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Next Steps Health-Care Reform Journey in the




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Guidance 14 Eonxpert Health-Care Reform Reform 20 Handealth-Care Your Benefits Strategy

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42 | Organizational Road Maps: A GPS for Success

frontpage 14 | Expert Guidance on Health-Care Reform By Jim Fickess Health-care reform is here. Do you know what steps to take to prepare? What about in the long term? Will health-care reform change the face of attraction and retention forever? Jason Eliot of INTEGRIS Health and Chantel Sheaks of Buck Consultants offer expert advice.

20 | Health-Care Reform and Your Benefits Strategy By Leonard Sanicola, CCP, CBP, GRP, CEBS, SPHR Now is the time for HR professionals to step back from all the distractions brought on by health-care reform and use the new law as an impetus to define and develop a health-care benefits strategy. Read how to assess an organization’s health-care strategy, get senior leadership buy-in and follow a six-step approach to developing that strategy.

features 28 | Tips to Help Managers Optimize Performance Reviews By Paul Rowson, CCP, GRP, WLCP, and Kip Kipley, CBP, SPHR There are many fundamental issues with performance management. Managers seldom appreciate the opportunity performance reviews present to re-recruit and re-engage employees, while some employees regard it as punitive and even destructive. Learn how you can optimize the performance review process to ensure success for all stakeholders: the employee, the manager and the organization.

34 | Stemming the Rising Tide of Worker Stress By Barry Hall, FSA With nearly one-quarter of Americans reporting high levels of stress, it’s no wonder that employers have begun to add stress management to their wellness programs. Analysis of numerous surveys points to where levels of stress are highest and where employer priorities lie when it comes to stress.

Cover Photography: ©

By Jerry M. Newman and Peter Hearl Getting employees to show the behaviors needed for success would be simpler if it were clear what those behaviors are, and how they help achieve corporate goals and employee rewards. Such information should be part of an organizational road map — one whose clarity will lead to employee satisfaction and organizational success.

48 | Broad Deductibility Limitations

What Lies Ahead for Executive Compensation? By Robbi Fox Since the introduction of Section 162(m) in 1994, new legislation has slowly chipped away at the exemptions allowable under the rule, the latest being the recently enacted PPACA and its effect on health insurance providers. As executive pay levels continue to be a controversial and populist issue, what will executive compensation look like if Congress decides to broaden those PPACA limits across the board, to all types of organizations?

54 | Make the Most of Long-Term Performance Plans By Richard Harris The Great Recession did more than shake up the workforce, it put a much bigger spotlight on executive pay practices. As the economy recovers, executive pay will likely be based on longer timeframes and have greater performance variability. This article discusses the many ways to design executive compensation plans that provide reward opportunities.

62 | How Effective Is Your HR Practice? The Critical Importance of HR Audits

By Jody Mousseau and Susan Carter This is shaping up to be a critical year for organizations to ensure their HR practices are effective, compliant and strategically aligned in order to minimize legal risk and maintain or build competitive advantage. However, it is difficult to know exactly how effective, strategic and compliant HR practices are unless they are viewed with a critical eye. This review can be achieved through an HR audit.

68 | Beyond the Downturn

Survey Reveals 4 Key Trends that Emerged from the Recession By Athar Siddiqee, CCP, GRP, and Mark Szypko, CCP As businesses begin to emerge from the recession and figure out what their new normal will be, they will likely want to know what their counterparts are doing. A survey was recently conducted to find out who downsized, who froze wages, who eliminated merit increases and when companies think they’ll be back to business as usual.





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| From the Leadership Don’t Know What You’ve Got Until It’s Gone

10 | Rules & Regulations Federal Government Taking Cues from Private Sector on Workplace Flexibility By Carrie Clark

75 | Special Advertising Section Partners in Practice: A Guide to Consulting

94 | Member Resources 97 | Back to Basics How to Launch a New Sales Compensation Plan

87 | Viewpoint Why Intrinsic Rewards Count: Dan Pink’s Drive By Frank Giancola

100 | Focus on Ethics Genuine Work-Life or Lip Service?

90 | Viewpoint Committing to Work on Workloads By Susan Seitel WorldatWork Management Team President  Anne C. Ruddy, CCP, CPCU

About WorldatWork® The Total Rewards Association

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WorldatWork ( is a not-for-profit organization providing education, conferences and research focused on global human resources issues including compensation, benefits, work-life and integrated total rewards to attract, motivate and retain a talented workforce. Founded in 1955, WorldatWork has nearly 30,000 members in more than 100 countries. Its affiliate organization, WorldatWork Society of Certified Professionals®, is the certifying body for the prestigious Certified Compensation Professional® (CCP®), Certified Benefits Professional® (CBP), Global Remuneration Professional (GRP®), Work-Life Certified Professional™ (WLCP®), Certified Sales Compensation Professional™ (CSCP™), and Certified Executive Compensation Professional™ (CECP™). WorldatWork has offices in Scottsdale, Arizona, and Washington, D.C.

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Compensation and Benefits, General Mills ARTICLE Reviewers Stephanie Abualia, CCP, Cox Enterprises Inc. David Brown, CCP, CBP, Kaiser Permanente Christine Costello, CCP, Barnes Distribution Sherjuana Davis, Ph.D., CCP, GRP Tammy Deal, CCP, RSM McGladrey Inc. Rajkumar Dharmaraj, Microland Ltd. Stephen Dudak, CCP, HJ Heinz Co. Thomas Farmer, CCP, SPHR, InterContinental Hotels Group Anne Frigon Lori Glasgall, CCP, Integrated Compensation Solutions Inc. Steven Gross, Mercer Lillian LeBlanc, SPHR, Baptist Health South Florida

Katherine Macrone, CCP, SPHR, University Community Hospital Cynthia Obenland, CCP, GRP Rumame Samuels, CCP, SPHR, MCG Health Inc. Kim Scott, Administaff Steven Silberglied, CCP, Sodexo Tom Sondergeld, Hewitt Associates Douglas Van Tornhout, Purdue Pharma LP Yolanda Velazquez, CCP, GRP, McDonald’s Corp. Mike Voigt, CCP, SPHR, Galderma Labs LP Paul Weatherhead, U.S. Postal Service Carolyn Wiley, Ph.D., SPHR, Roosevelt University Bryan Williamson, CCP, Northern Arizona Healthcare Marlene Zobayan, Deloitte Tax LLP

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Take the Lead … Celebrate National Work & Family Month this October October is National Work & Family Month, a national initiative led by WorldatWork affiliate Alliance for Work-Life Progress (AWLP) to acknowledge the importance of employer-sponsored work-life programs. Now’s the time to try telework or some other flexible work arrangement to increase business productivity and employee motivation. Get updates on what AWLP has planned so that you can become a leader in the celebration. Access resources and tools to help your organization make the most of this year’s National Work & Family Month at 

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fromtheleadership | executive committee

Don’t Know What You’ve Got Until It’s Gone Don’t it always seem to go; you don’t know what you’ve got ’till it’s gone.

Anne C. Ruddy, CCP, CPCU Member, 2010 WorldatWork Board of Directors President, WorldatWork

As a child of the ’60s, these words from a Joni Mitchell song have always stuck with me. And now as I read so many studies, surveys, blog posts and news items about how many employees intend to leave their employer in the next 12 months, the lyrics will likely apply to many organizations. After 18 to 24 months of experiencing RIFs, frozen or reduced pay, furloughs, etc., many employees are just ready to move on. Yes, retention is top of mind for us right now. But then again, shouldn’t it always be? I say this because, based on the informal polling I do whenever I speak to various groups, no matter what the economic or employment conditions are, there is always a scarcity of talent in every organization. Think about it. Ever had anyone in your organization tell you that your company has too many good people? How about within your own area of responsibility in HR? Do you have the talent on your team to get the job done? It’s my view that every organization has some people who are truly remarkable achievers. The problem is some of us won’t know it until they’re gone. So let’s avoid surprises and think about doing these things now: 1. Identify your keepers. Know who you can and cannot afford to lose. Here you need to be sure to separate the function from the individual. Don’t get caught in the trap of substituting the essential role for the essential individual. They are not the same. 2. Spend more time with your keepers. Most of us have a tendency to spend more time coaching our weaker performers to get them to ground zero. Meanwhile, we are so confident of our best performers’ capacity, commitment, capabilities and independence that we feel they don’t need us so much. I disagree. With so much more to work with, imagine what spending more time with your best will do for you and them. The right kind of time with the boss is a highly valued commodity. 3. Figure out what really rewards your keepers and then do it. It is my experience that not everyone thinks cash is king. More time off, more challenging work, more visibility with senior leadership or a more flexible work schedule is often the currency that counts. 4. Act on those who do need to move on. We all have so much to do that carrying nonperformers will drag down your entire operation. Nothing undermines the psychic engagement of keepers more than our failure as leaders to act. I know all of this is much easier said than done. But do it anyway. You will know what you’ve got and it won’t be gone!


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Federal Government Taking Cues from Private Sector on Workplace Flexibility


he national spotlight has been shining brightly on workplace flexibility programs during the past year. With an administration that is focused on “good jobs for everyone” and making working for the federal government cool again, expanding workplace flexibility programs, both within the public and private sectors, has been a priority this year. Earlier this year, the White House held the first-ever White House Forum on Workplace Flexibility. The forum brought together a wide variety of stakeholders interested in expanding workplace flexibility programs. Work-life researchers, business representatives, advocacy groups and small businesses met to discuss the challenges that employers face in implementing these programs and the benefits to employees and employers of having a robust work-life portfolio. The daylong forum was also attended by President Obama and First Lady Michelle Obama, who both spoke about the importance and need for greater use of workplace flexibility programs. In opening the forum, Michelle Obama said, “Flexible policies actually make employees more, not less, productive. Instead of spending time worrying about what’s happening at home, employees have the support and the peace of mind they need to


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Flexible policies actually make employees more productive. Instead of spending time worrying about what’s happening at home, employees have the support they need to concentrate at work. concentrate at work, which is good for their families — and the bottom line.” “Workplace flexibility isn’t just a women’s issue,” President Obama said in his closing statement. “It’s an issue that affects the well-being of our families and the success of our businesses. It affects the strength of our economy — whether we’ll create the workplaces and jobs of the future that we need to compete in today’s global economy.”

Carrie Clark WorldatWork

The big news for federal sector workplace flexibility, however, came from John Berry, director of the Office of Personnel Management (OPM), in his keynote address. He announced the creation of a pilot program at OPM where a representative sample of OPM employees would be transitioned to a Results Only Work Environment (ROWE). The program emphasizes an employee’s output rather than hours worked and encourages employees to work when and where they choose as long as they achieve desired results. “Success will send a powerful message, because if flexibility can succeed in the federal government, with the unrivaled importance, complexity and variety of our missions, it can succeed anywhere,” Berry said. And, so far, the program seems to be working. It began with an assessment stage and an education stage, each lasting one month, before the pilot program started. The program officially kicked off in July and includes nearly 400 OPM employees in a wide variety of positions, including union




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and non-union employees. OPM components involved include retirement and benefits, HR solutions, communications and the director’s office. Even before the implementation phase, testified Joe Flynn, vice president of the American Federation of Government Employees, one of AFGE’s local union groups had seen positive results. “One of the work groups selected to participate has had major workload processing problems for some time, and joint management and labor forums have been established to address these problems. Local 32 can already see that preparing this group to participate in the ROWE pilot has driven the resolution of some of the issues raised by the union this past year. We believe that if the ROWE pilot works with this particular work group, it can work within any other offices,” Flynn testified. The ROWE pilot is not the only development on the federal workplace flexibility front. There has been more congressional movement this year on bills on this subject. The House and Senate passed versions of legislation that would expand the use of telework by federal workers. The House-passed Telework Improvements Act would create a telework managing officer in each federal agency, create a telework policy for all federal employees, and allow federal employees to telework at least 20 percent of the hours worked in every two administrative workweeks. The Senate-passed Telework Enhancement Act would require each executive agency to establish a telework policy, determine and notify eligible 12

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employees, provide an interactive telework training program, and ensure that no distinction is made between teleworkers and nonteleworkers for purposes of performance appraisals, work requirements or other acts involving managerial discretion. Neither of these bills are law, however, since the exact same piece of legislation must pass both houses of Congress before being signed into law. The bills are similar enough that it is reported that the committee staffs that have jurisdiction over the bills (the House Oversight and Government Reform Committee and the Senate Homeland Security and Government Affairs Committee) are working together to resolve the differences between the two bills. The new bill would then have to be passed by both the Senate and House before being presented to President Obama for his signature. Advocates for these two bills contend that they are necessary because, according to the 2010 Employee Viewpoints Survey conducted by OPM, only 9.5 percent of federal employees report teleworking at least once a week; 12 percent reported that they teleworked “infrequently” (defined by the survey as less than one entire workday per week). Almost one-quarter of all respondents reported not teleworking because they were not allowed to, even though they had the kind of job where they could telework — that is, not a job that handled classified information or required them to be present on the jobsite. Overall, only 35 percent of federal employees surveyed were satisfied with their agency’s telework program.

Despite progress made within the bounds of what the federal government can do, there is still much work to be done. Although three-quarters of employees surveyed reported that their supervisor supported work-life balance, responses when asked about individual programs were less positive. In addition to the mostly negative view of telework programs, of those expressing an opinion, less than onequarter of respondents had a positive view of their agency’s child- and eldercare programs. There are things that can be done to improve federal work-life policies. The Senate Homeland Security and Government Affairs Subcommittee on the Oversight of Government Management, the Federal Workforce and the District of Columbia heard testimony from Kathie Lingle, executive director of the Alliance for Work-Life Progress, regarding the need for a more strategic deployment of work-life programs. “What is striking today is that for the most part, the federal sector is not harnessing the full power of work-life effectiveness as the most inexpensive and intrinsically motivating driver of attraction, engagement and retention available in the 21 st century,” Lingle said in her written statement. “The notable gap in the federal environment is a failure to deploy work-life as an overarching organizational strategy, one that has a demonstrated capacity to engage the minds and hearts of any labor force.”  About the Author Carrie Clark is a member of the public policy team in WorldatWork’s Washington, D.C., office. She can be reached at [email protected]

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he year’s sweeping health-care reform legislation has been described as “one big, rambling Rube Goldbergian machine” by one national newspaper. And while many of the major provisions won’t take effect until 2014, when the political landscape could be bulldozed and rebuilt by two congressional and one presidential election, changes are already happening for HR and total rewards professionals. The Health-Care Reform Forum at the 2010 WorldatWork Total Rewards Conference & Exhibition was one of the best-attended sessions. Two members of that forum’s panel, Jason Eliot of INTEGRIS Health and Buck Consultants’ Chantel Sheaks, agreed to an exclusive interview with workspan to elaborate on some of the issues discussed at the forum. Following are some of the highlights.

Quick look How much costs will increase depends on the terms of the plan on March 23, 2010 (the day health-care legislation was passed). Health benefits may lose their status as a differentiator in the employee value proposition. We will not know until 2015. Companies need to have a full understanding of their plans, the requirements of health-care reform and the effect of those requirements on their plans.

By Jim Fickess, WorldatWork

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dependents up to 26 years old, who were not eligible before; requiring free preventive services; and eliminating the lifetime and annual maximums are all steps that will increase costs. The expectation, of course, is that some of those provisions will ultimately lower long-term costs.

The biggest immediate concern is understanding the plan design changes that must be made in 2011. This has been especially difficult as HR prepares for open enrollment.

sheaks : How much costs will increase depends on the terms of the plan on March 23, 2010 (the day health-care legislation was passed). For example, if the plan did not have lifetime or annual dollar limits on essential benefits and covered adult children up to age 25, the cost will not increase significantly. However, for plans that had limited lifetime benefits and did not cover children up to 25, the cost could be significant. workspan :

In light of all the uncertainty, how should companies be preparing for health-care reform? For 2011 open enrollment? What should a company be communicating now? eliot :

workspan :

As information and guidance continue to come out about what healthcare reform will mean for employers, what is the No. 1 short-term consideration for total rewards professionals? sheaks :

The biggest immediate concern is understanding the plan design changes that must be made in 2011. This has been especially difficult as HR professionals have been preparing for open enrollments, and at the same time, are trying to understand what changes must be made to the plan under the new law. In the past, employer plans have had much more time to comply with changes in the law. Once HR professionals have had a chance to catch 16

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their breath after open enrollment, they will begin looking into the longterm implications.

This year is all about administration, compliance and communication. At INTEGRIS, we intend to communicate only the facts, such as “This is happening now, and this will not be happening until 2014.”

eliot :

Right now, it’s all about next year and compliance and administration. There are a lot of questions out there: Are we grandfathered? Do we care? What are the costs of our grandfathered status? What are the required communications? It’s all about cost. workspan :

Ah, costs. Most experts anticipate increased costs for employersponsored health-care plans, at least in the short term. Is that how you see it? eliot : The short-term projections indicate increased costs. Adding

sheaks : For 2011, companies need to amend their plans to comply with the new requirements regarding covering adult children to age 26, eliminating lifetime and annual dollar limits, removing any pre-existing conditions limitations for dependents under age 19 and prohibiting reimbursement of over-the-counter medication from a health FSA (flexible spending account). Plan sponsors will not only need to communicate these changes but also when they become effective. Many employers have already communicated


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In the short term, most large employers will not get out of providing health-care coverage because there is no other alternative for their employees. some of these proposed changes to employees because when health-care reform was passed, there was significant confusion over the effective date of these changes, especially with respect to covering adult children. Many people thought the adult children would immediately be covered. They did not understand that this requirement was not effective until the first day of the plan year after Sept. 23, 2010, which for most employers means that this is not effective until Jan. 1, 2011. workspan : Offering a full range of quality benefits has been a cornerstone of the total rewards concept. How will health-care reform affect the attraction and retention of top employees? sheaks: Offering employer-sponsored health-care coverage will remain an important tool in attracting and retaining talent. Employees have come to expect, and appreciate, healthcare coverage from their employers. Employers will need to continue to offer coverage to attract and retain talent. eliot :

The changes bring a leveling of the playing field as it relates to attraction and retention. To what 18

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extent depends on whether the requirements in the reform bill become the minimum or standard. Companies looking to cut costs may consider the new requirements standard, which, again, levels the playing field. Health benefits may lose their status as a differentiator in the employee value proposition. We will not know until 2015.

