Posts Tagged ‘Pay for Performance’

Do You Know the Five Essentials of Pay for Performance?

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By David Fisher of Fulcrum Partners and Thomas E. Miller of The VisionLink Advisory Group

This article is reprinted with permission from the November/December issue of PSX: The Exchange for People Strategy, an eMagazine that brings you cutting edge views and perspectives on all things related to people strategy.

As unique as your organization is, it shares certain fundamental objectives with other companies, regardless of whether those companies are within your niche or are highly dissimilar in their service, product, structure or culture. Every organization has goals to meet, stakeholders to satisfy and a strong need to continually attract and retain talent, all of which must be accomplished while carefully maintaining balances of short-term and long-term compensation and variable versus guaranteed reward.
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Just Realize It’s Simply One More Tool in Your Toolbox

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Can you hear them? Scratching away, or these days more likely pecking away at keyboards. The auditors are at it, it’s coming up on proxy time! They are working furiously, not exactly 24/7 but close to it to balance the books for some 10,000 publicly traded companies in the US. Unfortunately, not even Grahall can do this in its sleep! Journalists, activist investors, and regulators are poised to dissect the proxy statements that will start to be released in just a few weeks.

Today’s proxy bears little resemblance to that of 5 or 10 years ago, as there have been lots of changes in the way executives are compensated and the way that compensation is reported. As Grahall’s Garry Rogers says: “Nearly every aspect of compensation, with the exception of Code Section 162(m), has been revisited in the past several years. Stock options have been marginalized as a primary compensation tool because of changes in expensing and concerns about risk. In their place, the prevalence of restricted stock and performance shares is on the rise.”
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Filed under: Expert Perspective - Rewards



Is there any real importance to the ratio of CEO to average worker pay?

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Expert Perspective by Grahall’s OmniMedia Editorial Board

The September 17, 2010 article in Financial Times (CEO/employee pay ratios) again addresses the nagging question of the seemingly outrageous difference between CEO pay and that of the average worker but raises the question as to whether a larger or smaller differential is “better”.   The author writes: “Would you work harder if the ratio [between the CEO’s pay and yours] was higher or lower? So called ‘tournament’ theories of income differentials reckon that higher is better…[but] others say that the level of chief executive pay is obscenely high and that investors have a right to know which firms reward bosses too much relative to the peons.”

Peons?  OUCH!   But let’s not argue the semantics of arrogance. 

Say on pay is here to stay.  Companies who are outliers with relatively high executive pay will be loudly criticized. 
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Performance and Pay: The Missing Links

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Expert Perspective  by Grahall’s OmniMedia Editorial Board

In their May 6th, 2010 article published in Bloomberg (CBS Overpaid Moonves $28 Million in Study of Chief Executives) authors Jessica Silver-Greenberg and Alexis Leondis write:  “Pay expert Graef Crystal, a former adviser to Coca-Cola Co. and American Express Co., has concluded that pay for performance is a fiction.  Using formulas he developed over 30 years in the business, Crystal crunched the numbers to see whether higher shareholder returns, the gold standard of performance for investors, led to higher pay, and vice versa. No matter how he sliced the data, the answer was no.”

Time and time again we see overly simplified answers to highly complicated questions about CEO pay.  We have written in several occasions about the imprudence of broadly applying presumptions gleaned from ill-conceived studies of limited segments.  (See for example: Typical Examples Aren’t So Typical  and The Hurd Locker.

This “research” by Crystal again follows that well trodden but pointless path.  Let’s deconstruct what little we know of about Crystal’s “formulas” based on what is described in the article:
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“The truth is… never simple” (Oscar Wilde)

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Expert Perspective by Grahall’s Omnimedia Editorial Board

A March 23, 2010article in Free Press (freep.com) by Brent Snavely (Mulally compensation hits $12.87M at Ford Union angry about white-collar pay) got our Editorial Board talking.

Snavely says: “Ford President and CEO Alan Mulally’s compensation of $12.87 million in 2009 might look unreasonable to some, but it is based on smart executive compensation practices, experts say.”

Snavely quotes Daniel Moynihan, principal of Compensation Resources saying of Mulally’s compensation: “It looks like they have a true pay-for-performance package there. Their stock price is doing well, and his fixed compensation went down.”

Yes, Ford did very well in 2009 as compared with other car companies and some other companies in other industries. And to its credit, Ford did it without the need for government support. But it is simplistic to compare Mullaly’s compensation and Ford’s stock price and conclude that it is ”true-pay-for-performance.”
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AIG Overhauls Incentive Pay to Reward Top 10% of Employees

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American International Group Inc., the insurer criticized by lawmakers for giving bonuses to executives after a U.S. bailout, started an incentive plan that will give the top 10 percent of employees the largest awards. AIG’s system will rank employees on a scale of 1 to 4 based on performance compared with colleagues, Christina Pretto, an AIG spokeswoman, said yesterday.

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Entitled to an Increase?

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Given the economic turbulence of the past few years, “normal” salary increase programs are few and far between. If entitlement was an issue before, it now looks like it will continue to be a part of the “new normal” to manage as organizations must deal with limited or non-existent budgets and greater disparity among industry sectors.

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A Window Opens on Pay for Bosses

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Is it possible that shareholders will finally get a reliable view of what the bosses are getting paid? And that it will come this spring?
The answer is yes, Floyd Norris writes in his latest High and Low Finance column in The New York Times

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Tie Pay to Performance — The Innovators

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http://www.thestreet.com/story/10626292/1/tie-pay-to-performance–the-innovators.html?cm_ven=GOOGLEFI
Tie Pay to Performance — The Innovators
Bob Prosen, Contributor
11/19/09 – 06:00 AM EST
In light of recent events in which the role of government and executive pay has moved to center stage, the parameters of compensation have taken on a whole new twist. But whether publicly traded, privately held, or government-supported, the basis for compensation in all companies should ultimately rest with performance.
Tying compensation to performance is the most basic form of accountability. It seems such an obvious connection, yet I can’t believe how frequently I find that year after year workers who don’t meet their objectives continue to get pay raises. If there are no consequences for poor performance, you can’t expect improvement. What you can expect is a company full of poor performers.

Published in The Street November 19, 2009 by Bob Prosen

In light of recent events in which the role of government and executive pay has moved to center stage, the parameters of compensation have taken on a whole new twist. But whether publicly traded, privately held, or government-supported, the basis for compensation in all companies should ultimately rest with performance.

Tying compensation to performance is the most basic form of accountability. It seems such an obvious connection, yet I can’t believe how frequently I find that year after year workers who don’t meet their objectives continue to get pay raises. If there are no consequences for poor performance, you can’t expect improvement. What you can expect is a company full of poor performers.

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Pay-performance link works, study finds

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Published in Pensions & Investments November 12, 2009 by Barry B. Burr

The value of CEOs’ stock ownership in their own companies and their outstanding equity awards and bonus payouts fell 42% on average in 2008, larger than the median 34% decline experienced by a typical shareholder at those companies, according to a study released today by Watson Wyatt Worldwide, a consulting firm.
The 967 CEOs analyzed in the study about their company stock lost a combined $53.7 billion on that stock — roughly $55.5 million for the average CEO — in 2008, compared with $3.2 trillion for shareholders of the same set of companies, the study said.

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