Performance-Based Compensation Articles
The Watson Company is a leader in performance optimization products and services. Established in 1983, The Watson Company offers highly-successful programs designed to attract, retain, and motivate people in a cost-effective manner, linking pay to performance in an effort to improve overall quality and results.
Previous Posts
- In support of Voting "NO" on the bailout
- A Congressman who voted "Yes" on the bailout bill
- Key Portions of the New Bailout Plan
- Possible Executive Pay Limits in Bailout Plan - AP...
- Jack Welch Changes stance on Executive pay
- Executive Pay and Performance - What does it reall...
- The Paycheck Fairness Act (proposed) provides for ...
- The Equal Pay Act - Are you ready for change?
- Paycheck Fairness Act Proposed Compensatory Damage...
- The Fair Pay Act (proposed)
Archives
Tuesday, September 30, 2008
In support of Voting "NO" on the bailout
By Jeffrey A. MironSpecial to CNN
Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.
Economist Jeffrey Miron says the bailout plan presented to Congress was the wrong solution to the crisis
CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.
This bailout was a terrible idea. Here's why.
The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.
Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.
This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.
Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.
The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.
The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.
Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.
Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.
Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.
The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.
If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.
The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.
Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.
So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.
The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.
The opinions expressed in this commentary are solely those of the writer.
A Congressman who voted "Yes" on the bailout bill
From U.S. Rep. Jim MarshallSpecial to CNN
U.S. Rep. Jim Marshall, a Democrat serving his third term in Congress, represents Georgia's 8th Congressional District. He serves on the House Armed Services and Agriculture Committees.
Jim Marshall says he's put his career in the House on the line to pass bailout legislation.
(CNN) -- My family doesn't use credit much. We pay off our charge cards every month. We drive used cars. We paid off our house mortgage early and have not refinanced. We carefully live well within our means. In fact, until very recently, my "apartment" in Washington has been my office.
I'm pretty well-known as a cheapskate.
So when I said recently that I would be willing to give up my seat in Congress in order to pass the financial rescue package, it turned some heads.
It's because I understand what's at stake and because I hope to be a part of reforming our financial system so that we don't have these problems again.
I have spent my career as a business, finance and bankruptcy law professor and lawyer. I have helped individuals and institutions get out of financial trouble. More important, I have studied ways to make sure they don't get into trouble in the first place -- and drag all of us down with them.
Some politicians -- and a few economists -- would say that America is drunk on credit and just needs to go cold turkey. But it's more accurate to say we're addicted to credit. Too much credit. Good credit, bad credit, anything that lets us live the high life. We have mistaken growth in the value of financial paper for real economic growth.
Getting clean will not be so easy. When credit is quickly withdrawn, everyone in the business of lending panics. Credit becomes scarce and is not available at a reasonable interest rate. Institutions that need to use credit daily start to fall like dominoes. The financial fallout -- bank failures, risking a stock market crash, worthless retirement and pension funds -- could kill us. We need to reduce our dependence on credit gradually but steadily and with no excuses.
Deep down, we all know that a financial rescue is necessary. I voted for the plan that was defeated today because, to paraphrase Rep. Spencer Bachus, I'm unwilling to play Russian roulette with the financial lives of my children and grandchildren. Although the bill was imperfect and wildly unpopular, I believed that those of us in Congress needed to suck it up, vote for it and let the chips fall where they may.
But the plan has failed. I hope the economists who have warned of an imminent collapse are wrong. To paraphrase Franklin Roosevelt, what we have to fear is fear itself. If people can take a deep breath and avoid an immediate panic, it is my hope that we can improve this plan and still act in time to save our financial future.
My own strong preference is that it focus less on acquiring mortgage-backed securities and be more of a tightly focused effort to minimize foreclosures and home vacancies that drive down property values for all of us. For these non-prime mortgage notes, I would give bankruptcy courts the power to modify mortgage payments to make them more realistic. I would limit the pay of not only top Wall Street executives but the traders who made millions by making this problem worse.
