So which is more important to employees, pay or benefits (specifically health benefits)?

In last week’s Workforce Management’s newsletter, a nationwide survey was recently conducted by the National Business Group on Health that asked 1,619 employed people that specific question. They found that employees in the U.S. consider their health plan to be their most important benefit. Furthermore, in a world of rising health care costs, employees would rather give up wage increases and other benefits to preserve health care coverage.

More than 50% said they would accept fewer choices in order to keep their premiums low and roughly 75% would rather receive employer health benefits than get paid more and need to purchase their own health insurance. Additionally, more than 80% said they would rather see their salary or retirement benefit reduced rather than their health benefits if their employers need to reduce total compensation.

These findings don’t surprise me. These findings follow right in suit with what we often hear from talented candidates as our clients work through offers with them. Health benefits usually are the second item candidates look at in an offer letter. The benefits are viewed in almost in tandem with the compensation (salary/commission) package.

They always go hand-in-hand in today’s world. I remember back in the ’80′s when I would breeze past “rich” co-pay plans – that benefit was expected. Today, candidates view the benefits with more scrutiny than the salary/commission plan. I have seen more offers turned down because of the health plan not being acceptable than I have seen for the base salary and commission schedule.

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As you would expect, my interpretations of the articles referenced by Herd Enuff’s comment are much different than the musings of the young lad known as the Velvet Hammer.

I’m assuming the young lad chooses to ignore the aforementioned differences between the private and public sector for a reason. Perhaps it’s because of the harsh realities of situations like the Enron scandal. Or maybe the real need for legislation like Sarbanes Oxley, or the latest SEC disclosure rules – designed to protect the “average” investor from greedy C-level execs. Unless you’re a strict libertarian, you’ll have to admit that you enjoy the benefits of our “horrible government intervention” every day.

I also don’t buy the implication that these greedy types are the only ones that could be effective in these positions. If so, how do you explain the highly effective people that aren’t under media scrutiny for excessive compensation.? Perhaps their reasonable compensation is the result of the very market factors to which you subscribe – who knows for sure?

I do know that our musings won’t change anything. I’ll agree that at the end of the day, our free market will have a major impact on the compensation issues we’ve raised. Unfortunately, the pressure will NOT come from individual investors like us, but from the major fund managers and institutional investors. That’s where the influence resides.

So, in the sales management world we choose to participate in, let’s return our focus to building compensation plans and sales organizations that are motivated, successful and proactive in selling.

I think we can agree on that?

P. S. The only pro athletes that are worth their contracts are hockey players.

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I am attempting to stoke this fire some more with Red Bird. One reader posted a comment to yesterday’s post stating this:

You guys must be living under a bush somewhere back east. Have you ever heard of the golden parachute? Show up, don€™t do anything, get fired and walk away with millions. It€™s great gig if you can get it.

Chew on this
http://www.washingtonpost.com/wp-dyn/content/article/2007/01/03/AR2007010300553.html

or this http://blogs.wsj.com/deals/2007/04/10/a-53-million-golden-parachute-for-sprints-forsee/

Fair enough – I know this is an emotional topic for many people. However, emotions are not the best option for rational decision-making. I think most people will agree that CEO’s do more than “Show up, don’t do anything, get fired and walk away with millions.”

I “chewed on” both article links and want to highlight a couple significant items from them. In regards to Bob Nardelli (topic of the first link):

He has succeeded on many fronts, even as he fell short on others, and in recent years found himself defending his hefty salary. Revenue has nearly doubled, to $81.5 billion in 2005 from $45.7 billion in 2000, though that figure fell short of his goal of $100 billion. During that time, profit rose to $5.8 billion from $2.6 billion.

Not bad. Admittedly, the stock price has not followed this revenue and profit growth. I think the hesitancy from the street has more to do with the cooling housing market as opposed to Home Depot’s revenue performance. I am impressed that he doubled profits in 6 years. What company wouldn’t desire that profit growth? From what I read, Nardelli’s real downfall was his lack of communication ability which ties in nicely to my earlier post.