All these are serious questions that require detailed analysis. Each industry, from a competitive perspective, will be different, and each company’s strategy will be formed by its industry. If our biggest competitor stops providing health insurance, that does provide us a differentiator in recruitment, but does it give them a competitive advantage on cost? Which is more important?

workspan : What about attraction and retention if companies don’t provide health coverage? That may sound outlandish, but it’s been reported in such media outlets as The Wall Street Journal that some big-name companies are considering not providing employersponsored health care. Why would a company consider this? What is the role of the employer if companies get out of the health-care business?

sheaks: It is too early to tell whether companies will get out of health care. In the short term, most large employers will not get out of providing healthcare coverage because there is no other alternative for their employees. Providing health-care coverage is about more than just attracting and retaining employees and about more than just dollars, it’s about making sure that your employees and their families are healthy and protected against financial loss due to medical conditions. When employees know that they and their families have quality, employerprovided health-care coverage, they have one less thing to worry about. This means that they can concentrate on their work.

eliot : Every prudent company should be doing a cost/benefit analysis of providing health insurance to their employees, asking questions like “Do we want to keep the direct cost of premiums?” “Do we want to keep the indirect cost of benefit administration, employee relations issues, etc.?” “Can we be competitive?” “Do we just increase salaries?” “How will the unions respond?”

workspan : What kind of conversations are you having with your leadership team

About the Experts Jason Eliot, J.D., is the system administrative director of human resources for INTEGRIS Health Inc. in Oklahoma. He has strategic and operational responsibilities for such HR functions as compensation, benefits, wellness, employee health, payroll, HR customer service center and on-site child-care facilities.

Chantel Sheaks is a principal of government affairs for Buck Consultants. She is one of the organization’s pre-eminent technical experts and spokespersons regarding the interpretation of and position on regulations, legislation and court decisions.

about health-care reform? What kinds of questions do you get? sheaks: Most of the discussion has been about what needs to be done now, the financial implications of these changes, and how to communicate these changes to participants and beneficiaries. We are getting some questions about future implications, but most people in leadership are interested in making sure that the plans are compliant with the immediate changes, and waiting until next year to look at future strategies. eliot :

Being in the health-care industry, INTEGRIS’s focus has been split between how it will affect our employees and how it will affect us as a provider. Our leadership team has been engaged in the legislation process. The questions to us have been primarily around communications. workspan :

Let’s talk big picture. What type of strategy should a company follow as it moves forward in the new healthcare environment? sheaks: For now, most companies are in a wait-and-see mode. No one is sure how health-care reform will impact employer plans. As such,

most employers are busy making sure that they are in compliance with the immediate reforms, but are waiting to see what this impact will be and how further guidance may impact their plan. eliot : Be detailed. Companies need to have a full understanding of their plans, the requirements of health-care reform and the effect of those requirements on their plans. They need to understand the costs versus the penalty and have a good understanding of their industry and how their industry will respond. Finally, they must be open and honest with their employees about the reform and how they intend to respond.

About the Author Jim Fickess writes and edits for WorldatWork publications and is a regular contributor to Phoenix Magazine. He can be reached at [email protected]

RESOURCES PLUS For more information related to this article: Type in any or all of the following keywords or phrases on the search line: • Health-care reform 2014 • Health-care plan design • Employer-sponsored health care.

What Will the Future Hold? As health-care reform advances toward 2014, WorldatWork and workspan magazine will continue to provide members with the resources and information they need to act strategically in providing total rewards. Please let us know your health-care reform questions and challenges, as well as any answers and solutions, so we can provide the most relevant information for you and your fellow total rewards professionals. Contact us at [email protected] • Designing Employee Health Management Programs: How-To Series for the HR Professional • Employee Benefits Basics: How-To Series for the HR Professional • Managing Employee Health Care Costs: A Collection of Articles from WorldatWork. • Health and Welfare Plans — Plan Types and Administration, Benefits Certification Exam: B3 • Health and Welfare Plans — Strategic Planning and Design, Benefits Certification Exam: B3A • Strategic Communication in Total Rewards, Benefits Certification Exam: T4.

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Health-Care Reform and Your


Quick look Although health care represents a significant portion of labor costs, many companies have not thought out a benefits strategy. While determining benefits strategies, employers must factor in the current economic and regulatory landscape along with the rest of the complex environment in which they operate. HR staff and employees are confused and anxious about the new health-care law, making effective communications about an organization’s health benefits critical.

By Leonard Sanicola, CCP, CBP, GRP, CEBS, SPHR, WorldatWork



ith all the distractions and noise brought on by health-care reform, now is the time for HR professionals to step back and use the new law as an impetus to define and develop their organizations’ healthcare benefits strategy. While health-care benefits have been part of the American business scene for quite some time, many employers have not thought out a health-care strategy, despite the fact that they view offering health care as an imperative for attraction and retention. In fact, about 65 percent of full- and part-time employees have access to employer-sponsored medical and retirement plans, workspan  10/10


Creating and maint aining a sound employee health-care benefits strategy is not simple and, depending on the complexity of the organization, can take quite some time to develop.

according to the March 2009 Bureau of Labor Statistics’ National Compensation Survey: Employee Benefits in the United States. Experience also tells us that many families view access to employersponsored health insurance coverage more critical than base compensation. Today’s HR professional is charged with creating comprehensive, welldesigned and cost-effective strategies to address the ever-increasing cost of health-care benefits and its growing regulatory complexity. But, many employers do not take the time to assess the return on their health-care expenditures, which range from 20 percent to 40 percent of total labor costs. Now is a good time for organizations to ask questions like: • What role does health care play in the entire employer-employee value proposition? • Is the current program aligned with our business objectives? • Does the workforce truly value our program? • Should we continue offering health-care coverage? 22

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While employers must comply with many federal regulations in the short run, all organizations need to determine if they’re in health care for the long haul. They also need to consider the implications of that decision. This leads to the all-important question: What role does health care play in our overall benefits strategy? Especially now with the increased scrutiny on health-care costs, the health-reform law, and the continuing remnants of the recession, one likely question will be, “Why should we offer our employee access to health-care benefits?” So, what does your organization want or expect in return for the investment in employee health-care benefits? A strategic approach to health care is important for many reasons. It improves decision making and aligns benefits with other organizational goals. Since health-care benefits comprise such a major part of labor dollars, and continue to be a growing cost of doing business, it makes sense to take a step back and make sure all the elements are aligned.

Creating and maintaining a sound employee health-care benefits strategy is not simple and, depending on the complexity of the organization, can take quite some time to develop. So, how does one go about developing a health-care plan that fits into the overall benefits strategy? Develop a Written Project Charter.

Before taking an inventory of your health-care offerings, discuss with your senior leadership team its philosophy and expectations of the role employee benefits, and specifically health care, play in your organization’s total rewards strategy. This is the opportunity to make certain that such programs are aligned with the company’s strategic goals. The key tasks are to identify the purpose and stakeholders of the project, obtain buy-in for the business need from senior leadership, build key internal partnerships across the organization, identify external partners for the team and determine

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the data needed for this initiative. Determine expectations of offering access to health-care benefits to your workforce in the context of all benefits programs. Is it to have a recruiting or retention advantage, increase employee satisfaction, optimize organizational productivity, provide income protection for employees, enhance employee engagement or encourage optimal workforce health and wellness? All of the above?

Secure Management Endorsement.

Obtain the leadership’s support and buy-in for the strategy. Demonstrate return on investment for any proposed initiatives and programs that may require funding. Discuss program objectives in support of the company’s overall mission and total rewards strategies, the investment required, and the short-term and long-term returns expected. Discuss the returns in quantitative and qualitative terms.

Gather and Analyze Data.

Take an inventory of your health-care offerings to determine if they are aligned with your overall benefits strategy. Expectations and resulting strategies will differ with businesses. In an organization where pay is low, there may be an opportunity to structure a health-care strategy that offers more value. A startup business looking to attract a young workforce might want to offer a cash subsidy that can be used for the purchase of individual coverage since health-care insurance is generally less of a concern for that demographic. On the other hand, a government agency with an aging workforce might need to offer richer health-care benefits and provide fewer benefits in other areas, balancing the need for health care against other total rewards offerings. Gather and analyze other necessary information, such as competitive practices, cost drivers, industry trends, benchmark data, workforce demographics and results from employee satisfaction surveys, to develop a written strategic direction. Develop the Strategy.

Using the data gathered, along with your charter, develop a written strategy, including resource capabilities and cost drivers that document specific project goals, objectives and timetables. 24

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Implement the Strategic Plan.

Determine key messages and communicate the strategy throughout all organizational levels. If possible, tie strategy to the company brand. Be sure to engage line managers to educate them and ask their support in disseminating the message to the workforce. Create a plan and select appropriate measures for evaluating achievement of goals and success measures.

Once the question of “Where does health fit into our overall benefits strategy?” is answered, these strategies, along with supporting programs and initiatives, need to be clearly communicated to all stakeholders. HR staff and employees are confused and anxious about the new health-care law, making an effective and wellthought-out communications plan a critical part of success. Before employers decide their health plan needs an overhaul, they would be wise to examine their health-care and overall benefits strategy closely. They might realize they have been operating without one.  ABOUT THE AUTHOR Leonard “Lenny” Sanicola, CCP, CBP, GRP, CEBS, SPHR, is a benefits practice leader for WorldatWork. He can be reached at [email protected]

Evaluate the Strategy.

Based on pre-established metrics, provide senior management with an ongoing dashboard or scorecard of performance results. Evaluate employee benefits plans and adjust if results are not being achieved and/ or strategy has changed. Strategies will change as organizations evolve over time; so, too, will their healthcare strategy.

Conclusion HR and total rewards professionals are called on to provide leadership in a complex and often ambiguous environment. While determining benefits strategies, including healthcare strategies, employers must factor in the current economic and regulatory landscape along with the rest of the complex environment in which they operate.

RESOURCES PLUS For more information related to this article: Type in any or all of the following keywords or phrases on the search line: • Organizational objectives • Employee behavior • Employee communication. • Communicating Total Rewards: How-To Series for the HR Professional • Rewarding Group Performance: How-To Series for the HR Professional • Strategic Communication in Total Rewards, Total Rewards Certification Exam: T4 • Eight Steps to Communicating Total Rewards, Total Rewards Topic Brief • Employee Engagement — Five Key Principles Supervisors Must Know, Total Rewards Topic Brief.




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here is no shortage of critics of performance reviews. For every study that shows performance reviews are pointless and demoralizing is a study that shows the exact opposite. There are many fundamental issues with performance management, not the least of which is that organizations do not give it the attention it needs to be done correctly and meaningfully. Managers seldom appreciate the opportunity it presents to re-recruit and re-engage employees. Furthermore, some employees regard it as punitive and even destructive.

Quick look

Performance management is a continuous process, one that is the same regardless of whether it is being applied at the individual, group, department or organizationwide level. A significant gap between a manager’s and employee’s view of performance is a signal that the manager has some work to do in providing the employee examples of performance that account for the difference in viewpoint. Never talk about compensation at the same time as performance. It detracts from the conversation about performance.

By Paul Rowson, CCP, GRP, WLCP, and Kip Kipley, CBP, SPHR, WorldatWork


Performance Reviews workspan  10/10


Just like bad wine does not improve with age, neither does a poor performer’s review discussion.

Following are helpful tips that HR professionals can provide to managers for optimizing the performance review process, which when used correctly, has the power to reward, motivate and retain employees, as well as help them achieve and exceed personal and organizational objectives.

Recognize that Performance Management is a Continuous Process Performance management is the same regardless of whether it is being applied at the individual, group, department or organizationwide level. The process will vary by organization, but usually involves the following steps: • Plan. Defines what is important to the organization, what needs to be done and the approach that will be taken. • Act. Refers to the day-to-day activities and ongoing developmental steps taken to accomplish the plan. • Monitor. Refers to the responsibility, held by the organization’s leaders and managers, to track performance, as well as coach and develop staff members, for the purpose of continuous performance improvement. • Review. Refers to formal assessment and feedback regarding the results of efforts toward meeting performance objectives. Set a Performance Review Date and Keep It Perhaps the most important meeting appointment a manager makes is the employee’s performance review. Delaying or postponing a review can be a sign of poor planning, misguided priorities and lack of preparedness, or simply procrastination. In any event, delays will certainly not reinforce all of the positive work your key performers have accomplished, nor provide a timely opportunity for your performance-challenged staff to improve. Therefore, whether the review is a quarterly or semiannual update, or the all-important annual review, 30

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set the date well in advance and keep it at all costs, save an emergency business or personal crisis. Regarding the order in which employees should be reviewed, while some managers prefer to deliver reviews to their top performers first and save their dreaded ones for poor performers until the very end, less focus on order and more focus on completing all reviews in a timely fashion is recommended. Remember, just like bad wine does not improve with age, neither does a poor performer’s review discussion. Subpar performers need to be assessed and given corrective feedback and coaching sooner rather than later.

Make Employee Self-Assessment Part of the Process What an employee views as accomplishments is a very important piece of information for a manager to consider. It confirms or raises questions about the employee’s ability to objectively assess his/her own performance. A significant gap between a manager’s and employee’s view of performance is a signal that the manager has some work to do in providing the employee examples of performance that account for the difference in viewpoint. Don’t assume that this performance gap is due to an employee inflating or padding his/her rating. On occasion, employees may undervalue their performance and contribution. Granted it’s a rarer circumstance, but a gap is still a gap that needs to be reconciled with specific examples and feedback. Also remember that a lot of things can occur in an employee’s performance year in today’s business environment. For example, managers can forget a contribution an employee made during the year, or an employee may have experienced one or more manager changes during the year. A self-assessment helps ensure that valuable performance contributions made throughout the review

Subpar performers need to be assessed and given corrective feedback and coaching sooner rather than later. period are not overlooked by the manager conducting the year-end review. A manager has but one chance to get it right on the performance review, or risk credibility as a leader. A selfassessment is a key way to avert this crisis.

Seek and Incorporate Multirater Feedback Obtain feedback — often referred to as multirater feedback — from your employee’s peers, key internal customers and your fellow managers. It’s important to consider how your employee’s performance and contributions are perceived by others in your organization. Not only does this feedback help inform a manager’s final performance rating decision, it helps provide a critical frame of reference in comparing the employee’s performance to a broader group of peers across the organization. This perspective will prove valuable to the manager later in the process when asked to recommend a final rating and the appropriate salary increase for the employee.

Calibrate Performance to Ensure Equity It’s a good idea for managers of employees in similar roles and levels to calibrate performance ratings as a final quality check. This means getting together as a management team to discuss performance among peer employee positions to ensure that management team members are using the same evaluation criteria to arrive at individual performance rating decisions. Some managers may be particularly tough graders, while others are lenient. Neither extreme is good, and calibration sessions are an excellent way to ensure that equitable rating decisions are made for comparable performance. It’s an added layer of effort, but it’s worth it to make sure that ratings are fair and consistent, as well as fall within the norms of performance and distribution. A final point to consider regarding calibration: In this tough economic climate, do you really think your employees

are not comparing their ratings and salary adjustments? They are calibrating among themselves — and so should you.

Recognize and Avoid Rating Biases Rating biases can surface from time to time with any manager, so recognizing them and avoiding them is key. When examining your performance reviews, watch for the following items that can indicate bias: • Halo/horn effect. This occurs when a supervisor forms either a positive or negative bias toward an employee based a dominant trait or factor that influences ratings for all the other employee’s traits under evaluation. This problem often occurs with employees who are especially friendly or unfriendly toward the supervisor or especially strong or weak in one skill. Having clear and specific ratings standards can help avoid the halo effect. Another means to avoid the halo effect is calibration, where the performance of all employees is assessed on one performance factor before moving on to the next factor to ensure that all employees are assessed equally on any one particular trait. Finally, considering multirater feedback during the evaluation process can help a supervisor become more aware of the halo effect bias and avoid skewed rating objectivity. • Leniency or harshness errors. When raters see everything as “good,” they are lenient raters. When they see everything as “bad,” they are harsh raters. Examine your ratings for a leniency or harshness tendency. If you have this tendency, consider using a normal distribution — 10 percent of employees are exemplary, 20 percent are distinguished, 40 percent are competent, 20 percent are marginal and 10 percent are unacceptable. • Central tendency. Some raters avoid using high or low ratings. Central tendency describes what happens when you tend to put everyone in the middle of the road and rate all of your subordinates as “competent.” workspan  10/10


I’m worried our top-performers may be looking for other opportunities. What can I do, without breaking the budget, to retain them and keep them engaged?

The problem with this tendency is it fails to appropriately discriminate between employees and offers little information for subsequent decisions. If you have this tendency, remember that this kind of rating will not help you assess training needs or make decisions on raises or promotions. • First impression. Whether your first impression is positive or negative, this should not be the basis for performance evaluation. Go back to the job description and performance documentation. This will take the emphasis away from gut-level feelings and superficial impressions and focus your evaluation on facts and behavior. • Personal bias. This occurs when a rater gives a higher rating because the employee has qualities similar to him/her, or a lower rating because the employee has dissimilar qualities. Also, raters can simply like certain employees better than others, giving them higher ratings because of these feelings. To check for personal bias, re-review information received via your multirater feedback process. A significant gap here may be an indicator of personal bias unless you have sound performance data to support your rating.

Join the discussion.