I hope we can get a plan that includes at least some of those elements. But most important, we need a bill that can attract enough support to pass.
Then the hard work begins, and that is the work I want to be a part of in the months ahead: Making sure this doesn't happen again. That's why you run for office, or at least why I did. If I have not, in fact, given up my seat because of my vote, I'll be back to work on that myself. Monday, September 29, 2008
Key Portions of the New Bailout Plan
While we are still assessing the actual legislation, here are some key takeaways:EXECUTIVE PAY. Restrictions would be imposed on the compensation received by executives whose companies sell some of their bad assets through the government's purchase program. There would be tax restrictions on executive pay over $500,000 and limits on so-called "golden parachutes" for executives who leave the companies getting government bailouts.
OVERSIGHT. The Treasury will be required to provide details of its purchases of bad assets within two days of the transaction. Oversight boards would be created including one with members selected by Democratic and Republican leaders in the House and Senate and one that will include top government officials.
TAXPAYER PROTECTION. Taxpayers would be given ownership stakes in companies whose bad assets are purchased and after five years if the government is facing a loss in the program then the president will be required to submit a plan on how to recoup a portion of the losses from the companies that participated in the program.
Labels: bailout plan, compensation, Equal Pay Act, executive compensation, executive pay, McCain, performance management
Thursday, September 25, 2008Possible Executive Pay Limits in Bailout Plan - AP
WASHINGTON (AP) -- Republican officials say Treasury Secretary Henry Paulson has accepted a major change in the Bush adminstration bailout proposal for the financial industry.The officials say the 700 billion-dollar plan will include limits on the pay packages of executives whose companies benefit from it, particularly so-called "Golden Parachutes" for executives forced to leave.
Criticism of the bailout from both parties has been heavy on Capitol Hill this week. Paulson is a meeting for a second day with House Republicans, some of whom have said they oppose any federal intervention into private financial markets. Virginia Congressman Tom Davis calls it "a terrible plan," but adds he hasn't heard anything better.
While Democrats have also criticized the plan, party leaders have stressed their willingness to work with the White House to avoid an economic catastrophe. House Speaker Nancy Pelosi also has been meeting with administration officials and says talks are "moving in a productive direction."
Jack Welch Changes stance on Executive pay
Day to Day, September 25, 2008Jack Welch, who ran General Electric for 20 years and was one of the nation's highest paid CEOs, says limits on executive pay are now warranted.
"I think without question once the federal government has to step in to bail out the private enterprise, you've got to modify the private enterprise pay packages," he tells host Alex Chadwick.
In 2002, Welch told the NewsHour with Jim Lehrer that anyone who wanted to cap executive pay would be the "dumbest guy in town" because it challenges the free enterprise system.
In 1999, Fortune magazine called Welch the "manager of the century."
"Times and men's fortunes change," says Welch. "And we now are in a time of unprecedented difficulties." Welch says the "misalignment between bonuses and shareowners and the public" calls for changing the rules on executive pay.
Labels: executive compensation, executive pay, McCain, Obama, performance management
Executive Pay and Performance - What does it really mean?
With increased Congressional and public attention on executive pay, does your executve compensation have strategic compensation objectives that identify your company's compensation issues and how they should be addressed, both now and in the future? If you are an investor looking at investing, there is a lot more public information available regarding exec pay so you can make a more informed decision.There are a lot of factors in executive pay that the public largely remains unaware of such as Change in Control agreements, perquisites, and tax deferred income issues. We will examine each of these over the next few days.
Labels: executive compensation, executive pay, McCain, Obama, performance management
The Paycheck Fairness Act (proposed) provides for multiple location comparision.
Under the EPA, in order to determine that there is wage discrimination, the wage comparison must be made between employees working at the same "establishment". Some courts have interpreted this to mean that wages paid in different facilities or offices of the same employer cannot be compared even if the employer is paying workers different salaries for the same work. The PFA clarifies that a comparison need not be between employees in the same physical place of business.Labels: compensation, Equal Pay Act, McCain, Obama, pay, performance management, women's pay
Tuesday, September 23, 2008The Equal Pay Act - Are you ready for change?
