Adjusting Compensation to Address Fairness

Adjusting Compensation to Address Fairness

In response to competitive pressures to improve their pay-for-performance programs and to ensure fair pay throughout the workplace, U.S. employers have been making adjustments to their employee compensation and performance management programs, according to the results of a survey by human resources consultancy Willis Towers Watson.

The survey, which was conducted in April 2018, asked 1,949 employers worldwide, including 374 U.S. employers, about their compensation practices. The results showed that several factors are prompting employers to make or consider making changes to their programs, including cost (71%), manager feedback (63%), the changing marketplace (61%), and feedback from employees (59%).

The survey findings suggested that in particular, the changing nature of work and new skills requirements are spurring employers to reassess their compensation programs. When asked how they expect to manage their base pay and annual incentive plans in the coming year and over the next three years, 45% of respondents said they are planning to or are considering redesigning their annual incentive plans, and 37% indicated they are planning to or are considering changing the criteria for salary increases. Of the employers who reported no plans to redesign their programs, most said they are adjusting the importance of the factors used to set base pay increases.

The results further indicated that although the employers surveyed see achieving pay decision transparency as a challenging task given the increasing complexity surrounding pay decisions, more than half (53%) are planning to or are considering improving transparency around pay decisions.

In addition, the survey found that employers are recognizing the need for new technology to support pay decisions: while less than half of respondents (45%) indicated that they are using some form of software beyond spreadsheets to implement their pay programs, 52% said they are planning to or are considering introducing new technology.

When asked about their approaches to performance management, 40% of the employers polled said they are planning to or are considering changing the focus of their performance management strategy to include current and potential possession of the skills needed to drive the business in the future. By contrast, just 17% of respondents said they have eliminated performance ratings or plan to do so this year.

Moreover, the survey found that most of the U.S. employers surveyed report having formal processes in place to prevent bias or inconsistency in their hiring and pay decisions: nearly two-thirds of U.S. respondents indicated they have established formal processes across a range of areas, including annual incentives (64%), hiring decisions, (63%), starting salaries (62%) and base pay increases (62%).

Nonetheless, 60% of the U.S. respondents said they are planning to take some additional action this year to prevent bias in hiring and pay decisions. Of the U.S. employers surveyed, significant shares said they are planning to or are considering reevaluating their recruitment and promotion processes (44%), conducting a gender pay or pay equity diagnostic (42%), or increasing communication of policies and benefits that promote an inclusive culture (33%). The results also indicated that many U.S. employers are taking steps to support creating an inclusive and diverse workforce, with nearly half reporting that they have established or support internal networks (45%) or improved flexible work arrangements (44%).

From Benefit Trends Newsletter, Volume 61, Issue 7

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2018 Liberty Publishing, Inc. All rights reserved.

The Challenges of Moving Up To the Top Job

The Challenges of Moving Up To the Top Job

The chief executive officers of some of the world’s largest companies report that although they felt confident in their experience and operational know-how when they were appointed CEO, they struggle with the human demands of the role, and recognize that they need to transform themselves in order to keep up with the pace of business disruption, according to a study conducted by leadership advisory firm Egon Zehnder.

The study, “The CEO: A Personal Reflection,” explores the human side of the CEO role. Released on April 17, the report’s findings are based on a survey of 402 CEOs from companies headquartered in 11 countries who lead organizations with estimated combined revenues of $2.6 trillion. The study found that a majority of CEOs believe they had the hard skills and professional experience to step up to the role, but found certain personal aspects of the role more challenging than they had expected: while 74% of respondents said their prior achievements and experience prepared them to be CEO, less than one-third (32%) said that with hindsight, they felt fully prepared. In addition, 50% of the respondents said driving culture change had turned out to be more difficult than they had anticipated, and 48% indicated that finding time for themselves and for self-reflection turned out to be harder than they had expected.

The findings further indicated that many of the CEOs surveyed believe they lacked some necessary supports before stepping up to their current position, with 44% of all respondents—54% of those promoted externally and 36% of those promoted internally—saying their appointment was not part of a planned and formal succession process. The survey also showed that the CEOs appointed from within a company felt less prepared than those hired from outside: only 28% of internally-selected CEOs said they felt fully prepared, compared to 38% of external hires. Moreover, while 65% of respondents said there was some succession planning underway for their own successors, just 32% said that there was currently a clear process in place.

The survey results also suggested that the CEOs are moving toward a more reflective and collaborative approach to leadership, as they recognize the importance of these soft skills and their need to adapt and change. More than half (54%) of respondents agreed that transitioning into the role required an intense period of personal reflection, and 79% said they recognized they needed the capacity to transform themselves as well as their business. However, while 78% of the CEOs said they are comfortable admitting mistakes and 70% said they are comfortable taking the heat for unpopular business decisions, only 57% of CEOs indicated they are comfortable showing emotions.

