workspan, September 2010

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Sep 14, 2010 - frontpage features. 26 | A Guide to ..... on the front page of the newspaper? We Rock! ...... By hosting a wellness program online, employers can ...

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32 | Address These Six Areas in Your Next Sales Compensation Plan 66 | T  he Financial Case for Employers to Fight Childhood Obesity




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frontpage 20 | Resetting for the Recovery

52 | The Basics of Benchmarking in the Great Recession

Annual Salary Budget Issue

By Alison Avalos, CCP, CBP, GRP, and Kathryn Cohen, CCP, CBP, GRP, WLCP The WorldatWork 2010-2011 Salary Budget Survey reports that the 2010 U.S. average total salary budget increase across all organizations, employee categories, regions and industries is 2.5 percent, with projections for 2011 slightly higher at 2.9 percent. So it looks like the sky is finally looking a little clearer after last year’s dismal findings. While organizations aren’t quite ready for a full recovery, it’s clear they are on the mend.

features 26 | A Guide to Making Executive Compensation Decisions in a Challenging Marketplace By Scott N. Olsen and Thomas M. Tabaczynski Two basic approaches have emerged for dealing with an executive compensation marketplace that is not comprehensive enough to provide guidance for executive compensation decision making. Learn about these approaches and what your company can do when dealing with key executive compensation issues.

32 | Address These Six Areas in Your Next Sales Compensation Plan By Beth Carroll When redesigning sales compensation plans, businesses should address six key areas: planning, involvement, knowledge, modeling, communication and administration. The result will be a plan design that creates great value for the company, the salespeople and even customers.

38 | A Minnesota County’s Successful Transition to a Performance-Based Compensation System

Case Study

By Saado Y. Abboud, Ph.D., CCP, and Jack Kemme Officials in Scott County, Minn., successfully made the transition from a seniority-based compensation program to a performancebased system by securing the support and partnership of union leaders. This partnership was critically important as the recent economic crisis worsened and tough decisions had to be made to reduce expenses and balance the budget while avoiding layoffs.

46 | Going Global? Get Local!

Tips for Increasing Success in the Transformation to a Global Sales Comp Program By Scott Barton Moving from a decentralized sales compensation program to a centralized — global — program can be a career-defining event, one complicated by the fact that sales compensation itself can be a touchy subject. Learn tips for making the transition.

By Pawan Singh, Ph.D. The Great Recession sparked many challenges for compensation professionals. Regular increases in employee pay and rewards gave way to significantly reduced budgets and wide variations in compensation levels and market pricing of jobs. In such an environment, job benchmarking using high-quality survey data is critical.

60 | Eight Considerations For The Design And Talent Lifecycle By Jon Brickner Design thinking has much to offer in a world where most management ideas and best practices are readily available to be copied and exploited. It is up to HR professionals to learn, reflect and interpret a design-thinking mindset, skill set and toolset into their own development, as well as the HR profession and the organization. Organizations that understand this evolution will win in the marketplace.

66 | The Financial Case for Employers to Fight Childhood Obesity By Heather Zeitz With childhood obesity a serious, growing and costly issue for children, parents and businesses, it is critical that employers not only understand the scope of the problem, but also find ways to cost-effectively help families improve their health and make lasting changes.

72 | How to Strengthen the Link Between Performance and Pay With Midyear Check-ins By John Anderson and Kate Richardson Midyear performance check-ins are often underused and ineffective. But in fact, the midyear check-in provides leaders with the perfect opportunity to discuss the difference between good and exceptional performance and how this difference impacts future compensation decisions. This article discusses the key dynamics to ensure that the midyear performance check-in is not a wasted opportunity for better organizational performance.

80 | Engaging Remote Workers With Web-Based Wellness Programs By Annmarie Fini Workplace wellness programs have one major strength: reaching individuals at work. But as companies expand globally, more and more employees are working from satellite locations or home offices, and therefore are unable to participate in on-site wellness events. So how do employers get — and keep — employees involved? By going online.





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| | From the Leadership

10 | Rules & Regulations By Carrie Clark and Katie Vlietstra U.S. Legislators Work Out Compensation, Retirement, Financial Regulatory Issues

16 | Global Forum By Valerie H. Diamond Coping with Legal Obstacles to Granting Equity Awards in Asia‑Pacific

18 | Letter to the Editor

101 | Back to Basics

RE: July cover story

77 | Salary Survey Showcase 85 | Special Advertorial Section: Sales Compensation


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The Do Nothing Boss

98 | Viewpoint By Robert J. Greene, Ph.D., CCP, CBP, GRP, SPHR, GPHR, CPHRC Effective Management: Workforce Costs In Public-Sector Organizations WorldatWork Management Team President  Anne C. Ruddy, CCP, CPCU

About WorldatWork® The Total Rewards Association

Vice President and Chief Financial Officer  Greg Nelson, CCP, CPA

WorldatWork ( is a global human resources association focused on compensation, benefits, work-life and integrated total rewards to attract, motivate and retain a talented workforce. Founded in 1955, WorldatWork provides a network of nearly 30,000 members in more than 100 countries with training, certification, research, conferences and community. It has offices in Scottsdale, Arizona, and Washington, D.C.

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104 | Focus on Ethics

94 | Member Resources

Vice President, Professional Development  Bonnie Kabin, CCP Vol. 53, No. 9/September 2010/ISSN 1529-9465

Benefits Design: Funding and Outsourcing Considerations

Betty Scharfman

Executive Director, AWLP  Kathie Lingle, WLCP Vice President, Publishing and Community

Ryan M. Johnson, CCP Director, Human Resources  Kip Kipley, CBP, SPHR Director, Public Policy  Cara Welch, Esq. Managing Director, Washington, D.C., Office and Conference Center  Paul Rowson, CCP, GRP, WLCP EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS Chair  Sara R. McAuley, CCP Vice Chair  David Smith, CCP, Vice President,

Human Resources, AGL Resources

Secretary/Treasurer  Jeff Chambers, WLCP Member  Anne C. Ruddy, CCP, CPCU, WorldatWork Past Chair  Tracy J.O. Kofski, CCP, Vice President of

Compensation and Benefits, General Mills ARTICLE Reviewers Joan Backman, CCP, CBP, City of North Las Vegas J.Y. Bae, CCP, CBP, GRP, Buck Consultants David Bell, CCP, D.P. Associates Minhas Bhojani, United Central Bank Stanley Bloom, Chubb & Son Rajkumar Dharmaraj, RIMS, Microland Ltd. Robert Gordon Chambers, Esq., McGuireWoods LLP Rosalva Dean, CCP, Ricoh|IBM InfoPrint Solutions Sean Delaney, Microsoft James C. Fox, Ph.D., Fox Lawson and Associates Deena Gilbert, CCP, Gilbert and Associates

Julie Green, CCP, Ricoh Americas Corp. Adam Greetis, Syefarth Shaw LLP James Grosheider Amy Jones, CCP, hrQ Jennifer LaCroix, CCP, GRP, SPHR, Capella University Michaela Leo, CCP, Merck and Company Inc. Luke Malloy, CCP, UnitedHealth Group John McGowan, CCP, Edwards Lifesciences Lori Metcalf, CBP, Juddmonte Farms Robert W. Miller, CCP, CBP, GRP, The Gordon and Betty Moore Foundation Ron Miller, CCP, Applied Materials

Marie Mohammed, CCP, University of British Columbia Nia Mujadadi, CCP, Santur Corp. Michael Murphy, CCP, SPHR, Shoe Carnival Inc. Catherine Peffen, Marriott Vacation Club International Mark Pittel, CCP, Sullivan Cotter and Associates Nandini Ramaswamy, CCP, CBP, GRP, Oracle Corp. Eric Scoones, SABMiller Ilene Siscovick, Mercer David Splinger, CCP, Flow International Corp. Katherine Tilsley, CCP, CBP, Staples Business Depot

The WorldatWork group of registered marks includes: WorldatWork®, WorldatWork Society of Certified Professionals®, Alliance for Work-Life Progress® or AWLP®, Certified Compensation Professional® or CCP®, Certified Benefits Professional® or CBP, Global Remuneration Professional or GRP®, Work-Life Certified Professional™ or WLCP®, Certified Sales Compensation Professional™ or CSCP™, Certified Executive Compensation Professional or CECP™, workspan®, WorldatWork® Journal and Compensation Conundrum®. workspan is published 12 times a year by WorldatWork, 14040 N. Northsight Blvd., Scottsdale, AZ 85260, as a benefit to members who receive an annual subscription with their membership. Subscriptions in the United States and U.S. possessions are $100 per year; in other countries, subscriptions are $125 per year. Postmaster: Send address changes to workspan, 14040 N. Northsight Blvd., Scottsdale, AZ 85260; 480-951-9191. Canada Post (CPC) publication # 40823004. WorldatWork neither endorses any of the products, services or companies referenced in this publication nor does it attest to their quality. The views expressed in this publication are those of the authors and should not be ascribed to the officers, members or other sponsors of WorldatWork or its staff. Nothing herein is to be construed as an attempt to aid or hinder the adoption of any pending legislation, regulation or interpretive rule, or as legal, accounting, actuarial or other such professional advice. Copyright © 2010 WorldatWork. All rights reserved. WorldatWork and workspan: Registered Trademark® Marca Registrada. Printed in U.S.A. No portion of this publication may be reproduced in any form without express written permission from WorldatWork. Reprints  For electronic or bulk reprints, go to and click on “Order Reprints.” Writing for workspan  To obtain information about writing for workspan, visit our Web site at or call 480-304-6819.

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© 2010 ERI Economic Research Institute. All rights reserved. connect. share. learn. Resources for Managing Paid Time Off Search the audio files in the Resource Center for the new roundtable discussion: Survey of Paid Time Off Programs and Practices. WorldatWork research manager Alison Avalos discusses the findings from the 2010 Paid Time Off Programs and Practices survey with practice leaders Leonard Sanicola and Rose Stanley. Hear a summary of the findings, what was surprising in the results, and some perspectives about how employers are using paid time off today to attract and retain talent. Find more resources on the One-Stop Topics page.

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Get Bimonthly Sales Compensation News and Information Sales Compensation Focus features analysis of sales compensation trends and questions to keep you up-to-date. Subscribe to this e-newsletter at Which of the following best describes your confidence or pessimism right now about your salesforce achieving its revenue goal established at the start of the 2010 plan year? Very confident

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Find Out What’s Happening in Chicago Spotlight on Sales Compensation, Sept. 20-22 WorldatWork’s inaugural Spotlight on Sales Compensation will bring together the top minds in sales compensation for discussion. The event is sold out, but if you’re interested in sales compensation subject matter, WorldatWork will share post-event news and summaries on our Web site. Be sure to bookmark

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Go online to to get extra pieces to the stories in this issue.

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fromtheleadership | executive committee Who Loves Ya, Baby? Given publishing deadlines, I’m writing this letter in July, about a month and a half after the May fiscal year-end for my company. The headquarters for my company is physically located in Minnesota. In terms of weather and outdoor activities, June through September here is gorgeous. I just wish my compensation team would be able to enjoy it more.

Tracy J. O. Kofski Past Chair, 2010 WorldatWork Board of Directors

This is the compensation team’s busiest time of year, gaining approvals for and processing merit increases, incentive payouts and stock awards for our employees worldwide. We’re also in the midst of producing our proxy statement to report our performance and related pay actions to shareholders. The great news is that things are humming along quite well, with 99.9 percent of everything going flawlessly. True to our nature, however, the team is more focused on the 0.1 percent that we can do better next time. This reminds me of how important it is for us as total rewards professionals to support and inspire each other. It doesn’t matter if you are an HR generalist or a specialist in an area of compensation, benefits, work-life, performance and recognition, or training and development. The demands of our jobs seem to be ever expanding (without incremental resources) under pressures like global expansion and increased legislative activity. Every day, we can make the choice to view this glass of water called our job as half-full or half-empty. I vote half-full. I know we have a lot of work to do, but how awesome is it to work on such an important part of the employee value proposition for our companies? How fabulous is it to understand and administer programs tied to the softer and harder sides of employee engagement? How great is it to save our companies unnecessary expense and drive improved performance through our programs? How remarkable is it to read about topics pertaining to our line of work not only in the business section, but on the front page of the newspaper? We Rock! I challenge all of you reading this to post a “you rock” sticky note on the door, telephone or side of the computer of a friend or colleague you work with in total rewards. If you don’t geographically sit near him or her, send it via voice mail, e-mail or text. If “you rock” won’t resonate with him or her, switch it up to something more appropriate. And, keep it going throughout the year. Yes, you’re busy. We’re all really busy. But, I believe it is part of our role as total rewards professionals to look after our own. Who loves ya, baby? We do! Keep up the great work!

Tracy J. O. Kofski


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As your business navigates the recovery, IT needs to be ready to support growth. Are you confident you have the most reliable compensation data to support an IT HR strategy that works in this fluid climate? Do your people have the skills they need now and for the future? Are you doing the right things to retain key talent so you’re positioned to support the business as it evolves its unique path to recovery? The Gartner IT Market Compensation Study provides the industry’s highest-quality compensation and HR practices benchmark data to help you develop a total-rewards approach to effectively managing your IT talent in today’s economy. • The industry’s most well-defined IT benchmark job descriptions for 155 positions • Strategic qualitative information on: – Recruitment and retention practices – Reward, recognition and work/life programs – Career development and training programs

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U.S. Legislators Work Out Compensation, Retirement, Financial Regulatory Issues Once every six years, the shareholders must also vote on whether they will approve executive compensation every one, two or three years.


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fter countless hours of debate in both houses of Congress and in a conference committee that ended at 6 a.m. after a week-long, marathon negotiation session, House and Senate negotiators reached a final agreement on a sweeping new financial regulatory reform plan that impacts total rewards practitioners. The bill, having received approval by both the Senate and the House, will reach President Obama’s desk and become law.

New Limits on Executive Compensation for Financial Firms As we’ve been following the financial regulatory reform debate, the biggest focus for total rewards practitioners has been on the executive compensation restrictions in the bill. The final conference report tracked closely with the original Senate executive compensation provisions, which were less detailed than the House-passed provisions. The first provision outlined gives shareholders a say-on-pay vote on executive pay and golden parachutes. A separate resolution is required at least once every three years that is subject to a shareholder vote to approve the compensation of executives. Once every six years, the shareholders must

Carrie Clark WorldatWork

Katie Vlietstra WorldatWork

also vote on whether they will approve executive compensation every one, two or three years. In addition, when shareholders are asked to approve an acquisition, merger, consolidation or proposed sale of a company, the agreements or understandings regarding any type of compensation of any named executive officers that is based on, or related to, the matter and the aggregate total of all such compensation that may be paid or become payable must be disclosed. This disclosure will also include a separate resolution subject to a shareholder vote to approve. These shareholder votes are not binding and may not be construed as overruling a decision by the company


or the company’s board of directors to create or imply any additional or changed fiduciary duties of the company or the company’s board of directors. The conference report also gives the Securities and Exchange Commission (SEC) authority to grant shareholders

proxy access to nominate directors. The SEC is authorized to do this through regulations “under such terms and conditions as the Commission determines are in the interests of shareholders and for the protection of investors.” The SEC is also directed to issue regulations requiring financial

Final Guidance on Sound Incentive Compensation Policies The Comptroller of the Currency, the Federal Deposit Insurance Corp., the Federal Reserve Board and the Office of Thrift Supervision recently issued final Guidance on Sound Incentive Compensation Policies after reviewing comments submitted on the proposed guidance submitted October-December 2009. WorldatWork was one of the 34 respondents that commented with respect to the proposed guidance. Within the final guidance, the agencies recognized that “Incentive compensation arrangements often seek to serve several important and worthy objectives. For example, incentive compensation arrangements may be used to attract skilled staff, induce better organizationwide and employee performance, promote employee retention, provide retirement security to employees, or allow compensation expenses to vary with revenue on an organizationwide-basis.” The guidance offers three main principles for incentive compensation: • Provide employees incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk. • Be compatible with effective controls and risk management. • Be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. It is important to note that the guidance is aimed directly at addressing the incentive compensation policies that are developed and administered at large banking organizations; however, we anticipate that this guidance will be influential on all sectors of business that have an incentive compensation arrangement. The guidance became effective on June 25, 2010. To read the final guidance, please log on to the WorldatWork Public Policy home page.


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companies to disclose in the annual proxy the reasons why they have nominated individuals to serve on the board of directors. Finally, directors must still win by a majority vote in uncontested elections. Standards for listing on an exchange will require that compensation committees include only independent directors and have authority to hire compensation consultants. In defining “independent,” the conference report says that the national securities associations and national securities exchanges will consider relevant factors including the source of compensation of board members (including any consulting or advisory fees) and whether the board member is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company. Public companies are also required to set policies to take back executive compensation if it was based on inaccurate financial statements that don’t comply with accounting standards. If a company must prepare an accounting restatement due to material noncompliance with any financial-reporting requirement, the company will recover compensation from any current or former executive officer who received incentive-based compensation during the three years prior to the date of the restatement. The company will be able to recover compensation in excess of what the officer would have received under the accounting restatement. Regulations requiring enhanced disclosure of compensation structures are also outlined in the conference report. Within nine months of passage, a group of regulators is required to

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release regulations outlining disclosure of all incentive-based compensation arrangements to the appropriate federal regulator offered by covered financial institutions that is sufficient to determine if the compensation structure provides excessive compen­ sations, fees or benefits or could lead to material financial loss to the institution. The regulators directed to release these rules include the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision, and the Securities and Exchange Commission. The SEC is also directed to clarify disclosures relating to compensation, including requiring companies to provide charts comparing their executive compensation with stock performance for a five-year period.

Financial Regulatory Reform and Retirement Plans There was some concern throughout negotiations that the way in which derivatives and swap dealers were handled would have consequences for retirement plans (including defined contribution plans) that routinely used swaps to hedge against risk. In the Public Policy Perceptions blog, it was reported that the conferees were considering a proposal that would have required swaps dealers to take on fiduciary responsibility for the buyers of swaps, essentially requiring them to play both sides. In the final language, it was clarified that dealers selling to retirement plans do not owe a fiduciary duty to the plan but are to have 14

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a “reasonable basis” for believing an independent representative is advising them, in addition to a series of business conduct rules that apply to the dealer. In addition, the definition of “swaps” was very broad and could be construed to include stable value funds, a staple investment option for defined contribution plans. The final legislation makes clear that, pending a review of this issue by the regulatory agencies, stable value funds are not to be considered swaps and are thus exempt from the regulations surrounding swaps.