During this election year, there has been much rhetoric regarding the Equal Pay Act. Both major Presidential candidates are addressing this subject, and there are two different interpretations of the proposed changes.We will try to clear up a few questions in a non-partisan fashion. First, there are two proposed Acts in Congress that are the real issue. The first Act proposed is the Paycheck Fairness Act , sponsored by Sen. Clinton (D-NY) and Representative Delauro, (D-CT). The second Act is the Fair Pay Act, sponsored by Sen. Harkin (D-Iowa) and Delegate Norton (D-DC), which has similar wording as the Paycheck Fairness Act but a different focus.
What is the Equal Pay Act (EPA) of 1963? In short, the EPA prohibits wage discrimination between men and women in the same establishment who are performing under similar working conditions. The EPA is part of the Fair Labor Standards Act (FLSA) of 1938, as amended, and which is administered and enforced by the EEOC.
What has been proposed? Basically, the Paycheck Fairness Act is written to modify current laws against wage discrimination and requires the federal government to be more proactive in preventing such discrimination. Similarly, the Fair Pay Act is written to ensure equal pay to those with comparable jobs.
What does it all mean? We will post several more articles breaking down some of the specifics of each provision of the current and proposed Acts.
The Watson Company has over 20 years of experience in employee compensation and performance management and has worked with over 500 organizations. We will be glad to work with you to ensure you comply with existing laws, and prepare for pending legislation changes. We are not attorneys, and this information should not be used to make legal defenses or opinions. We are consultants who will work with your organization to provide programs and services that are compliant with Federal Regulations.
www.watsoncompany.com
Labels: compensation, Equal Pay Act, McCain, Obama, women's pay
Paycheck Fairness Act Proposed Compensatory Damages
What does it mean that compensatory payouts by business may increase under the new laws?The EPA currently provides for limited damages and back pay awards. The Paycheck Fairness Act (PFA) is written to recover compensatory and punitive damages. The change will put gender-based wage discrimination in a similar class with wage discrimination based on race or ethnicity, for which full compensatory and punitive damages are currently available. Wednesday, September 17, 2008
The Fair Pay Act (proposed)
What has been proposed? The Fair Pay Act is written to ensure equal pay to those with comparable jobs, and modifies the existing Equal Pay Act of 1963.What is the EPA of 1963? In short, the EPA prohibits sex-based wage discrimination between men and women in the same establishment who are performing under similar working conditions. The EPA is part of the Fair Labor Standards Act of 1938, as amended (FLSA), and which is administered and enforced by the EEOC.
The Fair Pay Act, as proposed, could:
1. Provide for punitive and compensatory damages similar to provisions under the Civil Rights Act.
3. Provide for Equal Pay for Equivalent Jobs.
4. New Required Employer Record Keeping.
What does it all mean? We will post several more blogs breaking down some of the specifics of each provision of the current and proposed Acts.
The Watson Company has over 20 years of experience in employee compensation and performance management and has worked with over 500 organizations and will be glad to work with you to ensure you comply with existing laws, and prepare for pending legislation changes. We are not attorneys, and this information should not be used to make legal defenses or opinions. We are consultants who will work with your organization to provide programs and services that are compliant with Federal Regulations.
www.watsoncompany.com
Labels: compensation, Equal Pay Act, McCain, Obama, women's pay
The Paycheck Fairness Act (proposed)
Basically, the Paycheck Fairness Act is written to modify current laws against wage discrimination and require the federal government to be more proactive in preventing and battling wage discrimination.The Paycheck Fairness Act as proposed could:
1. Increase potential compensatory payouts by businesses in lawsuits similar to provisions under the Civil Rights Act.
2. Change opt in status to opt out status in class action suits.
3. Create new requirements by the EEOC to collect data.
4. A company can currently issue rules not to share salary data among employees. This restriction is removed under this Act.
5. Modification of currently used affirmative defense by businesses and will remove some of the defenses currently used by a company when charged with a violation of the Equal Pay Act.