Obtain Senior Manager’s Consensus and Support Don’t be caught in a position where your manager disagrees with and refuses to support your rating and salary recommendation decision. If you feel strongly about a dissenting opinion, seek first to find a middle ground. Be willing to compromise where justified. Remember that senior managers typically have a more global view of employee performance and can often provide valuable objective distance. It’s natural to want the very best for one’s employee, but a subjective bias that leads to a poor rating decision is still a bad rating decision, even if it favors the employee. Separate Performance Reviews from Discussions about Compensation WORLDA WOR LDATWO TWORK RK ONL ONLINE INE at COMMU COthe MMUNIT NITY Ytime as Never talk about compensation same connect. share. performance. Here’s why: It detractslearn. from the conversaYour Com Compens ensatio ation, n, Benef B enefits its & Work-L Wo rk-Life ife Netw Network. ork. tion about performance. The employee will tend to focus more on the size of his/her pay raise, and the true purpose of the discussion is lost. www ww.wo .world rldatw twork ork.or ommuni FREE TO JOIN.discussions Ideally, pay increase are heldorg/c ag/comm week orunity two after the performance review. That way, if the reviewer misses a major achievement and needs to add it to the appraisal document, there is ample time to correct it 32

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as well as adjust the corresponding pay raise before it is communicated.

Conclusion I’m worried our tool. When used Performance management is a powerful correctly, ittop-performers has the power to not only retain employees, may but also motivate them to achieve and exceed personal be looking for other and organizational objectives. When used poorly, it can opportunities. be demoralizing and destructive — especially with What can I do, without top performers. Performance appraisals the are anbudget, essential element of breaking communication and trust building to retain them andbetween keepmanagers and employees, even more so in a tough economy. They them engaged? should not be eliminated but optimized to ensure success for all stakeholders: the employee, the manager and the organization. 

Join the discussion.

About the Authors Paul Rowson, CCP, GRP, WLCP, is managing director at WorldatWork’s Washington, D.C., Office and Conference Center. He can be reached at [email protected]

Kip Kipley, CBP, SPHR, is human resources director at WorldatWork in Scottsdale, Ariz. He can be reached at [email protected]

RESOURCES PLUS For more information related to this article: Type in any or all of the following keywords or phrases on the search line: • Performance reviews • Performance management • Performance rating. • Linking Pay to Performance: How-To Series for the HR Professional • Understanding Performance Measures: How-To Series for the HR Professional • Performance Management: A Collection of Articles from WorldatWork.


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mployee stress is a growing concern for employers around the world. Driven by globalization, rapid technology advancements and changes in working patterns, and compounded by layoffs, heavier workloads and pay cuts resulting from the Great Recession, worker stress has reached unprecedented levels. Whether the source of stress is work-related or personal, employers feel the effects in many ways: • Stress is a factor in chronic illnesses and medical conditions, leading to higher health-care costs and workers’ compensation costs. • Mental, emotional and physical strain take their toll on productivity and increase absenteeism and presenteeism (problems that result when an employee comes to work in spite of illness). • Chronic stress destroys morale, with negative consequences for relationships at home, in the workplace and with customers.

Quick look Money and work are at the top of the list of stressors, with relationships and family responsibility close behind. Chronic stress can lead to sleep disorders, depression, weight gain, substance abuse, domestic violence and suicide. It can also weaken a person’s immune response, contributing to other health complications and driving up employer health-care costs. Despite global differences in priorities, employers invest in stress reduction and healthy lifestyle programs to help employees and their families be more resilient and productive.

By Barry Hall, FSA, Buck Consultants

workspan  10/10


Some amount of stress is unavoidable in everyday life; it can even be a constructive force in motivating someone toward a desired goal.

Recent surveys show that employers recognize the importance of managing workforce stress and are using multiple approaches to combat its effects.

Stress is a Global Phenomenon Twenty-four percent of Americans said they experience high levels of stress and 51 percent reported moderate stress levels, according to a 2009 survey by the American Psychological Association (APA). Money and work topped the list of stressors, with relationships and family responsibility close behind. In a February 2010 ComPsych poll, three in four U.S. workers indicated they were very worried or somewhat worried about job stress and workload. Evidence from other surveys confirms that stress is on the rise worldwide. According to a 2009 Regus Business Tracker survey of more than

11,000 corporations in 13 countries, nearly six in 10 workers reported an increase in workplace stress during the past two years. According to the Money Sickness Syndrome report, published by A X A, as many as nine out of 10 adults in the United Kingdom suffer symptoms of stress over money matters. This number has doubled since the syndrome was first identified in 2006.

months or longer) almost always has a negative impact on health, well-being and productivity. Chronic stress can lead to sleep disorders, depression, weight gain, substance abuse, domestic violence and suicide. It can also weaken a person’s immune response, contributing to other health complications and driving up employer health-care costs. Chronic stress also erodes worker productivity — through increased absenteeism and presenteeism. In the APA survey, 51 percent of employees reported some amount of lost productivity due to stress while at work (up from 40 percent in 2008). A survey of 257 attendees at WorldatWork’s 2010 Total Rewards Conference and Exhibition identified health-care costs and absenteeism as the two areas most impacted by stress (see Figure 1). Although respondents rated productivity and presenteeism as the area

Stress is Unavoidable Some amount of stress is unavoidable in everyday life; it can even be a constructive force in motivating someone toward a desired goal. Transitory or “acute” stress, which occurs along with an event — such as an exam or a work deadline, a marriage, divorce or the purchase of a home — diminishes when the stressful situation is resolved. However, chronic stress (which lasts six

Figure 1:

Organizational areas impacted by stress

Significant impact

Moderate impact

Limited impact

No impact

Don’t know 3

Health-care costs






Employee morale and engagement


Work-life imbalance


Employee turnover (retention)


Productivity and presenteeism

12 0%

43 39 46 39

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42 35 20 20%

Source: Stress in the Workplace survey, Buck Consultants and WorldatWork, May 2010


13 2




5 8







20 60%



42 40%



7 100%

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least impacted by stress, several studies published in the Journal of Occupational and Environmental Medicine found that stress and related conditions have a significantly greater financial impact on presenteeism than on absenteeism and health-care costs. For example, a 2005 study of more than 12,000 employees of Dow Chemical found that among all chronic conditions, those related to stress were the most costly, and the cost associated with presenteeism greatly exceeded the combined costs of absenteeism and medical treatment. In addition to cost and productivity drain, stressed workers are more likely to be distracted, which can lead to poor quality control, workplace

Figure 2:

accidents and associated workers’ compensation costs. Consider the potentially disastrous outcomes of a bus driver, nurse or air traffic controller who is distracted by a stressful situation or fatigued by lack of sleep. Even an assembly line worker’s inattention to detail can lead to costly or dangerous product defects. A stressful work environment also damages employee morale and an employer’s ability to attract and retain qualified workers. Over time, workers will migrate to (and stay with) employers that provide healthier, less stressful work environments. How many people do you know who have quit a job that was too stressful?

Priority of health issues influencing wellness strategy






Latin America

United States









Physical activity/exercise








Nutrition/healthy eating








Work-life issues








Chronic disease (e.g., heart disease, diabetes)








High blood pressure (hypertension)








High cholesterol (hyperlipidemia)








Workplace safety
















Tobacco use/smoking








Psychosocial work environment
















Personal safety
















Maternity/newborn health








Substance abuse








Infectious diseases/AIDS/HIV








Public sanitation








Source: Working Well: A Global Survey of Health Promotion and Workplace Wellness Strategies, Buck Consultants, November 2009


Stress Drives Wellness Strategies Buck Consultants’ third annual global wellness survey asked 1,103 employers in 45 countries to rank a number of health issues driving their wellness strategy (see Figure 2). These priorities reflect how employers choose to allocate their investment in specific wellness programs. Survey respondents in five of seven regions of the world identified stress as their top priority for investment. U.S. and Latin American employers rated stress as a lower priority — fifth and third, respectively. These regions chose physical activity/exercise and nutrition/ healthy eating as their top two priorities. This implies a greater concern

workspan  10/10

about obesity and related conditions (such as type 2 diabetes and heart disease) than stress among employers in the Americas. This reduced prioritization of stress may indicate that some employers don’t fully understand the importance of stress management to their overall wellness efforts. Excess stress and related issues (e.g., depression, anxiety, fatigue and irritability) will impede individuals’ ability to address other lifestyle issues, such as exercising regularly, improving nutrition, quitting smoking and getting enough sleep. Think of it this way: most people will prioritize their family and job ahead of personal needs. When faced with constant work and family pressures, they will never get around to taking care of themselves with methods like losing weight or quitting smoking. This means that an employer’s investment in broader wellness programs may be wasted if stress is not first effectively identified and managed. Conversely, other wellness activities, such as more exercise, better nutrition and relaxation, can also help reduce stress and improve resilience. There’s no question that people get caught up in a vicious cycle — the more stressed they become, the less able they are to take care of themselves, slipping into unhealthy

An employer’s investment in broader wellness programs may be wasted if stress is not first effectively identified and managed.

Figure 3:

Number of strategies and programs implemented to reduce stress

9 or more



5 to 8

1 to 4


No programs

7% 0%




Source: Stress in the Workplace survey, Buck Consultants and WorldatWork, May 2010



lifestyles choices — while at same time we know that wellness activities can reduce stress. The most successful employer programs focus holistically on physical and mental health.

Addressing Employee Stress Despite global differences in priorities, employers invest in stress reduction and healthy lifestyle programs to help employees and their families be more resilient and productive. More than half of the respondents in the WorldatWork conference survey have implemented at least five stress management strategies and programs, and 17 percent offer nine or more (see Figure 3). Employer stress management approaches fall into the following general categories: • Identifying stress through healthrisk assessments or specific stress-related assessments • Helping employees balance work and life demands via programs like flexible work schedules and on-site child care • Providing personal coaching and support through clinical staff, a wellness provider or an employee assistance program (EAP) • Offering programs and resources at the worksite, including fitness centers, yoga/meditation sessions, walking programs, and classes to help with stress reduction and financial management • Improving the psychosocial work environment by redesigning job structures, modifying leadership and communication styles, and addressing work-climate issues, such as conflict between workers. In the WorldatWork conference survey, the most prevalent program used to reduce stress was an EAP, offered by more than three-quarters of survey respondents. workspan  10/10


One Employer’s Experience In 2003, a global employer in the pharmaceutical industry confirmed through surveys that its workforce perceived work demands as excessive, and only 22 percent were highly engaged, energized and resilient. A significant percentage of employees were sedentary, overweight or obese, getting too little sleep and feeling stressed. Recognizing the implications for company performance, the employer focused on energy and resilience as the key to personal and professional success in a high-pressure, fast-paced and changing environment. Several complementary programs were

Figure 4:

designed and implemented, including a resilience-building workshop for all employees, a program to help management lead a more energized organization, and a team-based quality improvement workshop to identify workplace pressure and build action plans to address it. Within several years of implementing these programs, this company was able to achieve measurable improvements, including: • Work-related mental illness decreased by 60 percent, and all mental illnessrelated absence decreased by 20 percent. • Reported pressure due to work-life conflicts fell by 25 percent.

Strategies or programs implemented to reduce stress*

Employee assistance program (EAP)

• Staff satisfaction with the company increased by 21 percent.

Conclusion There’s no question that work and the workplace can be significant contributors to stress. And that stress can be a lynchpin that affects many other lifestyle behaviors and health risks. However, most people can learn how to control their responses to stress and improve their resistance. Enlightened employers are using a broad range of approaches to help employees identify and manage chronic stress. The organizations that succeed will not only be healthier, but will emerge from the economic downturn with greater resilience and competitiveness.  About the Author


Barry Hall, FSA, is a principal and global

Establishing flexible work schedules


Work-life balance support programs


Leadership training


Online healthy lifestyle programs


leader for wellness research at Buck Consultants in Boston. He can be reached at [email protected]



On-site fitness center

For more information related to this article:


Physical activity programs Stress awareness campaigns

35 30

Financial management classes

• Workplace stress • Wellness strategy

Personal health/lifestyles management coaching


Programs to improve the psychosocial work environment

• Work-life programs.




Establishing effective communication styles


On-site child care


Redesigning the workplace environment


Job redesign (reducing workload)

• Designing Employee Health Management Programs: How-To Series for the HR Professional • Managing Employee Health-Care Costs: A Collection of Articles from WorldatWork • Work-Life Effectiveness: Bottom-Line Strategies for Today’s Workplace. • Health and Welfare Plans — Plan Types and Administration, Benefits Certification Exam: B3

10 8

Stress resiliance training Other

• Helping Employees Make Wiser HealthCare Decisions Through Wellness Programs, Benefits Topic Brief

7 0%



*participants were allowed to select more than one answer Source: Stress in the Workplace survey, Buck Consultants and WorldatWork, May 2010


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Road Maps

A GPS for Success


ecently a friend was admitted to a hospital where the corridor maze was totally confusing. He stumbled around for quite awhile, making an anxious journey even more dissatisfying. The same maze problem plagues business organizations and their employees: How do employees navigate an organization so they can get where they need to be? Getting employees to show the behaviors needed for success would be much simpler if it were clear what those behaviors are, and how they help achieve corporate goals and employee

rewards. This kind of information should be part of an organizational road map — one in which clarity will lead to employee satisfaction and organizational success.

Background Road Maps in Action

To test the belief that organizational success and employee satisfaction are linked to the road map’s clarity, during the past two years Jerry M. Newman interviewed top executives at seven of the largest and best-known retail organizations in the world. Questions centered on strategy, values, people programs and employee behaviors

Quick look Not only does the message need clarity as it filters down the organization, but it also must be evident horizontally, in the various programs that enable appropriate behavior. When corporate doesn’t develop a clear organizational road map, there is great variability in employee performance. The message you send through your HR programs should be consistent and repetitive. Clarity of purpose is not a sometimes or someplace communication.

By Jerry M. Newman, State University of New York-Buffalo, and Peter Hearl, Yum! Brands (Emeritus) workspan  10/10


rate Strategy rpoin The difference makerCois the level and clarity of the organizational map. Some firms were much better at communicating key directions on the road map. Em


ee loy




Unit Goals

Department Goals Individual Goals

targeted to help meet corporate goals. Before proceeding to a more detailed These are the vital compass points of discussion of diffusion, it is important an organizational road map. to point out how an organization’s road Some interesting differences emerged map begins: Organizations develop Corporate Goals between the most successful organizastrategies that dictate appropriate tions and the rest of the pack. First, corporate, unit, department and indithough, let’s discuss the similarities. vidual Team results performance goals (see Figure 1). All of the firms studied are in the These goals require employees to fast-food industry, and all of the complete tasks using desired behaviors. executives sound remarkably similar in describing what this article refers Vertical Diffusion to as the organizational map. Granted, As the authors moved down the hierthe strategies — what sets the compaarchy in different organizations, asking nies apart from competitors — are what mattered, what the company different, but when you begin to look stood for, how things got done and at the behaviors and competencies the what behaviors employees needed to organizations value in employees, the demonstrate to succeed, the paths on differences shrink. Employees who want the organizational map became less and to rise in any organization, according to less clear. Vertical diffusion — reading BusinessWeek, Fortune and U.S. News the map further and further from the & World Report, need to communicate executive sources — had limits. and listen effectively; demonstrate In better-performing companies the teamwork and leadership skills; be diffusion went further. For example, creative problem solvers; and be confiat McDonald’s, widely perceived as dent and conscientious. The difference an industry leader, the clarity made it maker, then, is in the level and clarity down to just above store level. Granted, of the organizational map. Some firms this isn’t complete diffusion, but it’s were much better at communicating key still a level not achieved by many other directions on the road map. Desired organizations. Even at the store level, behaviors need to diffuse, or permeate, some elements of the overall message the entire organization horizontally were beginning to seep in. Similar across functional areas and vertically successful diffusion was apparent at down to the lowest levels. The level of Peter Hearl’s company, Yum! Restauthis diffusion differed between the best rants International (YRI) — the organizations and the rest. successful growth engine in the Yum! 44

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family of brands, which includes KFC, Taco Bell, Pizza Hut, Long John Silver’s and A&W. Conversations with other organizations in the industry showed that vertical diffusion was less pronounced. For midlevel managers and staff charged with implementing programs, the message clarity was already deteriorating.

Horizontal Diffusion The second element of diffusion is horizontal. Not only does the message need clarity as it filters down the organization, but it also must be evident horizontally in the various programs that enable appropriate behavior. Behavior in organizations isn’t random,

Figure 1:

Part One of the Organizational Map: Organizational Objectives

Corporate strategy

Corporate goals

Unit goals

Department goals

Team results

Individual goals

Employee behavior

after all. Employees need the ability, the motivation and an obstacle-free environment to demonstrate desired behaviors (see Figure 2). How, for example, do you ensure good team skills, a universally desired behavior? It’s not enough to select strong team players. If their behavior isn’t rewarded, and if the culture isn’t a team culture, team skills aren’t likely to be a staple. Similarly, there is no point in rewarding team skills if you haven’t selected or trained people to have this skill set. Horizontal diffusion involves the issue of how many of the people programs focus on a particular behavior. Take Xerox as an example. In the early 1990s, it identified 17 competencies and subsets of behavior as vital. Every program in the three triangles from Figure 2 was built around these 17 competencies. Some experts believe that Xerox’s significant stock run-up in the late ’90s was partially attributable to the clarity and consistency of its behavioral messages. Consider: Xerox valued innovation as one of its competencies. To clarify

Figure 2:

what this meant, the company identified and communicated specific innovation behaviors: • Proposes multiple solutions to problems • Provides multiple alternatives • Listens to others’ ideas and does not discourage idea generation • Tests for understanding • Obtains and shares information from other alternative sources • Completes benchmark activities • Seeks information and ideas from others • Submits new ideas • Plans and tests new ways to evaluate new ideas. These behaviors were key ingredients in the design of selection, training, appraisal, reward and indeed all programs in the three triangles from Figure 2. When the authors looked for this clarity of diffusion across behavioral programs at the major fast-food brands, the differences were evident. Yum, with one of the more comprehensive efforts at diffusion, has what it calls a management skills map. In an effort

Part Two of the Organizational Map: Breadth of Clarity in Behavior Delivery Selection

Behavior = ƒ (A,M,E)

Environmental obstacles

A = Ability

• Unions

M = Motivation

• Economic conditions

Ability Triangle

E = Environment


Performance management

• Public policy/legislation


Organizational design

to get values and competencies all the way down to the store level, its training programs for area coaches (district managers) and restaurant general managers (RGMs) specify which training modules reinforce the importance of which key competencies. Take recognition programs, an extremely important component of the Yum! culture. The skills map shows which RGM training modules incorporate some element of celebrating success. All of the key competencies are tracked on the skills map to make sure no competency is neglected. This means the same message is sent across all stores in Yum! Restaurants International. Values and desired behaviors are consistently sent and, hopefully, received. While this doesn’t eliminate variability in messages, it eliminates one major source of confusion. Conversely, absent clear signals of what employees need to do to create success and, in turn, be successful, it’s difficult to marshal a coordinated effort. When no clear road map exists in the fast-food industry, for example, it falls to store managers to communicate with word and deed what they believe the road map should be. This individual freedom can’t help but yield very different messages across stores. Bottom line: When corporate doesn’t develop a clear organizational road map, there is great variability in employee performance. Reducing this variability, especially when there are tens of thousands of stores — or multiple locations — under one brand, is a key goal of the best employers and those that strive for this status.