If you don’t know his history, he was one of 2 top executives to succeed Jack Welch at GE. Welch chose Jeffrey Immelt instead because of his communication ability. Nonetheless, the street was going to pay a hefty price for Nardelli based on experience. Home Depot’s board chose to pay for Nardelli. Note to Red Bird – I am not aware of any of Nardelli’s cronies being on Home Depot’s compensation committee.

The second article link references the CEO of Sprint Nextel. I am a former Sprint stockholder but I sold the stock since that industry is difficult to predict. I think the Nextel merger was a mistake – maybe knee-jerk reaction to other mergers.

Forsee has been under fire from investors since, as the head of Sprint, he orchestrated the company€™s 2005 merger with Nextel. The deal hasn€™t lived up to its billing, with subscriber growth slowing and Nextel€™s creaky network taking a toll on call quality. That has helped drive down the combined company€™s stock 26% since the deal was closed.

A number of Sprint investors say they expect Forsee has another quarter or two to show some progress turning the ship around before being shown the door. Should he get the boot, the severance payment would represent a surcharge for investors, if you will, on top of the $20 billion in market value that has evaporated since the merger.

Bad deal and a serious market value “evaporation” (glad I sold the stock). But take a closer look at the specifics of Forsee’s package:

Most of the value of the package, $43.2 million, comes from the accelerated vesting of options and restricted stock. Forsee gets the money only if he€™s forced out €œwithout cause€ or suffers a €œconstructive discharge,€ as defined by his employment contact. The payment was calculated at the end of 2006, when the stock was at $18.89. (It closed at $19.33 today.)

A couple of important points to the severance package, wouldn’t you say? This money is not guaranteed to him. Simultaneously, he gets more if he increases the company’s stock price. Those conditions seem reasonable to me.

The final point for me is simple – why should I get upset over a CEO’s compensation? How does Nardelli or Forsee getting less money than what they received affect me in any way? They negotiated their compensation packages and the company agreed to pay them that amount.

The final question that I posed to Red Bird last week was this – If you want CEO compensation capped, who is the arbitrator of the cap? Who determines what is reasonable and what is excessive?

If your answer is the government, I have much more writing to do.

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The illustrious Mr. Hammer has been attempting to illicit a response from me regarding Executive Compensation. His latest post Why Executive Salary Caps Don€™t Work requires a response.

Maybe I missed it in his post, but, I don’t see where Mr. Hammer separates the “Public” domain from the “Private” domain. Two very different worlds.

First a confession. I’ve been known to manage and exploit a compensation plan to it’s fullest. Actually, I am quite proud of the fact that I’ve made some CEO, CFO and HR types very, very unhappy. Getting the most out of a compensation plan is EXACTLY what you should expect from a top-level sales person. Exactly why a solid compensation plan is the very foundation of assembling a top notch sales organization – from top to bottom. A well designed compensation plan will direct behavior and result in the desired outcome.

Executive Compensation is, in my mind, an entirely DIFFERENT matter. In the private sector? No holds barred. Do what you like, as long as it’s legal. Compensate any way you like and in any amount.

In the Public sector, the rules are – and should be – different. That’s why the SEC and several other agencies exist. (Don’t get me wrong, I’m not a regulation proponent)

The “C” level pay in public companies deserves the attention and scrutiny it’s receiving from the media. Why? Because the deck is stacked by the key shareholders and their cronies placed on the compensation committee.

As an example, the “minority” share holders (people like you and me) of a very large national homebuilder attempted to have the compensation of the CEO brought in to line. We all know the status of the home building industry…. The result – the largest shareholders (primarily the “family”management) squelched the attempt. Today the CEO continues to be one of the highest paid CEO’s in the nation. The share price has dropped by 50%, earnings are down and write-offs are ridiculous (probably means they won’t be paying much in the way of taxes, either). To this the Velvet Hammer says “Sell the stock if you don’t like it!”

The rumor on the street is “Class Action Suit.” Maybe the system works better than I thought? Maybe I should have been a lawyer?