Hurdle Overcome On July 15, Senate leaders handed President Obama his second major legislative victory in his very short tenure, passing the Dodd-Frank Wall Street Reform and Consumer Protection Act. While Senate and House negotiators worked diligently to reconcile the two bills, the path to final passage still faced a significant hurdle: the U.S. Senate. Originally, Senate Majority Leader Harry Reid (D-Nev.) and House Speaker Nancy Pelosi (D-Calif.) were committed to passing the conference bill prior to the July 4 recess. The House was able to meet that timeline, successfully passing the bill with a 237-192 vote on June 30, 2010, but Sen. Reid had to concede that he did not have the votes in the Senate to push the bill through per the agreed-upon deadline. The challenge Sen. Reid faces is courting or recruiting at least two Republican members to vote in favor of passage. With the death of Sen. Robert Byrd (D-W. Va.) and Sen. Russ Feingold’s (D-Wis.) announcement he would not support the final bill, the Democrats lack the votes. The situation is

further complicated as Sen. Reid has no negotiating room; he cannot offer legislative changes to the bill in an attempt to woo votes, as it would require the bill to go back to conference and then back to both chambers for a final vote. Seeing as how Sen. Reid already went down this path once, negotiating with Sen. Scott Brown (R-Mass.), it is unlikely he could make a second attempt at reconvening the conference committee and making additional changes that would (1) secure the Republican votes he needs and (2) appease the Democratic caucuses in both chambers. However, it seems that the July 4 recess provided enough breathing room for Sen. Brown to review the final legislation and ultimately signal he would support the bill. With the door open, Sen. Susan Collins (R-Maine) and Sen. Olympia Snowe (R-Maine) followed, giving Sen. Reid the 60 votes he needed to move the legislation through the Senate and ultimately deliver a major legislative victory for President Obama. While the reform package will become law, we anticipate that substantial pieces of the bill will need to be reviewed and evaluated through the rulemaking process. We will continue to provide updates to our members as the law is implemented. Log on to the Public Policy page for more information. About the Authors Carrie Clark is a member of the public policy team in the Washington, D.C., office of WorldatWork. She can be reached at [email protected]

Katie Vlietstra is a public policy analyst in the Washington, D.C., office of WorldatWork. She can be reached at [email protected]


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Coping with Legal Obstacles to Granting Equity Awards in Asia‑Pacific Granting equity awards in China raises tax and securities law issues, but it is the exchange control restrictions that have raised the most difficult compliance issues for U.S. public companies.


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ny company actively recruiting in China and Asia‑Pacific knows how competitive the market is for key managers and other talented employees. U.S. multinationals hiring employees in Asia‑Pacific through their foreign subsidiaries want to be able to offer options, restricted stock units (RSUs) or an employee stock purchase plan (ESPP) to remain competitive and retain key individuals. Unfortunately, there are a number of fairly significant legal impediments to offering equity plans in this region, making it virtually impossible to offer a U.S. company’s stock benefits to employees in some countries and extremely costly and administratively burdensome in other countries. This article outlines a number of legal challenges that U.S. companies face, and provides some thoughts about how to meet those challenges and make cost-effective equity grants. Granting equity awards in China raises tax and securities law issues, but it is the exchange control restrictions that have raised the most difficult compliance issues for U.S. public companies wanting to offer options, RSUs or ESPP rights to employees. To offer such equity rights, a U.S.

Valerie H. Diamond Baker & McKenzie LLP

company must comply with certain operational guidelines issued by the General Affairs Department of the State Administration of Foreign Exchange (SAFE), also known as Circular 78, and obtain an approval of its offering from SAFE officials. Among the many requirements of Circular 78 is the need to establish a bank account in China through which any funds used to purchase the company’s shares and any proceeds from the sale of the shares must flow before they can be converted to local currency. It is no longer possible for a U.S. public company to allow the Chinese national employees of its subsidiaries to hold shares or U.S. dollars offshore in the United States. All funds must be sent through the company’s bank account in China.

Designing Equity Awards Coping with Circular 78 and obtaining SAFE approval is challenging. To simplify the process, equity awards


should be designed to ensure that funds used to purchase shares do not need to be converted into U.S. dollars or transferred out of China by employees. For example, options can be designed to restrict exercises solely by a cashless exercise conducted by the broker, and RSUs can be granted for no cash consideration. With these design changes to the options and RSUs, no funds need to flow out of China for the Chinese employees to receive shares, so the company needs to seek approval only for inflow of funds to China (not the outflow). Another design feature companies can use to make the SAFE approval process easier is to require that employees with RSUs immediately sell the shares they receive upon vesting. This modification alleviates the need for the company to track shares until they are sold to ensure that all proceeds from the sale are repatriated to the company’s Chinese bank account, a requirement of Circular 78. There is no easy way to comply with China SAFE Circular 78 requirements because even a grant to one Chinese employee triggers the need for an approval. Nevertheless, with careful plan design and the cooperation of the company’s designated broker, the filing and compliance costs and administrative burdens can be reduced. Companies also might consider granting vesting cash bonus awards paid in local currency, in lieu of equity awards, to avoid the need to obtain approval from SAFE for the awards.

New Australian Tax Rules Another country with significant legal challenges is Australia. New tax rules effective for grants made on or after

July 1, 2009, call for stock rights to be taxed at grant unless they are subject to a “real risk of forfeiture” that will delay the timing of taxation until a later tax deferral date. If options and RSUs have vesting restrictions, that design can delay the timing of taxation from the grant date to the vesting date (but be wary of grants that accelerate vesting for retirement-eligible employees because those grants are likely taxed when the individual becomes retirement eligible). Even options that are under water (meaning the exercise price is greater than the current market value of the shares) can be taxed at vesting using a formula that values the option at vesting, except where the option is more than 50 percent under water. The challenge for companies is that the new tax rules require them to report the taxable amount annually to Australian tax authorities. As in China, many of the Australian tax issues can be minimized or avoided by changes to the design of the equity award. From a practical standpoint, granting RSUs instead of stock options is preferable because they are likely to be taxed at vesting, provided they do not have special benefits on retirement or redundancy. The advantage of RSUs with this kind of tax event is that the employees will have the ability to sell shares to cover any tax liability. If options are granted, then it is possible to include language in the grant document to avoid the taxation of underwater options. But once a vested option comes into the money, taxation is likely to occur. Another challenge for Australian equity awards is securities-law compliance. The grant of options, RSUs

or ESPP rights by a U.S. issuer to employees of its Australian subsidiary is an offering of securities for which registration and a prospectus are required unless an exemption applies. Often, U.S. companies will rely on an exemption for offers to 20 or fewer individuals during a 12-month period, provided the value of the offering is $2 million (Australian) or less. Alternatively, for larger offerings, which may be the case for an ESPP because all eligible employees would receive the offer, there is a Class Order exemption that may be available if certain requirements are met and the documents connected to the offering are lodged with the Australian Securities and Investments Commission on a timely basis. Again, the key here is to plan ahead because even though an exemption to the registration and prospectus requirements is likely available for the equity offering, it may require certain board of directors or compensation committee approvals or the filing of securities documents at the time of the offering.

Granting RSUs in Japan Securities-law compliance is also a concern with grants of equity awards to Japanese employees. While RSUs are not considered securities because no cash consideration is paid to receive the shares, options and ESPP offerings are securities. Depending on the size of the offering and the number of employees who receive the offer, the issuer may be required to file a registration and prospectus. Typically, grants by a U.S. issuer to 50 or more employees of its Japanese subsidiary that are valued at ¥100 million or more require a prospectus, unless the company is a workspan  09/10



direct, wholly owned subsidiary of the U.S. parent issuer. Once a registration is made in connection with a Japanese securities offering, the issuer becomes a continuous disclosure company and is then required to file annual and semiannual reports with Japanese securities authorities. Companies can better cope with securities law issues in Japan if they grant RSUs rather than options and ESPP rights because RSUs can be granted to any number of employees at any amount without triggering a securities filing. To the extent a company wants to offer options or ESPP rights in Japan, it may be possible to structure the Japanese subsidiary as a wholly owned subsidiary of the parent to avoid a securities filing. If that is not

possible, then a company needs to have a good understanding of the thresholds that apply and try to remain under those thresholds if it wishes to avoid a securities filing. This approach can be somewhat challenging because complicated aggregation rules apply to such thresholds.

Conclusion Asia‑Pacific is an area where legal complications exist in granting stock options and other forms of equity compensation to employees. Careful design and planning can help companies avoid costly and administratively burdensome securities and exchange control filings, as well as negative tax consequences on equity awards. Government and tax authorities in

letter totheeditor RE: July cover story Great coverage in the July 2010 edition of workspan on a subject that gives most compensation people cold chills. I was on ACA’s (now WorldatWork’s) board in 1981 when the survey on this subject was taken. We were all greatly concerned that legislation would be enacted requiring this position be taken, and wondering how in the heck we could measure “comparable worth.” Julie Sackett, ACA’s then-national president in the mid-1980s, was also on the board at the time. Ann Bares makes a good point when she says, “We must be careful about establishing public policy that would dilute the impact of the market on employee wages in the interest of equalizing pay between male-dominated occupations (where demand is urgent) and female-dominated occupations (which may be “comparable” but have less urgent demand). We certainly don’t need something else to worry about when economic conditions are as tenuous as they are. Sincerely, William Caldwell, editor, The Compensation Guide 1988 ACA national president 18

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China, Australia and Japan have stepped up enforcement activity where noncompliance occurs. U.S. multinationals offering equity to employees in Asia‑Pacific are not immune to such efforts and should proceed with caution. Coping with the legal challenges to granting equity in Asia‑Pacific means staying informed of all legal requirements and actively avoiding legal obstacles by the choice and design of awards or by completing necessary filings and registrations for the offerings. About the Author Valerie H. Diamond is a partner in global equity services at Baker & McKenzie LLP in San Francisco. She can be reached at or 415-576-3086.

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 - -


Due Diligence

Practical Defensible with

ERI’s Occupational Assessor & PAQ’s eDOT (for modeling the complex and not leaving a web keystroke trail)

- over one million FLSA scored since 1974 -

Salary Surveys analyses Geographic Wage/Salary Differentials Relocation Cost of Living Comparisons Court & IRS accepted Executive Compensation Data Occupational (Specific Job, not Job Family) Information 800.292.2198

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).


The 2010 U.S. average total salary budget increase across all organizations, employee categories, regions and industries is 2.5 percent, with projections for 2011 slightly higher at 2.9 percent.

While the number of zero-percent salary increase budgets remains higher than the historical average, most participating organizations are budgeting for pay increases between 2 percent and 4 percent. The information, manufacturing, real estate and rental and leasing, and wholesale trade industries showed the strongest rebound in 2010.

By Alison Avalos, CCP, CBP, GRP, and Kathryn Cohen, CCP, CBP, GRP, WLCP, WorldatWork

ry la e Sa u al Iss nu et An udg B

Quick look

Re fo co r the ve ry

ng tti se Re

Someone recently noted that there is a perfect record with regard to recessions: 11 post-war recessions in the United States have ended with 11 recoveries. So the good news is that a recovery is already in the process of following the Great Recession. Perhaps the key issue right now is the pace of recovery or level of confidence. The WorldatWork 2010-2011 Salary Budget Survey reports that the 2010 U.S. average total salary budget increase across all organizations, employee categories, regions and industries is 2.5 percent, with projections for 2011 slightly higher at 2.9 percent. In the current recovery, many organizations seem to be finding a “new normal,” unable to

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Last year, about


of organizations

budgeted zero percent for pay increases. Now they are faced with questions about what to restore and when to restore it.

fully recover from the dramatic economic shift that began in late 2008. A lot of employers made adjustments to salary budgets and reward plans in a state of near economic chaos. Last year, about one-third of organizations budgeted zero percent for pay increases. Now they are faced with questions about what to restore and when to restore it. In this year’s survey, the number of organizations reporting a zero-percent budget for 2010 was cut in half, and future commitments to paying for performance through merit increases and variable pay awards showed new signs of life.

and industries in the United States is 2.5 percent. These data represent a rise in salary budget increases, reported at 2.2 percent a year ago — the lowest point in the 37-year history of this survey. Although there is some optimism, many employers are cautious, with the 2011 total salary budget Figure 1:

Salary Budget Increases, by Type of Increase

Actual 2010

Projected 2011







General increase/ COLA







Merit increase







Other increase (not promotional)







Total increase







Note: The three categories (general/COLA, merit and other) do not add up to the “total increase” because not every organization provides all three types of increase.

Distribution of Total Salary Budget Increase Responses, Actual 2009 vs. Actual 2010



Fewer Zero-Percent Salary Increase Budgets In 2009, about one-third of organizations said that they were not

Actual 2009

Salary Budget Increases on the Mend The average (mean) 2010 total salary budget increase across all organizations, employee categories, regions Figure 2:

increase average for all employee categories, regions and industries projected at 2.9 percent, as shown in Figure 1.

0.1% to 1.9%


3.0% to 4.0%















Nonexempt hourly nonunion













Nonexempt salaried













Exempt salaried


























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budgeting for pay increases. This year, considerably fewer (only 13 percent to 20 percent of organizations, depending on employee category) reported a zeropercent increase. While the number of zero-percent salary increase budgets remains higher than the historical average, most participating organizations are budgeting for pay increases between 2 percent and 4 percent. About three-quarters of organizations report increase budgets in this range (see Figure 2). The 2-percent to 2.9-percent range actually doubled in size for 2010. More companies are doing something this year, but most are keeping salary increase budgets conservative. The survey data show that most employees can expect a raise in 2010 (mean: 86 percent; median: 98 percent).

Pay for Performance Organizations are still concentrating on programs that tie performance to pay. The most prevalent pay-forperformance program continues to be merit increase budgets — four to six times more common than other types of pay increases. Even though the size of all pay increase budgets, including merit budgets, remains at historical low levels,

there is still evidence of differentiation of awards. Looking at employee performance in 2009, organizations averaged a 2.1-percent payout for middle performers and a 3.2-percent payout for top performers (see Figure 3 on page 24). This represents a differentiation of about 50 percent. Low performers averaged a 0.7-percent increase, although the median payout for a low performer was zero percent.

Who is Doing What, When An important factor in compensation planning for 2010 and 2011 is to identify where organizations were in their recovery process from the recent recession. At the time when the survey was conducted (April 2010), 62 percent of organizations said they were recovering. Of this 62 percent, 37 percent were actually considering or implementing salary recovery actions, and 25 percent were recovering but not taking or considering action on salaries yet. Fifteen percent were still in a recession, and a surprising 22 percent of organizations said they did not experience any negative effects of the recession. Of the companies who froze pay during the prior 12 months (April 2009-April 2010), 90 percent had or were considering resuming normal pay increase practices in 2010 or their next fiscal year. For those organizations that had cut pay, 70 percent had already or were planning to restore pay to previous rates in full; 20 percent said pay cuts will remain permanent. workspan  09/10


Industry Data The industry data reveal more variation than the national and regional data. Budgets for a handful of industries, including public administration, educational services and utilities, continued to fall in 2010 (below 2009 levels) to 1.3 percent, 1.7 percent and 2.4 percent, respectively. In fact, a median analysis for the public administration industry indicates that more than half of respondents reported a zero-percent increase for 2010. The industries reporting the highest average increase budgets for 2010 are mining (2.9 percent); consulting, professional, scientific and technical services (2.8 percent); finance and insurance (2.7 percent); arts, enter­ tainment and recreation (2.7 percent); and wholesale trade (2.7 percent). The information, manufacturing, transportation, real estate and rental and leasing, and wholesale trade industries showed the strongest rebound in 2010. Projections for 2011 reveal that telecommunications and other services industries appear to be the most optimistic when looking toward 2011 (see Figure 4). Salary Structures In tough economic times, a common reaction by employers is to freeze pay structures. As such, about half of respondents for each employee category report this is the case for their organization in 2010. Participants report an average structure adjustment of 1.2 percent. Looking ahead, structure adjustment projections for 2011 are 2 percent overall. Variable Pay The percentage of organizations using variable pay has leveled off at 80 percent in 2010. Of the organizations that use variable pay, a combination of awards 24

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Figure 3:

Merit Increase Awards for High and Middle Performers

High Performers

Middle Performers






Percentage of employees rated in this category for 2009





Average merit increase awarded to this 2009 performance category





Percentage of employees estimated to be rated in this category for 2010





Average merit increase estimated for this 2010 performance category






Figure 4:

Year-to-Year Change in Salary Budget Increases, by Industry

Actual 2009

Actual 2010

% Change (+/-)

Projected 2011

% Change (+/-)

All industries






Accommodation and food services






Consulting, professional, scientific, and technical services






Educational services






Finance and insurance






Health care and social assistance
























Public administration






Real estate, rental and leasing






Retail trade
























Wholesale trade






Other services (except public administration)






The percentage of organizations using variable pay has leveled off at

80 percent in 2010. Of the organizations that use variable pay, a combination of awards based on organization/ unit success as well as individual performance continue to be most widely used.

based on organization/unit success as well as individual performance continue to be most widely used, as shown in Figure 5. The average percent budgeted and the average percent paid with regard to variable pay fell only slightly during the recent recession, compared to more significant drops in salary increase budgets and structure adjustments. Actual variable pay budgets and payouts for 2009 were reported this year slightly ahead of what was projected last year. And 2010 and 2011 figures show much of the same, a slight rise over the previous year.

The WorldatWork 2010-2011 Salary Budget Survey includes data from nearly 2,500 participants collected in April 2010, representing more than 15.5 million U.S. employees. The data represent a wide diversity of U.S. companies and industries, distributed across all 50 states. About the Authors Alison Avalos, CCP, CBP, GRP, leads the content deployment, community and research team at WorldatWork. She is a former HR practitioner and can be reached at [email protected]

Kathryn Cohen, CCP, CBP, GRP, WLCP, is a content analyst and the project manager for the

Summary The WorldatWork 2010-2011 Salary Budget Survey shows that organizations are modestly increasing salary budgets after dropping to historic lows a year ago. The number of employers reporting zero-percent increases is declining, and pay for performance via variable pay is holding steady. At this point in the recession (or recovery, depending on one’s point of view), the next step for many organizations is to take stock of salary actions from the past two years and plot a future course of action. Some industries and companies have returned to near-normal pay practices, while many others are clearly still struggling. Figure 5:

Types of Variable Pay Programs

salary budget survey at WorldatWork, and also a former HR practitioner. She 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: • Merit increase • Salary budget • Recovery. • WorldatWork 2010-2011 Salary Budget Survey • Designing & Conducting a Salary Survey: How-To Series for the HR Professional • Linking Pay to Performance: How-To Series for the HR Professional • Planning Wage and Salary Program s. Combination awards based on both organization/unit success and individual performance


Organizationwide awards


Individual incentive awards


Unit/strategic business unit awards


• Base Pay Administration and Pay for Performance, Compensation Certification Course: C4 • Market Pricing — Conducting a Competitive Pay Analysis, Compensation Certification Course: C17 • Performance Management — Strategy, Design and Implementation, Compensation Skill-Building Seminar.

workspan  09/10



a guide

executive compensation decisions

to making

in a challenging marketplace


he impact of the financial crisis and the amount of change in the executive compensation marketplace have rendered the past two years’ data from published compensation survey sources and public disclosures less meaningful. In addition, there is a collective belief that strict adherence to competitive compensation practices within the financial services sector was partially to blame for the financial crisis. As a result of one, the other or both reasons, two basic approaches have emerged for dealing with a marketplace that is not comprehensive enough to provide guidance for executive compensation decision making.

