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The Patriots AGAIN? How the “Pats” business, people and rewards strategies drive their success

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In a story starting to seem as old as time, again the Patriots won the Super Bowl, this time against the Atlanta Falcons.  Since the arrival of Head Coach Bill Belichick, the franchise has been on that grand stage seven times, with five wins.  (There were two appearances at the Super Bowl prior to Belichick; both were losses for the Patriots.)  The Patriots have more Super Bowl appearances than any other team.   Although in deference to Pittsburgh fans, the Steelers have more wins with 6 in total.

There are lots of reasons to either like or dislike the Patriots, depending on which “camp” you align yourself with; and one of these reasons apply to both camps. 
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It Should be Executive Find not just Executive Search

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The Grahall Executive Search services are different because:

• Engagements are executed only by senior consultants
• We conduct fundamental research for every assignment, giving you the best in the marketplace, not just the best in our database
• There truly are few ‘off limits’ situations in candidate sourcing
• We utilize a unique approach called “Rational Pricing” with fees starting at a discount to the competition and percentages dropping as targeted compensation goes up. Additionally we offer relationship pricing which reduces fees on multiple searches within 1 year
• We operate on fixed fees.  Our fee is based on targeted total cash compensation; the final candidate’s actual compensation does not impact our fee
• We guaranteed your satisfaction, with payments contingent upon YOUR definition of success.
• Invoicing is based upon performance milestones, not the passage of time.
• Successful completion precedes payment in full

We invite you to watch our video (by clicking here) on this important subject. You can download the slides that are used in the video by clicking here:  ”Grahall Executive Search: Value Differentiators“.

Learn more about our services by clicking here: “Grahall Executive Search Overview“, or by contacting  me, Bill Byrnes at:
Office: 804.379.7837
Cell: 617.406.9239
Email: William.Byrnes@Grahall.com

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We Guessed It!

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Jamie Dimon won re-election to the JPM Board “by a landslide” of just under 68% of the votes ensuring that he will continue to hold the both the CEO and Chairman posts. We certainly are not surprised, and predicted this on our blog Now That’s a Tempest in a Teapot.
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Should JP Morgan Split the CEO and Chairman’s Role? Now That’s a Tempest in a Teapot!

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All the discussions about JP Morgan and whether Jamie Dimon should remain as the CEO and Chairman, or if those role should be separated, miss the key and critical issue that this just one point out of perhaps 80 or more variables that determine whether a company is or will be properly governed by its board.

Here are just two of the many important issues to examine with regard to JP Morgan:

1) What is the board culture? Is it participative? Are directors encouraged to be actively engaged, or is it compliant?
2) Why is there no succession plan in place for the CEO position at JP Morgan? Whether the CEO is 50 or 70 years or age, whether they are star performers or just average, every company (and especially every publicly traded company) must have a succession plan.

So as this story plays out, and the shareholders’ vote is revealed today (which we are predicting will be in favor of continuing to combine the roles of CEO and Chairman), we too will examine these and other important consideration around board governance.

At Grahall we do not over simplifying an issue. We will provide you with tangible, empirical evidence based on expansive and thoughtful research and our deep experience working with companies of all sizes, in all industries and at all levels of maturity. To access our Board of Director’s Research Series click here.

For a preview of our thinking see Michael Dennis Graham’s book Board of Directors Governance & Rewards or call Michael at 917.453.4341

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Ask Not How Much, Ask Why

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According to a March 31, 2013 article in the New York Times by Susanne Craig: “Since the financial crisis, compensation for the directors of the nation’s biggest banks has continued to rise even as the banks themselves, facing difficult markets and regulatory pressures, are reining in bonuses and pay.”

Well, “reining in” of executive pay might be a bit of an exaggeration, but there is no question that the Chairman’s role and other board members of Wall Street firms have lucrative pay packages. And over the past several months, or even years, with a growing portion of director pay made in stock (and with share prices for these firms soaring), director pay has increased. But the bigger question is not “how much” but “how and why”.

As Michael Graham shared in his recently published book Board of Directors Governance and Rewards, “We believe that boards don’t get the respect they deserve for the success of the businesses they oversee, but neither are they held much accountable when the businesses they oversee flounder… If the business strategies work, then the CEO should get credit for execution and the Board for foresightedness (not just the credit for hiring the right guy). If business strategies fail then the CEO should carry the blame for poor choice of strategy or poor implementation and the Board for failure to appropriately examine the plans (not just the blame for overpaying the CEO).”

And speaking of how CEO pay drives behaviors, the same is true for director pay, but for directors there is a different angle. Directors (much like US congressmen) set their own pay. It is part of their responsibilities for corporate governance. Therefore board governance and board pay cannot be decoupled. Further, the most important consideration for both governance and pay is the idea of contribution: how does the board contribute to the company and how does each director contribute to the work of the board, and how  these contributions drive board pay.

There is a wide spectrum of board contribution levels from “hands off” to “hands on.” In Grahall’s ground breaking Board of Directors Research Series we found that a board’s relationship with the company can be measured and arrayed to give a quantitative understanding of its “contribution” level. Grahall identified 40 variables which are gleaned from proxies to represent the degree of contribution of each board.