Lessons Learned Motivation Triangle Compensation

Environment Triangle Culture

Organizational development

Talent management

Organizations increasingly recognize that employees represent a potential competitive advantage. An obvious response to this observation is increased respect for, and attention workspan  10/10


You can’t have a battery of selection tests Corporate Strategy that identifies people who will be good team players without also building rewards systems that reinforce employees when they put “we” ahead of “I.” B Em

y plo




Unit Goals

audience exponentially, though, and it’s much harder to make sure everyone gets the message and understands it. Nevertheless, the challenge is one all companies striving for excellence should tackle. By identifying a clear purpose and communicating that purpose across all HR programs throughout the entire organization, you will enable your employees to do the work necessary to make themselves and your organization successful. 

Department Goals About the Authors

Individual Goals

to, the HR function. How can we select better people? What should our training and development programs look like? How do we lead our people? What motivates them? The authors’ research strongly suggests that these questions Team results all have a common denominator: Start by asking what matters to you? What do you value? If you can clearly answer these questions, then the task becomes transferring that clarity into your HR programs. For example, if innovation matters, it should be abundantly clear in everything you do that employees should be superior on this dimension. Hire people who are creative. Train them to seek new and fruitful ways to solve problems. Reward them for this inclination. The message you send through your HR programs should be consistent and repetitive. Clarity of purpose is not a sometimes or someplace communication. Ask any employee what your organization values, and the answer should be consistent and quick. This is an easy test that is only aced by knowing what you want and designing every HR program to achieve this end. When striving for clarity, keep in mind it has both a horizontal and vertical component. Horizontal clarity means all of the programs reinforce 46

workspan  10/10

Jerry M. Newman is author of My Secret Life on

the same message. You can’t have a battery of selection tests that identifies people who will be good team players Corporate Goals without also building rewards systems that reinforce employees when they put “we” ahead of “I.” Vertical clarity means the message permeates all layers of an organization. Note that often, messages are very clear to managers and executives, as they are intricately involved in building messages and figuring out how to communicate them. Therefore, HR programs aimed at these people often do a good job of reinforcing key content. The true challenge is figuring out how to send the message all the way down the organization. Small companies have an obvious advantage: There are not so many layers in the organizational chart. But as companies grow they have more units that are further removed from the central message source. HR programs aimed at these lower rungs of the organizational chart need to be just as focused as those aimed at the top.

Conclusion Admittedly, ensuring the messages you send through your HR programs are clear at all levels of the organization is a challenge. Send a message to one person, and there are all sorts of failsafe mechanisms built in. Enlarge the

the McJob: Lessons from Behind the Counter Guaranteed to Supersize any Management Style and a professor at The State University of New York-Buffalo. He can be reached at [email protected]

Peter Hearl is a retired executive from Yum! Brands. He can be reached at [email protected]

Web Extra For more information about vertical diffusion, log on to

RESOURCES PLUS For more information related to this article: Type in any or all of the following keywords or phrases on the search line: • Organizational objectives • Employee behavior • Employee communication. • Communicating Total Rewards: How-To Series for the HR Professional • Rewarding Group Performance: How-To Series for the HR Professional. • Strategic Communication in Total Rewards, Total Rewards Certification Exam: T4 • Eight Steps to Communicating Total Rewards, Total Rewards Topic Brief • Employee Engagement — Five Key Principles Supervisors Must Know, Total Rewards Topic Brief.

HR We Have a Problem!

Note the continued reference to “workers” which includes independent contractors; note also that it’s “classification analysis,” not “job analysis,” as a job may have both nonexempt and exempt incumbents.



and a solution - -


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Small print items to cover with legal counsel: Inadvertent employment contracts; proof of disclosure; potential liabilities including liquidated damages and penalties; Daubert Challenge defenses (rate of error, PAQ/ERI’s sole source) because FLSA is under Solicitor General-Federal Courts; new contractor focus; safe harbors with evidence of good faith and due diligence; advantages of eDOT’s visual comparables; thresholds for gray-area positions; new employee communication issues; pitfalls of partial analyses; state differences (e.g., California’s all duties versus primary duty); Lilly Ledbetter Act; public sector’s inclusion; it’s “position analysis, not job analysis;” the “How much does it cost to fix it, versus the cost if one doesn’t fix it?” question; and mandatory defendant legal fees & costs (with apologies for asbestos and ambulance chasing comparisons).

Broad Deductibility

Quick look Under 162(m), a publicly held corporation is precluded from deducting compensation paid to a “covered employee” in excess of $1,000,000. Levels of executive compensation continue to be a controversial and populist issue, and Congress likely will also be looking for ways to generate additional revenue. Certain components of compensation cannot qualify as performance-based.

By Robbi Fox, Exequity LLP

What Lies Ahead for Executive Compensation? The recently enacted Patient Protection and Affordable Care Act (PPACA) in the United States amended 162(m) of the Internal Revenue Code to limit the tax deduction of health insurance providers for compensation to $500,000. Upon reading the provisions, one is reminded of Tick Tock Croc in Peter Pan. The crocodile liked the taste of Captain Hook’s hand so much he followed him around constantly, hoping for more. Fortunately, for Hook, the croc had also swallowed an alarm clock, so Hook always knew when the croc was approaching. So are compensation professionals now hearing the tick tock of the clock? Hungry for revenue, how likely is it that Congress will broadly legislate a $500,000 deductibility limitation like that contained in the health-care

reform bill, a limitation that contains no exceptions for performance-based compensation, applies when compensation is earned rather than when it is otherwise deductible, encompasses public and private companies, and sweeps in anyone who provides services to the company? This article will discuss the new 162(m) limit contained in PPACA and how it has evolved from the limitation that is applicable to publicly traded companies and companies subject to the Troubled Assets Relief Program (TARP). It will also speculate how such a limitation, if applied to all companies, may impact executive compensation design.

In the Beginning Section 162(m) has been with us since 1994. Under 162(m), a publicly

held corporation is precluded from deducting compensation paid to a covered employee in excess of $1,000,000. A covered employee is the CEO and the three highest-paid executive officers (as determined pursuant to the Security and Exchange Commission’s (SEC) disclosure rules) on the last day of the taxable year. The CFO, whose compensation is required to be disclosed pursuant to the SEC’s rules, is not a covered employee for purposes of Section 162(m). Section 162(m) contains numerous exemptions; however, the one that is most widely used is the exemption for performance-based compensation. If the requirements to qualify compensation as performance-based are satisfied, the deductibility limitation does not apply. It is relatively easy to qualify workspan  10/10


It would not be surprising if the provisions of 162(m)(6) are applied

to all companies within the

next few years.

to all companies within the next few years. Levels of executive compensation continue to be a controversial and populist issue, and Congress likely will also be looking for ways to generate additional revenue. So, if this were to happen, how might executive compensation practices change? Renewed Interest in Incentive Stock Options (ISOs)

compensation as performance-based, with the result being that most companies retain the deductibility of the majority of the compensation paid to covered employees even if it is in excess of $1,000,000.

individual is covered, he/she always remains a covered executive for all subsequent applicable tax years and for all years to which compensation earned during an applicable tax year is deferred.

Chipping Away … Section 162(m) Amended for TARP Recipients The Emergency Economic Stabilization Act of 2008 (EESA) amended 162(m) to impose additional restrictions on companies that sell assets to Treasury under TARP. Generally effective as of Feb. 17, 2009, 162(m)(5) applies for any tax year during which any obligation arising from the receipt of financial assistance under TARP is outstanding. Under Section 162(m)(5), the deduction for executive compensation is limited to $500,000, and provides for the following: • Eliminates exemptions for certain types of compensation, most importantly, the exemption for qualified performance-based compensation • Applies to all companies, public and private (assets acquired must exceed $300 million) • Applies to compensation in the year in which it is otherwise deductible, except deferred compensation, in which case the limit applies when the compensation is earned • Broadens covered executives to include the CFO, and once an

More Chipping Away … Section 162(m) Amended for Certain Health Insurance Providers The PPACA went further to eliminate the perceived loopholes under Section 162(m). PPACA added Section 162(m)(6) to limit the deduction for compensation of certain public and private health insurance companies. New 162(m)(6) is effective for compensation paid in tax years beginning after 2012 with respect to services performed after 2009. As with TARP companies, the deduction limit on compensation is $500,000 with no exemptions, and the limit applies to compensation in the year in which it is otherwise deductible, except deferred compensation, in which case the limit applies when the compensation is earned. However, 162(m)(6) covers any officer, director, employee or anyone else who provides services.


workspan  10/10

What If … 162(m) Limitations for Health Insurance Providers Apply More Broadly It would not be surprising if the provisions of 162(m)(6) are applied

We may see an increased interest in ISOs. Because of the limitations imposed on their use by the Internal Revenue Code, the prevalence and popularity of ISOs has declined. The most significant limitations are: • The $100,000 limit, which requires that no more than $100,000 in the aggregate fair market value of the stock (determined as of the date of grant) can become exercisable for the first time in any calendar year • The inability of corporations to deduct the spread at exercise (i.e., there is no corporate tax deduction, provided the shares received upon exercise of the stock option are held for two years from the grant of the ISOs and one year after exercise, called the “holding period requirements”). If a tax deduction were limited to $500,000 with no exception for performance-based compensation, there is likely to be a significant amount of nondeductible compensation related to gains on nonqualified stock options (NQSOs). Under current 162(m) rules, it is very easy to qualify NQSOs as performance-based compensation, and most companies do (thus retaining the tax deduction). However, if the gain becomes nondeductible, why not grant ISOs? As stated, the gain on ISOs is already nondeductible if the holding period requirements are satisfied and thus, companies may be indifferent to granting ISOs or NQSOs assuming

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Clearly, if the exception for performance-based compensation is eliminated, there would

no longer be a reason to create

umbrella plans.

the $500,000 limit is “used” for other compensation, such as base salary and/or bonus payments. Employees, on the other hand, would likely not be indifferent because of the tax advantages of ISOs (if the holding period requirements are satisfied). The first advantage is that the amount realized is taxed to the employee at more favorable long-term capital gains rates. The second advantage is that the taxable event is delayed from exercise to sale. These tax advantages may be offset if the individual is subject to the Alternative Minimum Tax, a discussion of which is complicated and beyond the scope of this article. Note, however, that it is relatively common for employees to not satisfy the holding period requirements, called a “disqualifying disposition.” The question is whether it remains advantageous for either the employer or the employee to grant ISOs instead of NQSOs. The answer is yes, because there is a payroll tax benefit to employers and employees that is not applicable to NQSOs. Upon a disqualifying disposition, ISOs are not subject to FICA (which does apply to NQSOs and other forms of compensation). Neither the employer nor the employee would be liable for the FICA obligation. Not being subject to FICA could result in a significant savings for employers and employees. 52

workspan  10/10

Ability to Include an Evaluation of Individual Performance and/or Strategic Metrics and Increased Use of Discretion

One of the more challenging issues compensation committees face in qualifying compensation as performancebased is pre-establishing compensation formulas that are objective, and run on “automatic pilot,” absent the exercise of negative discretion. As a result, many companies have adopted “umbrella” plans to satisfy the performance goal requirement. The umbrella plan establishes a compensation formula that generates a bonus pool that is generally larger than the amounts needed to fund the bonus payments. The plan underlying the umbrella plan is the plan that the compensation committee uses to determine the amounts that would actually be paid. Negative discretion is applied to the 162(m) umbrella plan to cut back the amounts to what the compensation committee would pay under the underlying plan. Clearly, if the exception for performance-based compensation is eliminated, there would no longer be a reason to create umbrella plans. Compensation committees would likely identify at the beginning of the performance period the specific performance metrics and goals based on what they deem is appropriate to achieve the desired results. However, they would be permitted more flexibility

to exercise discretion (positive and/or negative) to make adjustments based on their informed judgment of what has occurred throughout the performance period. Also, compensation committees would not be limited to goals that can be objectively measured and could subjectively evaluate individual performance or progress toward strategic objectives. Keep in mind that publicly traded companies are required to discuss in their proxies in the Compensation Discussion & Analysis (CD&A), the rationale for their compensation decisions, and thus, to the extent discretion is exercised, that would need to be explained in the CD&A. If goals are subjective and companies can successfully argue that disclosure of the targets would result in competitive harm, companies may be able to avoid disclosure of the specific targets in their proxies. It is generally easier to make this argument with respect to subjective and/or strategic goals than it is for objective financial goals. No Need for Shareholder Approval of Cash-Based Annual Bonus or Long-Term Incentive Plans

One of the current requirements to qualify compensation as performancebased is shareholder approval of the material terms. Although most investors and proxy advisory firms vote for (or recommend a vote for) compensation plans that are submitted to shareholders solely to satisfy the 162(m) requirements, there is always the possibility that a plan may not receive shareholder support, particularly if there is another issue that is of concern to shareholders. For example, Institutional Shareholder Services (ISS) generally recommends a vote for cash bonus plans that are submitted to shareholders for the purpose of complying with the requirements of Section 162(m).

However, ISS will recommend a vote against those proposals if the compensation committee does not fully consist of independent outsiders, as defined in ISS’s classification of director independence.

“bang” should be worth the “buck;” in other words, compensation in excess of $500,000 should be worth paying and generating a benefit that is in excess of the cost of the lost tax deduction.

Focus on PerformanceBased Compensation

Some Increased Interest in

At first glance, this may seem counterintuitive. After all, 162(m) provides an incentive to companies to have performance-based compensation. Certain components of compensation — for example, restricted stock or restricted stock units with vesting based solely on the passage of time or continued employment — cannot qualify as performance-based. If the performance-based exception is eliminated, it is logical to assume that companies may increase their usage of restricted stock or restricted stock units. However, we think it is just as likely (or perhaps even more likely) that companies will increase their use of performance-based compensation for the following reasons: • The use of positive discretion would not be proscribed, and companies would not be required to establish performance goals that operate on automatic pilot. There would be increased flexibility to base payments on actual performance, with consideration of discretionary (both up and down) adjustments. • Shareholder activists and proxy advisory firms will continue to pressure companies to have a majority of their compensation be performance-based, and if is not, there may be other consequences (e.g., voting against a management say-on-pay proposal, voting against an equity compensation plan or withholding votes from compensation committee members). • If compensation in excess of $500,000 is nondeductible, the

Performance-Accelerated Restricted Stock or Restricted Stock Units

There may be some interest in using performance-accelerated restricted stock or restricted stock units, awards that currently do not qualify as performance-based compensation under 162(m). Companies that want to have their restricted stock or restricted stock units be more performance-based, but are uncomfortable with their ability to set long-term goals, could establish plans that would vest ultimately based on continued employment but would pay out earlier if performance objectives are achieved. In the event the performance goals are not achieved, the employment requirement could be substantially longer so that payment is only made to employees who stay with the company for a significant period of time.

revenue ruling, it was not uncommon for companies to pay a pro-rata or full (at target or actual performance) bonus or long-term award upon retirement and sometimes upon a termination without cause. The payment was typically made when the termination event occurred. The result of the ruling is that companies that had such a provision in their plans needed to amend their plans, and to generally postpone payment until the end of the performance period and to base payment on actual performance (and not on target).

Conclusion If Congress applies the amendments that are applicable to health insurance providers to a much broader group of companies, the impact on compensation programs could be significant. About the Author Robbi Fox is a senior adviser with Exequity LLP and is based in Libertyville, Ill. She can be reached at [email protected]

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Recent Revenue Ruling 2008-13 has had an impact on many compensation plans and has required many companies to amend their plans in order to be in compliance with the ruling’s requirements. Revenue Ruling 2008-13 clarified that amounts payable upon retirement or upon a termination without cause prior to attainment of the performance goals cannot be performance-based. Thus, if a plan allows for payment upon these events, the entire plan is disqualified from being performance-based compensation, even if no payments upon these events are actually made. Prior to the issuance of the

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Quick look By definition, long-term performance plans align the level of pay to performance and reward long-term success. An LTPP that is too simple may not address enough of the nuance and complexity in the business, which may lead to suboptimal results. If financial performance metrics are used, carefully evaluate the threshold, target and superior performance goals.