Quick look Regarding the data used for typical reviews, there may be significant lag time from when the data are reported to when the public reads that data. Some companies have turned to thoughtful supplemental analytics and applied them within the context of their business plan to make critical executive compensation decisions. Communicate the limitations of traditional data sources and understand that any changes in the economic environment, even for the better, are not going to make traditional disclosure and compensation survey sources more relevant for the time being.

By Scott N. Olsen and Thomas M. Tabaczynski, PricewaterhouseCoopers LLP

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The impact of the financial crisis on compensation practices was

broad and significant.

A significant stock market decline from third quarter 2008 through first quarter 2009 affected equity granting practices.

In the first approach, many firms have adopted a wait-and-see strategy — they continue to defer making important decisions about their compensation programs until the market shows real trends or settles down. In the second approach, some companies are applying supplemental analytics within the context of their broader business strategy to make required changes to their programs rather than relying on traditional market data. This article provides key background information on executive compensation practices and how the compensation marketplace has evolved into what it is today; explores how companies are addressing the challenges inherent in the marketplace; and suggests actions your company can take when dealing with executive compensation issues.

Typical Review Practice Before discussing how companies are addressing the challenges of today’s executive compensation marketplace, it is helpful to consider some background information, including typical review practice. Across every firm’s compensation calendar, annual and less frequent executive compensation analyses are typically conducted. Annual reviews usually include: • Amounts for base pay, bonuses and the annualized expected value of long-term 28

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incentives, compiled from published survey sources and peer proxies • Comparisons of pay for performance, compiled from 10-Ks or online data sources • Aggregate share use (overhang, run rate, grant expense), compiled from peer 10-Ks and proxy statements. Less frequent reviews, conducted every other or every third year, are typically reserved for: • Long-term incentive vehicles and their associated terms, compiled from proxy statements • Incentive metrics and mechanics, as described in the compensation discussion and analysis section of peer company proxy statements • Employment agreements, including separation arrangements and potential payments upon separation, compiled from peer proxy statements • Board of directors pay, compiled from proxy statements.

How the Marketplace Has Changed Also important from a background perspective is how the executive compensation marketplace has evolved to what it is today. An Issue of Timing

The impact of the financial crisis on compensation practices was broad and

significant. For example, a significant stock market decline from third quarter 2008 through first quarter 2009 affected equity granting practices. Furthermore, changes in business outlook and company budgets during fourth quarter 2008 radically changed merit increase planning. Regarding the data used for typical reviews, there may be significant lag time from when the data are reported to when the public consumes that data: • Published survey sources typically have a data effective date, or date of data collection, in the late spring but are typically released months later. Furthermore, portions of that data, like long-term incentives or annual incentives, are based on activities throughout the year. • Proxies and 10-Ks are provided several months after the fiscal year ends and represent data taken during the entirety of the prior fiscal year. The information, therefore, does not necessarily provide a snapshot at year-end. Given these circumstances, the data collected from peer company public filings and compensation surveys for salary planning, annual bonus levels and equity grant levels in 2009 were less than ideal, as they reflected a prebust market. So while compensation survey data may have reflected spring inputs for midsummer publication, they also reflected fiscal 2008 financials for 2009

bonuses and fiscal 2009 financials for 2010 bonuses — which do not reflect the 2009 or 2010 economy, respectively. An Issue of Significant and Rapid Change

The impact of the financial crisis was felt throughout 2009 and into 2010, with restricted credit affecting many companies. Some companies were forced to reduce headcount or freeze merit budget increases due to cash constraints; and throughout 2009, pay reductions or freezes for top management made the news. As constraints affected organizations during this period, the competitive market changed in real time, more quickly than published data can track. A Stronger Governance Model

The increased scrutiny of executive compensation issues by shareholders, changes or tightening of rules by shareholder advocacy groups, and regulatory developments (such as changes in proxy disclosure rules) are leading to a more thorough approach to decisionmaking by compensation committees. An Issue of Legislative and Regulatory Forces That May Impact Pay

A common theme during 2009 to 2010 has been increased legislative and regulatory activity leading to uncertainty about how the compensation market will change. Consider: • Legislation under the American Recovery and Reinvestment Act of 2009 and Emergency Economic Stabilization Act of 2008 imposed direct pay limits for recipients of Troubled Asset Relief Program assistance. • Initial guidance on compensation in the banking industry issued by the Federal Reserve Board included two supervisory initiatives regarding the review of risk in compensation. • The U.S. Securities and Exchange Commission issued proxy rules

changes for 2010. These changes, while not revolutionary, will reinforce fundamental thinking about risk in compensation. Although many companies will not be required to make substantial disclosures about compensation and risk due to the threshold criteria (e.g., that compensation practices are “reasonably likely to have a material effect on the company”) included in the final rules, they nonetheless need to review the alignment of compensation and risk to assess whether they meet the threshold criteria. • The increased likelihood of mandatory shareholder advisory votes on executive compensation practices (say on pay). Although these votes are advisory in nature, they nonetheless raise the bar on shareholder engagement and the need to provide transparent disclosures and analyses of compensation practices for all publicly held companies. The timing disconnect of data, the speed of change, a stronger governance model, and broader legislative and regulatory trends have created changes that have lead to traditional sources of executive compensation due diligence being less meaningful or used.

What Companies Are Doing As mentioned earlier in this article, some companies are using a wait-andsee approach, which can be valid if that is what investors expect of the organization. Others have turned to thoughtful supplemental analytics to make critical executive compensation decisions in the following areas: • Future pay leverage: Companies can analyze aggregate potential incentive pay across alternative performance scenarios over a specific time period relative to return to shareholders. For example, by applying operating metrics (such as earnings before

interest and taxes) to a range of market multiples, companies can compare incentive payouts and equity values to a potential return to shareholders. • Historical performance review of incentive payouts: Companies can study historical top management pay and incentives over a specific period (annual and long-term) relative to total shareholder return, as compared to peer historical norms. Such analysis can serve to validate the rigor and efficacy of incentive calibration and the resulting pay-for-performance relationship. • Cost of base pay : There is a prospective financial analysis of future merit budget increases and the impact on financials over time (e.g., predicted headcounts and potential merit budget increases). • Real-time data : Select company custom surveys, such as flash surveys, can be used for timesensitive issues including what firms are doing at that moment for merit budget increases or, more specifically, executive pay increases. The authors encourage firms to use a third party for these surveys to eliminate any potential perception of collusion and to stay within compensation survey data display safe-harbor guidelines published by the U.S. Department of Justice and the U.S. Federal Trade Commission, if applicable. • Scenario planning : Companies can analyze broader scenarios with a financial impact, such as reduced productivity related to significant compensation reductions or other changes. Scenarios could be based on the severity and complexity of changes and could include potential cost of increased turnover, sustainability of programs and lost revenue-growth opportunities. workspan  09/10


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?

• Internal equity review: Analysis of internal equity of pay relative to salary structure or points/other levelling guidelines, incentive targets or total compensation mix (base pay, bonuses, targeted annual incentives and other benefits) throughout the organization and their reasonableness relative to the other functions and levels within the organization (with consideration to hot skills and critical talent). • Market influences: Keeping up with updates of new and potential legislation and regulation and their potential impact on compensation. Some firms have gone from an annual update to updates at every compensation committee meeting — and more and more consulting and law firms are sending their clients interpretations of potential rules as they are announced from Washington, D.C.

Join the discussion.

Considerations for Your Organization In response to less viable data on which to base critical executive compensation decision making, your organization should consider the following suggestions: • Management should engage the compensation committee regarding a diminishing focus on traditional sources for the current compensation cycle, as well as how the company plans to link compensation actions to its business strategy through supplemental analysis (as described previously). For example, a company might provide the committee with a clear articulation of the company’s compensation and business strategy, and then describe proposed program changes and compensation actions within the context of those strategies, supported by requisite analytics that include, but are not limited to, market comparisons. • The compensation committee, human resources and finance should discuss the changes to annual due diligence and do the following: –– Determine what analytics are required. This will depend on metrics used in incentive plans, the extent to which equity is used in total compensation, and the time horizon of incentive payouts, among other factors. –– Agree on who will conduct the required analyses. WORLDA WOR LDATWO TWORK ONLINE ONL INE CO COMMU MMUNIT NITY Y Many companies can RK conduct some of these analyses connect. share. learn. (e.g., historical pay analyses, internal equity analyses) Your Com Compens ensatio ation, n, Benef B enefits its & Work-L Wo rk-Life ife Netw Network. ork. in-house, with the right cross-functional cooperation. Other analyses (e.g., future scenario modelling) may require assistance from third parties. ww.wo .world rldatw twork ork.or g/comm ommuni FREE TO any JOIN. –– Determine where newwww analytics best fit inorg/c the com- unity pensation calendar. This will depend on when different compensation actions (salary increases, incentive target setting, equity grants) occur. Companies may also have 30

workspan  09/10

committee meetings with “lighter” agendas where new analytics can be introduced. • Companies should not wait to incorporate these new approaches to compensation analysis. The limitations of I’m worried ournot disappear with an traditional market data sources will improvedtop-performers economic environment. may Given the heightened scrutiny on compensation practices by outside stakeholders be looking for other (e.g., shareholders and regulators), management teams and opportunities. compensation committees need analyses from multiple What can Itheir do,decisions. without perspectives to inform

breaking the budget, Conclusion to retain them and keep The executive compensation landscape has changed them engaged?

significantly in the wake of the financial crisis. A strategy of “following the market data” has been weakened by limitations of that market data and by the need to more thoroughly justify compensation practices to shareholders and other stakeholders. Companies that develop compensation practices that support their unique business strategies, and that validate those compensation programs through robust analyses, will be in the best position to provide these important stakeholders with transparent disclosures.

Join the discussion.

About the Authors Scott N. Olsen is principal at PricewaterhouseCoopers LLP in New York. He can be reached at [email protected]

Thomas M. Tabaczynski is a director at PricewaterhouseCoopers LLP in New York. 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: • Executive pay • Incentive pay • Compensation committee. • Reading & Preparing Proxy Statements: A Guide to the SEC Disclosure Rules for Executive and Director Compensation, Third Edition • Executive Compensation: An Introduction to Practice & Theor y • Understanding Executive Compensation: A Practical Guide for Decision Makers.


connect. share. learn. Your Com Compens ensatio ation, n, Benef B enefits its & Work-L Wo rk-Life ife Netw Network. ork. • Principles of Executive Rewards, Skill-Building Executive Compensation Seminar • Advanced Concepts in Executive Compensation, Skill-Building Executive Compensation Seminar

ww.wo .world rldatw twork ork.or org/c g/comm ommuni unity FREE TO JOIN. www

• Determining Pay For Executives (Competitive Market Pay), Skill-Building Executive Compensation Seminar.

workspan  09/10


e s e th

x i s s s e dr


n a l P n o i t a s n e p m o C s e l a S t x e N r u o Y n i Areas




It’s fall again, the economy appears to have shifted toward the positive in many sectors, and companies are thinking about redesigning their sales compensation plans for 2011. In order to ensure the redesign process and resulting plans will provide a good return, businesses should address six key areas: 1. Planning 2. Involvement 3. Knowledge 4. Modeling 5. Communication 6. Administration.

Planning Incentive design is a process, not an event. Whether this is your first design effort or you’ve done this more times than you can remember, you should not underestimate the time and effort the project will take, particularly given the

Quick look Key to the design effort are senior leaders, who must be visibly and vocally supportive, whether or not they are directly involved in the project. Model your plan at both the individual and aggregate level, under a variety of different performance scenarios. A simple incentive plan that is well-communicated and understood by the field can be far more effective than the most mathematically perfect design that no one understands.

By Beth Carroll, The Cygnal Group

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If there is

controversy about the effectiveness of the current plan design, a survey of your salespeople may provide some needed insights to break a logjam.

recent economic upheavals. The world has changed, and so have many of the assumptions that would go into a typical incentive design process. For example, many companies are moving away from using annual performance periods and using monthly or quarterly periods so they can adjust goals when the economy shifts. You must allow time to address the impact of these changes. The number of roles is a good indicator of the time required for a design project. While every company is different, in a medium-sized company with reasonable access to data and familiarity with project management techniques, one role could be completed in six weeks, with each additional role adding a week or more, if the roles are very different or involve multiple divisions. You also must allow time to carefully communicate any plan changes. Employees are nervous about adjustments to their compensation in the best of times, but they are especially skittish now. In a good year, as much time should be allowed for the communication process as is allowed for design. In a tumultuous year, 25 percent to 50 percent more time should be allotted to communication. This means backing up from your desired effective date and figuring out when you would like to communicate plan changes (this can be tricky based on how knowledge of a coming plan change could affect yearend sales), then determining how much 34

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time you need to develop communication materials, inform constituents and gain approvals, and design the plan. Keep in mind if you are reading this in September, you may already be running tight on time for a January effective date, although you can still accomplish what you need to as long as you move quickly and carefully.

Involvement There is a sweet spot in terms of the number and types of people who are involved in a sales compensation design project. Too many people can be unwieldy; too few can lead to a complete failure of the design if a critical viewpoint was not adequately represented. Key to the design effort are senior leaders, who must be visibly and vocally supportive, whether or not they are directly involved in the project. They must provide clear strategic direction and outline the company’s goals in an unequivocal fashion, as this creates the road map the design team will follow. Sales leadership, finance, human resources, sales operations and IT must be represented on the design team at fairly high levels, as they are the key constituents who will have the best knowledge about the organization, the history, the systems, and what is and is not possible with incentives. The design team should not include anyone whose compensation will be

directly affected by the outcome of the process, but a representative sample of sales employees and managers should be interviewed to gain their feedback and insights into sales jobs and processes, as well as what has and has not worked in prior compensation plans. Such inclusion will give them a sense of being heard in the process, which can be critical in gaining acceptance of the plan once it’s rolled out. If you are also looking to design new plans for roles of people you might want to include on the design team, then you will need to run a parallel process with a smaller team that excludes these people. Typically, leader plans can be designed after the individual contributors’ plans are developed, but you should be careful not to leave these plans too far to the end or they will be rushed through as an afterthought.

Knowledge You must have facts on which to base your decisions. If there is controversy about the effectiveness of the current plan design, a survey of your salespeople may provide some needed insights to break a logjam. If there is concern regarding the amount being paid relative to market, a market pricing review can provide necessary guidance about the need to raise or lower target pay levels. If management believes the goals that have been set


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should be attainable, a bell curve graph showing that 80 percent of employees were at 50 percent or less of goal might be what’s needed to show the disconnect between what management believes is possible and what is realistic. Spend time at the start of the project to build this fact base. Know what the employees think, how much they are being paid, what their performance is on different measures, and what the business outcomes have been.

Modeling Once you have developed your initial recommended plan design, you must model it under different performance scenarios. If you do not take the time to do this important step, you will find an unpleasant unintended consequence the following year; it’s only a matter of when. Model your plan at both the individual and aggregate level, under a variety of different performance scenarios. What if you are at 80 percent of goal? What if you are at 120 percent? Are the payouts still acceptable as a percentage of revenue or profit? What are the best measures of sales’ contribution to the company? What would you consider a successful outcome for an individual and the company, and based on the modeling, will this plan get you there? How will you handle significant individual pay changes? Are transition arrangements needed to move people in an orderly fashion into the new plans? All of these questions will be raised by the modeling, and must be addressed for a successful outcome. Communication Communication is arguably the most critical part of any design process, but it is often the most neglected. A simple incentive plan that is well-communicated and understood by the field can be far more effective than the most mathematically perfect design that no one understands. Employees need to know 36

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from the start of the design process that their plan is being reviewed for potential design changes, and updates should be provided as the process progresses. Once it is time to do the rollout, senior leadership must take the lead in communicating the new plans. Managers should be told about their plans first, as their support is critical to the rest of the communication effort. Examples must be provided showing how different performance results will pay under the new plans. After the rollout, plan documents and quota-acknowledgement sheets should be provided in one-on-one meetings between the employee and his/her manager. This meeting is one of the most valuable coachable moments each year, and should focus on employees’ goals and earnings expectations, their specific strengths and opportunities, and the best ways for them to win under the new plans, creating great value for both themselves and the company. Excel-based earnings calculators can be powerful learning and motivational aids, but be careful the employees are not so busy estimating their pay that they forget to actually do the work.

Administration The last key area to address is administration of the plans. Payouts must be on time and accurate in order for salesforce members to trust the plan design and learn how they can modify their focus and effort to improve their results. As part of the administration process, be sure that regular reports are provided to design team members so they can assess the plan’s effectiveness as the year progresses, and to employees so they understand the direct connection between their performance and their pay. Reports should include performance and pay to date as well as prospective payouts based on current trends. It is also a good idea to include

a “motivation” section that shows how much additional pay could have been earned if a hurdle or threshold had been cleared. Often, necessary design changes surface only when it comes time to administer the plans, so it is a good idea to be well ahead of the game and testing your administrative processes before you actually communicate the new plans to the field.

Conclusion While there are many right answers for any sales compensation plan, there are perhaps even more wrong answers. A process that addresses each of the six areas in this article will yield a right plan design that will create great value for the company, the salespeople and even your customers. About the Author Beth Carroll is a principal with The Cygnal Group in Chicago. She can be reached at [email protected]

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Case Study

A Minnesota County’s Successful Transition to a



-Based nce Compensation System Background The declining confidence in government policies and the opposition of taxpayers to higher taxes have heightened concerns about the efficient use of public funds and the productivity of public employees. In addition, the aging population and the consequent pressures on health care, Social Security and pension systems have been exacerbated by the recent economic crisis and the widening of the federal deficit. Current economic conditions have resulted in declining tax revenues, raising the urgency of many government agencies to look for ways to improve efficiency by transforming how they conduct business. Given the fact that labor costs make up a large portion of operating expenses, the forces of government accountability — including taxpayer associations and some elected officials — have pressed for changing the way tax dollars are spent and how public employee job performance is evaluated.

Quick look Declining tax revenues have made publicsector compensation systems based on employee seniority unaffordable — or even unreasonable — in today’s economic environment. Scott County, Minn., experienced relative success in transitioning its employees from a seniority-based pay program to a performance-based system by securing the support of union leadership. Implementing a pay-for-performance system requires flawless execution, trust from employees and leadership collaboration.

By Saado Y. Abboud, Ph.D., CCP, Keystone Compensation Group, and Jack Kemme, Scott County, Minn.

