Executive Pay

An October 2012 SHRM article mentioned that in the 1970s management theorist Peter Drucker suggested that top executive compensation should be 20 times the amount of the average worker pay. Yet according to a May 2012 Economist online article, the Economic Institute calculated that chief executives at America’s 350 biggest companies were paid 231 times as much as the average private sector worker in 2011. The media have shared developments about the array of “Occupy” movements that have taken place recently, as well as the various explanations as to why they have occurred.  One primary factor cited for these Occupy movements was executive pay.

One thing is certain, executive compensation is a concern to many individuals, and has been for some time. How large of a concern executive compensation is, and why it is such a concern, is our topic for this issue of Astronology.

Eleanor Bloxham, founder and CEO of the Value Alliance, mentioned to SHRM that a large pay disparity between executives and employees results in low morale and a negative impact on CEO effectiveness. “People feel disconnected from the CEO. They are not willing to share with management what could be fixed or improved. The people on the ground don’t feel that top management understands them.” CEOs have “become disconnected, not understanding what their employees have to deal with or what their customers are going through. They’re in a protective bubble.” Clearly such attitudes negatively impact an organization. Especially in the times we live in, the economy has gotten better, but it still rocky in various sectors and industries. Can you imagine the frustration of the employees who haven’t received a substantial wage increase while their executive counterpart continuously receives such increases or large bonuses? Or perhaps, the feelings of employees who perceive those executive compensation packages to be reality, even if they are not the truth?

SHRM also highlighted the opinion of Donald Delves, founder and President of The Delves Group, regarding the matter of executive compensation. He feels that executive compensation is not really out of control. “It’s just high, and there’s a difference,” according to Delves. He highlights that the Sarbanes-Oxley Act, the Dodd-Frank Act, and the 2006 Financial Accounting Standards Board requirement that granted stock options be recorded as an expense have all contributed to CEO pay not accelerating since 2001 as it did in the 90s. “CEO pay went down during the recession, and as corporate profits came back up, CEO pay went back up.” He does admit that despite this fluctuation the pay disparity between executives and staff is still a “very serious societal problem.”

The Economist article mentioned that disgruntled shareholders are vocalizing their displeasure. For example, in March of this year, the Ontario Teachers Plan (Toronto), shareholders of Hewlett Packard Co. (HP), let their intentions be known by voting against the re-election of two directors on HP’s board, and opposing the company’s executive compensation packages. In May 2012, the head of British multinational insurance company Aviva stepped down after more than half of the investors voted down proposed executive pay packages. But is that enough? What else can be done to alleviate the pressure surrounding this problem?

In November 2012, Towers Watson revealed results of a poll of 253 U.S. companies which highlighted that 45% either made or will make changes to their executive pay programs in favor of strengthening the link between pay for performance. Half plan to or have changed the performance measurements which determine incentive payouts. Andy Goldstein, leader of Towers Watson’s executive compensation consulting practice for the central U.S., says of the survey, “The bottom line is that each company is different, and there is no single approach that is right for all companies.”  Astron Solutions concurs with this assessment.  As National Director Mike Maciekowich notes, “cookie cutter compensation packages – whether for staff or executives – often fail to meet an organization’s unique employee attraction and retention needs.  While a compensation offering should reflect each organization’s unique reality, all employers must ensure effective stewardship of limited financial resources.”

Astronology wants your input. Please write us, and let us know the following:

• Has your organized tackled the great executive pay debate?
• What is the approach your organization has taken in handling executive pay?
• Do you think it this current approach is effective?
• If not, what improvements would you like to see?

We truly do appreciate your input.  All responses will be kept in strict confidence.  Summary trend data may be highlighted in a future Astronology article, to continue the great executive pay debate!

The Astron Road Show

Next week is the SHRM Annual Conference and Exhibition in Chicago!  National Directors Mike Maciekowich and Jennifer Loftus, and Directors John Sazaklis and Brendan Williams, will be in booth #1854 to meet with current clients and friends of the firm, and new friends, too!  Stop by to see a real-time demo of Flare™, try your luck with our games of chance, and provide your thoughts on our research whiteboard’s next stop!  Need a free pass to enter the exhibit hall?  Please let us know!

