Archive for April, 2010

Consider all the Contingencies When Looking for the Perfect Match

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Expert Perspective from Grahall’s OmniMedia Editorial Board

In his April 19, 2010 article for the New York Times (Recession Adds to Appeal of Short-Term Jobs) Michael Luo says:  “The notion that the nature of work is changing — becoming more temporary and project-based, with workers increasingly functioning as free agents and no longer being governed by traditional long-term employer-employee relationships — first gained momentum in the 1990s. But it has acquired new currency in this recession, especially among white-collar job seekers, as they cast about for work of any kind and companies remain cautious about permanent hiring.”

So with companies cautious about hiring permanent employees and workers struggling to find paying jobs, what can these two groups do to find the perfect match?
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Who are you? Who? Who? Who? Who? (The Who): HR Roles Have Changed; Have you?

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Expert Perspective by Grahall’s OmniMedia Editorial Board

In his April 19, 2010 article for SmartMoney Magazine (Ten Things Human Resources Won’t Tell You) Jim Rendon quotes Tony Rucci, former chief administrative officer at Cardinal Health and a professor at the Fisher College of Business at Ohio State University saying:  “As much of what was once HR’s domain increasingly gets outsourced, human resources is regrouping to help show top management how it can add to the bottom line…”

Rendon goes on to say: “Though that may seem like an odd role for a department that doesn’t make or sell anything, strong HR departments are now focusing on boosting productivity by helping employees better understand what’s expected of them and by showing managers how to be more effective.”

While employees might find it interesting to know what HR won’t tell them, we think business executives, boards and investors would benefit from knowing what HR isn’t telling itself. We’ve got our own list of ten issues for HR professionals. To echo The Who from 1978: HR, Who Are You?
Continue reading “Who are you? Who? Who? Who? Who? (The Who): HR Roles Have Changed; Have you?” »

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High Flying: A look at hedge fund manager pay

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Expert Perspective by Grahall’s OmniMedia Editorial Board
 
Reporters Nelson D. Schwartz  and Louise Story tell us in the March 31, 2010 article for the New York Times, “Pay of Hedge Fund Managers Roared Back Last Year” that: “… top hedge fund managers rode the 2009 stock market rally to record gains, with the highest-paid 25 earning a collective $25.3 billion, according to the survey, beating the old 2007 high by a wide margin.   The earnings figures reflect Absolute Return magazine’s estimation of each money manager’s portion of fees as well as the increased value of his personal stake in his fund.”

Hedge fund managers receive compensation in two ways.  First, managers receive an administrative fee – which may range from 1.5% to 3%, but generally equal  2% of total assets under management.  While at first blush 2% may not sound like much, but considering fund assets are measured in billions of dollars, 2% amounts to a significant amount of money.  The second way that hedge fund managers are paid is a performance fee.  Generally (but not always), hedge fund performance fees equal 20% of the gains realized by the fund.  Because this 20% is usually leveled on profits over a “high water mark” – the highest value previously reached by the fund – ensuring that the hedge fund manager and the investors are perfectly aligned, hedge fund performance fees are essentially the purest form of pay for performance.   Think of it this way, when the stock market is down, those fund managers who have lost less than the market decline are seen as “successful” (and, of course, as long as there are assets in their funds all these guys will get paid the administrative fee). Hedge fund performance fees don’t work that way.  Hedge funds must have year over year growth to pay a performance fee.  Hedge fund managers only get paid their performance fees if they make money for their investors.

But hedge fund managers are doing more than just making money for themselves and their investors.  For example, recently, Cerebrus bought Chrysler, saving tens of thousands of jobs.  In addition, they may also be taking on an activist investment role that can provide additional benefits.  Activist hedge fund managers acquired a substantial stake in the company and forced changes to improve corporate governance and better balance the governance power between boards and management.