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Creating alignment between compensation program objectives and business goals is a critical step in developing new effective pay programs. The Genesis and Purpose of Seniority Pay Prior to the 1900s, public employment was considered a privilege. In other words, when political administrations changed, public employees had no constitutional right to keep their jobs. In late 1897, at the urging of the U.S. Civil Service Commission, rules restricting the release of public employees from their jobs were issued by President William McKinley. Securing of tenure was originally intended to help stabilize employment and improve personnel competence while providing quality service to citizens. That high emphasis on job security and tenure resulted in policies that contributed to increased personnel retention and compensation systems that rewarded employees for their length of service on the job. The step-pay program and its various permutations were developed to manage employee salaries and pay them for their tenure. However, such compensation programs led to salary increases becoming like a guaranteed annuity, and that put some organizations in the situation of having to give more dollars than available or needed. Given the scarcity of financial resources in most public entities, the compounding of pay for cost-of-living and step increases has proven to be unaffordable — or even unreasonable — in today’s economic environment. 40

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Basis for Differentiating Pay One of the key elements in designing a compensation program is choosing the basis for granting salary increases to employees. This decision normally flows from the organization’s compensation strategy and its philosophy statement around the desired behaviors and outcomes it intends to reward. In compensation systems that put a premium on seniority, as represented by the step-pay programs, employees who have more years of experience are paid at higher levels than their junior counterparts, even when they do the same type of work. In practical terms, time in grade is the basis for differentiation — and that determines the size of the paycheck employees take to the bank. In the pay-for-performance system, as represented by open ranges or some derivations of step-pay plans, differences in pay increases are tied generally to the level of employee contributions. Pay equity in this case translates into high performers receiving more pay in recognition for delivering on their established goals, without regard to their seniority. Over the years, some government agencies have attempted to blend the objectives of retention and performance into one pay system. In most cases, this led to employees being rewarded for continuing employment, not for the quality of their performance

on the job. Managers conveniently avoided communicating tough messages when goals were not achieved, or they neglected to take the time to set goals in the first place and then provide feedback. Giving high performers the same pay increases as everyone else causes their motivation to suffer and makes them less likely to voluntarily perform at high levels. Worse yet, they leave the organization. Naturally, this fosters an environment of underperformance at the individual and organizational levels and hinders the ability to attract and retain qualified talent.

Rewarding for Seniority vs. Performance Creating alignment between compensation program objectives and business goals is a critical step in developing new effective pay programs. As pointed out earlier in this article, step-pay programs are designed with the objective of paying for seniority and encouraging long-term employment. They have proven successful at retention, as is evident from the low rate of turnover in public-service organizations compared with turnover in the private sector. The challenge with these programs, in many cases, is that they are not reward systems. They are schedules that dictate the next pay rate employees are entitled to receive if they stay long enough to qualify for the increase and meet certain minimum requirements on the job. Neither managers nor employees have the ability to modify or deviate from these schedules. Paying for performance, on the other hand, is a reward system that attempts to connect the amount of rewards with individual, group or overall organizational performance. The design of this program is typically the outcome of a business performance management process that begins with defining performance, followed by agreeing on

performance goals, and then providing employees with timely feedback to better reach their goals. Compensation programs that reward performance are also considered part of the overall talent-management system that includes selecting, rewarding and developing employees. For a talent system to be successful, the process of selecting, training, developing and rewarding employees must be consistent with the overall culture within the organization. Employees must have a support system that enables them to develop their skills and abilities so they can perform at high levels. Most of the challenges with performancebased compensation systems generally emerge from poor program design, lack of goal clarity and unreliable performance assessment processes. Making salaries more reflective of employee performance has been the focus of several pay reform initiatives in public sector organizations. This, in combination with giving managers more authority in setting pay levels, provides a framework to limit pay increases to poor performers while freeing up sufficient funds to provide meaningful increases to outstanding performers. Fear of favoritism and lack of equity have caused legitimate concerns for labor unions about granting managers more leeway in determining employee compensation. They remain reluctant about tying pay increases directly to performance appraisals because it takes away their ability to set employee pay levels. This is especially true when employees perceive the pay system to be unfair due to lack of understanding, lack of trust or insufficient leadership credibility. Despite many case studies about the challenges of implementing pay-forperformance programs in unionized environments, one government entity in Minnesota embarked on this journey 42

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several years ago. Scott County experienced relative success in transitioning its employees from a seniority-based pay program to a performance-based compensation system by securing the support and partnership of union leadership. This partnership was critically important as the recent economic crisis worsened and tough decisions had to be made to balance the county budget.

Performance-Based Pay Program at Scott County Scott County is located on the southern edge of the Minneapolis-St. Paul metropolitan area. The county has about 700 employees, 80 percent of whom are in one of nine separate collectivebargaining units. As a result of a long-range strategic plan, the county developed its mission “To deliver quality public service to all citizens in an effective, professional and efficient manner.” In line with Figure 1:

this mission, the county created this compensation philosophy statement: “To support, encourage and engage employees in a performance-oriented work culture using a fiscally responsible, market-based pay delivery system.” Implementing this compensation philosophy took several years of planning, analysis, communication and education of employees and their union leaders. After all, the county’s vision is “To be the best public service provider and employer in the business.” For Scott County to move in the direction of its vision, all stakeholders agreed to work through a system that rewarded outcomes. This was a complete departure from the previous legacy system that rewarded seniority. The change began in the mid-1990s with the formation of employee workgroups to help define performance expectations and the overall process of performance assessment. The outcomes

Merit Increase Guide

Salary Level Between Grade Minimum and Market Midpoint Performance Level

Needs Improvement

Meets Expectations

Exceeds Expectations


Base Adjustment





Lump Sum Payment





Salary Level Between Market Midpoint and Grade Maximum Performance Level

Needs Improvement

Meets Expectations

Exceeds Expectations


Base Adjustment





Lump Sum Payment





Salary Level Between Grade Maximum and Performance Maximum Performance Level

Needs Improvement

Meets Expectations

Exceeds Expectations


Base Adjustment





Lump Sum Payment





of this assessment were used to determine the amount of increase in base salary and lump-sum cash payments as dictated by individual performance and the current pay level within the salary range (see Figure 1 on page 42). This program was tested with the nonunion employee group, but union leaders were kept informed of all the discussions as part of a strategy to establish trust and gain their support. Initially, unions were understandably skeptical about the fairness of the performance assessment and how well it would reflect employee performance. They were concerned about supervisor subjectivity, a propensity for bias in ranking and the potential use of the new system as a hidden budget-control mechanism. However, by 2006, all nine unions agreed to move to the meritbased system following the successful implementation and positive feedback from the nonunion employee group.

for nonexempt (see Figure 2) and exempt (see Figure 3) jobs. Both ranges included an 11-percent segment above the range maximum to grant salary increases to outstanding performers.

Employee Communication and Education While the overall transition from the seniority-based pay program to the performance-based system took years, a steady emphasis was put on open communication with all employees, county leaders and union stewards. Transparent communication and the integrity of the outcomes helped take the perception of possible gaming and manipulative maneuvering out of the process. In addition, union leaders were notified of all communications prior to informing the general employee population. This gave them time to understand the program and prepare Figure 2:

Defining the Competitive Market Most public-sector entities typically survey each other to determine their pay ranges for various positions. Their toughest challenge is to decide which organizations to include in the peer group. In most cases, they end up selecting entities based on their geographic location and the types of services they provide. In reality, this approach often does not accurately reflect the market from which new hires are recruited. When Scott County analyzed its pool of applicants, it found that new hires were drawn from a variety of industries and geographic locations, depending on job level. Recognizing this fact, the county commissioned a compensation benchmarking study that included public- and private-sector survey sources. This market pricing study provided the going rates that were used to design the new pay structures

their own views about it, and prepared them to respond to inquiries from their members. Many employee meetings were held at various project milestones to share findings and solicit input. This communication planning and execution gave the process a positive credibility and contributed to building high levels of trust in the new program among employees. One of the important reasons for the perception of fairness was the time managers spent working with their employees to set goals and follow them with frequent feedback, helping make the year-end assessments more constructive.

Standing the Tests of Tough Economic Times The recent global economic crisis hit the private and public sectors equally hard. Many government agencies have responded by making quick, unpopular

Scott County Pay Structure Sample (Nonexempt)

-15% from Mid

+11% from Max

+15% from Mid

Pay Grade Min



Performance Max

Market rate is anchored at the midpoint

Figure 3:

Scott County Pay Structure Sample (exempt)

-20% from Mid

+11% from Max

+20% from Mid

Pay Grade Min



Performance Max

Market rate is anchored at the midpoint

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short-term fixes, such as workforce reduction, furloughs, unpaid leaves and program cuts. The leaders in Scott County were determined to use staff reduction only as a last-ditch effort to balance the budget. To avoid layoffs and reduce operating expenses, most bargaining units voluntarily agreed to reopen their current contracts and adjust salary increase guidelines down. That was a true test of the strength of the partnership between union leaders and the county administration that has developed throughout this journey. In the words of the American Federation of State, County and Municipal Employees (AFSCME) local leader, “As far as I know, this has never happened. It is a big deal.” In explaining why AFSCME was willing to revise existing contracts, union and county officials pointed to the unusually positive labormanagement relations. The Local 2440 union president confirmed this when he said, “The real reason this passed is there was a sense we were treated fairly.” In an unusual move, unions took the proactive side and extended the revised contract through 2011 to help alleviate economic pressures until the overall economy rebounds. In spite of the necessity to cut its budget, Scott County kept the spirit of its pay-for-performance program intact by reducing the overall amount of salary increases but retaining the degree of differentiation based on performance level (see Figure 4). As one of the county commissioners said, “It is a great story of the culture we have.” Figure 4:

In neighboring Carver County, which has a step-pay program in place, dealing with the economic challenges resulted in negotiating a wage freeze with its largest unions in 2010. The county did not attempt — nor did its unions offer — to renegotiate its 2009 contracts to find ways to reduce payroll and prevent layoffs. At a recent meeting of the Minnesota Inter-County Association, other county commissioners said they wouldn’t even consider asking unions to revise contracts. When a commissioner from Dakota County was asked about opening up contracts, the response was, “Are you kidding? I want to live to see tomorrow.” In contrast, the strategy Scott County followed to solve the budget shortfalls focused on preserving the performance culture it had been building for several years. In the words of Scott County Employee Relations Director Jack Kemme, “Wage freeze was a last-resort option because it hampers the culture that has been developing with the pay-for-performance system.”

Conclusion Pay for performance is not necessarily suitable for all public agencies, and the recent economic crisis might increase the urgency for some to explore alternative pay programs. Conflicting opinions about the value of public service makes it difficult to establish the high level of trust and cooperation necessary for the success of pay-forperformance programs. For this system to work, it requires flawless execution,

Reduced Merit Increase Guide for 2009 to Balance the Budget

trust from employees, and leadership collaboration. For Scott County, it started with building the shared vision and mission of the organization, followed by developing a compensation philosophy consistent with them. Our study showed that performance culture requires a clear definition of performance, a solid goal-setting process, and a significant investment in education and communication to foster an environment of trust. Finally, this study also taught us that pay for performance is an extension of the organization’s culture, which takes years to build. About the Authors Saado Y. Abboud, Ph.D., CCP, is a principal at Keystone Compensation Group in Minnesota. He can be reached at [email protected] or 612-810-3522

Jack Kemme is the director of employee relations at Scott County, Minn. He can be reached at [email protected] or 952-496-8703.

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Performance Level


Needs Improvement

Meets Expectations

Exceeds Expectations


Base Adjustment





Lump Sum Payment





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Going Global? Get Local!

Tips for Increasing Success in the Transformation to a Global Sales Comp Program


Quick look To the extent the business case appears to regional management as a ploy to lessen its autonomy, expect resistance. Many factors — like job role execution, legal and labor practices, management philosophy, administrative requirements, and cultural and competitive practices — can vary significantly across regions and influence the effectiveness of a particular sales compensation approach. Be especially coordinated with local management during the communication and change-management phase of any new program implementation.

ave you heard the one about the newly hired sales compensation manager whose boss instructs him to house the company’s far-flung, decentralized sales compensation program under one global umbrella? There are multiple versions of this one, some mildly humorous, some tragic. For a recently onboarded incentive manager coming into a worldwide, decentralized sales compensation structure, attempting to transition to a truly global structure can be a career-defining event. If you find yourself in a similar predicament, three tips can help. Before discussing those tips, however, it is important to agree on what is meant by “global,” as the various approaches span a continuum. In one extreme, the organization has centralized its sales compensation governance, oversight and administration functions, with local (i.e., regional) management responsible for representing regional requirements during the design process. In the other extreme, regional management has significant autonomy over the design and management of its plans, with corporate playing a support or audit role.

As you’d expect, the trend is toward greater centralization; about one-third of the global organizations the author’s company surveyed use a largely centralized approach. But while many regional leaders support the trend on the basis it leads to greater efficiency and, ideally, profitability, sales compensation can be a touchy subject. Usually, sales managers have a lot vested in the sales compensation plan, as it’s a key lever for motivating their sales teams. Assume, then, that your regional leadership isn’t quite ready to hand over the keys to its sales compensation program. How do you proceed? By making the most of the following three tips.

1. Build the Case for Change While it can be frustrating to produce an inventory of the various sales compensation plans used throughout the company, this is a key step in making a business case for change from a decentralized to a centralized plan. During this process, it is important to consider a few questions: What does the company hope to achieve by having a more centralized approach? How will it measure progress

By Scott Barton, NewSigma workspan  09/10


toward that goal? What are the benefits realized by regional management? There are a number of factors used to build the case for change. These include: • Greater consistency in sales execution on global accounts. Sales organizations often cover their multinational customers with sales teams from different regions. Using a common plan structure for like jobs within the team can simplify quota setting, credit splits and the communication of reward opportunity. • Apples-to-apples comparisons of campaign success across regions. Let’s say your company wants to compare the success of a new product launch across multiple regions. Removing variables like use of different incentive plans can help pinpoint market-based (e.g., buying preferences) factors. • Rapid modeling and deployment of incentive plan changes or new product introductions. One company’s corporate finance group modeled changes to all incentive plans worldwide. This included five versions of an account manager plan, which required the building and tweaking of five models. This year the company put all account managers on a common plan structure and saved about a week in the deployment of its new plans. • Greater automation and sophistication of sales performance and incentive-calculation reporting. The author’s company is currently working with an organization that is building requirements for an automated incentive management system to cover about 6,000 plan participants worldwide. The company had to consolidate its disparate incentive plans for this task and the software investment to be palatable. • Audit facilitation and fraud reduction. Many organizations are taking a closer look at their global 48

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incentive compensation spend. Some in regulated industries are required to do so. During audits, regulators typically require an explanation of the logic and calculation methodology embedded in each plan, and look for ways in which participants could game the system. Reducing the number of unique plan rule sets simplifies the audit function, which mitigates the risk of fraud. To the extent the business case appears to regional management as a ploy to lessen its autonomy, expect resistance. You’re in for a much smoother ride if the organization has decided to undergo some big-bang event, like a major business acquisition or technology implementation. Sales performance management (SPM) system implementations like Varicent or Callidus can address widespread issues around manual processing, black-box reporting and unreliable calculations, and get the regional management who experience these issues on board with a global compensation initiative. Watch eyes grow wide during the demonstrations of fancy dashboards and reports. It may seem trivial, but providing regional leaders with tangible evidence, such as time savings and stress reduction, of the future state helps promote the case. The bottom line: While the global head of sales or CEO can pick up the phone and say to regional leadership, “Here’s what we’re going to do,” part of your job is figuring out how to move such mountains without having to rely on the executives. Not that you’re going to drive this global mandate solo. No, you’re going to get the regions to do the heavy lifting.

2. Form a Global Sales Compensation Task Force Just don’t say what the real task is. Position it instead as a sharing of best practices. Most sales leaders love to talk

about sales compensation. Funny thing is, two minutes into the discussion, they’re picking apart their own programs. And for the one or two who think their region’s program is without fault? Let them think they represent best practice. The point is to have your regional leadership perceive that it owns some of the solution. And this is as it should be. These are smart men and women, with years of experience managing and motivating salespeople. Tap their expertise. Your role in all of this is to: • Convene the group. Though seemingly administrative, it’s no easy task to gather a far-flung group of leaders from different time zones together in one place. Doing so successfully, however, demonstrates your perseverance, patience and, to some extent, value (assuming the meeting is a success). You might consider a virtual meeting if schedules prohibit an in-person venue. Just realize your virtual-meeting attendees may not focus and endorse the meeting outcomes to the degree that’s possible from a face-to-face encounter. • Help set the agenda. Your global leadership will likely have different expectations for this type of meeting. Understand these preferences before solidifying a meeting agenda that will cover the issues and decision points needed to move forward. Decision points typically include consensus on the issues, prioritization of those issues, best practices and trade-offs, a solution framework and a detailed work plan. • Move the discussion from strategy to tactics by using a proven framework to facilitate the discussion. If you’ve not slogged through such meetings, beware of the frequent rat holes the discussion can fall into. Language barriers and dialects add to the fun. After three hours, the regional leadership may feel cleansed and rejuvenated, but you

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have nothing but pages of seemingly disconnected minutia. Your role is to categorize and make sense of seemingly disparate trivia — essentially bring all the information together in a way that clarifies the issues and practices. Consider getting help from a professional sales compensation meeting facilitator. Such experts rely on tools and frameworks for keeping the discussion on track, which may be worth the $2,500 to $5,000 investment required for their participation. • Demonstrate your expertise by providing pertinent data on sales compensation trends. This can include changes to pay mix levels, use of new incentive measures like customer profitability, or the number of industry players having centralized their sales operations or adopted a SPM solution. Keep track of the types of surveys offered by consulting firms, or use your network to conduct your own survey on incentive compensation trends and operational practices.

3. Become One of Them I keenly remember the conversation with a regional business leader who picked me up at the Frankfort airport early into one of my first global compensation assignments. “Wow, we’ve never had someone from corporate compensation come visit us,” the leader said. I didn’t know whether to be flattered or threatened. In some strange way, however, I knew I had landed. One of the most satisfying aspects of working with the sales organization is, well, actually working with the sales organization. Sales leadership, their managers and salespeople are inherently positive, confident and curious. That’s their job. Have you ever attended a national sales meeting? It’s an atmosphere of excitement and optimism. Yet, spend some time one-on-one with a salesperson and you’ll discover 50

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that all is not thumbs up and high fives. Pay is usually an issue because a meaningful chunk of it is not guaranteed. Sales leaders hear about the exceptional cases, such as the woman who expected to earn a large sum on a deal for which she didn’t receive credit. But sales organizations have a way of filtering the daily line frustrations through layers of sales management and cultural bravado. In the previously referenced conversation with the regional business leader, I understood later, over bratwurst and a liter-sized pilsner, that he was appreciative of my initiative to understand his operating environment. And this is what it takes to appreciate the differences across your company’s global business. Many factors, like job role execution, legal and labor practices, management philosophy, administrative requirements, and cultural and competitive practices, can vary significantly across regions and influence the effectiveness of a particular sales compensation approach. While you may choose to gather this information through surveys and a few phone calls, it’s more cost effective to spend time in the local market. Work with the regional leadership beforehand to clarify how best to spend your time. Offer to conduct one-on-one interviews with the sales staff (e.g., ride along with them if the sales job includes lots of frequent and different customer visits), attend weekly sales meetings and learn the particulars of the local operations. Be especially coordinated with local management during the communication and change-management phase of any new program implementation. Consistent messaging only works at a high level. You need to customize and localize the message to clearly explain to salespeople the reasons for and details of change, what the company expects of them and how they can be successful under the new plan. Consider that each locale will have

its own system for communicating to its salespeople. Ultimately regional supervisors must buy into the case for change and deliver the message in their own words. Otherwise, in six months expect your salespeople to say they didn’t get or understand the message.