Developing Meaningful Performance Goals

An essential part of a successful performance review is developing meaningful performance goals for employees to achieve in the following year.  This positive approach to performance development cannot be applied universally, however.  Rather, one must tailor performance review goals to take into consideration the size of an organization, the variety of departments / specialties, the personality of the staff, and the organization’s culture. In this issue of Astronology, we provide helpful tips for how to develop performance goals that will be meaningful for your organization and, more importantly, your employees. 

Know your System

As mentioned in our previous issue of Astronology, the most effective approach to the performance appraisal process is one that facilitates communication and professional growth.  One size does not fit all.  Rather, each organization’s performance review system must give consideration to the size of the organization, varying work specialties and departments, and the organization’s culture and staff.  The facilitator / supervisor of an employee’s performance review must be able to comprehend how the appraisal system works, and explain it clearly to each employee.  Through that process, the employee comprehends how he / she is being measured. Clear communication helps open the door for open assessment and a more productive review.

Be Prepared

Employees expect honest feedback on their work efforts. BEFORE the performance review, review the employee’s record of employment, which should include both achievements and moments of misjudgments.  Managers should reflect on their own interactions with the employees.  Select the areas to highlight for the employee based on his / her strengths and noticed weaknesses, and integrate into potential performance goals for the coming year.

Recognize that Goal Developing is an Interactive Process

Although the employee expects to receive feedback both positive and negative, he /she should never feel like the performance review is one-sided. Be prepared to hear where the employee thinks she has succeeded and perhaps fallen short. Ask the employee open ended questions to get his opinions if an employee may be hesitant to share his viewpoints. When establishing future goals, allow the employee to voice where he / she would like to improve and how he / she sees that improvement coming to fruition.  Managers must be willing to find areas where they can help employees become better.

Make Sure the Goals Align with Both the Organization and the Employee

Developing meaningful performance goals requires keeping in mind not only the employee’s work pace and personal goals, but also areas where the organization would like to grow within the next year.  Are there areas within the organization that management would like to see further explored or developed?  These organizational opportunities should be presented to the employee to determine interest in participating, and associated developmental goals.

In addition, perhaps the employee sees other areas within the organization where he / she could provide value and insights during the upcoming year, for both organizational and personal growth and success.  If so, these areas are another opportunity for mutually beneficial performance goals.   

Make Sure to Schedule a Follow-Up

Depending on the type of goals that are set, and the organization’s frequency for performance reviews, follow-ups need to be scheduled throughout the relevant time period.  Managers must ensure they schedule follow-ups when establishing new performance goals, so that employees stay on track, unanticipated resources can be allocated, and goals can be adjusted in light of previously unknown information.  During the following quarter, the manager and the employee might see that goals need to be adjusted.  Be flexible for success!

Developing performance goals can be an enjoyable experience for both the employee and the supervisor / reviewer.  To make the most of the process, ensure that open communication permeates all discussions, and be prepared to offer insightful highlights, constructive criticism, and actionable suggestions.  Through this process, both individual managers and the organization at large will surely watch the employees and the organization grow and enjoy mutually beneficial success.

ASHHRA Region 1 Conference - Special Attendee Info & Prizes

Attending the ASHHRA Region 1 Conference in Bretton Woods, NH this June?  Great, because Astron Solutions will be there as well!

Let us know you’re coming (Sign up for conference giveaways here!) and please stop by our booth, to learn more about Flare™, our cloud-based talent management suite! With Flare™ you can create a custom consolidated framework for your organization’s HR needs. Modules include:

• Performance Appraisal
• Job Descriptions
• Incentive Tracking
• Salary Forecasting
• Exit Interviews

Not in the market for an HR system?  No worries – you can also learn more about Astron’s Total Rewards Consulting (Compensation Design/Incentives) and Employee Retention Strategies (Exit Analysis/Employee Engagement Surveys)!

Please be sure to stop by our booth for giveaways, and an opportunity to provide your feedback on what in HR keeps you up at night!