By Richard Harris, Hewitt Associates


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ecent and very public events have brought a high level of scrutiny to executive pay practices — scrutiny that will likely continue into the foreseeable future. In general, most of the criticism directed toward executive pay seems to fall into one of three categories: 1. The level of pay is not aligned (read “too high”) with the level of performance. 2. The pay program motivates short-term behaviors rather than long-term value creation. 3. It causes excessive risk-taking. What most people can agree on, however, is the need to find better ways to have executive pay based on longer timeframes and greater performance variability. There are many ways to provide exe­c utive reward opportunities when

designing executive compensation plans, including: • Base salary • Annual incentive plans • Stock options/SARs • Time-vested restricted shares/units • Long-term performance plans (LTPP) • Retirement/SERPs • Perquisites • Contractual guarantees. At a 30,000-foot level, LTPPs seem to have the best opportunity of these choices to address all three categories of criticism. LTPPs are commonly used as part of a portfolio approach to total equity as opposed to being the sole element. Their use has been growing as companies reduce, but not eliminate, reliance on options and time-vested restricted stock to meet overall compensation goals. However, by definition,

LTPPs align the level of pay to performance and reward long-term success. In addition, they can contribute to mitigating excessive risk taking by shifting more of the total rewards opportunity to performance over the long term, thereby reducing the incentive and overall value to the executives of taking short-term risks. Still, there is a sense in the executive compensation community that LTPPs have been a challenge to execute effectively and that they have fallen short of expectations. So while other forms of executive compensation have their roles in achieving an effective executive total rewards program, this article focuses on how to make LTPPs deliver on their compelling promise. This requires moving through the layers from the “30,000-foot concept” to on-the-ground execution.

Defining Long-Term Performance Plans First, what do we mean by the term longterm performance plans? LTPPs are any plan having the following characteristics: • The amounts earned are contingent on and vary with achieving or exceeding defined performance goals. • Failure to perform to at least a minimum threshold performance level leads to a $0 payout. • The performance period is at least three years in length. (While some companies have implemented shorter time periods, this author suggests that anything less than three years should not be considered long-term). This definition encompasses plans that pay out either in cash or shares; use financial, operating and/or stock return (i.e., total shareholder return) workspan  10/10


Step Three: Evaluate the Risks

metrics; and define the performance hurdles either relative to a peer group or against absolute company-specific goals. Common names include performance shares, performance units and performance-restricted stock.

A Six-Step Process To help LTPPs live up to their promise, the author recommends going through a six-step process.

the strategic direction but could pay out in a year the shareholder returns are low because the overall stock market is down. The second aspect of the use of the word promise is the commitment to what the LTPP is intended to achieve. If pay delivery at a competitive level is the only goal, consider other forms of compensation instead of altering an LTPP design so that it no longer meets the previously outlined criteria.

Step One: Make the Promise

The first step in making the promise is defining the LTPP goals. What do you want the plan to do? Assuming that the common total rewards objectives to attract and retain quality executives are principally addressed by other executive pay components, LTPP goals can be more specific. Appropriate goals for LTPPs include the following: • Align executives with the long-term strategic direction. • Align the interests of executives and shareholders. • Provide a long-term orientation. • Align the levels of pay to the levels of long-term performance. • Help mitigate excessive risk taking. The design of the LTPP will determine which of these potential promises can be supported. For example, a plan based on relative total shareholder return (TSR) may align executives and shareholder interests but does not directly align executives with strategic direction. Similarly, a plan based on financial metrics could align with 56

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Step Two: Accept “Best Imperfect”

Many senior leaders and compensation committees start with an expectation that LTPPs will achieve all of the total rewards goals. In reality, even achieving some of the LTPP promises may not be possible without overengineering the design. Overengineering often leads to such a complex plan design that participating executives do not fully understand the plan. As a result, an overly complicated plan loses its effectiveness in driving executive behavior. When it comes to effective LTPPs, elegance of design trumps perfection. Elegant design is understandable and effective. That said, do not confuse elegance with simplicity. Most executives run complex, challenging businesses. An LTPP that is too simple may not address enough of the nuance and complexity in the business, which may lead to suboptimal results. Prioritizing the promises enables a company to better select which imperfections it can live with and which it needs to avoid.

Since the LTPP will be imperfect, it is important to manage risks as effectively as possible. Different plan designs have different risks. In this case, risks are defined not as excessive risk-taking, but as risks to the company in terms of the ability to deliver on chosen promises. Each key LTPP design feature comes with its own risks to evaluate. Two examples include selecting performance metrics and performance goals. While these two features are closely linked, they are often measured differently. The broad categories of long-term performance metrics are financial metrics versus TSR. The broad categories of goals are absolute (company specific) and relative (compared to a select peer group). Metrics and goals tend to be paired. TSR is most always measured relatively and financial goals measured absolutely. In designing an effective LTPP, selecting the appropriate performance metric is key to the program’s overall success. There is no single right metric for all companies. The first decision is to choose between financial/operating metrics and TSR. Recently, there seems to be a strong reliance on adopting TSR by default instead of going through the process of determining the right metric for an organization. At a conceptual level, the allure of relative TSR as a reward mechanism is strong for three reasons. First, it requires no forecasting of the future. Second, the plan pays for outperforming peers. This feature lowers the risk of paying too much when the overall market is rising and pays something when the stock market overall is down (and the value of options and restricted stock has fallen). Third, using TSR directly aligns with shareholders, while the relative aspect mitigates the “vagaries” of the stock market. Using relative TSR as the sole LTPP metric carries with it some risks.

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It generally does not motivate executives effectively or directly engage them to achieve the strategic plan. Executives cannot directly impact share price change through performance, let alone relative share price. Since it is a point-to-point measure, a late change in share price has greater impact than the average share price over the period. Therefore, some executives will consider relative TSR outside of their influence and implicitly discount the plan’s value below the level of its expressed compensation value. This may also lead to a greater focus on the annual incentive plan, which is typically based on more controllable measures. Absolutely measured financial metrics are not without their own risks. The first challenge is to select the right value-creating metrics. Select poorly and you may motivate suboptimal performance. The best financial or operating metric(s) are the ones that align with creating value returns in excess of cost of capital combined with growth. The second challenge, which seems to be the concern of many companies, is that setting a multiple-year goal is difficult, especially when the world economy is uncertain. The risk is that the goals will be perceived as too challenging, leading to low motivation. Conversely, if the goals are perceived as too low, the LTPP pays for achieving financial hurdles that do not lead to corresponding shareholder returns. Techniques for improving performance goal setting are discussed in the next section. Still, using absolute financial measures can have substantial value. This approach can directly link to the company’s strategic direction, has greater line-of-sight for executives (and therefore more incentive impact), can cause leaders to find risk-appropriate ways to achieve the goals and can balance the short-term orientation of the annual incentive plan. 58

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Another important area of risk involves the length and frequency of the performance cycle. The vast majority of LTPPs out there today have three-year performance cycles, with a new cycle starting each year. If a company bases its decisions primarily on competitive practice, this becomes the clear choice. Despite broad adoption, the question remains: Is it right for your company? The rationale for three-year overlapping cycles includes: • Future performance is too difficult to forecast beyond three years (some companies have even opted to have a plan consisting of three one-year goals). • The overlapping cycles allow for flexibility in resetting measures and goals to adjust to a changing environment and modifying the pay-to-performance relationship. • The overlapping feature aids retention since at any moment a participant would forfeit the opportunity of two or three unfinished cycles. The risks to consider of having a three-year overlapping cycle include: • A company’s strategy may focus on a timeframe longer than three years. • Resetting goals each cycle, or each year within a cycle, provides little motivation to act in the long-term interests of the company and take appropriate risks on new investments or markets; underperformance may be rewarded with lower goals for the next cycle. • Three years may not be enough time for investments to mature and provide the expected payouts.

If these risks for a company are greater than the rewards of three-year overlapping cycles, consider an alternative plan design. In the end, no approach is perfect. Therefore, it’s important to fully understand and manage the inherent risks in the plan design. Combining relative TSR and absolute financial performance can mitigate some risks but add to the risk of complexity. The elegance/complexity dimension needs to be judged within the context of the total rewards program. Step Four: Get Into the Detail

At 30,000 feet, each company chooses the promises on which the LTPP is intended to deliver. Evaluating the risks brings the view to 10,000 feet, while delivering on the promise means getting into the details. Details matter, and the closer executives can get to understanding the benefits and risks of their LTPP plans, the better. One important detail to consider is calibrating the pay and performance scale. If financial performance metrics are used, carefully evaluate the threshold, target and superior performance goals. Use multiple reference points, including the historical performance of your company, the strategic goals, forecasts of future economic conditions and the historical performance of similar companies. One tactic to mitigate the difficulty of forecasting the future is to widen the performance band from threshold to target and target to superior. This increases

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the probability of getting on the pay scale — an important part of motivation. Next, carefully link pay opportunities to the performance levels. Check the incremental pay-toperformance ratios to assess their impact on excessive risk taking. For relative TSR plans, carefully choosing the peer group is paramount. The key is to balance the validity and reliability of the total group. Validity refers to the objective of selecting a peer group that most resembles one’s own company (in terms of business characteristics and therefore TSR performance). Ideally the peers are influenced in similar ways by similar economic factors so that the impact on TSR is generally consistent. Reliability refers to the goal of having enough companies in the peer group to support statistically valid results over long periods of time (through the statistical concept known as the law of large numbers). Also determine the best pay-forTSR-performance formula. The most common approach is to pay more for achieving a higher percentile ranking among the peers. Analyze the historical TSR for the peers. On the surface, it may seem as though every incremental performance improvement should have the same incremental increase in compensation. However, for many peer groups, there is relatively greater change in TSR below the 30 th percentile and above the 70 th percentile than between these points. This analysis informs whether a straight line or graduated scale is more appropriate. Attention to the details helps to properly calibrate pay and performance. Step Five: The Stress Test

Why risk the motivation of your senior team and potentially millions of dollars of compensation without taking your design for a test flight? What-if analyses on ranges of potential performance and back 60

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testing against historical perfor­m ance can identify strengths and weaknesses of the LTPP and allow for course correction. This step should not only be conducted before the first performance cycle, but also periodically thereafter as a new performance cycle begins. Step Six: Communicate, Communicate, Communicate

Communication is an important, yet often overlooked, step when it comes to developing successful LTPP programs. Today more than ever it’s essential to communicate not only to internal audiences but external ones. Internally, the impact and perceived value of the LTPP will be enhanced if the participants understand: • How it works, what the pay potential is and what has to be achieved • Why the specific plan design features are right for them and their company • How the LTPP fits into the total rewards program • How the programs will be managed by the compensation committee. Externally, clear and straightforward communication about executive longterm performance plans could go a long way toward creating transparency and helping external audiences gain better clarity around how executives are compensated. External audiences include other employees of the company and current and potential investors, as well as shareholder watchdog groups, such as RiskMetrics Group, that evaluate executive compensation practices in their development of shareholder proposal recommendations.

The Difference Between Promises Made and Promises Kept While organizations often start out with the right idea when developing LTPPs, too many stop at the 30,000foot or 10,000-foot level, making assumptions about the details or how

the details impact the effectiveness of the design. Examining the details of a plan and then putting the plan through different scenarios (steps four and five) can often make a significant difference between a plan that delivers on its promise and one that fails to perform. The appetite for LTPPs temporarily fell in 2008 as the economy fell sharply, making forecasting more difficult. As the economy recovers, the appetite for LTPPs should come back as well. Going through the six-step process can help organizations determine if what they’re designing will deliver the intended results, as well as better understand the risks of not paying for true long-term performance. About the Author Richard Harris is a principal and senior consultant in Hewitt Associates’ executive compensation consulting practice in Lincolnshire, Ill. He can be reached at [email protected] or 847-295-5000.

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How Effective

Is Your

Practice? The Critical Importance of HR Audits

Quick look The potential liability and business risk from recent and pending regulatory legislation make this a critical time to conduct assessments of HR practices. An effective HR audit is a time-intensive and costly project to undertake. However, the time and expense will produce short- and long-term benefits. There are several important steps to take to ensure that an HR audit results in your organization implementing policies and practices that are transparent, equitable and up-to-date.

By Jody Mousseau and Susan Carter, ORC Worldwide

HR professionals have an increasingly important role within their organizations to be strategic players. Other leaders within the organization look to them to ensure that the organization’s current HR practices are effective, compliant, aligned with business strategy and comparable or superior to the “best practices” of similar organizations. However, it is difficult to know exactly how effective, strategic and compliant HR practices are unless they are viewed with a critical eye. This review can be achieved through an HR audit.

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The Strategic Rationale for Audits While it has always been a best practice to periodically review HR policies and determine if they are compliant and aligned with the organization’s strategic objectives, this is shaping up to be a critical year to make sure that HR practices are effective, compliant and strategically aligned to minimize legal risk and maintain or build competitive advantage. The potential liability and business risk arising from recent and pending legislation, such as the Lilly Ledbetter Fair Pay Act and the Paycheck Fairness Act (which has been passed by the House and introduced in the Senate), has increased significantly. The costs associated with managing Figure 1:

those risks are likely to be insignificant compared with the potential damage of a lawsuit, in both loss of reputation and direct dollars. An HR audit is an important tool to identify and improve organizational practices from a risk management standpoint. In addition, throughout the recent economic downturn, leading organizations have been increasing their focus on talent and performance management in an effort to retain their highest-performing staff members. At a time when the best talent often helps determine the success of the organization, it is vital to retain the employees who enable the company to compete and excel in the marketplace

HR Audits Can Uncover Potential Compensation Issues and Costs



The organization is paying significantly below market.

• Turnover — On average, 1.5 percent of the position’s annual salary goes just to replace the incumbent.

The organization is paying significantly above market.

• Mismanaged compensation — While it may reflect a strategy to be competitive in a difficult market, effectiveness may be limited to recruiting and retaining certain types of talent. If the organization is paying too much for underperformers, the organization is throwing money out the window.

The organization does not have up-to-date market data or established salary ranges.

• Lack of competitive edge — Without up-to-date market data and established salary ranges, the organization does not know the market value of each position or how to manage the compensation levels of each employee.

• Low staff productivity and low morale – Disenchanted and unproductive employees who do not feel they are being paid fairly are a direct cost to the company.

• Risk of failing to comply with recent and/or pending legislation — All pay decisions should be documented in writing. The organization does not have consistent and/or transparent compensation policies.

• Mismanaged employee compensation — If an organization starts an employee at a salary too high or too low for the position, or does not manage the level of compensation (i.e., what to do when the employee reaches the top of the range, or if the employee is above or below the range), the potential short- and long-term costs of these problems can be significant. • Risk of failing to comply with recent and/or pending legislation — Employers should structure their processes to avoid class-action litigation by either government agencies or plaintiffs’ attorneys.

The organization does not pay for performance.

• Turnover — When employees feel they are not being compensated for their performance, or believe that a distinction does not exist in merit increases and bonus payouts (if applicable) between good and poor performers, turnover rates are typically higher. • Low staff productivity and morale — For the same reasons as above, staff productivity and morale decreases.


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and to ultimately survive and thrive in a tough economy. An HR audit could bring to light potential changes in talent strategy — such as improving career development opportunities — that would encourage high performers to remain with the organization rather than go to work for the competition. For each of these reasons, now is a more critical time than ever for organizations to conduct assessments of their current HR practices.

The Financial Rationale for Audits An effective HR audit is a timeintensive project for any organization to undertake. However, whether the audit is conducted through internal or external resources, the costs related to the time and expense will produce both short- and long-term benefits, and thus will be a critical investment for the organization. Let’s take the obvious area of compensation as an example. With compensation practices, it is understood that every organization has a determined budget with which to compensate staff. An HR audit can uncover potential issues and possible costs, some of which are illustrated in Figure 1. Managing compensation issues more effectively may be just the tip of the iceberg for organizations striving to maintain effective practices and manage costs. Turnover directly impacts the bottom line and HR leaders realize that many organizational issues contribute to how successful (or unsuccessful) the organization is managing human capital. According to the 2009 SIRS Policies and Practices Survey, the overall average annual voluntary turnover rate was 8.7 percent for nonexempt staff and 9.1 percent for exempt staff. An HR audit can be an effective tool to uncover the specific causes and leading indicators of voluntary turnover in an organization.

If organizations fail to comply with new regulations for executive compensation, where applicable, they also put themselves at risk.

From a risk management standpoint, an HR audit can uncover potential areas of concern that can impact the organization’s bottom line and reputation. Regulatory changes (some already made, some yet to be confirmed) significantly expand the population of employees eligible to file lawsuits, as well as the potential fines if an organization is not in compliance. For example, if an organization does not have clearly written policies compliant with local, state and federal employment regulations, it opens itself up to possible risks when compensating, promoting or terminating staff. And if organizations fail to comply with new regulations for executive compensation, where applicable, they also put themselves at risk. With each of these potential exposures, an organization unnecessarily puts both precious dollars and a hard-earned reputation on the line. Furthermore, the risks outlined above are only a fraction of the legal risks an organization faces when it does not know if its current HR practices and policies are in compliance. Thus, the immediate costs of conducting an

HR audit and making necessary changes are only a fraction of the possible costs the organization could incur by continuing risky, inefficient or ineffective HR practices.