Conclusion Companies transitioning to a centralized or global sales compensation structure rely on talented professionals to facilitate this change. You can deliver by clarifying and socializing the business case, identifying best practices and trade-offs, and working through regional differences. Follow these tips and seek the advice of others having worked through the process. You’ll find the experience rewarding and beneficial to your career. About the Author Scott Barton is a managing principal of NewSigma LLC in the San Francisco Bay area. He can be reached at [email protected]

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The Basics of

Benchmarking in the


he Great Recession sparked many challenges for compensation professionals. Regular increases in employee pay and rewards gave way to significantly reduced budgets, as well as wide variations in compensation levels and market pricing of jobs. In such an environment, job benchmarking using high-quality survey data is critical. This article will discuss the role of survey companies in job benchmarking, the importance of accurately matching jobs and how companies with limited financial resources can

make the most of surveys in their compensation program.

The Importance of Survey Companies to Job Benchmarking Job benchmarking is the process of matching internal jobs to job profiles from a survey provider to determine appropriate market pricing. Survey companies rely on participating companies to perform accurate job matching, and typically recommend that the match should exceed 70 percent.

Great Recession

thought to be a task that anyone can do and is often left to a junior analyst or sometimes even an intern. This is a big mistake. Job benchmarking should be assigned to a senior analyst who has experience working with the internal job structure and who has access to managers and executives to clarify matching issues. The impact of the recession makes this an even bigger issue, as regular job structures and job responsibilities have changed due to staff cutbacks and employees taking over dual roles. As some of these

Quick look Survey companies rely on participating companies to perform accurate job matching, and typically recommend that the match should exceed 70 percent. An effective job matching model is based on evaluating the job description for the following elements: job skills, job responsibilities and job scope. When company jobs are matched to the benchmark jobs of a quality survey through a formal job matching model process, the deficiencies in internal job descriptions stand out.


Large survey companies sometimes offer job matching training, and survey participants should take advantage of it, as poor job benchmarking has many pitfalls. While only one poor match among hundreds of good matches may not have a great impact, multiple matching errors in one organization can have a ripple of negative jobpricing implications. One of the challenges with job benchmarking is that it gets little attention because the process is tedious and unglamorous. Furthermore, it is

By Pawan Singh, Ph.D., PeriscopeIQ

workspan  09/10


changes are likely to be permanent, companies need to adjust current job descriptions to fit the new environment. However, survey companies also have a responsibility to define their survey benchmark jobs properly and completely. Proper definition includes development of a structure consisting of job families and, where appropriate, subfamilies; job levels for jobs with structured progression; job classes, such as executive, exempt and non-exempt; and any other job relationships that may exist among various jobs. Completeness needs to occur at two levels: within the job definition including definition of qualifications, scope and responsibilities; and of jobs prevalent in targeted industries. Not all survey companies do an excellent job of defining benchmark jobs. Survey purchasers should insist that the survey suppliers provide acceptable benchmark job definitions because without proper definitions, compensation professionals cannot meet the desired matching accuracy levels. Typically, survey job benchmarking is a one-time process, with occasional updates. This may not be the case in 2010, as companies need to review past benchmark matches more carefully. For large companies that rely on survey data and where poor job matching can have a significant impact on financial and talent management, there should be a formal model for job matching.

Job Matching Model: How-To While the structure and style of internal job descriptions will vary from the sometimes broad survey benchmark job descriptions, an effective job matching model is based on evaluating the job description for the following elements: • Job skills • Job responsibilities • Job scope. 54

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At first sight, the point system may seem burdensome, but it is important to note that the effort — in a stable economic environment — will only need to be made every four or five years. Most well-designed job descriptions benchmarking is significant, it makes cover these three categories, and sense to use the point system on all compensation professionals should jobs. But for smaller companies with take the following steps to ensure limited manpower or resources, they proper matching: can choose to use the point system • Assign maximum points to each more informally and only on jobs category by job family, with the where the job matches are not obvious. points adding up to 100. Executive • Match company jobs to survey jobs, for example, may have a higher benchmark jobs by examining the number of points for job responsibilicontent match for each category. ties and job scope than job skills, while If the match is perfect or almost production jobs may carry many more perfect for a category, the maximum points for job skills relative to other number of points is awarded to the categories. The point distribution category match. The points for each is likely to vary from company to category are then added to yield a company, depending on the imporjob match score. In some cases, the tance of various categories to a job’s points assigned can be higher than success. Note that many benchmark the maximum category points because jobs have multiple job levels, indicating the company’s job description content a progression from a job with basic for that category exceeds that in the skills and minor responsibilities to one benchmark job. with high skills and significant respon One direct advantage of this sibilities. Depending on the job scope approach is that the matching scores progression in these levels, the scoring for all jobs can be sorted from high to schema may need to be adjusted. low. Jobs with a score of less than At first sight, the point system may 70 can be considered not a good seem burdensome, but it is important match and may be better matched to note that the effort — in a stable with benchmark jobs in another economic environment — will only survey, while jobs that score 70 to 84 need to be made every four or five are considered a low match, 85 to 115 years, with minor yearly updates. So are a good match and 116 to 130 are a while it takes a comprehensive effort high match. to get a benchmarking point system Note that sometimes, hybrid set up, it pays dividends over many jobs require matching to two or years. Also, for larger companies, more benchmark jobs within the where the financial impact of proper same survey. Hybrid jobs are more

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prevalent at smaller companies where an employee may be responsible for tasks that typically fall under separate jobs. An example may be an HR analyst who spends 50 percent of the time on traditional HR functions and the other 50 percent on HR systems analysis. As companies have shed employees, hybrid jobs are more common because more employees are being asked to share jobs. Sometimes compensation analysts feel that a company job is a blend of benchmark jobs from two or more surveys. In such case, current market pricing software typically allows weighted matching with benchmark jobs from different surveys. • If possible, use a double-blind matching process, where two experienced analysts independently score job matches. If the difference between the two scores for a job exceeds 20 points, the job is rescored either jointly or by a third person. For other jobs, an average score of the two independent matches is used. This matching process adds to the robustness and validity of matching.

Payoff of Robust Benchmarking When company jobs are matched to the benchmark jobs of a quality survey through a formal job matching model process, the deficiencies in internal job descriptions stand out. Many companies, including some large ones, find they have job description systems that are unfocused, old and outdated, or that have been corrupted by unstructured additions. The job matching model process allows companies to identify the weaknesses of their internal system, either by realizing that the structure in terms of skills, responsibilities and scope is poor, or by seeing that too many internal jobs match the same benchmark job. Furthermore, if the number 56

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of good matches is low, the company will realize it needs to evaluate if the job structure is market friendly. If it is not, the company will have difficulties in the market pricing of internal jobs and may run into issues when competing for new talent.

The Economy and Compensation Surveys Within a job benchmarking discussion, it is important to acknowledge that discussions with several survey organizations show that overall compensation survey participation rates dropped in 2009. Driven by economic uncertainty, many organizations laid off staff and cut budgets, and HR and compensation departments were not immune. Constrained by reduced resources, organizations decreased survey participation and survey purchases. Companies with limited resources can take actions to manage an effective compensation survey program, such as: • Look at all the surveys that the company participates in and purchases, and focus on the surveys that provide the most value. The best surveys are those that have large participation of your peer organizations and that have a reputation for high quality. Prioritize the value of each survey, and eliminate the surveys at the bottom of the list. • Re-evaluate free or low-cost surveys through trade or local associations. These surveys may be particularly useful for nonexempt or similar jobs whose market scope is local. One caveat: Survey quality varies widely. • Stagger purchases of very broad surveys. Purchase every other year, instead of every year. • Participate in specialized surveys that often offer free reports in return for participation. • Do not sacrifice the quality of your job matching. Poor job matching will

cost you much more than any savings you may incur.

Getting Back on Track The quality of survey benchmark jobs varies greatly. A few survey providers do an excellent job creating strong benchmark jobs with proper job descriptions, job leveling, job families and job classifications, particularly for industries that are strongly represented in the survey. These providers also add to or update the benchmark jobs on a regular basis to keep up with market trends. That being said, it is up to compensation professionals to use the principles of a strong job-matching model to ensure their organization is compensating fairly and appropriately and can compete with other organizations. While the economy hampered many proactive compensation activities, there is no time like the present to get your house back in order.  About the Author Pawan Singh, Ph.D., is co-founder, CEO and chief science officer of PeriscopeIQ in Bethlehem, Pa. He can be reached at [email protected]

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Considerations For The

Design & Talent Lifecycle


hen the U.S. Army War College introduced the mantra of “volatility, uncertainty, complexity and ambiguity” (VUCA) in the late 1990s, it acknowledged a new reality in the environment that has since been adopted as an emerging concept in strategic leadership, academia and corporations. In the military, the stakes are high and imminently more critical than shareholder value — life and freedom are in the balance. Perhaps more interesting than acknowledging this

new reality is the Army’s May 2010 adoption of “design” as a tool to solve unpredictable problems. The latest Army Field Manual (FM 5-0) describes it best: “Understanding context and then deciding how, if and when to act is both a product of design and integral to the art of command.” Design-thinking has made its way into one of the largest institutions, signaling the rise of a new set of capabilities for organizations, professions and individuals operating in continuous flux.

Quick look Design-thinking has made its way into one of the largest institutions, the U.S. Army, signaling the rise of a new set of capabilities. Significant value now comes from innovation rather than production or service, and companies are in a race to rethink what a successful experience means to the end user. It is up to HR professionals to learn, reflect and interpret a design-thinking mindset, skill set and toolset into their own development, as well as the HR profession and the organization.

By Jon Brickner, Amway

workspan  09/10


Design requires empathy for end users,

a sincere commitment to “walking a mile” in the user’s shoes to create

something useful. Because modern business solutions have to occur in a fast-paced, often unpredictable environment, the concept of design as a problem-solving tool has evolved far beyond the more traditional analytical product-development process that focuses on putting a glossy finish on an idea that’s already been determined. Design continually reframes questions through the lens of human behavior (what people actually do versus what they say they do) to generate a more diverse array of solutions that mitigate risk and lead to new value. It differs from analytical thinking in that it creates valid solutions through observation, collaboration and iterative trial and error as opposed to exploiting solutions that have proven reliable in the past. It looks at issues as mysteries to be embraced rather than puzzles to be solved.

Design in Organizations As Patrick Whitney, dean of the Institute of Design at the Illinois Institute of Technology, put it: “An analytical approach to problem solving still works well in industries that aren’t changing very quickly ... if you can find one.” Design comes on the heels of an economic system built on production, one in which control, hierarchy and segregation of duties made sense. The past few decades, on the other hand, introduced significant socioeconomic and political challenges on a global scale. The environment in which organizations sell and work can no longer be dismissed. Significant value now comes from innovation rather than production or service, and companies are in a race to rethink what a successful experience means to the end user. Consider one of the most iconic stories of innovation in the past decade — the Apple iPod. While its competitors were out focusing on the obvious issue (making the next mp3 62

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player), Apple took the time to make observations about the music industry — namely how people were downloading, sharing and experiencing music. As a result, the company created a platform of devices, interfaces and markets that now controls 70 percent of the retail digital-music download business in the United States, according to market research firm NPD Group. That catapulted Apple into exciting and unfamiliar territory, leading to a sustainable platform of product and service offerings.

Application of Design: Mindset, Skill Set, Toolset Design requires empathy for end users, a sincere commitment to “walking a mile” in the user’s shoes to create something useful. In many companies, product design and development are approached as a rigorous process, often causing such a myopic focus on following the process that it becomes easy to lose sight of why they’re engaged to begin with. In addition to empathy, design also values tacit knowledge (knowledge gained from living, self-awareness and reflection) in addition to external knowledge. It applies critical thinking to understand the context, solve the right problem, adapt to changing conditions and achieve goals. Design has an element of art, but that does not mean it is devoid of science. As a process, it involves steps to define, research, ideate, prototype, choose, implement and learn. Unlike conventional processes, these steps are not entirely linear. Design also looks at solutions by matching what people desire with what is technically feasible and what is viable as an ongoing business, according to Whitney. It is not about having the latest and greatest. In fact, a study conducted by the Management Sciences Institute found that nearly 90 percent of product innovations were new, but not too new, to the market; involved new, but not too new, technologies and processes; and were grounded in real customer needs. Eight Considerations What does design mean for human resources? To deliver sustainable value on a business-driver proposition, HR professionals must talk about what design means in terms of the talent lifecycle — one that balances the needs of the enterprise, the employee and technology (see Figure 1 on page 64). Here are eight critical considerations for human resources from a design perspective: 1 | Define and Develop Leadership Capabilities To Function Through Uncertainty.

Perhaps some of the greatest value talent management has provided in the past 20 years is around the intentional

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development of leaders. What leadership challenges and critical capabilities have surfaced from VUCA? Are HR professionals embedding these new capabilities in the identification, development and deployment of leaders to critical positions? In Leaders Make the Future, Bob Johansen offers behavioral insights such as “dilemma flipping” (looking for advantages or opportunities in a dilemma versus problem solving) and “rapid prototyping” (creating early versions with the expectation that later success will require early failures) as skills that will generate new value for organizations. 2 | Reframe the Conversation.

To uncover innovative solutions, designers often abstract issues to reframe the problem they’re trying to solve. Take, for example, one of the most fundamental assumptions — the HR function. Whether viewed through the lens of resources or capital, talent continues to be positioned as a currency in the eyes of the organization. How can human resources shift the currency paradigm back to a means, rather than an end in itself? What if human resources were framed in terms of human potential? How might that change human resources’ goals, roles and measures? Design embraces broad questions that lead to foresight as a path toward insight. 3 | Ask: Does This Still Fit?

Design considers the means to be as important as the end. Talent management is sold to leaders as a science-based approach to creating value through people, yet when it comes to many of our talent-management practices, there is often a gap between what science knows and what business does. Nearly every year, eye-popping headlines from The Wall Street Journal repeat: “Get Rid of the Performance

Figure 1:

Effective HR solutions create value by balancing the needs of users, the business and technology (adapted from Doblin Inc.’s Balanced Breakthroughs Model).

effective HR solutions

Real user needs (employees/ managers) Solutions that create sustainable business value

Enterprise objectives


workspan  09/10

Relevant technology application

Review.” While organizations seek high performance, agility and collaboration, they often implement programs that not only create more work, but conflict with those outcomes. Is it time to consider the new context in which work gets done, re-acknowledge the role of human motivation and develop alternate approaches to previously unquestioned practices, such as workforce planning and performance appraisals? 4 | Remember: Design Happens With, Not To, People.

Measurement is critical to building accountability for talent and credibility for the HR function, though perhaps the scales have shifted too far on the science and engineering scale. How does the practice of talent management feel to managers and employees? In the pursuit of efficiency and effectiveness, has the HR consulting model created centers of excellence that have become out of touch with clients they were designed for? Design-centered organizations will create win-win interactions that are a natural part of the way business gets done and that result in less drudgery for those that use them. 5 | Apply Technology.

Great designers look to technology as a means to help people solve real problems. Consider informal learning. Statistics have shown the rapid decline in formal (classroom and e-learning) training since 2006, yet corporate universities continue to invest in content development specialists and state-of-the-art learning spaces as opposed to providing a Google-like search capability for corporate knowledge. 6 | Best Practice May Not be Your Best Practice.

Design relishes what is unknown. Whole industries have been created around putting executives on the best-practice treadmill, yet the majority of implementations still fail. Best practice certainly provides insight on high-impact solutions, but the role of culture is more important than ever in creating unique value and moving beyond a “me-too” mentality. 7 | Embrace Constraints.

Effective designers work best under constraints. In fact, their sense of accomplishment comes from solving “wicked” problems versus managing big budgets and large staffs, according to a recent article in the Academy of Management Learning and Education. Given the uncertain economy and declining investment in core talent programs, HR professionals have the opportunity to develop simple, intuitive solutions that create far greater value than expensive benchmarked solutions.

8 | Develop Yourself.

The movement toward being a business driver requires a new level of business acumen and assertiveness from HR professionals. Design thinking requires empathy and observation, skills inherent in most HR professionals. As advocates of lifelong learning, the key for HR professionals will be to scan the horizon and acquire and model the capabilities needed to manage through uncertain, but exciting, times.

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Conclusion Motivated by VUCA, the U.S. Army is adopting design thinking to address the new realities of the battlefield. In a competitive business landscape, design thinking has much to offer in a world where most management ideas and best practices are readily available to be copied and exploited, wrote Tim Brown, IDEO president and CEO, in the Harvard Business Review. It is up to HR professionals to learn, reflect and interpret a design-thinking mindset, skill set and toolset for their own development, as well as for the HR profession and the organization. Organizations that understand this evolution and combine their intellect and intuition to develop unique talent strategies will win in the marketplace. 

• Champion of Change: How to Build Support for HR Initiatives and New Programs, Second Edition • Communicating Total Rewards: How-To Series for the HR Professional, Third Edition. • Strategic Communication in Total Rewards, Total Rewards Certification Course: T4 • Employee Engagement — Five Key Principles Supervisors Must Know, Total Rewards Topic Brief.

ABOUT THE AUTHOR Jon Brickner is a senior consultant in global learning and development at Amway in Ada, Mich. He can be reached at [email protected] or 616-787-6372.

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The Financial Case for Employers to Fight





he headlines are disturbing in their frequency and content: Children now face many of the same chronic illnesses — such as diabetes and heart disease — as adults. Why? Thirty-two percent of the nation’s youth are overweight or obese, a rate that has more than tripled since 1980, according to the Centers for Disease Control and Prevention. In fact, the United States has the highest percentage of overweight youth in its history. Perhaps most disturbing is that, for the first time ever, experts predict U.S. children may have shorter life spans than their parents. This issue has significant financial implications for employers and society. According to a 2009 report from the Robert Wood Johnson Foundation, obese children cost the nation up to $14 billion each year. In addition, more dollars are wasted due to lost productivity for employers when parents miss work to care for their children with obesity-related illnesses.

Quick look Obese children often have obese parents, dramatically increasing the financial impact for employers for obesity-related diseases. One of the most important steps employers can take is to create an overall culture of wellness within their organization. Well-designed wellness programs have demonstrated a return of $4 of savings per $1 invested per participant in reduced risk and increased productivity.

By Heather Zeitz, Alere Health workspan  09/10


Average per-capita health insurance claims costs were as high as $2,907 in 2008 for an obese child and $10,789 for a child with type 2 diabetes.


% of the nation’s youth are overweight or obese, a rate that has more than tripled since 1980.


According to a 2009 report from the Robert Wood Johnson Foundation, obese children cost the nation up to $ 14 billion

each year.

Average per-capita health insurance claims costs were as high as $2,907 in 2008 for an obese child and $ 10,789 for a child with type 2 diabetes. —According to Journal of Health Affairs

The average claims cost for children with type 2 diabetes exceeded the level of the average claims cost for adults with type 2 diabetes ($8,844). —Journal of Health Affairs, March 2010

Medical costs are reduced by $ 3 .27

for every $ 1 spent

on wellness programs, and absenteeism costs fall by about $2.73 for every $1 spent.