With this large number of variable, there is a nearly infinite number of combinations and permutations of the influencing factors that set the threshold conditions for board governance and reward program success. Board governance and reward program design needs to be an active, dynamic, adaptive, and “situational” effort. Where there are different levels of contribution, the board reward levels should also be different.

Pay must be equal to contribution, and contribution must be aligned with governance, and governance aligned with shareholder interest. So if director pay appears high it is only “too high” if the contribution is less than the pay should demand. The reward strategy needs to be consistent with the level of contribution. High contribution should generate high compensation and vice versa.


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It’s Easier (and Cheaper) to Stay Well than to Get Well

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The Patient Protection and Affordable Care Act (PPACA) is intended to make health insurance more affordable for Americans. Inherent in this Act is the requirement that preventive care be covered as it is well understood that prevention is key to better treatment options and outcomes and, basically, healthier people. Healthier people mean lower costs, right? Right!

The Act specifically requires that insurance companies and employers offer free preventive services to help people improve their health before they need costly interventions. Most agree that covering preventive health care services now that will eventually lead to lower health care costs over time is a good thing. However, we don’t think the writers of this Act are in on the dirty little secret known by HR professionals and benefits actuaries: providing preventive health care services without any penalty or incentive does not lead to sick or at risk people getting the early diagnosis or treatment they need. In fact, in our experience, when employees are provided with free health screenings, weight loss programs and fitness classes, the people who take advantage of them are those who are already in good health! Not surprisingly, the Act does not require that employees take advantage of preventive screenings, nor does it penalize employees for not taking advantage of them. Furthermore, by removing pre-existing condition limitations, the Act sends the message that it’s ok to not deal with your health until the symptoms are such that you have to.

The idea, though, is that these preventive screenings could lead to lowering health care costs and improving employee productivity. But just as people don’t eat brussels sprouts despite the numerous health benefits, many shy away from utilizing preventive care. And no amount of cajoling will change that. What could change this behavior? How about a “pocket book approach” where incentives and penalties that may reach 50%. That’s a significant cost or benefit, making an otherwise “voluntary” program something that “giveth or taketh away” a significant amount of money based on utilization.

As Michael Booth says in his article for the Denver Post, “Colorado has some pricey choices to make soon on how steep Obamacare penalties should be for smokers, and how sweet the rewards for the healthy and fit.” Andit’s not just in Colorado. Insurance commissions in all fifty states will be looking at how much insurers can increase or reduce rates based on the perceived health (or lifestyle) of the policy holder.

Do “lifestyle-based” incentives and penalties make sense? Perhaps they do. Over the past decade, preventive programs have become “all the rage”.  As Robert Cirkiel said: “Ten years ago companies were concerned that there was no discernible return on investment for preventive programs, today it is clear that there is a measurable and valuable ROI both from an employee productivity perspective and lowered health care costs.” And with the continuing concerns about escalating health care costs in the US, reducing cots or at least slowing the speed of ascent is important.

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To pay or not to pay: is that the question?

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In recent months there have been a number of lawsuits brought against companies by unpaid interns saying that the interns should have been paid for the work they performed. As Jane M. Von Bergen wrote in her February 24, 2013 article for the Philadelphia Inquirer: “In December, TV host Charlie Rose and his production company agreed to pay up to $250,000 to settle a 2007 wage-and-hour lawsuit brought by an unpaid intern.”

But there are voices to be heard on both sides of the paid vs. unpaid interns issue. Whether paid or not, an internship provides a unique opportunity for a student (or recent grad) to experience the real world of work, with all the “grown up” responsibilities that a job brings.
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Affordable Care Act: “Shared Responsibility” is Just Around the Corner

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When the Affordable Care Act was passed in 2010, the rules requiring employers and individuals to have health insurance or pay a penalty commencing in 2014 may have seemed a long way off. Well 2014 is just around the corner and the laws are about to kick in. Rather than wait a few paragraphs before confusing everyone, why don’t I get right to it?

Large employers are required to offer their employees’ health insurance coverage or risk paying a penalty.

What is a large employer?

It is one that employs at least 50 “employee equivalents”. One way to be an “employee equivalent” is to work at least 30 hours per week. Another way would be to work less than 30 hours per week and be aggregated with others in the same situation. For example, two part timers working 15 hours per week each aggregate into one “employee equivalent”. Add up the number of employee equivalents in your organization. If the number is less than 50 there is no penalty for not offering health insurance and you can stop reading now.

If you are still reading this, your organization needs to offer health insurance or be subject to penalties. These penalties are not called penalties anymore; they have been immortalized by the regulators as “shared responsibility”. Just to make sure that you are still confused, the Supreme Court had already decided that they were not penalties but rather taxes that you pay for not buying something (an un-sales tax) but the regulators liked “shared responsibility” better.

You will need to offer the coverage to full time employees (30 hours per week or more) only. Once you’ve aggregated part timers into “employee equivalents” for determining the abovementioned “over 50 test” you no longer need to consider them and there is no penalty for not covering them.

What kind of coverage must you offer?