6. Allows that a salary comparison need not be between employees in the same physical place of business but the measurement will be equal work and receiving unequal pay due to gender.
7. Recognition programs for businesses.
8. Increasing Training, Research, and Education for EEOC employees.
9. Reinstates the collection of gender-based data in the Current Employment Statistics survey.
10.Development of a grant program for Salary Negotiation Skills Training.
What does it all mean? We will post several more articles breaking down some of the specifics of each provision of the current and proposed Acts.
The Watson Company has over 20 years of experience in employee compensation and performance management and has worked with over 500 organizations and will be glad to work with you to ensure you comply with existing laws, and prepare for pending legislation changes. We are not attorneys, and this information should not be used to make legal defenses or opinions. We are consultants who will work with your organization to provide programs and services that are compliant with Federal Regulations.
Labels: compensation, Equal Pay Act, McCain, Obama, women's pay
What does the Equal Pay Act Mean?
In short, the EPA prohibits sex-based wage discrimination between men and women in the same establishment who are performing under similar working conditions. The EPA is part of the Fair Labor Standards Act of 1938, as amended (FLSA), and which is administered and enforced by the EEOC.1. Back Pay can be doubled if a company willingly violated the EPA.
2. Individuals must file suit and choose to opt in to a class action suit.
3. Defines current record keeping in accordance with U.S. Department
of Labor regulations found at 29 CFR part 516 (Records To Be Kept by Employers Under the FLSA).
4. No restriction on business rules regarding sharing of employee salary data
EPA has 4 affirmative defenses. The defenses that can be used are to show that the pay disparity was based on (1) a seniority system, (2) a merit system, (3) a system that determines wages based on the quantity or quality of work produced, or (4) some factor other than sex.
5. An investigation occurs only if the employee can prove that the male and female are working in the same place, doing equal work, and receiving unequal pay because of their genders.
6. Allows for current funding levels at EEOC.
7. Collection of data has been modified in subsequent revisions to the Act.
What does it all mean? We will post several more articles breaking down some of the specifics of each provision of the current and proposed Acts.
The Watson Company has over 20 years of experience in employee compensation and performance management and has worked with over 500 organizations and will be glad to work with you to ensure you comply with existing laws, and prepare for pending legislation changes. We are not attorneys, and this information should not be used to make legal defenses or opinions. We are consultants who will work with your organization to provide programs and services that are compliant with Federal Regulations.
www.watsoncompany.com
Labels: compensation, Equal Pay Act, McCain, Obama, women's pay
The Paycheck Fairness Act proposes changes to how employees can share salary data
The Paycheck Fairness Act prohibits employers from punishing employees for sharing salary information with their co-workers. This change will enhance employees’ ability to learn about wage disparities and to evaluate whether they are experiencing wage discrimination.Labels: compensation, Equal Pay Act, McCain, Obama, pay, performance management, women's pay
Sunday, September 14, 2008The Paycheck Fairness Act - Compensatory Payouts
What does it mean that compensatory payouts by business may increase under the new laws?The EPA currently provides for limited damages and back pay awards. The Paycheck Fairness Act (PFA) allows winning plaintiffs to recover compensatory and punitive damages. The change will put gender-based wage discrimination on the same level with wage discrimination based on race or ethnicity, for which full compensatory and punitive damages are already available.
While the law has yet to be passed and it will require a judge's ruling to set "limits" on this law this represents the potential for a significant shift in legal activity on this provision.
http://www.watsoncompany.com/
Labels: compensation, Equal Pay Act, McCain, Obama, women's pay
The Paycheck Fairness Act proposes a change to opt out status in class action suits
The PF Act allows an EPA lawsuit to proceed as a class action in conformity with the Federal Rules of Civil Procedure (FRCP). Currently, the EPA, adopted prior to the current federal class action rule (FRCP Rule 23), requires plaintiffs to opt in to a suit. Under the proposed federal rule, class members are automatically considered part of the class until they choose to opt out of the class. Friday, August 1, 2008I Love My Job, But...
