Fistful of Talent

Capping CEO Pay - What It Means for All of Us...

The cause célèbre today is CEO pay and by extension, overall pay transparency, performance-based pay and letting a government entity manage what used to be a free-market concern.  While on the surface, it seems to be a good idea - less hidden pay, less excess, more connection to performance, more oversight - I can see why it makes sense to some.

But from my point of view these are well-intentioned ideas that will just cause more problems in the future - and require increased legislation that will cause more problems that will lead to more legislation, well, you get the idea.

One of the key elements of any incentive and reward activity is to look for unintended consequences.  In other words, what will increased transparency, capping CEO pay and a greater connection to performance mean in the real world?  How will these ideas manifest themselves if (and when?) they go into effect.

Well, we have some history to look to for guidance and I'll take a stab at some of the possible outcomes I can foresee.

1.  Capping CEO pay

This isn't a new concept.  In 1993, then President Bill Clinton signed a law restricting the tax deductibility of executive pay to $1,000,000 effectively giving those in that stratospheric pay range a huge incentive to find other means of compensation.  Enter the creative mind of the financial world.  People were given more perks that got around the cap - giving them bonuses in stock when they hit certain goals.  This is where stock options really hit their stride - and, thanks to the bull stock market of the 1990s, made everybody far wealthier than they would have been using the old pay structure.  So, the last time the government got involved in CEO pay, we got fabulously wealthy CEOs, and now we don't like it.  See what I mean about unintended consequences?

2.  Tying pay to performance

See #1 - we tried that and we didn't like the outcome.  The problem is that there will be few people who will agree on what performance metric to use.  As an example, If we use share price (which should benefit the shareholder) we get shorter-term management and a company that may do well for a while in a given market environment - but will tank when the world changes (can anyone say financial industry crisis?.).  Should we compare performance against historical company performance (absolute) or against the market and the industry (relative) performance?  Either is a good measure, but what is best?  Using stock prices as a proxy for performance doesn't work.  Too many people, internally and externally have an impact on the stock price.  Warren Buffet is fond of saying he doesn't buy stocks, he buys companies.  He does that because a stock is a representative of a company- but an imperfect one.  What would the best metric be?

3.  Increase pay transparency

Talk about unintended consequences.  One of the reasons cited for the huge salaries and pay packages available to top executives is in fact greater transparency caused by the disclosure requirements in Sarbanes-Oxely.  Congress enacted the Sarbanes-Oxley Act of 2002 in response to a spate of highly publicized business failures and corporate improprieties.  The issue they said was a lack of oversight and transparency.  I don't want another Enron and can see why more transparency was needed but, some of the requirements of SOX may be what is driving CEO pay issues.  Specifically, once I can see what others get paid - that's what I want.  The highest salary now becomes the minimum salary and I want more than the minimum.  While this may not be a big issue for rank and file workers - CEOs are a unique breed and their egos probably won't allow them to be number 3 on any list. 

4.  Government involvement in market-driven issues

There are few places the government does a better job than the private sector.  With all its faults and with all the news you hear... the free market is still a pretty good place to test effectiveness and efficiency of an idea, process, or product.  I get that we need some one to make sure we don't let the market control and manage everything - but by and large the market does pretty well.

I just don't like the government getting their nose in the tent.  It won't be long before we see the definition of "exceptional assistance" go from taking bailout money to having greater than 80% of your business come from government contracts (I can see the argument on CSPAN happening) - 'cause if 80% of your business is coming from the government - isn't that exceptional assistance?  While I'm not too high on our lawmakers IQ when it comes to the market - I do know their olfactory senses work wonderfully well when the scent of money is in the air.

So what should you in the HR world worry about?

How 'bout this stuff...

• Once the CEO has a cap - expect others with larger than "average" salaries to be targeted.  Sales, VPs, etc. 
• The government will control your compensation plans - everyone will be on the same playing field and true talent will go "free-agent" because you can't meet their requirements within a corporate environment.  Why not be a contractor and get twice as much money?
• If you deal with government contracts, expect to see more and more oversight into your total pay practices - not just those that deal with the specific contracts.
• Pay transparency will start to trickle down - and everyone will see what everyone makes - and will have input into how much a job is worth - regardless of reality - the crowd will rule - and salaries will start to cluster around an average - an average that is not representative of the job or the market - but of what most employees think it is worth.