In order to avoid penalties, the organization must offer a comprehensive level of benefits to at least 95% of the full time workforce and pay for at least 60% of the actuarially derived cost (with the employee paying no more than 9.5% of the family’s combined W-2 pay). The comprehensive level of benefits is known as “Essential Health Benefits” (“EHB”), the definition of which can vary a bit by State but needless to say covers most everything you’d expect including hospitals, doctors, tests, drugs, etc. for all kinds of care.

If your plan does not meet the 95% test, the EHB test, the 60%/9.5% test, and at least one of your low paid full time employees receives subsidized coverage from an Exchange, your organization will be subject to a penalty based on Calculation Number One.

If your plan meets the 95% test, the EHB test, the 60%/9.5% test, and at least one of your low paid full time employees receives subsidized coverage from an Exchange, your organization will be subject to a penalty based on the lesser of Calculation Number One and Calculation Number Two below.

Calculation Number One: Multiply $2,000 by the total number of employees in excess of 30.

Calculation Number Two: Multiply $3,000 by the number of low paid employees who receive subsidized coverage from the Exchange.

If your plan meets the 95% test, the EHB test, the 60%/9.5% test, and no low paid full time employee receives subsidized coverage from an Exchange, your organization will not be subject to any penalties.

By the way, “low paid” is not so low – in 2014 it is about $88,000 for a family. This will encompass a lot of people. And, an employee that is offered coverage from an employer-based plan that passes all the tests and turns it down is subject to individual penalties but the employer is spared.

Employers are deciding who to cover, what to contribute, or whether to have a plan at all. These deliberations are known as “Pay or Play.” Some employers are considering meeting the requirements of the Act by giving stipends to employees and letting them buy coverage on their own from one of the Exchanges. Others will not offer coverage at all, and pay the penalties. For now, most seem to be content to offer an employer-based plan that complies with the Act and covers all full time employees. There is no right answer. Grahall can help you choose the right path for your organization.

This sidebar is just a brief summary. There is plenty of “fine print” not covered. Contact us to learn more.

Or access the IRS’ Q&A on Employer Shared Responsibility Provisions.

 

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The Road Less Traveled Can Lead to Success

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For many companies, their people and reward strategies are under pressure to keep up with the changing business environment and increasing demands of activist investors. So how can companies tune theses important strategies to meet new and growing demands?

The Grahall 2013 People Strategy Survey will explore in depth the connection between people strategy and business success. You are invitied to join us in this endeavor by clicking here to access the survey tool.

Grahall has created the People Strategy Survey because, having worked with hundreds of firms across all industries, we clearly see the possibilities for an increased contribution to a company’s success with the rigorous review and proper alignment of people strategies. We are also seeing that, in industries both emerging and mature, the people strategies are just now being evaluated for “fit”.

The degree of success for any company is largely dependent on the quality of its people. An appropriate people strategy can substantially increase the effectiveness of the organization. But in this context, “appropriate” does not mean one size fits all. Our study is intended to provide a tool kit for companies to evaluate their people strategies and identify the myriad of alternatives to connect their human resources to their business successes.

Note this: When the business strategy and people strategy are connected together, it is not unusual for the organization to perform at the top of its competitors and comparators. Performance in the upper quartile means upwards of 50% more operating profit to work with. Consider what could be done with 50% more operating profit. Consider how that money could be invested in additional marketing, customer service, research, or additional staff.

We are not suggesting that people strategy can be the sole difference between successful firms and less successful firms, but we don’t know of a single firm with a cogent people and reward strategy that is unsuccessful.

Remember, managing people resources toward the market median or average (all things being equal) will generate average performance over time. Too many organizations find comfort in the pack and yet success is more often found on the road less traveled, however challenging and distinct.

To join us in our exploration, click here to link to the People Strategy Survey to add your data to our study.
Survey participants will receive:
• A complimentary copy of the Summary of Key Findings
• Automatic registration for the Survey Results Webinar in June, 2013
• Discounted prices for full survey results by industry and revenue size, including advanced analytics

If you have any questions about participating in the survey, please contact Judy Newman at judy.newman@grahall.com. If you are unable to participate, as a follower of our blog, you will be notified when the report findings become available in a few months.

Filed under: Announcements, Expert Perspective



SEC to Hold Open Meeting on January 25 to Consider Final Rules on Say on Pay

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The Securities and Exchange Commission (“SEC”) has announced its intention to consider final rules for executive compensation advisory votes an open meeting to be held on Tuesday,  January 25, 2011. These rules are mandated by the Dodd-Frank Act, which requires all public filers to hold “say on pay” votes in 2011. Shareholders must be given the opportunity to advise companies whether future pay votes should occur every one, two or three years.

According to Grahall’s Garry Rogers: “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.” Rogers adds that during the comment period, investors generally opposed this exemption while the smaller filers are pushing hard for adoption.

Click here to read the entire article regarding Say on Pay in Grahall’s Knowledge Center.

You can peruse other compliance and regulatory updates in Grahall’s Knowledge Center.

And you can contact Garry Rogers at Garry.Rogers@grahall.com.

Filed under: Expert Perspective, Regulatory Updates