The Mechanics of an Audit What is typically included in an HR audit, and how does an orga­ nization go about conducting one? When conducting an HR audit, we recommend the following steps: 1. Whether using internal or external resources to conduct an audit, a critical step early in the process is to clarify the goals with members of senior management and internal counsel to determine the scope of the HR audit. As early as possible, involve line management and staff who will assist in conducting the audit. Internal cooperation and support of the process is critical since the audit will require an examination of the organization’s stated and actual policies and practices. 2. Create an outline of the HR practice areas to be included in the audit, including compensation,

benefits, performance management, talent management, recruiting, employee relations, diversity and staff development. Then review the policies and practices in each of the identified practice areas, initially examining each with regard to linkage to business strategy, compliance with company values and compliance with applicable laws and regulations. Typically, this step provides an overview of how well the practices in the selected HR functions are operating and identifies red flags and areas to review in further detail. 3. Create and ask questions to assess the effectiveness and impact of specific policies and practices. The goal is to assess the perceived and actual effectiveness of policies and practices. For example, within performance management, key questions to ask when considering the effectiveness and defensibility of your performance management system include: –– Do managers and employees understand the entire merit system, including the link between workspan  10/10


Because of the time and complexity in conducting an HR audit, many organizations find it advantageous to hire an external party since a consultant will typically have the resources and expertise to dedicate to

the project.

performance assessment and compensation programs? –– Is there consistency in application across the organization? –– Are job responsibilities and expectations communicated to each staff member? –– Are managers trained in effective performance management? –– Are employees provided with development opportunities and feedback throughout the year? 4. Determine how and from whom to gather information. The process of gathering information will often involve reviewing documentation and records, as well as conducting interviews with relevant parties in the organization. During this step, human resources can choose to examine specific processes and programs in more detail (e.g., the linkage between performance management and compensation or the recruiting process) if practices are not clear or if an area seems to be problematic. 5. Finally, it can be helpful to benchmark selected practices to those in similar organizations. Companies may be able to successfully conduct an HR audit internally if they have available resources with subject matter expertise in a variety of HR practices. Because of the time 66

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and complexity in conducting an HR audit, many organizations find it advantageous to hire an external party to conduct the assessment since a consultant will typically have the resources and expertise to dedicate to the project. In addition, an external party can provide two critical components to an HR audit that an internal party cannot: • An objective third-party assessment of the organization’s practices • A comparison of the organization’s policies and practices against market comparators, which can provide critical information for remaining or becoming more competitive in the market.

The Bottom Line: Know Your Program If your organization has not recently conducted an HR audit, think of planning and conducting one as an investment of time and money. An HR audit will enable the organization to determine areas of inefficiency and/or potential risk, help the HR department contribute to the organization’s strategic growth and provide short- and long-term savings to the organization. Once the audit has been conducted, the findings reported and changes implemented, consider repeating the process on a regular basis. Knowing that your policies and practices are transparent,

equitable and up-to-date will go a long way toward keeping HR leaders focused on the strategic role that they play in an organization. About the Authors Susan Carter is a director with ORC Worldwide and is based in Chicago. She can be reached at [email protected]

Jody Mousseau is a consultant with ORC Worldwide and is based in New York. She can be reached at [email protected]

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Downturn Survey Reveals 4 Key Trends that Emerged from the Recession

Quick look By all accounts, the recession turned out to be deeper than originally anticipated. About 60 percent of the organizations surveyed reported revenues were down in the last six months. Sixty percent of survey respondents said they had downsized their staff as a costreducing measure; the frequency of layoffs peaked in January 2009. The number of organizations planning to add personnel in the corporate functions traditionally considered “support” (finance, HR, IT, marketing) is still well below the number of companies who reduced those numbers.

By Athar Siddiqee, CCP, GRP, and Mark Szypko, CCP,

The 2010 Economic Downturn Survey measured how employers have responded to the past 18 months of economic uncertainty. From January through March 2010, we collected data from 327 organizations in 29 industries, ranging in size from fewer than 500 employees to 20,000 employees. The results confirm the nearly universal belt-tightening consequences the crisis triggered, but also show a pattern of hopeful trends. The survey revealed that two-thirds of respondents reduced or eliminated merit increases, and 60 percent implemented layoffs to cut costs. With companies anticipating a recovery, how do they expect to respond? What are the trends that businesses are following in light of the very difficult decisions that were made these past 18 months?

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The vast majority of companies hired employees during the past six months and predict that revenues will rise in the next year.

Effects of the Current Economy Before moving beyond the downturn and discussing future compensation trends, let’s sum up what businesses have been experiencing. First, the harsh reality: By all accounts, the recession turned out to be deeper than originally anticipated. About 60 percent of the organizations surveyed reported revenues were down in the past six months, and they implemented various measures to reduce expenses, including changes in compensation, benefits, staffing and workforce experience. Figure 1:

Cost-Reducing Measures In the past 18 months the most popular cost-cutting techniques included (see Figure 1): • 66 percent of respondents reduced or eliminated merit increases • 60 percent laid off employees (average layoffs in the United States were 14 percent of the workforce, and 10 percent in Europe, the Middle East and Africa) • 50 percent implemented wage freezes (most from January–July 2009) • 38 percent of organizations froze hiring.

Things Are Looking Up On the bright side, the vast majority of all the companies said they hired employees during the past six months, and they predict that revenues will rise in the next year. Here are some interesting trends that show how organizations are preparing for a recovery period.

Trend 1 Laying Off the Layoffs Sixty percent of all companies respon­ ding to this survey indicated that they had downsized their staff as a costreducing measure. But the frequency

Cost-Reducing Measures During the Latest Recession

Reduced or eliminated merit increases Laid off employees Froze salaries/wages Froze hiring Reduced or suspended bonuses

Cost-Reducing Measures

Increased employee health-care premium Reduced retirement benefits (e.g., 401(k) match) Instituted furloughs/sabbaticals Reduced salaries/wages Reduced workweeks Other Outsourced and/or moved processes offshore Increased the use of part-time employees No cost-reducing measures have been taken Expanded telework Reduced health-care benefits Decreased long-term incentive plan eligibility 0%






% of all respondents


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The majority of companies have either already ended their salary/wage freeze or anticipated doing so by July 2010.

Trend 2 Ending the Freeze When asked what target metric they would use to determine when to return to previous practices (i.e., ending hiring freezes, restoring salary increases, etc.), most organizations said “improved revenue” or “higher operating profit.” The majority of companies surveyed have either already ended their salary/ wage freeze or anticipated doing so by July 2010, consistent with the finding that more than 50 percent of respondents are optimistic about increased revenues over the coming year. Only a very small percentage of companies think they will still have

a wage/salary freeze in effect in 2011 (see Figure 3 on page 72). Figure 3 shows that the majority of respondents selected July 2010 or sooner. This result is likely because the next fiscal quarter for respondents who were still under a freeze ended in June, and they anticipated having the results in July that will support their hiring and pay decisions. This finding reinforced the optimism reflected in the survey responses. Figure 2:

Trend 3 Increased But Selective Hiring At first glance, the data for Figure 4 on page 72 looks fairly discouraging. After all, there are very few functional areas in which the number of organizations hiring exceed the number of organizations where reductions were made. Ninety-six percent of the companies surveyed have hired employees in the past six months, though the number of hires varies by function.

How Companies Intend to Adjust Staffing (By Region)

Decrease headcount

Increase headcount

No change

Not sure



17% 23%




70% % of all organizations

of layoffs peaked in January 2009 and appears to have tapered off slowly since then. The survey revealed that only a very small minority of respondents around the world have any future plans to decrease headcount (see Figure 2). According to our analysis, regional differences are mainly due to: • Different economic timing: Other regions experienced the downturn sooner than the United States and also felt a recovery sooner. • Different regulatory environments: Some regions have workforce laws that make it more difficult to lay off and rehire. • Different severity and reasons for downturn: Asia-Pacific recovered faster because there was less interdependence between the U.S. housing bubble and their finance and banking environment. That connection was stronger in Europe.


37% 60% 52% 50%




32% 45%


23% 22%

10% 15%


0% U.S./Canada/Mexico

South/ Central America

7% Europe/ Middle East/Africa

3% Asia-Pacific

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The number of organizations planning to add personnel in the corporate functions traditionally considered “support” (finance, HR, IT, marketing) is still well below the number of companies who reduced those numbers. However, more companies are adding headcount in revenue-driving Figure 3:

Trend 4 Expecting a Positive Future The vast majority of responses were positive with regard to how the downturn was handled within each company (although admittedly the respondents were all still employed at the company; their former colleagues may have

functions like sales than the amount that reduced it there in the first place. Evidently, organizations with limited budgets are focusing their dollars first on functional areas with top-line impact. Increased hiring in other functions will likely follow once there are more employees to support.

Actual or Anticipated End Date of Salary/Wage Freeze

Number of organizations

25 20 15 10 5

September ’11

August ’11

July ’11

June ’11

May ’11

April ’11

March ’11

February ’11

January ’11

December ’10

November ’10

October ’10

September ’10

August ’10

July ’10

June ’10

May ’10

April ’10

March ’10

February ’10

January ’10

December ’09

November ’09


Actual or anticipated month/year when freeze will end

Figure 4:

Where Companies Intend to hire Employees vs. Where Employees Have Been Laid Off (By Functional Area) Implemented layoffs

Plan to increase headcount

40% 35%

% of all respondents

30% 25% 20% 15% 10% 5%


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Admin./ support


Human resources

Finance and accounting

Information technology



Development/ engineering


Professional services/ consulting




of employers look for


when recruiting HR professionals.

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a different opinion of the process). Furthermore, nearly everyone surveyed was optimistic about the future of their organization, and most expected things to “return to normal” with regard to the economy and its effects on the organization within two years (see Figure 5). More respondents were expected in the “never” column, according to our analysis. Given opinions by economic pundits and recent data, the United States is now in the new normal. We may not see the economic and employment conditions of the past 10 years for quite awhile, and we need to adapt to these new conditions rather than hope for the good old days.

Keeping Up the Momentum It’s been a challenging time but respondents are clearly optimistic. Now is not the time to relax and stop all the proactive, conscientious and strategic planning that has gotten Figure 5:

companies to the point of recovery. Since this wasn’t really a win for anyone, there are no laurels to rest on. Cautious optimism is good, as long as it’s mixed with healthy doses of “lessons learned” and “eyes wide open.” For organizations who want to sail calmly out of the economic doldrums, offers the following recommendations: • Stay engaged with employees. Ensure managers are paying attention to their growth and development. • Be proactive. As the economy has improved and loyalty has decreased, some employees may decide that now is the time to look elsewhere. To make sure these are not your key employees, take care of top performers and institute retention vehicles. • Market price. Hiring activity is bound to pick up, and while the overall market rates are moving slightly, some market rates that are key to your industry and organization may be moving significantly higher. Make

When Organizations Expect Things to Return to Normal

In what timeframe organizations expect things to return to normal with regard to the economy and its effects on the organization.

Athar Siddiqee, CCP, GRP, is managing director of client solutions at in San Francisco. He can be reached at [email protected]

Mark Szypko, CCP, is managing director of client solutions at in Needham, Mass.  He can be reached at [email protected]

RESOURCES PLUS For more information related to this article:

• Economic downturn


• Headcount • Salary freeze.

30% % of respondents

About the Authors

Type in any or all of the following keywords or phrases on the search line:



• Determining Compensation Costs: How-To Series for the HR Professional


• Building Pay Structures: How-To Series for the HR Professional


• Communicating Total Rewards, Third Edition: How-To Series for the HR Professional.




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Not sure


2+ years

1-2 years

6 months– 1 year

3-6 months

1–3 months



sure you are market pricing your jobs to ensure that you know where they stand in the market.  If there’s anything positive for HR professionals to take from the bleak economy, it’s that we’ve been forced to carefully examine and adjust salary structure, compensation, retention and communication strategies. It’s been a challenging but fruitful exercise, and the lessons we’ve learned in the process are sure to pay dividends in the future.

• Strategic Communication in Total Rewards, Compensation Certification Exam: T4 • Base Pay Administration and Pay for Performance, Compensation Certification Exam: C4 • Pricing Critical Skills and Unique Positions (Competitive Market Pay), Compensation Skill-Building Seminar.

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partners in practice Partners in Practice: A Guide to Consulting enters its 12th year of publication with this issue of workspan. This special advertising section highlights the practice of consulting in total rewards, which includes compensation, benefits, worklife, performance and recognition, and development and career opportunities. Consultants from companies of all sizes and from countries all around the globe have participated in this section to provide you with all the information you need to be successful. This section also serves as a quick reference, featuring the areas of expertise for companies, along with contact information for participating consultants. To continue our dedication to being the leading resource of information on trends and events in the total rewards profession, workspan dedicates the next 11 pages to this special section.

partners practic

in practice partners in

Pearl Meyer & Partners

Repositioning Your Pay Programs for Recovery

570 Lexington Ave. New York, NY 10022 Phone: 212-644-2300 For more than 20 years, Pearl Meyer & Partners has served as a trusted independent advisor to boards and their senior management in the areas of compensation governance, strategy and program design. PM&P provides comprehensive solutions to complex compensation challenges for companies ranging from the Fortune 500 to not-forprofits, as well as emerging high-growth companies.

After a two-year focus on containing payroll costs, companies are slowly starting to hire and increase spending on merit increases, incentive/bonus payouts and equity awards. The different approaches taken by employers to manage their workforce and compensation during this time — as well as new corporate strategies and priorities — make this an opportune time to take stock of whether your organization is still getting the best return on one of its most significant expenditures. An in-depth audit of the level and structure of current compensation programs can ensure they remain aligned with an organization’s evolving needs. It provides an understanding

of changing market practices, competitive positioning and a solid basis for updating pay ranges, annual incentive targets and equity participation. The result: a detailed road map to keeping compensation effective and competitive in a changing economy.

A Compensation Audit Involves Three Key Phases First, an examination of recent or expected changes in the business, including new strategic priorities or organizational restructuring. Additionally, feedback is sought from line managers regarding how well the current compensation program is working and


Will your performance measure up?

partners in practice whether programs are fully understood and properly communicated to employees. Second, a comprehensive, external assessment that includes a critical review of the organization’s competitive pay strategy — including the validation of relevant competitive labor markets and survey sources for different segments of the organization. Potential gaps in pay practices and/or pay levels can be identified and prioritized.

Organizations that are in the midst of or facing a fairly significant shift in direction need to take a fresh look at effectively compensating the employees who will make it all work. Download an article, “Repositioning Your Pay Programs for Recovery — Six Steps for Conducting an Effective Compensation Audit” and link to a recent workspanTV segment on this topic at compaudit.

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Areas of Expertise • Executive compensation • Employee compensation • Salary surveys • Director and board compensation

Third, an assessment of the organization’s infrastructure and pay delivery systems, including job titling, career progressions, pay ranges, incentive targets, eligibility and equity opportunity levels. This includes an assessment of whether pay programs are rewarding the organization’s best performers consistent with its compensation philosophy and retention needs.

Get the answers you need from the most in-depth Executive Pay-for-Performance Survey available.


More than ever, corporate boards are being held to account for ensuring that effective, performance- based compensation programs are in place. That requires real insight into how leading companies, including your competitors, are addressing key issues such as: what performance measures are being used; the choice of analytics to measure performance; absolute versus relative goals; the balance of STI versus LTI; the level of discretion permitted; and much more. Learn what over 500 of your peers have to say about how they align pay with performance in the PM&P On Point: 2010 Executive Pay-for-Performance Survey. Survey highlights and information about how to obtain your copy of the full survey results can be found at

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Salesforce Effectiveness

Sibson Consulting Joseph F. DiMisa 2018 Powers Ferry Road, Suite 850 Atlanta, GA 30339 Phone: 770-403-8006 Fax: 678-306-3192 E-mail: [email protected] Sibson Consulting, a Division of Segal, provides strategic HR solutions to corporate and nonprofit employers. Sibson’s services include benefits, compensation and rewards, communications, organization and talent performance management, salesforce effectiveness and change management. Sibson Consulting offers resultsdriven solutions that enable peak performance and strong business results across the full spectrum of HR and employee benefits issues.


In today’s competitive market, companies often need to restructure their sales organization and evaluate their sales rewards strategy to gain competitive advantage and optimize individual performance. Sibson Consulting can help you clarify organization and resource requirements; prioritize goals, responsibilities and selling time; and develop the right rewards for the right performance. Our abilities begin with overall sales strategy, then look at how a company organizes and directs its salesforce to execute that strategy. We help with various tactical methods of reinforcement to drive that strategy, and can ensure a salesforce is in a position to succeed through post-sales support capabilities.

Sales Strategy Development A salesforce is only as effective as its ability to support the strategy of the company. However, as companies grow, many have problems converting strategic priorities into a sales strategy and action plan that the organization understands and can use to produce profitable growth.

Difficulties occur when execution is not aligned with the goals of the salesforce, and compensation, quota setting and effective measurement of the salesforce are at odds with the strategy. Further issues arise when sales strategies are not communicated clearly to the salesforce.

Salesforce Organization Once a plan is in place, your company must update your sales organization to take advantage of attractive market opportunities.

Sales Strategy Support It is essential to support your salesforce and sales plan through selling tools, capability and effective recruiting; however, most sales teams neglect this final aspect of maximizing the effectiveness of their team. For more information on each of these optics as well as for links to articles on sales compensation strategies, please visit

Sales Strategy Execution Executing your sales strategy requires an interaction of compensation, performance management and best-in-class quota setting. World-class companies have demonstrated that compensation is just one of the tools necessary to successfully execute a sales strategy.

Areas of Expertise


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• Executive compensation

• HR software technology

• Flexible benefits plans

• Sales compensation

• Salary surveys

• Work-life initiatives

• Performance management

• Compensation communication

• Benefits plan design

• Public sector compensation

• Retirement planning education

• Actuarial services

• Employee compensation

• Benefits communication

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We grant your wish. Wish you could predict your future sales force needs in an uncertain economic environment? Wish you could identify which compensation strategies will best incent your sales people? You can. Sibson Consulting’s Sales Force Effectiveness experts can help align your sales strategy with your business goals

no magic genie necessary.

From sales strategy development to execution, our experts can help you evaluate and improve each factor that can influence your sales people to excel. To learn more about our sales force effectiveness services, please visit

People Solutions. Business Results.

partners in practic

Towers Watson 875 Third Ave.

Perspectives on Talent and Rewards: Linking Talent and Rewards to Your Business Strategy

New York, NY 10022 Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management.