—Journal of Health Affairs, 2010 analysis of multiple studies

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Given the seriousness of childhood obesity, it is critical that employers not only understand the scope of the problem, but also find ways to costeffectively help entire families improve their health and make lasting changes in their lifestyles.

Scope of the Problem Clinicians define a child as obese if their body mass index (BMI) is at or above 95 percent of children for the same age or sex. Children that have a BMI at or above 85 percent are characterized as overweight. Children’s BMI is based on growth charts and age. Developing solutions begins with a complete understanding of the scope of the problem, including the significant health risks. Obese children and adolescents are more likely to have risk factors associated with cardiovascular disease (e.g., high blood pressure, high cholesterol) and type 2 diabetes than are other children and adolescents. In addition, overweight and obese children and adolescents are more likely to become obese adults. The Bogalusa Heart Study (the longest study of children in the nation — spanning 1972 to 2005) found that approximately 80 percent of children who were overweight at ages 10 to 15 were obese at age 25. Also worth noting is the role the U.S. culture plays in the obesity problem. Children are exposed to high levels of food-related imagery, large portion sizes

and advertising messages, often for food with high calories and low nutrition. There is good news, however, given that the root causes of obesity are preventable: poor diet and inactivity. This presents a clear opportunity for organizations to proactively address problems through education and incentives.

How It Affects Employers The childhood obesity problem presents a troubling reality for employers. According to the Journal of Health Affairs, a study conducted for one large employer indicated that average per-capita health insurance claims costs were as high as $2,907 in 2008 for an obese child and $10,789 for a child with type 2 diabetes. Furthermore, the March issue of Health Affairs magazine reported that the average claims cost for children with type 2 diabetes actually exceeded the level of the average claims cost for adults with type 2 diabetes ($8,844). Adding to this concern is the fact that obese children often have obese parents, dramatically increasing the financial impact for obesity-related diseases.

What Employers Can Do The current and future cost, not to mention the long-term societal impact, of childhood obesity puts employers squarely in the center of the issue. Getting obese adults to lose weight has long vexed organizations. However,

research shows that even when parents don’t lose weight themselves, they will take steps to help their children. This gives employers a unique opportunity to help employees and dependents. One of the most important steps employers can take is to create an overall culture of wellness within their organization. This starts with access to health and wellness programs that provide individualized, personal health support. Employers who best exemplify this concept promote good health from the top down. For example, they provide healthier food choices in the cafeteria; stock nutritious food in vending machines; provide time off for employees to participate in wellness-related activities; and have participation by senior management in wellness events and activities. All of these can make a difference and serve to help encourage participation and support for wellness programs. While promoting wellness from within is important, employees also need structured support to develop the habits that will encourage better health for themselves, as well as their children. The key is finding ways to engage families in healthier lifestyles. To that end, employers can take the following important steps.


Identify the Scope of the Problem

Working with their health plan or wellness consultants, employers should pinpoint the most prevalent obesity-related illnesses and injuries and their associated costs, as well as drivers of those costs. With that information, more targeted programs can be developed.

address its needs. Following are some key questions to ask: • Does the program meet the needs of employees balancing life and stressors at work and at home? Some companies allow employees to adjust work schedules to fit exercise programs into their workday — to ensure that such programs don’t infringe on family responsibilities. • Does it provide a variety of interactive and fun tools that will encourage healthy behaviors at school, work and home? Programs that offer tools and educational materials for parents and children provide a great opportunity for the whole family to reap the fun and benefits provided by wellness programs. Through resources and tools like tasty recipes, scavenger hunts at grocery stores, interactive games and other enjoyable activities, families can learn how to live healthier together (see "Hands-On Learning"). • Can the program provide tailored information for the specific needs, concerns, drivers and motivators of employees and the culture within which they work? One of the best ways for employers to identify these


America’s Move to Raise a Healthier Generation of Kids


Let’s move! ACTION CHART Let’s make Progress CReATe YOUR PeRSONAL OR FAmILY ACTION CHART Let’s Move! to live a little healthier. Take these simple steps to set goals and follow your progress.

1 Make Goals. Start by choosing one or two goals for you and your family. Try to be specific about actions you can really do. make room for some flexibility.

2. Take a 20 minute walk with the kids 3 evenings per week. (Not: exercise more.)

Find Holistic, Comprehensive

Once an employer understands the scope of its challenge, it must search for a program that is most likely to

Support the Program

Once an employer has selected a wellness program, it’s critical to support the program. Steps to consider include: • Provide meaningful incentives tied to the overall benefits strategy, such as deductible reductions, cash in a health savings account or gift cards. • Find ways to make wellness at work easier for employees. Consider adding

Wellness programs that feature educational materials for parents to use with their children — like — provide the greatest opportunity for success.

1. Include fruit for breakfast 5 days per week. (Not: eat more fruit.)

Wellness Programs


Hands-On Learning



areas of interest and needs is with health risk assessments. With this information programs can be better designed to address areas of concern for individual employees. • Are there specific elements of the program that focus on raising healthy children? Programs should personalize information and activities for the age and interest of the child. What works for an elementary-age student will not for a teenager. • Can the program differentiate by age level? For teens, information should help spur discussions and create new habits. Grade-school children can help buy food and prepare simple, healthy recipes. Toddlers can engage in games and activities to increase awareness.

2 Outline steps or activities to achieve your goals. exAmPLeS: 1. Decide which fruits your family will like. Buy enough fruit for the family breakfasts for the week. 2. Check out your walking routes; there may be one you like or new ones you would like to try. 3. Plan your bed time routine to be more consistent.

3. Go to bed by 10pm on weeknights. (Not: Get more sleep.)

my Goals





3 Keep track of your progress.

5 Tell your friends.

Use this chart or one of your own. Place it on the refrigerator, in your bathroom, or on a bedside table where you can check it frequently.

When you share your progress, you motivate others, learn from their ideas, and celebrate your progress

4 Reward your success. Lots of things can be great incentives, but food should not be one of them. Treat yourself to a new book or music, time for a special activity with family or alone. make a reward something you will work for and truly appreciate.




Goal met (Yes/No) Who did you tell?


1) Walk mins times per week with the kids

Plan walking route

2) eat fruit

Bought services of fruit per day/ per person


for breakfast

5 times/week PAGe

1 of 2


Walk with kids after dinner


Walk with kids after dinner


Canned peaches


Walk with kids after breakfast

Yes! Posted success as Facebook status

Made shopping list

No — Ran out of fruit. Buy more!

workspan  09/10


safe and attractive walking paths; make sure parking lots and stairwells are safe and well-lit to encourage employees to walk more. • Ensure top and middle management get involved to exemplify the principles of good health. Not all executives run marathons, but there are small steps executives at any fitness level can take. Executives can walk at lunch and invite employees, using that time to address concerns and answer questions. Middle managers can drive excitement and competition within their groups.

role in creating meaningful and sustainable change.

The Importance of Benefits Design Great programs can’t have an impact unless they attract participants. This is why it’s critical to have a benefits design that meets the needs of your organization. Key questions you should be able to address about benefits design include the following: • How does the program integrate with the overall benefits structure? • Do copays and deductibles encourage Recognize that small steps program participation? can lead to bigger ones. • What are the tactics that can Hand in hand with reaching out to a manage costs? wider range of employees is meeting During the past few years, incenthose people where they are — today. tives have become a key strategy to For example, an employee may be encourage participation in wellness unwilling to lose weight or participate programs. Incentives include increased in an exercise program, but willing to employer contributions to health take home an online tool kit aimed at savings accounts (HSAs), lower health helping his/her children make healthier insurance deductibles, gift cards and food choices. Often employees are cash rewards. Experienced health and hesitant to make changes in lifestyle wellness vendors can help employers or habits. An employee who smokes create incentive-based strategies that may not be ready to quit, but might are cost-neutral and that ultimately be willing to participate in an exercise provide savings through lower program. Working toward goals in lifestyle-related expenses. one area can lead to participation and To encourage greater participation, further success in others. employers are also creating internal team competitions and games. The Follow Up and Provide Support intraoffice competitions (e.g., “Biggest Your program should have Loser” contests, run/walk teams) lead reporting capabilities that help you to points that can be redeemed for understand how many employees other rewards as a tool to encourage are participating and what level of not only participation, but also greater success they are having. Using that peer-to-peer support and involvement. data, it’s important that employers Such support is vital because studies make adjustments to support the show that one of the best ways to program for the long term. This means increase participation in wellness ongoing outreach, which can include programs is by employees encouraging personalized health coaching programs, one another. Programs that build on especially those that reach out to this support in ways that incorporate people through e-mail, online chats families are more likely to have an or one-on-one meetings, if possible. impact on improving the health Such coaching programs play a major of dependents.




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Conclusion Finding ways to address the challenges of childhood obesity will not be easy — or quick. But it is an effort that must be made, and it can return real value, as improved health leads to increased productivity. And that directly relates to the bottom line. Analysis of multiple studies published in a 2010 Journal of Health Affairs article shows that medical costs are reduced by $3.27 for every $1 spent on wellness programs, and that absenteeism costs fall by about $2.73 for every $1 spent. Companies interested in such savings would do well to start wellness programs now. Current and future generations of workers, as well as the business themselves, will be glad they did.  About the Author Heather Zeitz, R.D., C.D.N., is the vice president of health programming and content for Alere Health in Atlanta. She 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: • Wellness incentives • Reduce benefit costs • Health risk assessment. • Managing Employee Health Care Costs: A Collection of Articles from WorldatWork • Designing Employee Health Management Programs: How-To Series for the HR Professional. • Health and Welfare Plans — Plan Types and Administration, Benefits Certification Course: B3 • Health and Welfare Plans — Strategic Planning and Design, Benefits Certification Course: B3A • Managing Healthcare Costs — Five Cost-Effective Strategies, Education-on-the-Go.

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How to Strengthen the Link Between


uring the past few years, there has been an increased emphasis on strengthening the link between performance and pay decisions. Organizations continue to emphasize pay for performance, and employees are asking for a stronger link between the two, yet there remains a significant gap concerning the performance and pay link. For example, in 2008 the authors conducted focus groups to assess a national media company’s current performance management processes. Employees were asked to rate the importance and effectiveness of common performance management objectives; three of the top five gaps (objectives that were highly important but ineffective) were related to linking pay and performance (see Figure 1 on page 74).

Performance + Pay with Midyear Check-ins

Quick look

The midyear performance check-in is a brief meeting where the employee and leader touch base about the employee’s performance and progress and take joint leadership for identifying remedies to improve performance. Ongoing performance dialogues that are timely, relevant, actionable and future-focused are necessary to optimize performance management. Some organizations have shifted to quarterly check-ins to better address the need to ensure goal alignment in order to achieve organizational and employee success.

By John Anderson and Kate Richardson, Axiom Consulting

workspan  09/10


The midyear performance

with an opportunity to discuss the difference and how this difference impacts future

In response to these gaps, many organizations focus their efforts on tinkering with the mechanics, or the nuts and bolts, of the process or of performance and pay systems. This includes activities like crafting a new performance assessment form or proposing a revised merit matrix. These efforts typically yield, at best, short-term improvements. In contrast, organizations that have effectively reinforced the link between performance and pay have done so by addressing the mechanics of performance and pay systems and the dynamics, or the substance, of personal interactions and dialogue (see Figure 2 on page 75). The midyear performance check-in is an important step in the overall performance management process. This check-in is a brief meeting where the employee and leader touch base about the employee’s performance and progress and take joint leadership for identifying remedies to improve performance. It also provides an opportunity to clarify expectations, ensure an understanding of the compensation system and strengthen the link between the two. However, many organizations do not appropriately address the dynamics of these check-ins. First, let’s clarify how midyear check-ins are key components of 74

workspan  09/10

how we define performance management. Performance management is far more comprehensive than the annual performance-assessment process. It must integrate with the organization’s strategy so that each individual understands what it takes to contribute to fulfilling the organizational strategy. It is an ongoing approach that includes individual goal setting, midyear performance checkins, year-end assessments and rewards decisions. It is a two-way, open dialogue about the best approach to achieve individual, team and organizational goals. Finally, at the center of the performance-management process is sharing formal and informal feedback that is relevant and actionable Figure 1:

(see Figure 3 on page 76). The key dynamics are explored next.

Key Dynamics Ensure employees understand the performance outcomes that are expected.

In other words, what can the employee do to impact success for the organization? In today’s fast-paced, turbulent business environment, it is no surprise to find disconnects between what the leader expects and the employee infers to be the performance goals. The midyear check-in encourages the leader and employee to reconfirm, and in some cases reprioritize, expectations. Many perceive midyear check-ins to be burdensome

Focus Group Findings

Employees were asked to rate the importance and effectiveness of 10 common performance management objectives on a scale of 1 to 10. The table below shows the gap between importance and effectiveness for the objectives with the five largest gaps.




Provide timely, relevant and actionable feedback and remedies.



Clearly and strongly link performance to reward decisions.



Differentiate rewards appropriately among people in similar roles.



Clarify reward criteria and enable objective reward decisions.



Clarify performance expectations by job level for each department.


check-in provides leaders

between good and exceptional performance compensation decisions.

and time-consuming. However, the benefits — clarifying expectations and ensuring that employees are focusing on the right things — far outweigh the time required to conduct the check-in meeting. One key to avoiding time-consuming checkins while still having high-impact discussions, is to focus on the future rather than rehashing the past. It should be an opportunity to have a dialogue about performance, not a time-consuming process of completing forms and rating goals. The expected outcome is to have higher and more aligned performance for the individual and the organization. In fact, some organizations have shifted to quarterly check-ins to better address the need to ensure goal alignment in order to achieve organizational and employee success. Figure 2:

One way to check for alignment of performance expectations is to determine if the leader and employee would have the same responses to the following six questions: 1. Are the goals we set six months ago still the most important? 2. Do the goals link to the organization’s strategy and annual operating goals? 3. Has there been a shift in organizational priorities? If so, what new goals need to be added and what goals need to be de-emphasized? 4. Of the employee’s goals, is each one of equal importance or are there two or three superordinate goals? 5. Is the employee on or off track to successfully complete the goals by the end of the performance period? 6. Are there any barriers to achieving the goals that we can remove?

Performance Management Mechanics vs. Dynamics

Mechanics The nuts and bolts of the process

Dynamics The substance of personal interactions and dialogue

• Performance assessment form

• Two-way dialogue

• Rating scale labels and definitions

• Clear understanding of expectations

• Merit matrix

• Sense of support from leadership

• Sign-off approval processes

• Feeling of trust between the employee and leader

• Number of competencies

The dialogue that occurs during the midyear check-in is far more powerful than creating a revised assessment form. As noted in various studies, including those sponsored by WorldatWork, gaining clarity on the goals that matter the most is one of the most effective methods leaders can use to assist employees. Enhance employee understanding of how their contributions impact compensation decisions.

Employees want ongoing feedback and remedies to close performance gaps and enhance reward outcomes. The midyear check-in provides an opportunity to ensure employees understand that better performance leads to better rewards. The 2002 WorldatWork Knowledge of Pay Study highlighted that employees were unclear about what they needed to do to increase their base pay and/or annual bonus. The authors’ experience indicates that this situation still exists in many organizations. In focus groups and interviews with several clients, employees have articulated this concern with comments such as: • “Why should someone work harder? The 1-percent difference doesn’t mean anything, and you don’t know what you will be rated.” • “There is no measurable difference between good and outstanding.” workspan  09/10


This is a missed opportunity to improve organizational performance and sometimes results in employees inferring that rewards decisions depend more on relationships than achieving performance expectations. The midyear performance check-in provides leaders with an opportunity to discuss the difference between good and exceptional performance and how this difference impacts future compensation decisions. Employees don’t want a hardwired mathematical equation that calculates merit, bonus and promotional outcomes. Rather, they want greater clarity about what results or actions will have a positive impact on compensation decisions at the end of the performance cycle. Recognize that employees value rewards differently.

Leaders will often make assumptions about which specific rewards are most valued by each employee. Instead, use the midyear check-in

Figure 3:

as an opportunity to discuss and understand the employee’s value proposition. Furthermore, employees need to understand the specifics of the organization’s total rewards offering to determine if they are worth the extra discretionary effort. This starts with a clearly articulated compensation philosophy communicated to all employees. The midyear performance check-in provides an opportunity for leaders and the compensation group to demystify the organization’s rewards and emphasize the organization’s commitment to a pay-for-performance philosophy. Some best practices at midyear include: • Conducting basic compensation training for new supervisors and managers • Preparing compensation FAQs and distributing to all staff • Providing supervisors and managers with talking points to clearly communicate the organization’s compensation philosophy

Performance Management Process

• Holding lunch-and-learn sessions to explain the organization’s total rewards offering and link to performance management.

Conclusion Addressing these three key dynamics during midyear performance checkins will reinforce the link between performance and pay. Employees will understand what’s expected of them, they will understand that their performance matters, and they will understand the value of the rewards offered by the organization.  About the Authors John Anderson is a principal with Axiom Consulting in Chicago. He can be reached at [email protected]

Kate Richardson is a consultant with Axiom Consulting in the Washington, D.C., area. She can be reached at [email protected]

RESOURCES PLUS For more information related to this article:

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

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• Performance management

3. M  idyear check-ins

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5. R ewards 4. Y  ear-end assessments

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Employers must make sure they are compliant with federal laws like the Health Insurance Portability and Accountability Act of 1996.

By Annmarie Fini, Benefitfocus


Most Web-based wellness tools, such as health-risk assessments, can populate a report for an individual employee, identifying current health issues and recommended actions based on results.



Remote Workers with Web-Based

Wellness Programs

with good nutrition, alternative therapies.

Workplace wellness

programs have one major strength: reaching individuals at work. Employees spend the majority of their week at the office, making it the perfect environment to encourage longterm healthy habits. Companies host on-site wellness activities like biometric screenings, nutrition training and walks in hopes that more employees will participate and that the companies themselves will have a better chance of influencing employee behavior. However, as companies expand across the globe, more and more employees are working from satellite locations or home offices, and therefore are unable to participate in on-site wellness events. This makes it much more difficult for employers to implement a onesize-fits-all wellness program that includes everyone in their workforce. So how do employers get — and keep — employees involved? By going online. workspan  09/10


Through the Web, employers can deliver the same information to all employees at any time no matter where they work and at a fraction of the cost of traditional programs.

The Challenge of Incorporating Remote Employees Before discussing the specifics of how going online can be a key part of wellness initiatives, it is important to consider a few basic issues related to the initiatives themselves and remote workers. Wellness programs are only as successful as the number of employees who actively participate in them. However, health and wellness professionals consistently report that motivating individuals to participate is the biggest challenge they face when getting a wellness program off the ground. This is especially true when it comes to a disparate workforce. Consider, for example, the role of incentives within a wellness program. Many employers use rewards like gym membership discounts, cash or points redeemable for prizes to encourage employees to participate. According to the Wellness Council of America, employers that use these types of incentives experience a 400-percent increase in participation, adherence to specific behaviors and follow-through. 82

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However, remote employees are often left out because they can’t take part in the group offerings — such as company discounts to local gyms — that are provided to home office employees. Beyond just offering incentives to employees to participate in activities, successful wellness programs have an educational component that keeps employees continually informed about health and wellness, thereby encouraging employees to get and stay healthy. Most programs rely on a mixture of paper handouts, instructor-led courses and in-person coaching. Remote employees, however, lack availability and accessibility to get involved in these components. To circumvent these issues, employers need to get creative. If an on-site wellness program cannot include everyone in their workforce, companies should consider hosting the program online.

