Compounding Our Pay Problems

untitled 2The pay ratios between CEOs and average employees are once again in the news. This is partly because proxy season always raises this issue and partly because there is a move in some circles to do away with the new pay ratio disclose rule that is part of Dodd-Frank. This year’s ratios will likely be bigger than last. The same will likely be true for most years in the foreseeable future. Here’s why.

The average annual increase for the average employee has been between 2.6% and 3.2% for several years. The use of equity compensation and other long-term compensation tools went down over at least the past decade. At the same time, executive base pay has increased between 5% and 8% most years over most of the past decade. During this period, the use of Continue reading

Startup Equity: The Most Common Mistake (Part 7 of an n part series)

untitledHere is my 2017 gift to you. I truly believe that equity compensation helped build the technology industry, and therefore the world as we know it. But, an unfortunate number of startups make the same error when using this complex and powerful tool that drive corporate success.

If you browse the internet, ask entrepreneurs or receive guidance from someone at a VC firm, you will get similar answers when asking about equity awards for the first twenty, or so, employees. This information, while accurate at a generic level, is likely to be incorrect for your specific circumstances.

The answer looks a bit like this. Outside of the founders, the C-level hires should each get Continue reading

Startup Equity: Synthetic Equity or Sharing Without Sharing (Part 5 of an n part series)

untitled4When you hear “equity compensation” and startups, you immediately think of stock options. More recently RSUs (restricted stock units that settle in company stock) have also been popular. But, what if you aren’t the “sharing” type? Or what if your company doesn’t have stock? LLCs are a good example. How does your business compete when it doesn’t have access to the same tools? Synthetic equity is becoming an increasingly popular answer.

Synthetic equity refers to any type of incentive plan where the value delivered to participants fluctuates based on the value of the enterprise. For corporations, the most common tools are Continue reading

Startup Equity: Comparing Your “Currency” to a Competitor’s (Part 4 of an n part series)

untitledComparing base bay is relatively easy, equity not so much. A dollar is a dollar. And, if a dollar isn’t a dollar (let’s say it’s a Franc), there are published exchange rates to help convert values. But, with equity compensation, the base currency is your stock, and its value is not easily translated (or even agreed upon). This fundamental disconnect is one of the most challenging issues faced by anyone dealing with equity compensation at a start-up.

Let’s start with the oversimplified example above. There are exchange rates from dollars to francs, but they are not as consistent as the prices available for Continue reading

Broadway Acts on Sharing Success

untitled12You build it. You buy it. This may become the new mantra on Broadway. The original cast of Hamilton was recently followed by the new cast of Disney’s Frozen in receiving a share of the success of the shows they helped create. Similar to a great tech company building towards an IPO, a Broadway company has to do a whole lot of work before it ever gets to the starting line. Beyond the original idea, words and songs are the testing, tweaks, enhancements and embellishments that can make or break a show.

For years the formula worked like this. Continue reading

OMG! You Were Right All Along!

untitled11Remember that time you spent weeks modeling a new incentive plan only to have it shot down? They explained that any goals needed to be based on RESULTS! You maintained that the reason interim goals were included, was to ensure that success could be achieved and communicated throughout the process.

Remember that other time you explained to your managers that they needed to have frequent conversations on the new pay for performance program? And, when it didn’t work they told you Continue reading

The Real Cost of Mismanaged Incentives: Wells Fargo

untitledWell, so much for the warm-hearted caffeinated, pick-me-up from the Comp Café. Today is a steaming jolt of quadruple espresso in response to the Wells Fargo incentive pay mess. Let me start with the fact that I have been interviewed a few times about this story and even I was surprised by my response to the question, “What companies in the financial world are considered to have good incentive programs?” I answered that if I had been asked a few weeks ago, Wells Fargo would have been on the list. I guess it’s hard to know what you don’t know.

If you have been under a log for a couple of weeks, please start by reading a couple of earlier Compensation Café Articles (my own When Incentive Pay Goes Rogue! and Jim Brennan’s Excessively Successful Incentives). That foundation will help you understand the following summary.

A couple weeks ago, Wells Fargo was fined about $185 million for fraudulently opening millions of accounts. They also fired 5,300 employees and were the media poster-child for why incentive plans are terrible. At the very least, the plans in question ended up costing more than they delivered. In the past few days, the real costs of these programs are starting to reveal themselves. Recent developments are listed below. Continue reading

Applying Pixar’s “22 Rules of Storytelling” to Pay

untitledWhat do ‘Up’, ‘Cars’, ‘Inside Out’, ‘Monsters, Inc’, ‘Ratatouille’, ‘Toy Story 3’, ‘The Incredibles’, ‘Finding Nemo’, ‘Toy Story’ and ‘WALL-E’ have in common? First, they are 10 of the best animated movies made by Pixar. Second, they all follow Pixar’s “22 Rules of Storytelling.” As it turns out, these rules adapt well to the world of compensation plans and philosophy. Continue reading

When Incentive Pay Goes Rogue!

untitledA friend of mine likes to say: “It’s not that incentive pay doesn’t work well, it’s that it works TOO well. It usually does exactly what it is designed to do, even if that wasn’t your intent.”

Wells Fargo just paid $185M in fines and penalties because its employees fraudulently opened additional accounting for people who were already customers. Often when issues like this arise, someone will blame pay programs. When this happens, compensation professionals usually Continue reading

FABulous Pay Improves Talent Acquisition

untitledHow are great salespeople able to seamlessly turn every one of your concerns into a demonstration of the prowess of their product? Are they really just that convincing or is there some type of method to their success? The best salespeople personalize every discussion. The trick is years of practicing a simple process until it has become part of how to explain everything. Your recruiters, staffing professionals and talent acquisition stars can do the same with your compensation plans (and you can easily help them).

The key in the absolutely fabulous method is the F.A.B.

F = Features

A = Advantages

B = Benefits Continue reading