Every organization’s success begins and builds with people. This may seem like a cliché, but it’s a crucial tenet leaders can’t afford to ignore — regardless of the business environment or where they operate. Organizations everywhere depend on the capability, proficiency and performance of their people. Your company may thrive when someone develops a new product or a more efficient process. Or it may thrive when someone helps a customer get the right service. But the keys to success will surely change over time, along with economic pressures and shifts in business models and growth strategies. So how do you ensure that you have the right people in the right places doing the right things at the right cost? How do you keep people connected, engaged and productive?

As your partner, we rely on data, analytics and experience to help pinpoint the talent and workforce needs that are vital to your overall performance. We can then develop strategies, and design and implement programs that address these needs, drive higher performance and ensure the right return on your investment in people. Backed by industry-leading technology, global workforce data, research and insights, we help you quickly transform ideas into action. It all adds up to measurable results — an impact on your business you can see, feel and track.

At Towers Watson, our experience tells us that you need effective talent and rewards programs, processes and technology to deliver results. And that requires a talent and rewards strategy that aligns with your business strategy. 

Areas of Expertise • Executive compensation

• HR software and technology

• Benefits communication

• Sales compensation

• Salary surveys

• Flexible benefits plans

• Performance management

• Compensation communication

• Work-life initiatives

• International compensation

• Benefits and administration outsourcing

• Benefits systems

• Retirement planning and education

• Actuarial services

• Public sector compensation • Employee compensation • Recognition


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• Benefits plan design • International benefits

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Success in business requires the right perspective

A new point of view. At Towers Watson, our focus is on giving you the clarity to make the right decisions. Whether you’re concerned about managing risk, keeping top talent or providing the right benefits at the right cost, we bring the right perspective. Towers Watson. A global company with a singular focus on our clients.

Benefits Risk and Financial Services Talent and Rewards

partners in practice

Radford 2570 North 1st St., Suite 500 San Jose, CA 95131 Phone: 408-321-2500 or 866-431-4796 E-mail: [email protected]


Radford: Your Global Rewards Partner for the Technology and Life Sciences Industries Leveraging Radford’s comprehensive databases and insight into market trends, our consulting experts work with companies to ensure their compensation strategies support their business strategies. We also offer global compensation surveys, equity valuation services and analytical services

to meet the challenges facing technology and life sciences companies at all stages of development. Rely on Radford as your global compensation partner. Radford is an Aon Consulting company.

Areas of Expertise • Executive compensation

• International compensation

• Sales compensation

• Employee compensation

• Performance management

• Salary surveys










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partners in practic

D O L A N T E C H N O L O G I E S C O R P.

Simple Solutions for Challenging Times

Compdata Surveys Dolan Technologies Corp. 1713 East 123 rd St. Olathe, KS 66061 Phone: 800-300-9570 Fax: 800-226-0999 Compdata Surveys is a national compensation survey and consulting firm specializing in providing accurate and reliable data to organizations across the country. Our products and services ensure organizations’ competitive success by providing an all-inclusive solution encompassing benefits, reward systems and salary data for more than 5,000 organizations.

› ›

Today’s compensation landscape is constantly evolving. HR professionals will have to adapt to new requirements as a result of the recently enacted health plan. In addition, pay will become more complex as companies continue to work with tighter budgets. Compdata Surveys can help ensure that your company is equipped to conquer these challenges. As the economy slowly begins to recover and we see movement in the job market, it will be more important than ever to have a robust yet cost-effective compensation plan in place. For more than 20 years, Compdata Surveys has been helping organizations develop cost-effective solutions to their most difficult compensation dilemmas. A full-service firm, we offer a wide range of consulting services and custom surveys to ensure each organization achieves its goals. Market reviews — Retain your top employees and recruit necessary talent by ensuring your pay rates are in line with the market. Base wage and salary plans — Maximize your base wage and salary plans with in-depth strategies. Variable pay alternatives — Discover costeffective ways to incent your employees.

In addition to our consulting services, we offer custom surveys to meet a variety of needs. Organizations rely on us because of our expertise, customer service and one-on-one attention. We design and distribute survey questionnaires, conduct personal and professional follow-up, provide reliable and accurate data analysis, and cost-effectively publish and distribute the results. Choose from: • Association surveys — Create a valuable new member benefit or improve an existing survey. • Company-sponsored surveys — Design a survey that’s tailored to the unique needs of your organization. • Custom data runs — Gain access to hardto-find compensation information. • Peer group reports — Access survey data for a peer group of your choice. Whether you’re looking for a custom survey or consulting services, we’d like to help you tackle your biggest compensation challenges. Contact us today at (800) 300-9570 or [email protected] for a complimentary proposal. Comprehensive Solutions. Affordable Results. Compdata Surveys.

Executive incentive/bonus programs — After a third-party review, feel confident making recommendations to your board of directors about executive pay. Job description development — Add and revise job descriptions with ready-to-use descriptions from Compdata Surveys.

Areas of Expertise • Executive compensation • Sales compensation • Public sector compensation


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• Employee compensation • HR software and technology • Salary surveys

• Benefits surveys

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partners in practic


Helping Organizations Make The Right People Choices

4 Embarcadero Center, Suite 400 San Francisco, CA 94111


With many organizations today being asked to do more with the same or less, every choice they make matters. Mercer devotes itself to helping clients make and implement the right choices regarding their investments in people, even when these choices involve complex trade-offs. We do this by ensuring that our clients: • Manage people investments with the same rigor and discipline as other organizational assets

What Our Clients Get Backed by a wealth of global resources and real-world experience, Mercer helps each organization determine an achievable course of action that aligns with current and future business priorities. By effectively managing their portfolio of human capital investments for optimum results, our clients gain a unique source of competitive advantage and the ability to thrive in any business environment.

• Use powerful analytics to diagnose problems, evaluate alternatives, predict outcomes and make fact-based decisions • Connect people investment choices to each other as well as to broader business and human capital strategies • Create an end-to-end approach that effectively considers strategy, design and implementation • Use objective measures to assess the impact of people investments and decisions. Mercer provides organizations a comprehensive range of consulting, technology and data solutions in the areas of: • Human capital strategy • Talent management • Rewards • Sales effectiveness • Human capital operations and technology solutions • Workforce communication and change • Information product solutions • Health and benefits.

Areas of Expertise • Executive compensation

• HR software technology

• Benefits communication

• Sales compensation

• Salary surveys

• Flexible benefits plans

• Performance management

• Compensation communication

• Benefits plan design

• International compensation

• Benefits and administration outsourcing

• Actuarial services

• Public sector compensation • Employee compensation


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• International benefits

• Retirement planning and education workspan special advertising section

partners in practice Aon Consulting | Benefacts 10461 Mill Run Circle, Owings Mills, MD 21117 Ed Lucas, [email protected]

Astron Solutions

Phone: 410-363-5596

505 8 th Ave., Suite 2200, New York, NY 10018

› w

Phone: 212-792-8885


Fax: 212-792-8256

Communicating the Personal Value of Total Rewards Flexible, personalized solutions for your unique needs. • Total rewards statements • Executive compensation communication • Personalized retirement planning education • Management reporting • Print and web • And more … Area of Expertise • Compensation communication • Other compensation • Executive compensation communication • Retirement planning and education

• Benefits communication • Web-based systems • Total rewards statements, Web sites

› Turn to Astron Solutions for innovative total cash compensation and performance management programs that motivate and retain talent. Leading organizations rely on Flare, Astron’s modular Web-based talent management suite, to power their talent management needs across the employee life cycle. Our conservative, flat-fee billing approach enables organizations across America to use our services without concern over budget overruns, travel costs or hourly charges. A more efficient and effective 2011 begins with Astron Solutions! Area of Expertise • Executive compensation • Sales compensation • Performance management • Employee compensation • Recognition

BeneCom Associates LLC

Birches Group LLC

P.O. Box 1423

228 East 45 th St., 12 th Floor South

Avon, CT 06001-1423

New York, NY 10017

Phone: 860-674-2626

Phone: 212-972-6970

Fax: 860-674-2627

Fax: 646-292-5184


E-mail: [email protected]

Since 1992, BeneCom has provided one-stop benefits communications for organizations large and small, nationwide. Staffed by people who know benefits, we write, design and produce effective media, including SPDs, enrollment materials, newsletters, benefit statements and more. So whether you’re an employer, plan administrator, consulting firm or independent broker in need of traditional or online capabilities, we’re here to help.

• HR software technology • Salary surveys • Compensation communication • Web-based systems

› Birches Group publishes total compensation surveys in more than 140 developing countries globally, including all of Africa, and many smaller markets where finding reliable data is difficult. We use a consistent methodology in all countries, and capture information about salary, cash allowances, in-kind benefits and incentives. Data is delivered to clients using our Indigo software. Birches Group also offers Community, an integrated job evaluation, competency and performance management tool to make managing these processes simple.

Area of Expertise

Area of Expertise

• Compensation communication • Benefits communication

• Executive compensation

• Employee compensation

• Performance management

• Salary surveys

• International compensation

• Compensation communication

• Public sector compensation

• Developing markets

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partners in practic

partners in practice CULPEPPER Compensation & Benefits Sur veys

Culpepper and Associates Inc.

The Cygnal Group

3600 Mansell Road, Suite 310

108 Windhover Place

Alpharetta, GA 30022

Chapel Hill, NC 27514

[email protected]

Phone: 815-485-4711



For more than 30 years, Culpepper has been a leading provider of compensation survey data and human capital benchmarking services. Our custom reporting and advisory services help organizations use survey market data to establish competitive and effective compensation plans. Culpepper Compensation Surveys cover a wide range of jobs in IT, technology, cleantech, alternative energy, life science and health-care organizations. We report worldwide data for companies of all sizes, ranging from small companies to multinational corporations.

We bring our clients the best practices gleaned from years of helping companies create more effective selling functions. While we believe strongly in our approach, we also have a deep respect for the client’s own expertise and understanding of their organization’s needs. We will work with you the way you want us to. Our goal is to make a tangible difference in your business results and help you make your numbers ... better!

Area of Expertise

Area of Expertise

• Executive compensation

• Employee compensation

• Sales compensation

• Salary surveys

• International compensation

• Benefits surveys

Phillip Blount & Associates

Wilson Group Inc.

1745 N. Brown Road, Suite 180

30 Monument Square, Suite 214

Lawrenceville, GA 30043

Concord, MA 01742

Phone: 770-232-1232


Fax: 770-232-1242


E-mail: [email protected]

› PB& A, established in 1996, specializes in compensation consulting, including executive, sales and employee compensation, performance management, and compensation communication with additional specialties in organization design and leadership development. With clients located globally, the firm is able to provide innovative, yet pragmatic, solutions linking corporate vision and employee performance within a large range of organizational environments.

• Executive compensation

• Employee compensation

• Sales compensation

• Salary surveys

• Performance management

• Compensation communication

• Public sector compensation

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The Wilson Group provides in-depth expertise in executive, sales and employee total compensation to address your specific needs. We offer competitive market studies, develop salary, incentive, equity and recognition programs, and create your total rewards philosophy. We bring integrity, insights and practical innovation to each engagement. Our goal is to strengthen your capabilities to implement strategic plans and reinforce your organization’s values.

Area of Expertise

Area of Expertise


• Sales compensation

• Executive compensation

• Employee compensation

• Sales compensation

• Recognition

• Performance management

• Salary surveys

• International compensation

• Other compensation

• Public sector compensation

• Total rewards philosophy

workspan special advertising section


Why Intrinsic Rewards Count: Dan Pink’s Drive Pink provides proof that intrinsic rewards work and financial incentives limit creativity and can undermine it by interfering with our natural tendencies to direct our own lives and to learn and create new things.


an Pink’s best-selling book, Drive, The Surprising Truth About What Motivates Us, is not simply a critique of pay-for-performance plans, as some compensation professionals have alleged and others have suspected. It is much more than that, and it is worth reading. Since the concept of pay for performance is top of mind for many compensation professionals, it is probably best to state what Pink has to say on this topic first. His basic approach is to pay employees right so that they can focus on what really motivates higher levels of performance — the content and context of their work. His first guideline for paying people right is that employees should be paid fairly in relation to their internal and external peers. He says that his approach “doesn’t mean paying everybody the same amount. If Fred has a harder job or contributes more than you, he deserves a richer deal … Why? It’s fair.” His second guideline is to pay people above the market average. Again, the purpose is to take money off the table so that employees can focus on their work and not stew about what their friends make. His third guideline is that if you use performance metrics, make them wide-ranging, relevant, hard to game and reasonable to attain. Few

By Frank Giancola

compensation professionals could argue with these guidelines. So what is controversial about Pink’s ideas? He believes that incentive pay plans are less effective than intrinsic rewards in motivating people who do complex and creative tasks. He provides proof that intrinsic rewards work and that financial incentives limit creativity and can undermine it by interfering with our natural tendencies to direct our own lives and to learn and create new things. He feels that financial incentives work best for people who do routine jobs that offer few intrinsic rewards that motivate. The value of incentives is controversial, primarily because the matter is far from settled knowledge. Notre Dame professor Matt Bloom, who has received grants from WorldatWork for being a leading thinker in the world of compensation, has put the matter into perspective. He says that “gaps remain in our understanding of the The views expressed in the Viewpoint column are solely those of the author and do not represent an official position of WorldatWork. If you would like to respond to this column or other articles in workspan, please e-mail your comments to [email protected] Correspondence may appear as Letters to the Editor in upcoming issues of workspan.

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motivational effects of incentives, especially when work is complex, difficult to prescribe and dynamic, such as is often the case with professionals, knowledge and creative workers, and the like.” Pink is a graduate of the Yale Law School, but has never practiced law. He has worked as a speechwriter for Vice President Al Gore, and as an aide to the U.S. Secretary of Labor, and has held other positions in politics and government. He has written two other business best-sellers about the changing world of work. His ideas about what motivates employees are based on the thinking of two respected individuals, Edward Deci, professor of psychology at the University of Rochester, and Mihalyi Csikszentmihalyi, professor of psychology at Claremont University in California. Deci is known for his self-determination theory of behavior, which states that people have three innate psychological needs — to seek competence, autonomy and relatedness. He believes that once these three needs are satisfied, we are motivated, productive and happy. Pink recommends that employers take steps to enable employees to satisfy these needs so they can realize their highest levels of performance. Relatedness encompasses the feeling of being connected to others and doing work that has a higher purpose. Csikszentmihalyi is known for his theory of flow, which states that the highest, most satisfying experiences in life happen when we are deeply and totally involved in a task. The feeling comes from the process of the activity itself rather than trying to reach a goal. 88

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Compensation professionals can most easily see how these theories come together in the concept of employee engagement. Through its years of research with thousands of employees, Towers Watson has identified the top drivers of employee engagement. It defines engagement as an employee’s ability and willingness to contribute discretionary effort to company success. It also notes that to effectively engage employees, firms must satisfy both employees’ emotional and rational needs. In its 2007–2008 Global Workforce Study, Towers Watson identified the following top 10 drivers of employee engagement for U.S. employees. Noted after each driver is the Deci need that is addressed. • Senior management sincerely interested in employee well-being (relatedness) • Organization’s reputation in the community (relatedness) • Improved my skills and capabilities in the past year (competence) • Appropriate amount of decision-making authority to do my job well (autonomy) • Organization quickly resolves customer concerns (relatedness) • Seek opportunities to develop new knowledge/skills (competence) • Have excellent care advancement opportunities (competence) • Can impact work/product/service (autonomy) • Organization’s reputation for social responsibility (relatedness) • Senior management acts to ensure organization’s long-term success (relatedness). What is striking about this breakdown is that Pink’s ideas are strongly

supported in two important respects. None of the top 10 engagement drivers relate to financial incentives, and all have varying degrees of connection to Deci’s basic needs that relate to high performance. Drivers dealing with autonomy and competence are spot-on, and little effort is required to see how the others relate with our need for relatedness. In addition, the list is valuable intelligence because it identifies areas to examine to improve intrinsic motivation, a potentially frustrating task for many HR professionals. Thus, Pink’s main thesis that satisfaction of these needs is at the heart of employee motivation is supported with empirical evidence that compensation professionals are intimately familiar with. It is somewhat disappointing that Pink did not use the Towers Watson engagement studies as a main support for his ideas. He uses others that compensation professionals will find less convincing. Generally, his important points are backed up with recent studies that have appeared in respected academic and trade journals. The number (approximately 100 studies listed over 145 pages) and quality of his citations compare favorably with books of respected compensation writers Edward Lawler, Patricia Zingheim and Jay Schuster. Knowledgeable readers will recognize the referenced works of Tersea Amabile, professor of business administration at Harvard University, and of Dan Ariely, professor of behavioral economics at Duke University. Pink also cites cases of successful firms that use his ideas to great advantage, such as Google and 3M Corp. His thesis is also aided because his ideas are aligned with some of the best


... an interesting and provocative book about what it takes to motivate knowledge workers. business thinkers of our time, such as Douglas McGregor, Gary Hamel, Peter Senge and Jim Collins. His best support comes from Peter Drucker, author and father of modern management studies,

who said in his book, Management Challenges for the 21st Century: “We have known for 50 years that money alone does not motivate to perform … What motivates — and especially what motivates knowledge workers — is what motivates volunteers … They need, above all, challenge. They need to know the organization’s mission and to believe in it. They need continuous training. They need to see results.” Dan Pink has written an interesting and provocative book about what it takes to motivate knowledge workers. The idea that intrinsic rewards are as powerful as extrinsic ones for motivating many people is not new. What Pink has done is update the file of

evidence that supports the theory and to relate it to a specific theory of human behavior in an appealing and meaningful way. Compensation professionals who wish to reflect the latest thinking on employee motivation and give further thought to the use of intrinsic rewards should read this book. If they believe the book lacks substance, I challenge them to write a book or article that sets the record straight. About the Author Frank Giancola has more than 40 years of HR experience, primarily with Ford Motor Co. He is also a frequent contributor to WorldatWork publications and discussion boards. He can be reached at [email protected]


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Committing to Work on Workloads


t isn’t often that somebody drops dead from working too hard. But it can happen. In fact, the surviving parents of a Japanese worker were awarded ¥79 million (about $815,000) in May when a court decided their son had suffered from “karoshi,” or sudden death from overwork. Dying from too much work may not be a major worry for most of us, but there are clear penalties for employers and staff for heavier workloads. As any worker knows, overwork is a common occurrence today as companies lay off staff but keep — or add — customers. And there may be no stopping it unless there is a commitment to do so. Experts quoted in a May New York Times article predicted that many of the jobs lost during the recession will not come back either because technology has made them redundant or because companies have discovered they can get more done with fewer people. There are a few things we can and should be doing about it. First, we can acknowledge that overwork is happening on a regular basis. WFD Consulting’s Second Annual Survey of Workload Issues found that even as the economy begins to improve, workloads for employees and managers continue to escalate, resulting in elevated stress levels. 90

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Nine out of 10 respondents to the survey said that workloads have increased in the past 12 months while the number of employees has declined. Another way we can address overwork is to acknowledge that while ramping up workloads may be saving companies money in the short term, many of them will pay a price for overworking people. Survivors can only keep this up for so long.