I, for one, am not looking forward to this stuff...

The Most Expensive Colleges Have One Thing in Common - This Recruiter Has Never Heard of Most of Them...

If you matriculated from an expensive private school, allow me to say this up front - I'm still your fan.  If you're good at what you do professionally, articulate and able to point to a body of work that distinguishes you from others like you, you rock.  Seriously.

I just don't understand why you, or your family, had to pay WAY into the six digits to get you there.  I'm sure you could have gotten into State U., even if all the townies (Like me?  That's harsh...) decided to go there.

I didn't get the whole cost of education thing until I was out of school and married to a fellow State U. alum.  A hoops scholarship paid most of my bills, and Angela had partial academic scholarships.  So, it wasn't until she and I were out of school that I learned that lots of other couples had six-digit student loans to pay off.  Many were scheduled to retire the debt in their mid to late 30's.

Here's my point.  If you're considering which college to go to, going to a privately held Ivy League school would seem to have some brand equity and ROI for you for the rest of your life.  I get that.  But going to a private college for 25-40K in tuition annually when the name recognition will fade after you drive 4 hours away from campus?  Doesn't seem like the best play in a global economy.

Most of you reading this are recruiters and HR Pros.  Check out the following list of the most expensive schools in America and tell me which ones you would recognize on a resume.  From the Consumerist:

1. Sarah Lawrence College | $53,166
2. George Washington University | $50,312
3. New York University | $50,182
4. Georgetown University | $49,689
5. Connecticut College | $49,385
6. Bates College | $49,350
7. Johns Hopkins University | $49,278
8. Skidmore College | $49,266
9. Scripps College | $49,236
10. Middlebury College | $49,210
11. Carnegie Mellon University | $49,200
12. Boston College | $49,020
13. Wesleyan University | $49,000
14. Colgate University | $48,900
15. Claremont McKenna College | $48,755
16. Vassar College | $48,675
17. Haverford College | $48,625
18. University of Chicago | $48,588
19. Union College (NY) | $48,552
20. Colby College | $48,520
21. Mount Holyoke College | $48,500
22. Tufts University | $48,470
23. Bard College at Simon's Rock | $48,460
24. Franklin & Marshall College | $48,450
25. Bard College | $48,438

I bolded the ones I think would have national brands that get recognized by lots of recruiters, and there are obviously some great schools in there.  The problem?  The rest of them charge the same freight, and while you might get a great education, the national ROI probably won't be there.  Union College?  I'm sure it's great, but once you get out of the Northeast, some Midwestern recruiter is going to ask you if that's "the junior college over by Cedar Rapids".  You just paid more than 130K after discounts to get the sheepskin.

Ouch.

Final note - While all of these colleges probably have great academic reputations, the other reality is that there are thousands of private colleges that still tote 30K annual tuition price tags before discounting, compared to the 6-8K you can find at most regional public institutions.  The name recognition fades within two hours of leaving campus in a lot of those.

Looks like State U. for the Dunn boys...

Cost of Talent - World Series 2008 Edition....

The World Series is here, and it reminds me of the talent/economics lesson that occurs each season in Major League Baseball. This year's compensation lesson? The Tampa Bay Rays, now featured on Fox in their quest to win a championship, have a total payroll this season of $43 million. The Red Sox? $133 million. The Yankees? $209 million. The Phillies (the team facing the Rays in the series?  13th overall in payroll at $98 million.

You might want to think twice before thinking you can buy talent to the top of your industry.

From the New York Times:

"From 1996 through 2003, the Yankees appeared in the World Series six times. But as Matthew Silverman, the president of the Rays, pointed out the other day, much to Selig’s delight, Selig’s vision of revenue sharing and distribution of national network income has helped the Rays, whose current payroll of $43.8 million is the second lowest in the majors.