The article “The Top 10 Activist Hedge Funds (to piggyback)” says with regard to activist hedge funds:

“1. They do enormous research to find out where there is hidden value. Activists typically go into situations where the value isn’t immediately clear and they press management to unlock that value (for instance, trying to get MCD to sell real estate holdings, etc).
2. They are typically long-term holders. Activists tend to take 5% or greater positions in a company. They aren’t able to nimbly trade out of those positions.
3. They usually publish their research in 13D filings in order to convince shareholders to vote their way.”

The article lists top activist funds as (among others):  Shamrock, Jana Partners, Carl Icahn, Chapman Capital,  and Third Point.

How, why and when hedge fund managers get paid is an important part of the fund structure and the hedge fund firm’s ability to retain its top talent.  Hedge fund principals would benefit from understanding the marketplace for talent. 
Towards this end, Grahall, has partnered with Holt Private Equity Consultants  and MM & K to create a groundbreaking survey, the “2010 Alternative Asset Management Compensation Survey”.  The survey collects and reports data on compensation design, as well as compensation levels; in other words, we will disclose both “how” compensation is paid, as well as  “how much” compensation is paid.

All information will remain confidential and survey participants will receive several free reports and other special discounts.  If you are interested in participating or want more information go to the survey home page or contact:

Grahall Consulting Partners, LLC
Claudia DeFrancisco, claudia.defrancisco@grahall.com, (617) 455-2307
Michael Graham, michael.graham @grahall.com, (917) 453-4341

Holt Private Equity Consultants
R. Michael Holt (Mike) , (239) 594-5530

MM & K Ltd.
Andy Manktellow, Andrew.Manktellow@mm-k.com,  020 7283 7200

Or contact Grahall’s Editorial Board at edie.kingston@grahall.com

Filed under: Expert Perspective - Rewards



The “Typical” Examples Aren’t So Typical

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Expert Perspective by Grahall’s OmniMedia Editorial Board

In his April, 2010 article for The New York Times Dealbook (“Bargain Rates for a C.E.O.?“) Devin Leonard writes: “As the country settled into the worst recession in decades, the government became unusually involved in corporate pay practices. The Obama administration appointed Kenneth Feinberg — a k a the pay czar — to scrutinize compensation at corporate behemoths like Citigroup, the American International Group, Bank of America, General Motors and Chrysler, all of which taxpayers propped up with billions upon billions of dollars in bailouts.”  Leonard continues: “Equilar, a compensation research firm in Redwood Shores, Calif., recently prepared a report for The New York Times analyzing the pay of 200 chief executives at 199 public companies with revenue of at least $5.78 billion that filed their proxies by March 26. (Only 199 companies are on the list because Motorola has two co-C.E.O.’s.)

Equilar says [that] the median [CEO] pay package — the midpoint where half of the compensation packages on that list are lower and half are higher — declined by 13 percent last year, to $7.7 million. The average total pay tumbled by 15 percent, to $9.5 million.”

In the face of our stubborn “Great Recession”, many Americans might have a hard time conceiving of having to take a “pay cut” to a mere $9.5 million.  For most people, this is more than they’ll make in a lifetime.  But the important and more interesting question not addressed in the article is how representative are these compensation levels of pay at US companies?  

Let’s take a closer look at that Equilar research (you can find an interactive table of the 200 companies in the April 3, 2010 New York Times article “Pay at the Top”)  and the methodology used to select their study sample of 200 companies.  Equilar’s “detailed description of methodology” includes the following as criteria for inclusion in the research: “The data includes information for 200 executives at 199 companies with annual revenue of at least $5.78 billion. To be included in the study, a company must be incorporated in the United States and have filed a preliminary or definitive proxy statement by March 26.”  (From April 2, 2010 New York Times article “Calculating the Pay Figures“.)

Is the provocative comment around CEO pay “tumbling” to $9 million plus typical of the broader group of publically traded companies? 

We think not.  There are 10,000 publically traded companies in the US, and probably another 10,000 or so that are private.  Pay levels at the egregious “outliers” such as the “Big 5” TARP companies and those in Equilar’s 200 list may look nothing like the other 9,800 public companies. It is at best difficult and at worst dangerous to draw broad conclusions from a sample that is clearly skewed by information totally unrelated to pay (such as the date of proxy submission) and tilted toward companies that would deliver CEOs far higher pay than at a typical US company (which is often the situation found in companies with larger revenue).     Maybe these flashy pay levels stir the masses and sell papers – or advertising – but it doesn’t provide intelligent insight into the state of CEO pay.