No. 1 Penalty: Stress Eighty percent of respondents to the WFD Consulting survey said employee stress has increased and morale and endurance have continued to slip. Although 64 percent of workers feel that their work pressures are “selfinflicted,” they say it is taking a toll on them (does self-inflicted mean they do more because they love to do more, or because they want to hold on to their jobs?). The study also found that 70 percent of U.S. respondents and 81 percent of global respondents believe their jobs are affecting their health. Poor health among workers can put a strain on companies through the loss of productivity and increased health-care costs. Only half of the organizations surveyed said they have programs and resources to address employee stress.

By Susan Seitel WFC Resources

No. 2 Penalty: Exodus of talent There have been some much-hyped predictions that increased workloads would result in an exodus of top employees. But that has yet to occur (a trickle, said one blogger, not yet a stampede), possibly because the recession is taking longer than predicted to recede. An HR Focus article in June 2010 said more people quit their jobs in the past three months than were laid off — a sharp reversal after 15 straight months of layoffs exceeding voluntary departures. The trend suggests the job market is finally thawing, and employees worldwide are beginning to look around for better opportunities. “It’s not smart for companies to hire talented people and then overload them with work and have them leave,” researcher Ellen Kossek said in 2006. And it is still true today. In addition to inadequate staffing to meet work demands, WFD’s survey found these reasons why employees feel overworked: • Bureaucracy, resulting in too many levels of approval and a slow decision-making process The views expressed in the Viewpoint column are solely those of the author and do not represent an official position of WorldatWork. If you would like to respond to this column or other articles in workspan, please e-mail your comments to [email protected] Correspondence may appear as Letters to the Editor in upcoming issues of workspan.

JUST WHEN I FEEL LIKE AN EXPERT, A LAW PASSES AND EVERYTHING CHANGES. THE SOLUTION IS SHRM. In my 20 years as an HR professional, I’ve had to constantly adapt and adjust to ever-changing laws, policies and trends. The HR industry never stops growing, and HR professionals need to work hard just to keep up. I managed to have a successful career because I rely on SHRM to remain current, informed and aware. The leadership of SHRM combined with the support of my local chapter has allowed me to develop my skills, solidify my experience and move into a bigger role. I want to serve as an example to my peers and show them that with SHRM they will have all the tools they need to develop professionally. From the webcasts, to the conferences, to the HR Knowledge Center, I can always count on SHRM to get the most current, dependable and relevant information. Find out how SHRM can help advance your career at



Ingrid Adams, SPHR Louisville, KY Member since 1997


• Information overload • Too much e-mail and internal communication, making it difficult to filter and prioritize key information • Poor communication and coordination across functions. Even if nothing can be done about inadequate staffing, improving each of the above could make a difference in the perception of having too much to do. 

Committing to Change A commitment to change usually has to come from the top. But even if top management isn’t committed, pilot programs can be created to address these ailments. Look for willing managers and share your goals for changing perceptions about workload,

along with increasing productivity, satisfaction, engagement and retention of top talent. While teams are meeting, take a new look at the actual work they’re doing. A few years ago, another WFD Consulting study found that employees spent about 20 percent of their time on low-value or frustrating work that could be reduced or eliminated without negatively affecting business results. I’m willing to bet that is still true. Work redesign is neither quick nor simple. It means individuals must begin to record the tasks they do each day for at least a couple of weeks — maybe longer. Then teams must meet and compare lists, looking for duplicative tasks or those that may not be

necessary any more. Time saved has to be evenly redistributed, and it has to be clear that the payoff for team members will be less work, as opposed to simply more productivity for the company. And there is one more option: Encourage telecommuting. Employees who are allowed to work from home and who know they can do it without penalty produce more work in less time. They also are likely to be more satisfied, more committed and more engaged. Sounds like a no-brainer to me. About the Author Susan Seitel is president of WFC Resources in Minnetonka, Minn. She can be reached at [email protected]


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Now Available!

Certified Executive Compensation Professional™ | CECP™ WorldatWork Society of Certified Professionals is pleased to announce

Thank You Volunteers

the release of a new specialty designaAnil Agarwal

Bonnie Kelly

The Home Depot

Capital One

Debbie Beale

Charley King F.W. Cook

complex and dynamic field in total

Federal Reserve Bank of Kansas City

rewards, and it requires a broad and

Zoya Black

The Walt Disney Co.

tion in executive compensation.




“[Executive compensation] is the most

Total Rewards

WorldatWork Premier Member Resources

connect. share. learn.

deep understanding of strategy, plan design, administration and evaluation,” said Don Lindner, CCP, CBP, GRP, WorldatWork senior practice leader.

Time Warner

Aaron Boyd

Pearl Meyer & Partners

Todd Brooks

Seamus O’Toole


Semler Brossy Consulting Group

Mark Chen

are demonstrating that you have the

Towers Watson

fundamental knowledge of concepts,

David Chun

can apply it to your work. This knowledge and application is especially important in executive compensation.”


Karen Crandall


HJ Heinz Co.

formerly with American Cancer Society

John England

Aalap Shah

passing one comprehensive exam. It was

the exam. However, WorldatWork offers

Andrea Peter

Stephen Dudak

David Flaherty

aration course that covers all content in

Baker Hughes Inc.

Dave Roberts


testing model, so there is no single prep-

Ila Owers


The new credential can be acquired by developed under a competency-based

Cassie Luxa


“By obtaining this certification, you

principles and practices, and that you

Matt Lublinsky

Pearl Meyer & Partners

Towers Watson

Brit Wittman

Mark Fogel



Jim Gandurski Grant Thornton

numerous executive compensation resources that will help those who work in the executive compensation specialty

designation. Their willingness to give back to

prepare for the exam.

the profession is greatly appreciated.

During a two-year period, the Society,

The Society also thanks all the volunteers

working with a group of volunteers, created

who helped with survey construction and

a practice analysis survey in executive com-

the beta test group who provided valuable

pensation, validated the findings, developed

feedback for the initial public version of

the body of knowledge and constructed

the exam.

the initial certification exam. WorldatWork


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Society of Certified Professionals thanks the

For more information, log on to

volunteers who helped develop the CECP

Work-life is good for business. It reminds employees and employers of the exchange relationship that connects their mutual needs, interests and satisfaction. To address work-life balance issues, the

leave. Also, the Women’s Bureau plans

Showcase your organization’s efforts

National Work &

to sponsor a supplement to the Bureau

to create healthy, flex-

Family Month is a

of Labor Statistics’ American Time Use

ible work environments

national education

Survey in 2011 to gather more informa-

that support employees

campaign led by

tion on parental leave, child care, family

inside and outside the

Alliance for Work-Life

leave insurance program use and other

office by submitting your

Progress (AWLP), a

issues related to the intersection of work

application for the 2011

WorldatWork affiliate,

and family responsibilities. More “National

Work-Life Innovative

to raise awareness

Dialogue on Workplace Flexibility” forums

Excellence Award.

among employers about the value of work-

are planned.

Or, shine the spotlight

Department of Labor’s Wage and Hour Division plans to conduct a new Family and Medical Leave Act survey in 2011 /community

Celebrate National Work and Family Month

Do You Use WorkLife to Attract and Retain Top Talent?

to provide insight into how families use

life effectiveness as a business imperative.

on a professional with “Work-life is good for business,” said

the potential to change

AWLP encourages all workplaces to pause

Kathie Lingle, WLCP, executive director

the work-life field by

once a year during the month of October to

of AWLP. “Dedicating a month to this

nominating him/her as

communicate and celebrate the progress

aspect of overall people strategy helps

a Rising Star.

toward creating healthier and more flexible

employers increase the attraction,

work environments. Use October as a time

retention, productivity and engagement

Free applications and nomination

to try telework, condense a workweek, join

of the talent required for organizational

forms will be accepted through Oct. 31.

a wellness program or organize a work-

success. It reminds both employees

Visit to learn more

place volunteer activity.

and employers of the exchange relation-

and apply.

ship that connects their mutual needs, Flexibility and work-life balance are

interests and satisfaction.”

priorities for the Obama administration and the federal government. In July, the

Invite a speaker to talk to your group

White House Middle Class Task Force

about promoting work-life initiatives

met to discuss workplace flexibility. “America’s families have evolved, so helping parents and other

as a cost-effective tool to engage talent. Visit the Speakers Bureau on

Advisory Board Discusses Future of Benefits By Leonard Sanicola, CCP, CBP, GRP, CEBS, SPHR, WorldatWork Practice Leader

the WorldatWork Web site

caregivers keep their jobs


This summer, WorldatWork’s Benefits

while balancing their respon-

speakers bureau. Access

Advisory Board met at the WorldatWork

sibilities in the home is key

other resources and tools

Washington, D.C., office to discuss

to our long-term economic

for this year’s National

the current landscape of the benefits

success,” said U.S. Secretary of Labor Hilda Solis.

Work and Family month at

environment and the future of the benefits

professional. Based on these discussions,

workspan  10/10


connect. share. learn. the team developed several actionable

Regarding strategic planning, the board

goals for the next 18 months.

discussed how the ability to integrate ben-


with other WorldatWork content advi-

business acumen. A strategic benefits

sory boards, is an integral part of the

partner needs to have an understanding

association’s governance structure.

of the specific business environment and

As advocates for the profession, advisory

a grasp of financial management issues,

board members help the organization

including finance and accounting, fidu-

identify, articulate and prioritize the issues

ciary issues, critical thinking and project

and challenges affecting the profession.

management skills. Several advisory board

The advisory boards serve as WorldatWork

members said that many emerging indi-

strategic thought leaders, collaborators

viduals lack a number of these skills and

and catalysts for action.

the ability to calculate the return on various HR initiatives and investments.

In the discussion of the future of the benefits profession, many focused

The board members recognized that,

on more strategic issues and the need

especially as companies recover from

to stay ahead of the regulatory front.

the recession, several challenges in the

In fact, many stated that, due to time

business and political world impact attraction, motivation and retention of talent.

professionals need to do the day-to-day

The inventory of top benefits challenges

tactical items in their spare time. Access

included health-care reform implementation

to data and costs is becoming more and

and communication, pension funding, health

more critical.

and wellness initiatives, global mobility,



and total rewards strategies requires strong

constraints and limited resources,

Total Rewards

WorldatWork Premier Member Resources

efits programs into overarching business The Benefits Advisory Board, along

“In focusing for the future, the ability to

risking the business. What arches over many

capture data to establish metrics, spot

of these key issues is the challenge of deliv-

trends, drive insights, and develop inno-

ering quality value-added benefits with

vative and sustainable solutions will be

better efficiencies and cost-effectiveness.

critical for all total rewards professionals,”

The most talked-about ramifications were

said Kathy McGrath, CCP, CEBS, Benefits

regarding health care and more effective,

Advisory Board chair.

targeted employee communications.

review of retirement objectives and de-

Therefore, the group’s short-term focus will be on helping the practitioner with open enrollment issues, specifically in regard to

The Benefits Advisory Board is composed of a team of members from across most industry sectors. For a complete list of Advisory Board members, log on to the governance page at

the impact of health-care reform on employee communications. ABOUT THE AUTHOR Erin Ryan is a contributing editor to workspan’s Member Resources and can be reached at [email protected] or 480-304-6824.


workspan  10/10


How to Launch a New Sales Compensation Plan Organizations make meaningful changes in their sales compensation plans on a regular basis, indicated in Figure 1. While the trend is moving down in recent years, still nearly half of organizations implemented plan changes in 2010. There are many reasons for the constant change in sales compensation including market changes, revisions in strategy, M&A and others. Change can be good in the case of sales compensation because it means an organization is seeking the strongest engagement between strategy and the salespeople on the front lines carrying it out. Figure 1:

Trends in Plan Changes and Revisions

Did you revise your sales compensation plan this year, to include meaningful changes such as changes in measures, eligibility, mix, leverage, weights, etc.?


es change can be good, but successfully launching a new sales compensation plan depends on an effective communication and launch plan. Effective communication of a new sales compensation plan depends on a number of factors, beginning with a case for change. After all the work that has gone into a new sales compensation design, it can be perilous to assume that the salesforce is on board with respect to why a change is being made at this time. Change is always a challenge. Making a compelling case for the need for change is a must. Absent a case for change, there is no “hook” to capture the attention of the salesforce, let alone

persuade it of the rationale behind the need for the change. As with any communication it is always important to know the audience. In the case of a sales compensation plan, the audience is the salesforce. No audience is more expert in the selling process embedded in the communication of the new plan. Salespeople especially will appreciate the process used to sell them on the new plan. They are far more likely than other employee groups to recognize the process of selling as it appears in your communication and rollout of a new plan. There are numerous ways to engage the salesforce that hopefully will have been employed,

beginning with the first meeting of the design team. The point is, know your audience, understand and anticipate its concerns, and connect with it throughout the process. The frontline sales manager may be the most important success factor to the successful communication of a new plan. It is critical to partner with your line managers to provide them with the training and supporting materials needed for an effective rollout. Frontline sales managers must be confident in their ability to manage and communicate a new plan. Once the sales management team has been effectively trained, it represents the best agents to lead the change management process. This critical stakeholder must feel fully supported and should be fully onboard with a new plan. Change is a constant in sales compensation plans. Harnessing the full energy of the salesforce in operationalizing a new business strategy depends on an effective sales compensation plan design. Yet an effective sales compensation design will fail without an effective communication and launch plan. About the Author Jim Stoeckmann, CCP, is a practice leader for WorldatWork. He can be reached at [email protected]

Back to Basics is intended to provide entry-level information on issues relevant to com­p en­s ation, benefits and the work experience. Though factual in nature, nothing herein is to be construed as legal, accounting, actuarial or other such professional advice.

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Thank Y U WorldatWork appreciates the support of our 2010 advertisers, sponsors and exhibitors. Advertisers in this issue of workspan are in blue.

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Genuine Work-Life or Lip Service? Dilemma Our CEO has been in the press talking about the great work-life balance at this company. From my perspective in the HR department, we do have a lot of programs and benefits, but our overall culture (from the top, I believe) basically discourages people from taking time off and encourages 24/7 work styles. Yesterday, I was asked to be “ready” to potentially answer media calls about our great work-life culture. I’m very uncomfortable with it. What should I do?

Gary Bergel, SPHR, Associate, Restructuring Associates Inc. While it is probably little or no solace, yours is a frustration that I hear frequently. First, if you believe your organization is willfully misrepresenting itself and you have the data to back this up, you need to talk with your boss and/or legal, immediately. No employee should be put in a position where they are being asked to lie, either to the public or to other employees. Unless the situation is that egregious, however, I would take advantage of the opportunity to flex some strategic HR muscles. If your organization has a public relations and/or corporate communications group, you should meet with them to get their advice and assistance in developing talking points and answers to likely questions. In addition, make sure you 100

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are well versed in your organization’s work-life programs and policies. A working session with the PR or communications folks (or if your organization doesn’t have such functions in-house, then engage with your colleagues in HR) should provide you with an opportunity to organize your thinking, and develop key messages and responses that both promote your organization and that you are comfortable sharing without feeling that you are compromising your integrity. If no such resources are available to you internally, and you are on your own, remember that you are speaking as a representative of your organization and stick to the facts. This is not the appropriate place to free-form on your frustrations, expectations and aspirations; answer the questions you are asked (if they are appropriate), and don’t be afraid to say, “I don’t know,” or “that’s not something we collect data on.” Again, focus on what you can say comfortably and stick to your script.

Michelle Andolsek, Compensation Specialist, St. Mary’s Good Samaritan Inc. You definitely don’t want to go answer a media call speaking negatively about your employer. An interview with the media is neither the time nor place to bring up your concerns about the perceived nonexistent work-life

balance. To ensure a good discussion while not downgrading your company, speak about things with which you are comfortable. Focus on the positive aspects of the work-life program. You mentioned there are great programs and benefits available — concentrate on those items.

E. James (Jim) Brennan, Senior Associate, ERI Economic Research Institute Obviously, you are not ready to handle such questions. I would demur and refer the questions back to the CEO or the PR department, while asking for an interactive workshop (not a unilateral lecture) with the prime policy communicator so you can ascertain how to reconcile the alleged great work-life culture with the realities experienced by HR. Once you have been adequately briefed on the new policies authorized by the CEO that will produce a great work-life culture (if they indeed promise to change the past problems), you will be happy to explain and endorse those corrective measures. Otherwise, you will lose all credibility. Focus on Ethics appears regularly on this page to present a real-life dilemma faced by total rewards professionals. Please submit dilemmas via e-mail to: [email protected] WorldatWork reserves the right to edit submissions for length and content. All dilemmas submitted will be anonymously attributed. Opinions expressed are those of the individual res­p ondents, not WorldatWork. Nothing herein is to be construed as legal, accounting, actuarial or other such professional advice.


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