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The title of this post is a shot across the bow of Red Bird since he and I go toe-to-toe on this topic. I am a strong proponent of letting the market determine executive pay. I trust the market as the best arbitrator of compensation. The principle works every time it is tried – if the executive is overpaid, he or she will be dismissed. If they are underpaid, he or she will receive an increase. Seems fair to me.

I realize I am oversimplifying the issue, but I want to make a point. It does not bother me that the head of Exxon received a $400 million comp package. Good for him and the record profits that he led during his tenure. I suspect there are few Exxon shareholders who are upset by their most recent earnings. If they are disgusted by his compensation, sell the stock. Beautiful how the market works, isn’t it?

CareerJournal.com offers this article – Limits on Executive Pay Are Easy to Set, but Hard to Keep. The article’s focus is on Whole Foods’ capped executive plan. The article is an interesting read:

Other companies have had mixed success in limiting executive pay. Ice-cream maker Ben & Jerry’s dropped its pay cap in 1994 when it hired an outside CEO to replace co-founder Ben Cohen. Office-furniture maker Herman Miller Inc. eliminated its salary cap in 1996, as the company faced trouble recruiting top managers. James Sinegal, CEO of Costco Wholesale Corp., has for years voluntarily capped his salary at $350,000, although the company says it doesn’t track the ratio of executive-to-worker pay.

The one piece of data that gets my ire up is the executive-to-worker ratio. It doesn’t matter. Certain positions pay more than other positions based on the market’s demand and the value of the position as perceived by the company. If this ratio is truly significant, why don’t we see college president-to-non-tenured professor ratios or chief of surgery-to-nurse ratios? Are these statistics not as significant in the overall scheme of compensation?

Here is the crux of the cap problem:

Last year, as sales hit $5.6 billion and rivals tried to poach Whole Foods managers, the board of directors raised the cap to 19 times average pay, or $607,800. The increase was needed “to help ensure the retention of our key leadership,” Chief Executive John Mackey wrote in a Nov. 2 message to employees. Mr. Mackey said every top executive, except him, had been repeatedly approached by search firms seeking to lure them to rivals.

If companies want to install such caps, more power to them. I think if you read the article, you’ll see many companies that found the principle to be well-meaning in theory but of little use in practice.

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If you have noticed in our posts, we are paying more and more attention to retention. (say that 10 times fast!) The employment market clearly indicates that it’s a hot topic.

Over the years, two compensation moves really set off the negative alarms in my mind. They also made me, as a sales manager, more aware of how compensation impacts salesperson performance.

Increased quotas.
When quotas are increased (which isn’t necessarily “bad”), the first thing I always looked for was the corresponding compensation. If the message was “We need you to sell more,”that’s fine as long as everybody in the organization wins. However, trouble developed when the message came through as “We need you to sell more and you’ll have to sell more just to make the same amount of money.” At that point the sales group had the perception of losing while be singled out as the sacrificial group within the organization. Bad move.

Commission rate changes/overall compensation.
Again, not necessarily bad, but potentially a dis-incentive. Any respectable sales person immediately reacted to a commission rate change by figuring out the impact on their personal compensation. If the changes appeared to be positive, the best sales people behaved accordingly. It’s called “working the comp plan.” If the changes appeared negative, well, another bad move. I fired up the sales hiring process since I knew I was going to lose someone, I just hoped it wasn’t my best salesperson.

May I suggest a good move? Ask individual sales people what topics the organization should consider when reviewing compensation. Done correctly, this type of input will have significant, positive impacts for sales management and ultimately retention.

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A recent conversation brought to mind the responsibility of sales management for the development of both existing and new sales people. Why?

Retention.

As the employment market has shifted to an “employee market” – at least for talented sales professionals – sales management needs to make plans to retain sales people. After all, the talented sales person chose you and your organization, just as you chose them. Don’t kid yourself…this isn’t a one way street. Far from it my friends!