From Benefit Trends Newsletter, Volume 61, Issue 5

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2018 Liberty Publishing, Inc. All rights reserved.

A Strong Value Proposition Can Boost Employee Engagement

A Strong Value Proposition Can Boost Employee Engagement

Whether a company brings out the best in its workers depends on the health of the organization’s engagement ecosystem, including the value proposition companies offer current and prospective employees, according to a report released by The Engagement Institute, a joint venture of The Conference Board, Deloitte Consulting LLP, Mercer I Sirota, ROI Institute, and The Culture Works.

The report, “The DNA of Engagement: Moments That Matter Throughout the Employee Life Cycle,” was released on March 1. The authors used data from surveys, focus groups, and interviews to examine the interconnected factors that attract employees to organizations, keep them engaged, and encourage them to stay. Researchers also looked at the critical moments that affect the employee experience at work, and recommended strategies that organizations can implement to attract, retain, and engage employees.

According to the report, the most critical components that shape an organization’s engagement ecosystem is the employee value proposition, or the tangible and intangible deal that organizations provide in exchange for employee effort, commitment, and performance. The authors pointed out that the employee value proposition is a product not only of the explicit statements made by employees and actions by the organization, but of the implicit assumptions and observations employees make over time.

Researchers emphasized that individual employees have their own “personal ecosystem” that changes over the course of their career, and that is shaped by numerous moments they experience. The authors observed that when faced with critical moments in an employee’s life cycle that may affect his or her level of engagement, key stakeholders, including the employee’s managers, and coworkers, may struggle to respond adequately, and to ensure that the employee’s experience remains positive.

The report recommended that organizations take three key actions to strengthen overall employee engagement. First, researchers encouraged employers to promote an employee value proposition using empathy in the workplace. Specifically, they advised organizations to design and implement programs that support employees in how and where work gets done, prepare leaders to respond to employee concerns with an authentic tone of support and solidarity, and support supervisors who support employees in difficult circumstances by showing sensitivity to their workload.

Second, the study’s authors advised organizations to provide programs to assist employees at every stage of the career life cycle. They encouraged organizations to engage individuals from the start of their career to retirement by providing robust onboarding programs for new employees, training and development for junior-level employees, and processes to enable later-stage employees to connect with leaders and voice their concerns. They added that employers can make all employees feel valued by offering them training in newer technologies and other skills.

Third, researchers recommended that employers prepare for and seize upon “the unscripted moments.” The study’s authors observed, organizations can shape a favorable experience by ensuring that leaders are approachable, show heightened awareness during daily interactions, and demonstrate behaviors that build trust.

From Benefit Trends Newsletter, Volume 61, Issue 4

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2018 Liberty Publishing, Inc. All rights reserved.

A Talent Retention Agreements Becoming More Effective

A Talent Retention Agreements Becoming More Effective

While financial retention agreements designed to ensure that acquired talent remains with the new company during a merger or acquisition appear to have become more effective in recent years, the acquiring companies are often unsuccessful in holding on to senior leaders after the initial retention period is over, according to the results of a global study on M&A retention conducted by human resources consultancy Willis Towers Watson.

The study’s findings are based on survey data collected between March and May 2017 from 244 respondents across 24 countries in Asia, the Americas, and Europe. Within the past two years, 91% of the respondents had acquired another organization, 10% had merged, and 6% had been acquired.

The survey results showed that 79% of acquirers had been successful in retaining at least 80% of their employees with agreements through the end of the retention period, up from 68% of acquirers who participated in a similar survey on global M&A retention conducted in 2014. However, citing previous research, the study’s authors observed that after the one-year period, only around one-half of the above mentioned companies retained at least 80% of employees who had signed agreements.

In addition, the survey found that cash bonuses, most commonly expressed as a percentage of base salary, continue to be the primary financial award in retention agreements for senior leaders (77%) and other key employees (80%).

The findings also suggested that there are compelling reasons why acquirers should begin the retention process early by focusing on senior leaders. For example, the survey showed that nearly one-quarter (24%) of acquirers asked the senior leaders at the target company to sign retention agreements before the initial merger agreement was signed; and that early communication with senior leaders is a clear differentiator between acquirers with high (28%) and low (11%) retention rates.

Moreover, the survey found that of the employees with retention agreements who left the company before the end of the retention period, 44% blamed the new or changing culture. Among the other reasons cited for leaving were being aggressively pursued by competitors (36%) and not liking their new role (25%).