For all the dire predictions, baseball has somehow produced 15 different pennant winners in the last decade. Think about that. Since expansion in 1998, half the major league teams have appeared in the World Series — and seven teams have won it, and an eighth is guaranteed to win this one.

“Competitive balance,” Selig said, several times."

Always interesting to see the battle of haves and have nots in MLB.  For me, the corporate lesson is pretty simple. We all think it would be nice to have all the resources in the world, and go acquire the best talent at every position.  But the law of diminishing returns is alive and well in the company, as well as on the field.  Talent doesn't always add up as the sum of the parts you put into place.  Chemistry, progressive management skills (see this story on Joe Maddon to believe you can be a nice guy and win) and the development of young talent through career pathing is not only the most affordable way to go, but likely promises the best returns as well.,

As long as you've got a culture that the young talent can identify with and be motivated by.  Now, when are my Royals going to get some of the low payroll, small market MLB love?

Robbing Candidates Blind - Why I'm Not A Car Salesman...

There is a reason why people hate used car salesmen.  And, frankly...if I wanted to do that job, I wouldn't still be paying for college.

The real job of a used car salesperson is to take as much money out of your pocket as possible in order to pad their own.  Car salesmen are experts at schmoozing you, using tactics that are less then honorable.  Remarkably, I have seen some hiring managers and even recruiters using the same techniques. 

Starting with the haggling.  A car salesman will haggle by showing you this abnormally ridiculous price for the car.  You're supposed to say, "That's horrible, I won't pay that!" at which point they go into the back room to talk to their "manager" before coming back with a less ridiculous offer.  This happens 5 or six times before you walk out having only overpaid by about $5k.

The recruiter will haggle by lowballing. 

"Here's your offer!"

"That's $15,000 less than what I asked for.  I won't take that."

"Okay, fine...here's $5k more...and, free parking!"

I was on a panel once speaking about finding jobs in the game industry.  One of my peers from another company told the crowd, "Never accept the first offer because the company will never make their best offer first."

Excuse me? 

I think a company should always make their best offer first.  I think lowballing is a quick path to recruiting failure.  This isn't a flea market.  And, it's not Auto Trader.  If my company says it pays you based on your skill and experience, I need to pay you according to that criteria.  That's not to say we can't still negotiate.  But, this is a horrible time to start creating hard feelings from someone who should be really excited about starting a new life chapter.  There is an etiquette that goes into making job offers, says Mario Laudi at Red Canary. 

Avoiding lowballing also includes candidates who ask for less money.  If a programmer tells me he wants to make $15/hour and I know darn well our company pays $20/hour for what he does, I should be offering the $20 and feeling really good about myself for making the dude so happy (Low numbers used cuz I hate math).  This is also a great way to ensure referrals. 

Good recruiters are about more than just putting butts in seats.  We should also be about the relationship.  An employee that comes in happy could be your company's next recruiter.  Why start things out with a testy exchange over dollars and cents if you don't have to.  I'm not a salesman.  Cheerleader, maybe.  Salesman, no. 

Editor's Note - Jason Pankow is a Senior Recruiter for Microsoft’s Xbox LIVE and Xbox Software groups.  Jason supports the Interactive Entertainment Business at Microsoft, bringing in technical, as well as creative, talent to Redmond.  Look him up on Xbox Live, where he'll ring you up for a triple-double as Steve Nash on NBA 2K8 or kick it old-school via a 7-digit score on Galaga...   

The NFL Patriots - A Team-Based Culture That Survives Employee Turnover...

So the Patriots did just enough over the weekend to get past the Giants and become the first pro football team in history to go 16-0.   You can hate them, as many pro football fans do.  You can't deny their success. 

Here's another thing Patriots haters can't deny - the Patriots have one the strongest "team-first" cultures in all of professional sports.  These aren't the Yankees or the Red Sox, writing checks to ensure they have the best talent in the league.  No, this is the NFL, with a hard salary cap.  That means that on a year to year basis, around 30% of your roster turns over and you have to start from scratch. 

