Archive for February, 2011

The Best Compensation Programs are Those Most Frequently Examined

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Expert Perspective from Grahall’s OmniMedia Editorial Board

Kyle Stock was a little all over the place with his February 11 blog in the Wall Street Journal Jobs Report: Wall Street Continues to Tinker With Pay but we thought two points that he made were particularly worth examining.  

Stock writes: “… with the darkest days of the crisis two years gone by, executives are still tinkering with pay policies.”  To which we say, duh. 

“Tinkering with” or at the very least deeply examining pay practices is exactly what needs to be done on a very regular basis and most importantly when economic conditions are changing.
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Boards’ New Mantra: Communicate

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Expert Perspective by Grahall’s OmniMedia Editorial Board

Joann Lublin wrote a very interesting article for the Wall Street Journal recently, titled Season of Shareholder Angst: U.S. businesses are bracing for a noisy proxy-voting season this year, although we think the anxiety may be felt more fiercely by board members than by shareholders.  In her article, Ms. Lublin covers a variety of topics weighing heavily on the minds of boards and shareholders alike, including say on pay, political contributions, succession planning, board elections and environmental concerns. 

Say on pay has been in the headlines for years. It was a campaign issue in the 2008 presidential elections and we have been discussing this subject in our blogs for that long as well.  The Dodd Frank Act mandated that all public filers hold “say on pay” votes in 2011, so this proxy season has companies scrambling to make recommendations to shareholders on the frequency of these votes. 
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Filed under: Expert Perspective - Organization Development, Expert Perspective - Rewards



Executive Coaching: How to Make Great People Even Better

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Expert Perspective From Grahall’s OmniMedia Editorial Board

Searching for interesting articles to discuss with the Editorial Board we came across one penned by Mark Jaffe last August (Freelancing ‘Til You Drop) where Jaffe writes: “When did every living executive get diagnosed as being in critical need of coaching?…. And how did all these dysfunctional leaders manage to fool so many people for so long? How were they able to last as much as fifteen minutes given the extreme darkness that surrounds them as they stumble cluelessly through their surrealistic dream worlds?”

Well as “President of Wyatt & Jaffe, [where] Mark Jaffe has been called one of the ‘World’s 100 Most Influential Headhunters’ by BusinessWeek magazine” we wonder if he might not hold a bias against coaching.  Perhaps he is concerned if execs get coaching they will be less likely to be replaced, limiting searches.  Or maybe he is concerned that execs need for coaching reflects poorly on recruiters who are expected to offer up the most effective execs to their clients.

Regardless, let’s take a more expansive look at coaching.
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Filed under: Expert Perspective - Organization Development



Say on Pay Voting Periods – Size Does Matter

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Expert Perspective from Grahall’s OmniMedia Editorial Board

In a nearly unprecedented turn of events, 39 institutional investors issued a press release (Investors Issue Call for Annual Vote on Executive Pay)  calling for “public companies to support annual advisory votes on executive compensation in their 2011 proxy statements and for investors to vote for annual ‘Say on Pay’ votes.” 

According to Grahall’s Garry Rogers who has reviewed over 200 such early filings, a majority of public companies are recommending three-year votes. So the lines are clearly drawn in the sand.  Rogers says: “Although it’s still early, at this point the three year time period is clearly the most popular.”  However, the size of the filer also appears to be a factor on the frequency recommendation. Rodgers adds: “Seven of the ten largest companies have recommended annual reviews, and the overall rate of annual reviews is noticeably higher for companies over $1 billion in market capitalization when compared to smaller companies”.      

According to the press release, 39 institutional investors, major mutual funds and influential proxy advisor Institutional Shareholder Services (formerly RiskMetrics) have thrown their weight behind annual votes. 

Clearly a one-year period creates a much stronger “watchdog” atmosphere, and some companies may benefit from this level of oversight.  Our concern is that like any other corporate structure, program or protocol, “one size may not fit all.”  Two-year or even three-year voting periods might make sense for some public companies particularly if their compensation structures are based on longer performance periods.   In addition, some observers have argued that the one-year period may become just another compensation formality, while a three-year review would be more novel and taken more seriously, while promoting a more significant emphasis on long term growth.

In either event, the Say on Pay process has its weaknesses regardless of what duration period a company employs.  Already, one high profile filer Monsanto, received a 65% vote in favor.  Is that sufficiently high for the company to accept, or should it revise its compensation programs?  Clearly, 35% is a significant number of shareholders unhappy with the current program.  This starkly illustrates the potential quagmire that can result from an “up or down” Say on Pay” vote , which obviously doesn’t lend itself to specific interpretation, and it’s not clear what to do in such circumstances, other than to engage your shareholders.