A Modern Workforce Demands a Modern Channel With everything moving to the Internet these days, it makes sense for a company to move its wellness

program online. Through the Web, employers can deliver the same information to all employees at any time no matter where they work and at a fraction of the cost of traditional programs. Instead of passing out paper materials and mailing them to remote employees, employers can simply upload the content once to the Internet and distribute it instantly to the entire employee population. This significantly decreases the money and time spent on this process. By hosting a wellness program online, employers can also take advantage of a number of interactive tools including health-risk assessments and educational health modules. Offering a Web-based solution is much less expensive than having experts come on site, and is generally just as effective. Often this can even increase participation because employees feel more comfortable answering personal questions in the privacy of their own homes. In addition, online wellness programs provide companies the ability to customize information for employees. Most Web-based wellness tools, such


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as health-risk assessments, can run a report for an individual employee, identifying current health issues and recommended actions based on results. Note that using a health-risk assessment can be extremely important for not only planning a relevant on-site wellness initiative for employees, but also for deciding what to provide to remote employees. For example, if an employer knows that one of its remote employees struggles with inactivity, it could design an individualized incentive program that gets him or her moving. Health-risk assessments and other online tools can also help measure success and return on investment from year to year. This is especially helpful given that employers that have multiple locations or a widespread employee base often find it hard to distribute, collect and track information from wellness initiatives. Thanks to many online wellness programs offering comprehensive reporting capabilities, employers can easily view and quantify results. In addition, these reports allow employees throughout the country to track their progress. Another use for technology in wellness programs is replacing or supplementing on-site, in-person training with videos that cover topics like nutrition, exercise, weight and stress management, and smoking cessation. Such videos help remote populations stay connected even without face-to-face communication.

Is An Online Wellness Program for You? Employers that use Web-based wellness initiatives generally experience positive feedback from participants. Employees enjoy the convenience of participating on their own time and are often more likely to get involved as a result. It’s also worth noting that the privacy of the Internet removes the fear some 84

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employees have about providing personal information to the company and allows an individual’s personal goals for the wellness program to remain private, if desired. Despite the positive feedback from employees, there are certainly downsides to Web-based wellness initiatives. For example, employers must make sure they are compliant with federal laws like the Health Insurance Portability and Accountability Act of 1996, a complex law that covers a variety of areas related to employee health, including privacy and insurance benefits. These additional regulations apply to online wellness programs because information could potentially be accessed not only by others at the employer’s company, but also by individuals outside the company. Most vendors specializing in online wellness programs already adhere to these rules, but companies that implement a Webbased program in-house will have to take extra care to follow the guidelines. When weighing the benefits of an online wellness program, employers should keep in mind that it might make sense to keep some of their wellness program in-house. Companies that experience the greatest return on investment from wellness programs use online approaches as well as on-premises components as part of a coordinated wellness program. For example, while health risk assessments and other online tools can be very effective, they do not replace the value of biometric screenings or other in-person tests. Furthermore, employers should engage their employees in the process when designing a wellness program. Companies can involve their workforce through surveys, focus groups and other activities. As previously mentioned, wellness programs are only as successful as the number of

employees who participate in them. By letting the participants help plan the program themselves, employers can ensure they are building an effective program that will actually be used.

Conclusion As health-care costs in America skyrocket, wellness programs and other preventive measures will continue to grow in popularity. Companies that implement comprehensive wellness programs are likely to see decreased health-care costs through fewer claims. By hosting the initiative online, employers can be sure they are providing equal access to all employees regardless of where they work.  About the Author Annmarie Fini is the senior vice president of the employer division at Benefitfocus in Charleston, S.C. She 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: • Wellness programs • Health risk assessments • Online + benefits. • Designing Employee Health Management Programs: How-To Series for the HR Professional • Managing Employee Health Care Costs: A Collection of Articles from WorldatWork • The Employee’s Guide to Becoming a Smart Benefits Shopper, Second Edition • Developing a Strategic Benefits Program: How-To Series for the HR Professional. • Health and Welfare Plans — Plan Types and Administration, Benefits Certification Course: B3 • Health and Welfare Plans — Strategic Planning and Design, Benefits Certification Course: B3A • Health and Wellness Programs — Creating a Positive Business Impact, Work-Life Certification Course: W3.

special advertising section



compensation Developing, managing and tracking a sales compensation program in today’s global economy can be complicated. It’s a “do or die” market out there. Make sure you have all the knowledge and tools you need to develop, maintain and track the best sales compensation program possible. The companies featured in the next eight pages can help your salesforce accomplish its goals.


Hewitt Associates 100 Half Day Road Lincolnshire, IL 60069 Hewitt Associates provides leading organizations around the world with expert HR consulting and outsourcing solutions to help them anticipate and solve their most complex compensation, benefit, talent and related financial challenges.



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Having Difficulty Benchmarking Your Sales Roles? It’s the classic challenge when benchmarking sales compensation: no two sales roles are alike.

• Combinations of attributes provide the greatest precision matching your jobs available in the market.

Effective sales compensation programs require the ability to understand how critical traits of a sales role impact compensation. At Hewitt, we understand each company has unique sales roles: roles driven by the complex intersection of talent markets and company sales strategies. Our unique survey methodology provides the answers to the tough questions asked by sales leadership, such as:

This methodology also allows you to uncover potentially hidden talent pools in the market for your roles.

• Should representatives covering global accounts be compensated at a higher level than those covering mid-market U.S. accounts?

• Salary Increase Survey

• What’s the right level of at-risk pay for our “hunters” as compared to our “farmers”?

Deriving from Hewitt’s compensation consulting experience, the Hewitt Sales Compensation Survey is part of the Hewitt premier benchmark studies suite, including: • Total Compensation Measurement

• Variable Compensation Measurement Survey. Contact us at 800-441-3078 or [email protected] for additional information.

• What is the right relationship between quota size and pay level? • Do we have a strong risk to the business when a sales representative leaves? If so, what’s the pay differential we should be calculating to account for that risk? Entering its fourth year, the Hewitt Sales Compensation Survey features a unique methodology that allows you to understand how salespeople’s skills and competencies are rewarded: • All sales roles are unique, measured using multiple role attributes. • Sales competencies, skills and role requirements are evaluated independently for their overall compensation impact.

Areas of Expertise • Sales compensation plan design

• Recognition SPIFFs and special sales incentives

• Sales compensation plan implementation

• Sales compensation surveys

• Sales performance measures

• Global sales compensation

• Sales performance metrics

• Sales coverage and cost modeling

workspan special advertising section

Having Difficulty Benchmarking Your Sales Roles? It’s the classic challenge when benchmarking sales compensation—no two sales roles are alike. Effective sales compensation programs require the ability to understand how critical traits of a sales role impact compensation. At Hewitt, we understand unique sales roles driven by the complex intersection of talent markets and company sales strategies. Our unique survey methodology provides the answers to the tough questions asked by sales leadership, such as: Should someone covering global accounts be compensated at a higher level than one covering small businesses? n What’s the right level of at-risk pay for a “hunter” as compared to a “farmer”? n What is the relationship between quota size and pay level, if any? n Is there a strong risk to the business when a sales representative leaves? If so, what’s the pay differential we should be calculating to account for that risk? n

Results available! Take advantage of exclusive results teleconferences and special pricing offers by submitting the postcard included in this issue. Contact us at [email protected] or on Twitter @HEWCompSurveys.

© 2010 Hewitt Associates LLC

salescompensation Varicent

36 York Mills Road, Suite 200 Toronto, ON Canada M2P 2E9 [email protected] Varicent provides an innovative sales performance management (SPM) solution for finance, sales, HR and IT departments. Using Varicent SPM, companies manage and automate the process of calculating and reporting variable-based pay, providing more visibility and accountability into one of their largest variable expenses.



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Tough Time Managing Commissions? Varicent Has a Solution. Companies are trying to reduce the errors, overpayments and amount of effort it takes to manage their compensation processes while also implementing new and different plans that drive the right behavior. By automating compensation calculations, Varicent distributes detailed commission statements to sales professionals in a more timely manner and with higher accuracy. As a result, field reps can conduct more customerfacing activities instead of spending time to track their own sales and pay, while more accurate calculations reduce overpayment of commissions to control corporate costs. Sales leaders and executives have better visibility across the sales organization with the alignment of field reps along with their products, quotas and territory assignments, enabling them to effectively drive performance.

Automating Compensation Varicent automates the entire compensation process including data collection, compensation calculation and commission statement distribution. By collecting data from any source including legacy systems, databases and MS-Excel files, Varicent provides a single, accurate view of data to calculate commissions. Varicent’s flexible and scalable calculation engine can perform any calculation to match your compensation plans and definitions.

Detailed Commission Statements Varicent delivers personalized commission statements that provide payment details down to the transaction level for every tracked payee. Up-to-date performance data and what-if calculators also enable sales representatives to understand their rankings and earnings potential, gaining more motivation to close sales. With complete visibility into their pay and performance, salespeople spend less time on shadow accounting and launching payment inquiries and have more time to sell.

Rapid Plan Creation Implementation costs are dramatically reduced by leveraging Varicent’s prebuilt solutions. With a comprehensive library of compensation plans, processes, connectors and reporting templates, organizations greatly accelerate the deployment of incentive programs. Since Varicent’s prebuilt solutions are based on proven implementations and experience, users are able to leverage industry best practices in compensation plan design.

Accurate Payout Results By eliminating the need to manually manage splits, reassignments and other exceptions, Varicent improves the accuracy, auditability and visibility in compensation management. Compensation teams dramatically increase their productivity as Varicent automates the process of identifying exceptions and calculates commissions accordingly.

Area of Expertise • Sales compensation technology

workspan special advertising section

Tough time managing commissions? Do you struggle with… Creating accurate commission payouts? Disputes and inquires? Incentive plan change requests?

Varicent has a solution.

Incentive Compensation Management Sales Performance Management


Mercer Sales Effectiveness


With many organizations being asked to do more with the same or less, every choice they make matters. Mercer’s human capital business devotes itself to helping clients make and implement the right choices regarding their investments in people, even when these choices involve complex trade-offs.

What Our Clients Get

[email protected]

We do this by ensuring that our clients:


• Manage people investments with the same rigor and discipline as other organizational assets.

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.

Steve Grossman 155 North Wacker Drive, 15 floor th

Chicago, IL 60606 Phone: 312-917-9609 Fax: 312-917-8999


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• 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.

Our Sales Effectiveness practice helps clients focus their sales effort on the right customer segments, optimize their sales and sales management processes, and effectively motivate and enable their salesforce to drive profitable growth.

Our Global Depth and Breadth Mercer’s human capital business has nearly 1,000 employees in more than 30 countries and territories worldwide. Together with Mercer’s other lines of business and sibling companies, Mercer is a total solutions provider for clients’ improved resiliency, sustainability and performance.

Mercer provides a comprehensive range of human capital services and solutions in the areas of: • Sales effectiveness • Rewards • Talent management • Human capital operations and technology solutions • Human capital strategy.

Areas of Expertise • Sales compensation plan design

• Sales performance metrics

• Sales compensation plan implementation

• Sales compensation surveys

• Sales performance measures

• Global sales compensation

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Better Sales Comp Consultants Ted Briggs, Principal Clinton Gott, Principal 2397 South Caliente Rd. Palm Springs, CA 92264 Phone: 760-328-8423 Fax: 760-324-7984 [email protected] Better Sales Comp Consultants — Experienced sales effectiveness and sales compensation consultants who work collaboratively to develop effective and compelling solutions that drive sales motivation and revenue growth. Our consulting model is flexible, efficient and cost effective. Industry experience includes high-tech, consumer products, financial services, insurance, medical products and communications.

Better Sales Comp Consultants Sales Effectiveness and Sales Compensation Solutions In today’s re-emerging market, winning deals and achieving growth requires your sales team members to be confident and intensely focused on their individual success. Through their energized individual efforts, your sellers will deliver the collective deals that drive the achievement of your business plan. This premise is the heart of your salesforce investments, and represents the “big-bet” your company makes in how you organize, deploy and motivate your individual sellers. Today’s critical question is: “Are you ready to double-down on your sales team?”

Better Sales Comp Consultants helps you renew your salesforce investments with greater confidence. We help drive cost-effective topline growth through revised sales coverage models, clear sales job designs and compelling sales compensation programs. Our experienced consultants will guide your company through the process of aligning your sales roles with market opportunities, and developing sales compensation plans and earnings opportunities that motivate and activate the intensity of your sales team to beat your plan. Better Sales Comp — we inspire your confidence to make that winning bet on your sales team.

Areas of Expertise


• Sales compensation plan design

• Sales performance measures

• Sales compensation technology

• Sales compensation plan implementation

• Sales performance metrics

• Sales compensation training

• Global sales compensation

BSCC provides a hands-on, highly experienced, proven team of sales effectiveness consultants. We utilize a flexible service delivery model to partner and collaborate with our clients’ internal teams. This results in high-impact, cost effective program designs that today’s companies require.

Our solutions provide: BETTER plan alignment with emerging strategies and targeted sales roles BETTER motivation for the sales teams to succeed and overachieve plan BETTER sales talent attraction and retention BETTER returns on your sales compensation spend E V E RY B O D Y WANTS BETTER S ALES CO M P! workspan special advertising section

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The Alexander Group Inc.

The Alexander Group Inc.

8155 E. Indian Bend Rd.

Our Sales Compensation Consulting Services

Suite 111

Scottsdale, AZ 85250 [email protected] The Alexander Group helps Global 1000 companies achieve saleseffectiveness excellence. We deliver winning sales strategies, innovative coverage solutions and powerful sales-support programs. Since 1985 we have helped our clients develop a wide range of sales-effectiveness solutions to ensure sustained revenue growth.


As a leading firm in sales compensation design, we help our clients create incentive plans that align sales resources with corporate objectives. The Alexander Group is the recognized thought leader in sales compensation solutions, as widely acknowledged by clients and professional associations.

From strategic alignment to design, market pricing and implementation, we can help with all elements of your sales compensation program.

We have helped thousands of clients, including worldwide sales organizations, realize the full benefits of effective sales compensation programs to reward and recognize highperforming sales resources. — sales management services

• Sales compensation plan design

• Recognition SPIFFs and special sales incentives

• Sales compensation plan implementation

• Sales compensation surveys

• Sales performance measures

• Global sales compensation

• Sales performance metrics

The Alexander Group Announces the Release of the 2nd Edition of Compensating the Sales Force Best-Selling Book by David Cichelli

New Chapters: • Global Sales Compensation • Difficult to Compensate Sales Jobs • Compensating the Complex Sales Organization

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www.compensatingthesalesforce — book Web site

Areas of Expertise

Features over 40 winning sales compensation formulas


• Contact us at 800-327-8525 or visit our Web sites: — sales compensation services

Leader in Design of Sales Comp Plans Serving best-in-class sales organizations We work with sophisticated sales entities to devise go-to market strategies, structures and management solutions, including best-in-class sales compensation programs. From sales force transformation engagements to sales compensation design solutions, our extensive experience brings a worldwide perspective to improving sales performance. To learn more about our sales compensation services visit us at: To learn about David Cichelli’s 2nd Edition of Compensating the Sales Force visit: And to learn about our sales effectiveness consulting solutions visit us at:

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sales compensation CULPEPPER Compensation & Benefits Sur veys


Synygy Inc.

3600 Mansell Road, Suite 310 Alpharetta, GA 30022 [email protected]

2501 Seaport Dr. Chester, PA 19013 610-494-3300 [email protected]

› The Culpepper Sales Compensation Survey, designed for technology, life science and medical sales organizations, includes global data for more than 40 countries. It includes more than 110 sales job families, sales, business development and contract operations for the following types of products and services: biotechnology, contract research and clinical lab services, diagnostic substances, eBusiness and online content, hardware and electronics, IT services, medical devices, medical and scientific equipment, medical supplies and products, and more.

› Synygy is the largest and most experienced provider of sales performance management solutions, which drive salesforce effectiveness and productivity by automating and improving sales operations. These include SPM software and services for sales compensation management, sales communications management, sales goal management and sales process management.

Area of Expertise • Sales compensation surveys

Place your message

in the premier monthly magazine for compensation, benefits, work-life, human resources and total rewards professionals. Reserve your ad space today! Contact Becky Setterberg [email protected] 800-800-0341

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workspan  09/10


How to Write a Good Workshop Proposal

Call for Total Rewards 2011 Conference Speakers Opens Soon!

Exhibition isn’t for another eight




months (May 23-25 in San

ence team, but deciding on workshops any other way — for instance, by relying

others — wouldn’t be right. “By conducting an open call for

Diego, to be exact), but the

presentations, we receive hundreds of ideas and

is opening soon to all total

topics to consider. We

rewards professionals. As

hear from a diverse group

always, the conference team is seeking workshop proposals with innovative practices, helpful tips and relevant trends to share.

of potential presenters representing a wide range of companies and academia that we might otherwise not have the ability to reach,” Allen said.

But how can potential conference speakers keep their proposals relevant and timely when they submit their proposals so many months in advance? “One of the questions we repeatedly ask ourselves as we are reviewing proposals is, ‘Will it be relevant five months from now?’” said Charles Allen, WorldatWork program manager. “Many of the topics we include in conference programming are updates to time-tested practices. But topics like health care and financial proposals are selected months ahead of conference, the actual presentations are not due until just about a month before conference, so the material presented can be the most current and up-to-date.” WorldatWork will receive almost 500

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or taking recommendations from

call for workshop proposals

reform change much quicker. Although the


and the other members of the confer-

on relationships with previous speakers The Total Rewards 2011 Conference &

Total Rewards

WorldatWork Premier Member Resources

connect. share. learn.

Compelling Proposals and Common Mistakes Allen, who has reviewed conference workshop proposals for the past 10 years, said that the top tip for submitting good proposals is to understand who WorldatWork is. Knowing the audience and the work the association does will make a proposal more aligned to the association’s strategy. He also emphasized the importance of the Key Learning Points section of the proposal. “This section is your opportunity to sell your workshop content to the attendees,” he said. “It focuses on what attendees will know after attending your workshop, what will they be able to do and how will this change the organization.”

workshop proposals in the next month,

From previous conference attendee

but only about 90 will ultimately be included

evaluations, we know that attendees rate

in the conference. The review process can

workshop content most valuable when

be difficult and time-consuming for Allen

presenters include a combination of

The review process gives us a good understanding of the issues that consultants and practitioners are dealing with at any certain time.

strategic and tactical sessions,

ners and academicians.

and enough should appeal to those with global responsibilities.