So where do we think you can get a thoughtful and insightful perspective on the state of CEO and other executive pay?  You guessed it – at Grahall. Our Executive Compensation Research Report Series examines the level and mix of executive pay at publically traded companies. Because we wanted to report on the market as a whole, we followed a methodology that would allow us to reflect the true state of executive pay in US publically traded companies.  Compensation information was collected on a managed sample that accurately reflects the majority of publically traded companies in the US.  The result of our selection process is a group of 1,020 companies with median revenue of $1 billion, nearly 80% lower than Equilar’s Top 200. For more information on our sampling approach, download the first, free report in our series on executive compensation.

Our research asserts that “executive compensation should be considered within a strategic framework that includes many factors such as environment, stakeholders, business strategy, and people strategy. Not only does this more expansive approach provide a rational approach to evaluating executive pay, but when fully considered as part of a pay strategy, it sends the right messages to shareholders and executives.”

As we mentioned in our blog The Hurd Locker (referencing the pay earned by HP CEO Hurd): “a guide for determining relative pay and performance is to review an unbiased research study (such as our own Grahall research series on executive compensation) and determine the performance percentile of the organization on one of all of the key performance statistics. Then determine the pay percentile that matches that relative performance. If the two percentiles generally match then the reward program is operating in a reasonable zone on a “relative pay for relative performance.” If the two percentiles don’t match (either the relative pay is too high or too low given the relative performance) then it would point to the need for a review of the executive compensation program.”

For thoughtful and relevant information on executive pay stay tuned to Grahall’s blogs!

Contact Grahall’s Editorial Board at edie.kingston@grahall.com

Filed under: Expert Perspective - Rewards



Building a Performance Culture: The Behavioral Dimensions of Performance Management

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Expert Perspective on Organizational Design

As Joe Davidson shares in his insightful paper Building a Performance Culture:
The Behavioral Dimensions of Performance Management
: “A performance management process that takes into account how results are achieved can be a powerful builder of the desired culture – a culture of performance. The key to designing and implementing this culture building approach to performance management is identifying those elements (values, knowledge, skills, abilities, and behaviors) at the highest levels of the organization and cascading the essence of their meaning through the [organization]…  Performance management design that includes clear behavioral and values based dimensions of performance can provide a real competitive advantage to organizations.”

To read the complete paper click here: Building a Performance Culture: The Behavioral Dimensions of Performance Management

Joe Davidson is a consultant with Grahall Partners, LLC. His consulting practice is focused on Human Capital strategy and alignment of Human Resource processes with overall business strategies. He works with clients across a wide array of industries including professional services, financial services, life sciences, telecommunications, retail, manufacturing, and public sector among others. Joe leads his own consulting firm, Davidson Human Capital, based in the Dallas/Ft. Worth metroplex.  Contact Joe at joe.davidson@grahall.com

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What Health Care Reform Means For Your Business

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Grahall Invites You to Participate in a Webinar

What Health Care Reform Means For Your Business
Tuesday, May 04, 2010 11:00 AM – 12:30 PM (Eastern Time)

This webinar will cover all of the key points of the new health care reform bill, the Patient Protection and Affordable Care Act (PPACA), and will provide you with an understanding of how these new regulations will impact you, your employees, and your business, including the impact on costs, coverage, plan design, and more.

The PPACA will affect all employers, both large and small.  If you are a Business Owner, CFO, Human Resources Officer, or a Benefits Manager, this 90 minute seminar is not to be missed.  Our experts will summarize the key points of health care reform, provide the answers to commonly asked questions, and then will then discuss alternative action plans to help you develop your response to the PPACA.  In addition, you can take advantage of two opportunities to ask questions: You can send your questions to the presenters prior to the webinar, or pose them during the last half of the webinar will feature a live question-and-answer session.