What is clear is that as investors, mutual funds and ISS continue to press for annual reviews, we may just see the annual period become the norm, particularly at larger companies.   Whether this will result in maximum accountability, and encourage companies to communicate effectively with shareowners (who themselves may be voting against a program for individual reasons) remains to be seen. 

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

Filed under: Expert Perspective - Rewards, Regulatory Updates



Competency Models Must Support Creatively and Innovation (among other things)

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Expert Perspective from Grahall’s OmniMedia Editorial Board

We enjoyed and for the most part agree with the recent blog in Forbes by Chunka Mui “Are the People in Your Organization Too Smart to be Creative?”  It may seem incongruous that scholarly research “in the Journal of Experimental Social Psychology by Jennifer Mueller, Jack Goncalo, and Dishan Kamdar found that open expression of creative ideas was negatively correlated with perceptions of leadership potential” while studies of CEO’s by PWC found that “…innovation was a key focal point.”  IBM found that creativity was “…the most important leadership quality”.  

What that shows is that CEO’s either 1) don’t know themselves or their biases very well, or 2) their definitions of creativity and innovation differ for themselves and their possible successors.  CEOs may hold the belief that “my type of creativity and innovation is ‘good’ and yours is ‘bad’”.  Let’s face it, it’s very hard to see oneself objectively, perhaps especially if you are a hard driving, effective CEO. 
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Filed under: Expert Perspective - Organization Development



Identifying Candidates Who Fit In With Your Company’s Culture

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Expert Perspective from Grahall’s OmniMedia Editorial Board

We enjoyed reading and discussing Adam Bryant’s interview with Michael Lebowitz, founder and C.E.O. of Big Spaceship, (Hey, Rock Stars: Take Your Show Someplace Else  in the January 30, 2011 issue of the New York Times.

Bryant quotes Lebowitz as saying: “Don’t hire jerks, no matter how talented…  The second- or third- or fourth-best candidate who isn’t a jerk is going to ultimately provide way more value.”

We understand what he is saying: someone may be technically very highly qualified but if the individual’s personal or leadership style doesn’t fit with the company culture, then he or she likely will not be the best candidate. 
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Say on Pay Goes On

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Expert Perspective from Grahall’s OmniMedia Editorial Board

An article by Richard Levick (Transparency on Executive Pay Begins with Clarity) caught our attention. 

Mr. Levick begins his article (much of which he shares was excerpted from the book “The Communicators: Leadership in an Age of Crisis “ that he co-authored with Charles Slack) noting that “…on Jan. 25, SEC commissioners voted 3-2 to enact the say-on-pay measure that subjects compensation plans to non-binding shareholder votes as often as once a year…”.  In our blog published on January 25th, Grahall’s Garry Rogers reminded us of that meeting and said:  “The final rules are not likely to contain any real surprises, but of particular interest will be whether exemptions for ‘small-companies’ and for new issuers will survive.” (To read more about the Say on Pay rules click here.) We followed up with Garry to get his take on the SEC hearings.
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Fixing Executive Compensation: It’s Not a Simple Job

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Expert Perspective by Grahall’s OmniMedia Editorial Board

In his article for the Huffington Post (Wall Street CEO Pay Problems Worsened By New Regulations, Report Says) William Alden writes that “…one of the primary forces encouraging greater risk [and setting off the ‘Great Recession’] was the way that executives at major banks were compensated: Aggressive moves that made stock prices soar in the short-term triggered hefty bonuses, and even when those same moves led to longer-term disasters, the chieftains got to keep the money, leaving taxpayers on the hook for the losses.  A new regulatory framework and much talk of lessons learned was supposed to have changed all that, putting the fortunes of the bank chiefs on the line, and tying their pay to the longer-term health of their companies.”

Alden refers to a report  issued by the Council of Institutional Investors, an association of public and private pension funds (Wall Street Pay) which suggests that the new regulations have done little to reduce risk since the changes simply result in companies increasing stock payouts in lieu of cash bonuses.  The “…council report concludes that simply focusing on boosting stock as a percentage of overall compensation inadequately protects against excessive risk-taking by banking executives.”

We agree, sort of. 
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Board Compensation: How To Know What’s Reasonable?

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Expert Perspective from Grahall’s OmmiMedia Editorial Board

In his January 14, 2011 article for the New York Times Deal Book (Community Health Seeks to Oust Tenet’s Board) Michael J. De La Merced quotes Community Health Care’s chairman and chief executive, Wayne T. Smith, as saying: “Tenet’s highly paid board has clearly demonstrated its entrenchment” when Tenet’s board rejected Community’s “$6-a-share cash-and-stock bid as undervalued…”.   So we asked ourselves, are Tenet’s board members really “highly paid”?  
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