.com June 29, 2009 

Experts say the creation of such a large company will end up diluting the services that clients get—at least in the short term. The combined company’s new president says processes are in place to make the integration go ‘as smoothly as possible.’

Link to full article.

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Towers-Watson Wyatt merger may trigger further takeouts

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Published in Reuters June 29, 2009. Reporting by Saumyadeb Chakrabarty, Bhaswati Mukhopadhyay and Dhanya Ann Thoppil; Editing by Mike Miller

The $3.5 billion merger of human resources consulting firms Towers Perrin Forster & Crosby and Watson Wyatt Worldwide (WW.N: Quote, Profile, Research, Stock Buzz) could lead to further acquisitions in a sector faced with slowing growth in a down economy.

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Governance experts worry about compensation consultants

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Published in The Guardian from Reuters June 29, 2009 by Rachelle Younglai and Diane Bartz

Corporate governance activists decried a merger of Watson Wyatt Worldwide Inc and Towers Perrin, saying conflicts of interests could arise if executive compensation consultants get hired by the same managers to advise them on human resources issues.

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It’s Complicated

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expert perspective telescopeExpert Perspective from Grahall’s OmniMedia Editorial Board

An article by V. G. Naraynan published in Harvard Business Review on Monday June 22, titled ‘Executive Pay: It’s About “How,” Not “How Much“’  got our editorial board talking. 

The “how” vs “how much” question certainly begins to touch on the core issues at hand. However, these issues are more complex and multifaceted than the article suggests, and unfortunately, as is often the case, the media has little inclination to report the details. 
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It’s Better to be on the Bus than Under It

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expert perspective telescopeExpert Perspective from Grahall’s OmniMedia Editorial Board

The Journal’s Deal Column on June 18, 2009 titled “BofA’s Paying Bonuses to Keep Top Talent? Shocking!” the author discusses: “… the numerous pitfalls in regulating Wall Street pay. [And] the fear was that if Washington clamped down on compensation for all of Wall Street it would put the industry at a disadvantage globally. But by not regulating compensation for all of Wall Street, the Obama administration seems to be hoping that the banks that paid back TARP would follow the “best practices” the TARP banks are required to follow.”

But in the face of near overwhelming competition from overseas banks, non-TARP US banks and boutiques for the best talent, what’s a company to do to select, retain and mobilize key employees?  So far the prominent idea seems to be to pay and pay and pay.  But the question really leads us to a more important point.  That being: who are the organization’s key employees?  Who are those individuals who will really make a difference to the organization and whose contribution is critical to the organization’s success?  You can’t answer that question without understanding the organization’s business strategy.  For B of A and Citigroup, clearly a NEW business strategy is required, as the old strategy wasn’t working.  

As both taxpayers and consultants, we sincerely hope that the bonuses paid at Citi and BofA were reflective of a new strategy and intended to retain and motivate those individuals who will be, for them, the Czars of Change.

Citgroup’s CEO has announced that part of their new strategy will be to capitalize on the company’s strengths in the transaction processing arena with their Global Transaction Services unit (GTS).  “The credit crisis has indeed underscored the value of GTS’s high-margin, low-risk business, which derives its competitive edge from Citi’s global scale and technology rather than big trading bets” Says Julie Segal in an article in June’s Institutional Investor” (Read the full article.)

That commodity business might not deliver a powerful price to earning ratio increase for Citigroup’s stock, but it certainly could be the foundation on which a new a stronger Citigroup will be built.  And don’t discount B of A, with the 2008 bargain basement acquisitions of Countrywide and Merrill, they are well positioned with what will we think soon be highly valuable properties in their portfolio.  

With apologies to Joseph Schumpeter, “creative disruption” has been part of the business landscape for decades.   This time the TARP companies are in the eye of the storm.   The effect of this disruption is that a reshuffling occurs.  Those once “on top” can find themselves far down the pack as perhaps leaner and meaner competitors steal the best talent, picking them off one by one or in teams.  And we can’t blame the defectors, although while it isn’t always just money that provides adequate incentive for a move, if you can get more money for the same job somewhere else, the temptation is generally too strong to resist.

This Great Recession has impacted most if not all industries and business segments. No company that we can think of has the resources now to “just throw money” at people or problems.  Surgical approaches to compensation can help a company to select, retain and mobilize not just its best people but the people best suited to drive success in the future. 

A surgical approach requires a clear understanding of business strategy and what strategy segment the company will pursue.  For example, Harvard Business School Professor Michael Porter would suggest that a company’s strategy would follow one of three lines:  Cost based (think WalMart), Differentiated (think Mercedes Benz) or Focused (a combination of cost based and differentiated).  Once the company identifies it’s general business strategy and segment, a surgical approach is highly effective. 

Grahall has been at the forefront of designing surgical compensation strategies around appropriate market attachments that create true incentives to drive desirable and risk-appropriate behavior.   Once a company had decided what organizational capabilities are the key drivers of success, it can identify the positions in the organization that are most highly valued and therefore should be staffed by top talent, who are appropriately compensated to join and stay and work in those jobs.  

We have presented this surgical approach to clients who, in the past, have worried about the impact on corporate culture, but today in most companies cost is king and culture is a distant relative.  Companies no longer have the financial resources to make all employees happy campers.  The bus for Camp Profitability has left the terminal and you are either on it or under it.  

Email Grahall’s OmniMedia Editor at edie.kingston@grahall.com

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