The results also showed that the size of the median retention budget has been declining: according to the survey, more than half of the acquirers (55%) polled in 2017 reported having a retention budget representing less than 1% of the total transaction cost—or nearly 50% less than 2014, when the median budget value was 1.9%.

From Benefit Trends Newsletter, Volume 60, Issue 12

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.

Employers Are Slow To Formalize Workplace Flexibility Programs

Employers Are Slow To Formalize Workplace Flexibility Programs

Although most employers claim to be committed to workplace flexibility, the majority of companies are still failing to offer the formalized workplace flexibility programs and the part-time, telework, and job-sharing opportunities that are linked to higher employee engagement and satisfaction levels, according to the findings of an annual report on workplace flexibility released in October 2017 by human resources association WorldatWork.

Based on 295 survey responses from WorldatWork members collected between May 17 and June 14, 2017, the report found that large majorities of respondents believe flexibility has a positive or extremely positive effect on employee engagement (64%), motivation (65%), and satisfaction (71%). Nonetheless, just 19% of the employers surveyed said they offer flexibility options to their whole workforce, while 36% said they only offer flexibility on a case-by-case basis with no widespread access.

Researchers observed that while flexibility practices vary by organization, the overall prevalence of these programs has remained fairly consistent since 2013, when a similar survey was taken. The results of the 2017 survey showed that the majority of organizations offer telework on an ad-hoc basis (89%), flexible start and stop times (86%), part-time schedules (79%), phased return from leave (62%), telework on a regular weekly (61%) or a monthly basis (61%), and shift flexibility (51%). Smaller, but still sizable shares of respondents reported that they offer a compressed workweek (45%), full-time telework (38%), and phased retirement (32%). By contrast, relatively few respondents indicated that they offer career on/off ramps (16%) or job sharing (12%).

When respondents were asked what technologies they use with teleworking employees, more than half said they use a virtual private network (VPN) (64%), communication and collaboration software (60%), and instant messaging programs (54%). The results also showed that significant shares of employers cover employee expenses associated with telework, including the cost of laptops (57%), smartphones (31%), mobile device data/voice plans (31%), and software (30%) for teleworking employees.

While a plurality of respondents (41%) said they find it difficult to estimate the productivity of teleworking employees, 57% said they believe that teleworkers are at least as productive as employees working in the office. However, the results also showed that relatively few of the employers surveyed offer specific training on how to be successful while teleworking (11%) or on managing teleworkers (21%).

The findings also indicated that both the guiding principles and the administration of flexibility programs are informal in the vast majority of organizations: 52% of respondents said they have a flexibility strategy or philosophy with few or no written policies that relies primarily on the discretion of managers, while only 14% said they have a formal, written document.

In addition, the survey found that just 16% of respondents reported that they consistently promote their flexibility programs when recruiting new talent, even though more than half (51%) agreed that being informed of flexible work options has a positive impact on the likelihood that a candidate will accept an offer.

From Benefit Trends Newsletter, Volume 60, Issue 11

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.

Companies Increase Their Use of Pay-For-Performance Incentives

Companies Increase Their Use of Pay-For-Performance Incentives

More than 60% of large-cap companies provide at least half of CEO equity compensation through performance incentives, up from just one-third five years ago, according to a report on equity compensation trends recently published by executive compensation benchmarking firm Equilar.

The report’s findings, released on September 20, are based on an analysis of the Equilar 500, an index that comprises the largest U.S.-listed companies by revenue adjusted to approximate the industry sector mix of similar large-cap indices. The study examined the equity compensation design and granting practices of Equilar 500 companies, and tracked these data for those companies over the last five fiscal years.

The results of the analysis showed that the percentage of companies in the index that provided at least half of CEO equity compensation based on performance awards increased from 52.5% in the fiscal year 2015 to 60.8% in 2016; and that the total share of Equilar 500 companies providing CEO performance awards has increased significantly over the past few years, from 69.7% of companies in 2012 to 82.1% of companies in 2016.

According to the study, the remaining portion of equity compensation was time-based, which means that awards vest at specific time periods, rather than being contingent on meeting particular performance goals to become eligible to receive allocations of stock or stock options. The research indicated that most CEOs continue to receive time-based as well as performance awards, with nearly 40% of companies in 2016 providing a majority of equity compensation in the form of time-based awards. However, the study also found that a growing share of these time-based awards are being provided as restricted stock, rather than as stock options.

Broken down by sector, the analysis showed that 90.5% of industrial goods companies, 86% of healthcare companies, and 84.6% of utilities provided performance awards to CEOs in 2016. The technology sector saw the largest growth in the percentage of companies offering performance awards to CEOs during the study period, increasing from 63.7% in 2012 to 82.3% in 2016.

From Benefit Trends Newsletter, Volume 60, Issue 10

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.