The submission application limits proposals

Keeping Your WorldatWork Society Certification Current

to 4,000 characters, and of course, there

“The review process gives us a good under-

was a reason for that. The most obvious

standing of the issues that consultants and

flaws in presentation proposals are not

practitioners are dealing with at any certain

With more than 1,000 people recertifying their

writing it with a purpose, being incomplete,

time,” Allen said. “We look for issues and

WorldatWork Society designations each year,

not being clear and concise, and not being

trends that might surface. This insight,

it is easy to come to one conclusion: Profes-

relevant to the total rewards model.

combined with input from our members and

sionals value the certifications that they earn,

advisory boards, is considered as we look

and employers value it in candidates.

The Review Process After the submission period closes, WorldatWork teams and content experts spend the next six weeks reviewing the proposals. Proposals are rated on a scale of 1 to 10 for the following areas: ■■ Topic

relevance: The subject matter is applicable to total rewards. The workshop offers attendees content that is current and of interest.




Learning objectives: Are the proposed key learning points supported by the workshop description? Delivery format: This includes how many speakers will present and the structure of the presentation (lecture, moderated panel, case study or interactive discussion). Overall quality of submission: This category includes a judgment of the description’s clarity, interest provoked and thoroughness.

The Process to Recertify is Easy

for the right topical balance. We also look for proposals that are relevant to a few of

Everyone with a WorldatWork Society

the most pressing issues for special

of Certified Professionals designation is

program coverage in the form of forums or

eligible for the recertification program, and

panel discussions, and we may reach out to

it is easier than you might think. In fact, you

submission candidates to build a session.”

may even be able to recertify without ever filling in a form or looking anything up online.

Of course, the more relevant and inter-

When you earn a CCP or any other Society

esting the workshops are, the better the

designation, you are automatically put on

WorldatWork conference is, so the asso-

track to recertify in three years. During that

ciation is deeply invested in finding the

time, you must earn 12 recertification credits

best people to join us as speakers. But the

by attending a class, speaking at a confer-

benefits for the professional are plentiful.

ence, managing a project at your workplace

In addition to receiving a complimentary

or other activities.

full conference registration, a conference speaker has the opportunity to network

While “underwater basketweaving”

with many of the most influential total

wouldn’t count toward the credit, the

rewards practitioners, academics and

recertification reviewers don’t see too

consultants. Speakers gain prestige by

many applications that get rejected.

sharing their expertise and taking their

Some activities are automatically submitted

place as experts, and they contribute to

to the recertification application, including

The review teams also consider the

the body of knowledge for the HR and

WorldatWork membership, attendance at

demographics of conference attendees

total rewards profession.

a WorldatWork course or conference, and

and balance the workshops to cover the subject matter across the five topical tracks: total rewards, compensation, benefits, work-life and executive rewards. The conference should also offer a mix of

participation in WorldatWork surveys like

Visit callforpresentations. The submission period opens this month!

the organization’s annual salary budget survey. Other activities, such as on-the-job projects, should be submitted manually at

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95 /community

consultants, service providers, practitio-

If you have earned the Certified Sales Compensation Professional (CSCP)

due diligence that you continue to meet the standards of the profession.”

designation, you may be aware that it requires 25 percent of recertification

If you have any questions, please e-mail

activities to be directly related to the

[email protected]

sales compensation field. This can be from sales compensation courses,




conferences or other educational

Total Rewards

WorldatWork Premier Member Resources

connect. share. learn.

activities. Another way to earn credit is to volunteer to write exam items for future updates of the CSCP exam. WorldatWork will send a reminder e-mail

Salary Budget Survey Online Reporting Tool User Comments

asking you to check your credits before

WorldatWork’s Salary Budget Survey

your recertification date. Maybe you have

Online Reporting Tool, introduced last year,

all 12 and you won’t have to do anything

is making a difference for users. Brooke

because your application will autosubmit.

Conover, CCP, PHR, said the online reports have helped her in her job at Albemarle

If the date for recertification lapses, you

County in Charlottesville, Va., especially

can always recertify by just completing

the ability to pull out different pieces by

the 12 credits.

industry, region and more.

“There is sometimes a misconception that

“The salary [budget] survey report is

recertification means your certification

an integral part of our organizational

expires. That’s not the case — it is

compensation strategy,” she said. As an

permanent — but recertification allows

HR analyst in a county that is home to a

us to tell stakeholders that you have not

major university and other public services,

only met the initial requirements of the

Conover said her team uses public sector

certification, but you have taken steps in

and educational industry figures, refined

three years to remain up to date,” said Pete

by the state of Virginia.

Wood, WorldatWork certification manager. Visit And just as the number of recertifications

survey to learn more. 

has grown in recent years, Wood said that the number of employer verifications has also increased. “Verification requests and


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ABOUT THE AUTHOR Erin Ryan is a contributing editor to

background checks always

workspan’s Member Resources and can

ask about certification. The

be reached at [email protected]

recertification program is our

or 480-304-6824.

I HAVE A LONG-TERM STRATEGIC PLAN DUE YESTERDAY. THE SOLUTION IS SHRM. In a recovering economy, good ideas are priceless and everyone is looking for the latest, greatest and most visionary strategies. But it’s hard to plan for the future when you’re busy handling the day to day. So, in order to get my organization through the rough patches, I have to remain flexible and informed. I need an adviser I can trust—I need SHRM. Through the use of SHRM’s benchmarking reports, compliance webinars and conferences, I am continually modifying my strategic plan to include the latest trends, standards and best practices. My SHRM membership gets me out of the hot seat, allowing me to educate myself, encourage my workforce and re-energize my organization. Find out how SHRM can help you at



Elissa O’Brien, SPHR Needham, Mass. Member since 1993


Effective Management

Workforce Costs In Public-Sector Organizations The recent anger felt by the citizenry toward Wall Street and banks seems to now be focusing on the public sector as governments threaten to raise taxes to subsidize what are thought by some to be excessively generous and costly pension, medical and time-off practices.


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“Managing” workforce costs all too often is a code word for “minimizing” workforce costs in the private sector. The pressure for employee cost minimization in for-profit organizations, especially those that are publicly traded, has been severe due to shareholder pressure and scrutiny by Wall Street investment analysts. Downsizings, pay reductions and pay freezes have become widespread in the past two years. The public sector has not been subject to the same pressure until recently, and many would argue that public-sector pay levels and benefits have spun out of control. In an issue earlier this year, The Economist claimed that the average public-sector employee makes about 17 percent more in direct compensation than the average private-sector employee if actual time worked is considered. And the “public-sector premium” was an additional 30 percent when benefits were compared. The recent anger felt by the citizenry toward Wall Street and banks seems to now be focusing on the public sector as governments threaten to raise taxes to subsidize what are thought by some to be excessively generous and costly pension, medical and time-off practices. It is therefore prudent for all publicsector organizations to re-evaluate the way their employees are rewarded. There have been changes to pay practices in

Robert J. Greene, Ph.D., CCP, CBP, GRP, SPHR, GPHR, CPHRC, Reward Systems Inc.

some public-sector organizations. A considerable portion of the federal workforce has been taken out of the General Schedule (GS) program and placed in “excepted service” plans of various types. Most of these plans do not automatically raise individual pay rates each year the way the GS system did, and they have an element of pay for performance built in. The annual Water Utility Compensation Survey, conducted by the American Water Works Association, shows that only about 30 percent of 1,000 reporting utilities have automatic time-based pay progression (the federal GS model), down from more than two-thirds a decade ago. The escalation of fixed-cost payrolls has become more difficult for utilities to defend as resistance to rate changes increases, which has at least in part motivated this strategy change. And the federal government organizations dropping out of the GS system found that time-based pay

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.


The public perception is that as soon as revenues increase, those people will be back to work, without any loss in benefits. progression did not provide adequate motivation to perform well. The appearance that many public-sector employees get raises each year, despite labor-market conditions and irrespective of how well or how poorly employees do their jobs, creates even more angst when private-sector employees are laid off or have their pay frozen or cut. And there is considerable evidence that public-employee benefits, particularly defined benefit pension plans, are much richer than the retirement plans in the private sector. Paid-time-off plans and health-care plans also are typically more generous, primarily because a low percentage of the costs are paid by employees. If the numbers put forth by The Economist are accurate and relevant, the average public-sector employee should earn about 47 percent less in direct pay than the average privatesector employee. Yet the typical policy governing pay levels in public-sector organizations states that direct pay levels should equal direct pay levels prevailing

in the private sector, with no adjustment for time-off and benefits programs that are more generous than those in the private sector. The enormous variation between organizations, both within and between the two sectors, is so great that simple comparisons like those just put forth certainly should not be used to guide specific decisions about pay levels or benefits programs. But if the perception of the general public is that public-sector employees are overcompensated, that is reality to those who must pay for everything. It is therefore critical that public-sector organizations re-evaluate their HR management philosophies, policies, strategies and programs to ensure they are appropriate and defensible. One place to start is to decide which occupations justify different treatment. For example, the military and the uniformed services include people who risk their lives in the performance of their duties and who must maintain physical fitness levels that are difficult for older employees. It is very difficult to evaluate just how much additional pay is justified or how much more generous the benefits should be. If an earlier retirement age is established for employees who will be likely to have a difficult time performing their duties when they are in their 60s, the public may be convinced that it is in everyone’s interests to make retirement benefits vest at an earlier age. It is much harder to defend the extension of the same provisions to people doing administrative work in an office, which is often the case with federal, state and local pension plans. The “normal” retirement age is being adjusted from 65 toward 70 for most of the working population (those covered by private

retirement programs and Social Security), which is much more stringent than public-sector retirement plans mandate. State legislatures find it easy to increase public-sector benefits since future legislatures will be required to figure out how to pay for them. And votes are often the reward for doing so. Recent challenges to public pensions have been met by the response, “We cannot cut them, since they are constitutionally mandated.” It is unlikely that this response will produce anything other than more anger, since mechanisms are available for correcting out-of-line programs. Job security has also become an issue, even though some governmental agencies are being forced to lay people off. The public perception is that as soon as revenues increase, those people will be back to work, without any loss in benefits. This becomes even more of a concern because it is unclear if many of the jobs lost in the private sector will ever return. It is time for a complete reassessment of public-employee rewards packages since revenue shortfalls have begun to place more pressure on public-sector entities. For example, a medium-sized city in the Southwest came under extreme pressure to reduce costs quickly because of a revenue shortfall. It was decided that employee costs were too high but that reducing staffing levels would endanger the quality of critical services. The tactic that gained the most currency was reducing base pay rates by a percentage. But even though that would reduce payroll immediately, pay cuts are damaging to morale and are often considered to be a betrayal because management, not employees, sets pay. Although the need to reduce costs may provide a compelling reason to take this workspan  09/10



dramatic action, the lack of a broader perspective may hide a better tactic for dealing with the crisis. The main reason the city decided that cutting base pay rates was the only option was that it did not define “employee costs” broadly enough. If a total rewards perspective had been used there would have been other options that would have had the same economic impact as pay cuts with less damage to morale. Some public-sector entities have realized that unpaid furloughs avoid directly reducing base pay rates but have the same financial impact. Several have specified the furlough days and tied them to holiday weekends to provide even longer weekends. That may be more acceptable to employees than a pay cut, but it would result in fewer staff members to deliver critical services on the furlough days. If the city being used as an example had concluded that its paid-time-off policies were overly generous, it might view furlough days as an adjustment to a benefit that was excessive to begin with. But it is likely that employees would view it as a disguised pay cut. And if the revenue gap were to continue, further actions would be required that would be even more politically difficult and could create a cumulative impact on the ability to deliver services. So how could a well-thought-out longterm rewards strategy help identify other options that might be more effective in the long run? If the city had taken a total rewards perspective and analyzed its competitive position on that basis, a better option might have been to look at health benefits. The private sector most often expects employees to contribute at least 25 percent of the total costs of 100

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providing them with health-care insurance. Most public-sector employees pay a much smaller percentage of the cost. This reality is increasingly understood and is the source of resentment among those paying for the benefits coverage (aka taxpayers). If the city had developed a total rewards strategy that mandated a gradual increase in employee contributions to health care, another alternative to pay cuts would have become obvious. By increasing employee contributions to their health-care insurance rather than cutting base pay rates, progress would have been made in adjusting the employee share of benefits costs with the same impact on W-2 income as pay cuts. The total rewards strategy could also be revised to include a mandate that employees absorb 50 percent to 100 percent of the annual increase in total health-care costs each year until the targeted contribution rate is reached. Another benefit that could have been considered is retiree health plans. These plans are rapidly becoming endangered species in the private sector. Because many public-sector employees are allowed to retire at very early ages, this seems to be an area where savings could be realized and the plans better aligned with competitive practice. All those receiving retiree health coverage could be subjected to an immediate increase in their share of the cost, to perhaps 50 percent to 75 percent. Future retirees could be expected to pay 102 percent of the cost, similar to COBRA coverage. This would have the added benefit of removing an incentive to retire early. But realigning public-sector benefits to match competitive levels would also require major revisions to retirement programs. As defined-benefit pension

plans become historical artifacts in the private sector, this provides “air cover” for revising public-sector retirement plans. But terminating defined benefit plans and replacing them with defined contribution plans would require political courage, which is rare. Certainly the generous retirement benefits formulas and the early retirement age rules could be changed, but at the state level that would require legislative action. Legislatures are not known for incurring short-term political pain when they can avoid the problem of increasing liabilities by continuing to pass them on to the next legislature to deal with. And revising retirement plans will not immediately reduce costs, since most are not funded anyway. There are no easy roads to achieving more reasonable employee costs in the public sector. When all employee costs are relatively fixed (base pay and benefits), declines in revenue are difficult to offset. The private sector is increasingly using variable-compensation programs to make employee costs more responsive to revenue swings. It may be unrealistic to think the public sector will adopt significant variable-compensation programs any time soon. But when a total rewards perspective is taken, there are many more options that can be considered. By formulating a total rewards strategy, short-term tactics can be aligned with that strategy and provide a road map for navigating rough roads. About the Author Robert J. Greene, Ph.D., CCP, CBP, GRP, SPHR, GPHR, CPHRC, is the CEO of Reward Systems Inc. in Glenview, Ill. He can be reached at [email protected]


Benefits Design

Funding and Outsourcing Considerations Designing a benefits plan continues to become more difficult. Benefits professionals now must contend with rising health-care costs, the aging of the workforce and new legislation. This column examines the various methods for funding a benefits program, as well as reasons for outsourcing.

Funding Methodology There are different ways in which an organization can fund or finance its health and welfare plans. Each method has its own unique characteristics, advantages and disadvantages and should be evaluated individually by plan, keeping in mind company philosophy and financial ability. Following are funding possibilities: Insured The organization pays premiums to an insurance company where risk is “pooled ” with those of other companies who have also chosen the program. With insured plans, there are some definite advantages for the employer. For example, there is a full transfer of risk to another party, there is a specific known cost per time period, the plan handles administration, the plan abides by state insurance laws and there are tax advantages for life insurance. • Fully pooled (aka communityrated): Rates are based on the recent

claims experience of the pool or of the community. • Participating: This refers to an insurance arrangement in which premiums are based on the positive or negative experience (difference between the premium charged and actual experience) of the insured organization. • Minimum premium: Minimum premium is a group insurance financing arrangement in which the employer is responsible for paying all claims up to an agreed-upon aggregate level, with the carrier responsible for the excess. The insurer usually processes all claims and provides other administrative services. • Self-insured: The organization pays claims and administration fees directly out of current revenue. With this type of arrangement, the employer may have a lower actual cost than with an insured plan. In addition, there are lower administrative charges, opportunities for cash-f low management, no state premium tax and f lexibility in plan design and administration. • Stop-loss: A provision that caps the plan sponsor’s losses at a specific dollar amount in a plan year; used to limit financial exposure. There are two types of stop-loss. With aggregate stop-loss, the liability for the plan sponsor is capped at a percentage of expected total claims.

With specific stop-loss, the liability for the plan sponsor is capped at a specific dollar amount.

Outsourcing In the design and administration of benefits plans, outsourcing some or all of the benefits plan administration is common, as it allows a company to focus more attention on the core functions of the organization. Outsourcing can accomplish the following: • Reduce costs • Ease the administrative burden • Offer technological efficiencies • Manage liability • Negotiate fixed prices. Summary Whether a company chooses to insure its employees through a vendor or to self-insure, it must decide which option best suits its needs. Factors like cost, cash f low, employee demographics, corporate culture, employee expectations, industry competition, legislation and more play into the decision-making process. About the Author Compiled by Rose Stanley, CCP, CBP, CEBS, practice leader, WorldatWork. She can be contacted 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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103 103


The Do Nothing Boss Dilemma My boss and I are a two-person comp team for our division; our main HQ is in another state. I’ve slowly watched my boss over the past two years (since I was hired) become more distracted and do less work — all while delegating more to me. She now openly talks on personal calls, goes to yoga at mid-day

I once said the squeaky wheel gets oiled, but ... sometimes it gets replaced.

and can be heard watching videos that are not work-related. Any advice on how I raise this situation with either her or someone higher up?

Melissa L. Coppedge, CCP, SPHR, Compensation Analyst. Duval County Public Schools One dilemma faced with this issue is the final outcome of raising it. If the boss is well entrenched within the organization, he/she is very likely to keep the job, no matter what. This is especially true if no one else sees what is going on. A tie always goes to the boss. I once made the comment about a squeaky wheel getting oiled. My boss at the time said, “Sometimes the squeaky wheel gets replaced.” If nothing is brought up, the gains in knowledge and experience with the delegated work can all be added to the resume for future job opportunities, so all is not lost. If an opportunity arises in the future to talk with the higher ups about the work you are doing, do so with the mindset of making them aware of what you do, 104

workspan  09/10

rather than a complaint about the boss. At least they will better value the work you do over the long run.

Damian J. Guerin, HR Director, WellPoint Systems Inc. Most companies have a whistleblower practice or policy. If you are concerned about retribution for raising your concern, though, you might be disciplined or hurt by your input, such a policy or practice could provide personal legal protection. But, first, ensure that your input is legitimate and, if possible, see if you can gain support from a witness or two. Anonymous HR Manager In situations like this it’s best to take the high road. In this case, you should look for opportunities to talk to your manager about how busy you are and the concerns you have about being able to continue to meet the same level of high-quality work that the organization has come to expect. Be prepared

to offer suggestions on how this situation can be handled, such as by revising deadlines, limiting additional assignments until current workload is caught up, and/or by seeking additional support to complete the work. Yes, this request for additional help may include directly asking your manager to possibly take on some additional work, not in a challenging or accusatory way, but rather in a sincere request for help. Such an approach will usually cause most managers to take your request seriously and it may lead to some meaningful change. Opportunities to approach higher ups in the organization should be handled in a similar fashion, focusing on what the individual is experiencing from a workload perspective, combined with a sincere request for assistance. Stress how dedicated you are, your desire to be successful and advance your career with the organization. Make sure that they understand that you are prepared to be a part of the solution and that you are interested in any suggestions that they may have to help you going forward. Focus on Ethics dilemmas are featured in the workspan weekly newsletter. E-mail your response to [email protected] 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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