Those tasked with the responsibilities associated with sales management (regardless of the title given them) have a wide variety of tasks that need their attention everyday. The investment in sales people ranks as one of the highest people costs in the organization. If you’re going to invest, then it makes sense to protect your investment. It would also seem logical to provide a compensation component in the sales manger’s plan for retaining sales people. Compensation guides behavior.

In a recent sales manager role, I was dubbed the “Master Manager of the Comp Plan.” I’m not sure it was an entirely positive title (one of the finance guys didn’t like my efforts at all – but that’s a topic for another post). The key here is to provide an incentive to sales management to protect your investment. If your investment is protected, retention will increase. If retention rises, perhaps additional funds can be invested in other areas for sales success!

If you can convince finance of the ROI.

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OK, the Rock Star really hit a nerve with his recent post – A Commission Plan Gone Bad. I’m having flashbacks to a comp plan that still makes the hair on the back of my neck bristle.

When a comp plan becomes counter-productive -and the sales team is talking – you’ve created a monster. I can only think of one thing worse – have the paychecks bounce!

The profile for the most productive sales people tells us that messing with compensation and the perception of deception is the beginning of the end for retention.

Sales people want and need to believe that they are being treated honestly, fairly and with respect for what they do. The compensation plan should be designed to direct and motivate the sales group specifically and clearly.

The sales team should be discussing ways to “manage” the comp plan for maximum rewards, rather than grumbling amongst themselves about the latest raw deal from management. The dis-incentive of a bad deal for sales will lead to distractions that will drop sales revenue like a brick – and take months, if not years, of recovery to stabilize.

Playing the games described in Rock Star’s post will most certainly lead to retention and job satisfaction issues. Guaranteed . . . resume time!

So what do you do? Communication (as usual) of very clear company, management and sales objectives needs to be understood by EVERY employee at every level of the organization. Everyone needs to be moving in the same direction. Specific details need to be spelled out to the sales group along with the corresponding rewards. A level of trust and security for the sales group needs to be assured from top to bottom in the organization. The assurance of a “fair and clear deal” for sales will lead to increased revenue, profit and retention for the company.

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The saga continues. My friend as gotten to be a great resource for me on what not to do for sales management and incentive plans. Just after the last post a new turn of events transpired in regards to this latest contest. As I mentioned, her team was challenged to sell 2 specific add-on services (both truly commodities). Extra spiff’s were added by the manager to “motivate” the sales team.

One of the team members actually went out and sold 10 of these services which should have entitled them to a half day off (and no small feat to accomplish these sales). Yet, the weekly report listed only 1 sale. Naturally the manager checked to see if the missing 9 sales fell through somehow.

He discovered that the product manager (who has been riding herd on the team regarding these 2 services) is the one who decided to claim the sales for his support team instead of the sales team. Further inquiries revealed that since these services are a team sale, it is the product manager’s decision as to whom receives the credit for the sale.

Well, as you can imagine the team has been talking and everyone now realizes the enormous obstacle in front of them. In case it isn’t clear, I am passing this on as an example of what not to do when motivating a team. Salespeople respond to their commission plan – both good and bad. Take a look at your commission plans and clear any obstacles that are in the way of your salespeople and success.

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In the 1996 movie Jerry Maguire, Tom Cruise made the phrase “Show me the money” famous. In fact, the phrase has become an American icon in several ways.

Eleven years later, it appears candidates are saying “Show me the time.” Time off for family, friends and fun.

According to a recent survey by the Association of Executive Search Consultants, 85% of recruiters have seen candidates reject a job offer because it wouldn’t include enough work-life balance. And 90% of recruiters say work-life balance considerations are more important now than they were five years ago.

Information from other levels of employment – not just the executive levels – suggest exactly the same trend.

Recent assessment information also suggests this trend is gaining momentum in a BIG way. In addition to time considerations, we also see non-monetary compensation and incentives becoming more and more important – and specifically sought after by the most talented candidates.

It appears to be a good time to dust off the old compensation and incentive plans. Just in “time” to ensure attention from the most highly-talented candidates.

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