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. For the financial services industry, the past several years have been unprecedented. The chance that pay practices at some of the world’s largest financial institutions maybe be linked to the global economic crisis is no longer in question. And the relatively fast return to profitability (albeit with the generosity of the American taxpayers and TARP bailouts) is both remarkable and potentially troubling, at least as far as risk considerations are concerned if pay practices had not been amended.
The important point is that not only has the economy changed over the past several years, but so too has the workforce. An organization’s long term success hinges on selecting and retaining an effective and motivated workforce to achieve desired business goals and objectives. This requires a continual review and renewal of compensation policies to meet not just regulatory requirements but to meet the needs of a changing workforce and a changing business strategy.
We hope the return to profitability demonstrated by many of the financial services companies is at least due in part to revising compensation policies so that they help to ensure maximum return on rewards (i.e. compensation) investments. The most successful companies work to continually improve their resource acquisition and resource deployment. These successful companies focus on the design and integration of rewards components that motivate appropriate behaviors and attitudes and take a surgical approach to allocating rewards to areas that add the most value to the organization.
Stock concludes his article with a comment that “Och-Ziff Capital Management LLC [has] sweetened the deal [by increasing the bonus pool] for workers.” Sweeter for the workers, but is it a sound strategy?
In our experience, some of the best resource “acquirerers” and resource “deployers” are the hedge funds and private equity (PE) firms. Consider this. Hedge funds and PE firms are something of a cottage industry. Often these firms are started by people who at one time added impressive competitive advantage to big financial services corporations and then wake up one day and realize that the corporation and its bureaucracy are not necessary for them to do business. These firms are highly successful because of their exceptional ability to acquire and deploy resources, and they extend that skill to human resources as well by hiring the best people and paying them appropriately.
The companies best poised for success are those who are focusing on resource acquisition and deployment; they are “tinkering” with pay practices, hiring the best talent and paying more to those employees who provide competitive advantage.
As Grahall’s Michael Graham was quoted in a recent blog Don’t Get In a Twist About Human Capital Turnover: “Employees in the 15% or so of mission critical jobs are the company’s most important assets and should be rewarded accordingly. Anything else is an ineffective allocation of resources and does a company disfavor.”
Contact Grahall’s OmniMedia Editorial Board at firstname.lastname@example.org