That's right - the Patriots are one of the biggest employement brands in professional sports, and they have 30% turnover.  That's what a hard salary cap does - just like in your business when you decide not to match that stellar offer that an average employee has to work elsewhere, the Patriots have to decide the best way to divy up fixed payroll, meaning a lot of players shuffle in and out on an annual basis.

But the team-first culture of the Patriots survives.  The Patriots seem to understand that they need to keep the cultural pillars that have been around for all 3 world championships - the Vrabels, the Bruskis, the Faulks, etc.   This talent performs on the field, but more importantly epitomizes the team concept and more than likely leads in the locker room, where dissension usually begins.

The Patriots are also incredibly fortunate to have a megastar in Tom Brady, who is the poster child for world class performance laced with humility.   Has this guy ever missed a chance in interviews to talk about his teammates in interviews?

We could spend all day breaking down the Patriots and their success, but to close I offer up these two examples of the strength of the team culture in New England:

1.  The Patriots have successfully assimulated Randy Moss into their culture.  Not familar with Moss?  He's the guy in the picture above doing a simulated "mooning" of an opposing crowd after a touchdown in the playoffs a few years ago.  Widely seen as a "me-first" cancer, he joined the Patriots this season and set the single season touchdown record for a wide-receiver.  More importantly, he's been performing with ZERO controversy, outlandishness, etc. 

2.  Team Introductions - I'm from Missouri, which means I'm a Rams fan.  A few years ago, the Rams were hot and won the Super Bowl with the greatest show on turf (lots of passing and invdidual stars - Kurt Warner, Mashall Faulk, etc.).  Next year they faced an upstart Patriots team in early stages of the culture they have built.  I'm wathcing the player introductions, and the Rams go first - introducing the starters for their incredible offense.  The Patriots started their introductions, and instead of shining the lights on their individual players for a little recogniton and glory - they came out as a team and ran through the tunnel 45 strong.

I thought to myself - "That felt different".

Game over - it was the start of the New England dynasty.

Love them or hate them, the Patriots are different.  Not different like the Yankees, different like when Jerry McQuire hugs Rod in the tunnel after his breakout game.  You watch, and you wish your workplace could be like that.   The sense of team and selflessness while still getting great results.

Here's hoping you get a taste of that type of culture in 2008.

Talent Primer - The Cost of Reinventing Yourself

Earlier this week I profiled the recent research concluding that today's American men have less income than their fathers’ generation did at the same age, according to a new analysis by the Economic Mobility Project. 

My conclusion?  That globalization has turned many jobs into commodities, which means those jobs likely get shut down and performed somewhere else over time.   As a result, workers often have 2 choices if they can't find work in the same industry - they can 1) move to a new location where that type of work is plentiful, or 2) reinvent themselves and arm their careers with new and additional skills so they can at least stay neutral on the wage front when change happens.  I wonder what ever happened on this front to the kids from The Breakfast Club?  Did they all do what they would thought they would do?  Or did the smart kid end up traveling from county fair to county fair with the carnival equipment?

But I digress... If a worker doesn't have the skills to reinvent themselves, the reinvention front often means additional education.  To this end, I stumbled across the following analysis of future costs of a lifetime education by Paul Strassman (hat tip to SystematicHR for including it in a recent entry)

1. Life expectancy of a graduating college student: 90 years+ (2005 – 2075);
2. Expected work life starting at the age 20 = 60 years
3. Half-life of a career due to obsolescence = 7 years (and decreasing)
4. Number of educational “major model upgrades” over a career = 8
5. Personal time/educational for a major upgrade = 1 person-year (1500 hrs)
6. % of time in life-time education = 8/60 * 1 person-year = 13 %
7. Life-time compensation ( in 2005 $s) = $65,000 * 60 = $3.9 million
8. Cost of personal time for life-time education = $3.9 million x 0.13 = $507,0000
9. Tuition for life-time education (State U, in 2005 $s) = $ 6,000 x 8 = $48,000

Of special interest to me is Strassman's assumption that moving forward, workers will need to weather on average eight (8) educational “major model upgrades” over a career - with each "mini-career" lasting 7 years before the educational upgrade is necessary to reinvent themselves.