The webinar is being provided as a complementary service to clients of Grahall Consulting Partners,  Aisling Partners, and  UHY Advisors.   However, non-member registrations will also be accepted.

For an agenda, list of speakers, and key takeaways, click here.

Pate Steele
(508) 269-4065 direct
pate.steele@grahall.com

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Let’s Be Absolutely Clear

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Expert Perspective by Grahall’s OmniMedia Editorial Board

Margaret E. Tahyar (partner and member of the New York Financial Institutions Group at Davis Polk & Wardwell LLP) posted a blog on March 21, 2010 on the Harvard Law School Forum on Corporate Governance and Financial Regulation (“RiskMetrics’ Introduces New Governance Measurement for Proxy Voting Reports”).  In her blog, Tahyar said: “RiskMetrics Group (RMG) has recently overhauled its core corporate governance yardstick… The Corporate Governance Quotient (CGQ), which for the past several years has ranked companies, both within their industry and on a broader basis, according to their overall adherence to RMG’s notions of governance best practices, is being discontinued as of June 2010.  RMG is adopting a new approach as of March 2010 called Governance Risk Indicators (GRId), which will be applied to all of the 6,400 U.S. companies that it reviews.  Under the GRId system governance practices will be grouped into four headings — Board Structure, Shareholder Rights, Compensation and Audit — and a color-coded risk assessment — High, Medium or Low Concern — will be applied to each category for each company.  These assessments will be made on an absolute rather than a relative basis.”

Risk Metrics’s ISS division created CGQ in 2002 and it has since become well known and well recognized if not well understood.  At the time, it was an important step forward in helping investors understand the organization and structure of boards, company control and their relationship to management.  The methodology for CGQ was confidential and the CGQ “black box” provided companies and their investors with a number that showed how the company compared to others in that industry. Essentially, each company was “good” or “bad” compared to their peers. The rankings were perfunctory, mechanical and, other than companies on the very extremes of “good” or “bad”, the data was so highly “normalized” that everybody fell in the middle.  
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Cash is no longer king…

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Expert Perspective by Grahall’s OmniMedia Editorial Board

The April 1, 2010 article published on msnbc.com “Executive pay slips for second year in a row: First time back-to-back declines occurred in 20 years; top CEO makes $52M” says: “Top company bosses saw their pay decline further in 2009, the first time in two decades that it has fallen for two consecutive years, according to a new analysis.”

With the ratio of CEO to “average worker” pay still at an astonishing 300 to 1, many might find the concept of a “slip” in pay to be laughable.  Others might argue that it is simply an indication that the stock market hasn’t recovered fully and the executives are still “suffering” from loss in value of their substantial equity positions.  But we prefer to take a more hopeful view on this now 2-year “trend,” and most certainly from a process and transparency point of view, things have changed for the better. 
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Sick Over Health Care Reform: What’s the Prescription for Insurance Companies?

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Expert Perspective by Grahall’s OmniMedia Editorial Board

Much has already been written and said (often in loud voices and with expletives not deleted – who can forget the “You lie” outburst in the U.S. Senate) about health care reform legislation, but one thing that has gotten very little attention is how insurance companies can most effectively adapt their business and people strategies to meet the new Health Care paradigm. 
Continue reading “Sick Over Health Care Reform: What’s the Prescription for Insurance Companies?” »

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10 Questions That Can Help YOU Move Forward

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Expert Perspective by Grahall’s OmniMedia Editorial Board

April 1, 2010 was not just April’s Fools Day but also National Census Day, the day that the US Census Bureau wanted all Americans to use “as a point of reference for sending your completed forms back in the mail”.  This prompted our Editorial Board to consider what some of the important questions are that companies should be asking themselves to move forward during these challenging economic times.

Surely, the  number 1 question on that list for many companies is: How can we increase our revenues, profits and customer base?  At Grahall, we see a better way of phrasing this question as: “How do we motivate and incent employees and executives to increase revenues, profits and customer base?”


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