Whether you agree with Straussman's cost model or the average length of a mini-career, it's food for thought that change is always around the corner, and the pace of change in this area has never been more extreme.  To neutralize or turnaround the fact that average wages are dropping in the US, workers will have to take proactive control of their careers. 

And surely the Judd Nelson character in Breakfast Club (the thug) isn't an investment banker on Wall Street.... 

Talent Economics - Our Parents (on average) Made More Than Us, and It's Complicated...

Are we all destined to be George Costanza?  Offspring who never deliver on the dreams our parents envisioned for us? 

There's some hand wringing going on about the viability of the American Dream, as today's American men are reported have less income than their fathers’ generation did at the same age, according to a new analysis by the Economic Mobility Project.

According to the report, men who were in their thirties in 1974 had median incomes of about $40,000, while men of the same age in 2004 had median incomes of about $35,000, adjusted for inflation. Thus, as a group, income for this generation of men is, on average, 12 percent lower than those of their fathers’ generation.  This in a period where productivity has exploded as well.

Is the American Dream dead?  Not at all, but it has shifted.  Lots of folks are bound to weigh in on this one with a simple version of cause and effect - expect organized labor to point to the downturn in representation for workers (that's bad analysis), isolationists to point to the perils of globalization (that's probably the start of the equation) and others to chip in as well.  Others are pointing to the the worklife balance needs of Gen X and Y as the primary reason for the decreased average earnings.  Not a bad thought on a contributing factor, but not the real story.

My take?  Average wages are down due to multiple factors - it takes convergence of multiple trends to deliver this kind of change.  Lead by the impact of globalization, here's my punch list of factors which are be converging to lower the total income of today's worker when compared with past generations:

1.  It's a Global Thing, Baby - Globalization has arrived in a big way since 1974 (see the Friedman book on the left column - read it if you haven't already), and even if you agree with the isolationists that would shut down international trade, you can't put the genie back in the bottle.  The biggest impact to workers regarding globalization?  Your work is a commodity if it can be done by someone else cheaper while maintaining the same quality - meaning your job potentially goes away as you know it today.

2.  National is the New "Local" - If your good-paying job becomes a commodity and is shipped elsewhere, you can usually get a new job at the same wage - but your chances of doing that are limited if you aren't mobile and able to relocate.  Think about autoworkers who experience a plant shutdown.  They can find work after the shutdown in another car plant, but it won't be in the metro area they have been living in.  The result?  The solid worker with family in the metro area probably doesn't move to find a job with similar wages, and his/her earning potential is subsequently slashed - contributing to the stalling of average wage levels.

3.  Silos are Dead - Just like location, having a single skill set/professional identity (i.e., silo) is a limiting factor for many workers in the new economy.  To keep the same comp after an office/plant closing, employees either need to move to a new area, or have a flexible enough skill set to reinvent themselves after the office/plant closing.  For many workers at or below the average comp cited by the research (35K), reinvention is a difficult thing to pull off or even comprehend.  Without a physical move or a redefinition of who they are professionally, many of these workers are destined to earn less as the economy evolves.

4.  Technology and the Digital Divide - The impact of technology in the way we do our jobs has allowed many folks to avoid earning less through the transitions outlined above (example - see One Person/Multiple Careers on the book column to the left).  Unfortunately, the advent of broadband and other disruptive technologies doesn't help those at the lower end of the salary scale.  With this in mind, workers in production-based jobs don't have the same opportunities to use technology to maintain their earning potential, dragging the overall average down.

The good news for HR Pros?   If you have the right type of skill set as a HR pro, your skills can transcend industry slowdowns, plant shutdowns, etc.  The skills of recruiting, motivating and retaining talent will have increased value as the baby boomers retire, etc.  Sure, you might have to change companies, but the need to relocate is probably less pronounced for you since you have skills that can be applied to multiple industries.