...it's getting harder and harder to stay motivated. Don't get me wrong, I enjoy what I do and I'm good at it, but I give 110% every day while others in my office do the bare minimum. And then, everyone gets the same salary increase each year. It's just not fair. It doesn't seem to matter how hard I work. Maybe I should look for a new job.Sound familiar?
Well, what will it take to motivate you? First and foremost, you need to take charge of your career. You need to clearly understand the factors used to measure your accountability. You must understand the expectations and responsibilities of your job. And if you don't know or don't understand this information, you need to ask questions. And if such measurements don't exist, suggest that the company move to the next level by creating a plan based on job performance to motivate and retain employees. And finally, be a part of the plan. Your input is the key to your personal and financial success and the success of the company. (You can even clip these articles and drop them into your company's suggestion box).
Now, how can management motivate and retain their top performers? How can they transform below average employees into high performers? Simply, management needs to lead. Management must develop strong, competitive accountabilities for high levels of performance. Management must clearly communicate desired behaviors and results, and then reward behavior that produces results. And finally, management must encourage and support individual initiative, risk taking and results.
Wouldn't it be great to say "I love my job...no buts about it"?
We are The Watson Company, a leader in performance optimization products and services. For more information about our Miramar Beach, FL company, check out the rest of our website http://www.watsoncompany.com/.
Labels: compensation, pay, performance management
One Size Does Not Fit All!
Many organizations believe that if they develop a performance incentive plan, every one will automatically work harder and become a high performing individual. Nice thought, but not reality. In fact, incentives alone only work for a small percentage of employees in any organization.The Carrot Fallacy: The carrot fallacy comes from the story of a farmer who wants to get more performance from his mule. He develops a plan to put a carrot on a string and dangle it from the end of a stick that is strapped to the harness of the mule. The carrot hangs just out of reach of the mule. The farmer believes that the mule will work harder all day because he is trying to get to the carrot.
I don't know about mules, but when it comes to people, not everyone is going to charge ahead just to get to the carrot of an incentive that is dangled in front of them. Those who are naturally motivated to money will go after the carrot. Others, however, may or may not move after the incentive. The key to a successful incentive plan is effective reinforcement. And, the critical elements of effective reinforcement include clearly defining and communicating performance measurements, frequent performance discussions, and individual coaching sessions.
Just some food for thought!
We are The Watson Company, a leader in performance optimization products and services. For more information about our Miramar Beach, FL company, check out the rest of our website (www.watsoncompany.com).
Labels: compensation, performance management
It's Not All About The Money
What would you say if someone asked you if salary is the most important aspect of your job? If you answered "no" then you are among the majority of people.Bear with me, but here are a few interesting facts. Annual merit increases tend to be only slightly greater for the best performers. Salary increases traditionally are not tied to specific individual outcomes or accomplishments. Salaries do not retain high performers since large salary increases are commonly offered by competitors attempting to recruit key talent. Annual bonuses usually result in no noticeable difference in behavior or productivity. OUCH!
Benefits also tend not to vary within an employee group and are rarely based on individual performance. Even in organizations with profit sharing or other retention programs, most employees share the payouts regardless of individual performance or specific contribution.
We are The Watson Company, a leader in performance optimization products and services. For more information about our Miramar Beach, FL company, check out the rest of our website (www.watsoncompany.com).
Labels: compensation, pay, performance management
Figuring It Out
You're a good employee. But do you know what it takes to be a superior employee? It's not hard. You just need to understand a few things about your company and about yourself. Take a few minutes and ask yourself the following questions: Do you understand the your company's roadmap(aka vision and mission)? Do you understand the top 2 or 3 goals and objectives of your company? How do your job responsibilities contribute to the vision, mission, and success factors of your company? How can your talents be developed or better utilized at your company? It’s time to find out. Talk to your management and outline a success plan for you!Management...do you know your employees? Have you asked them what motivates them? Do you know the skills and talents of your employees? Do you know the career goals of your employees? If you don't know, it's time to ASK!
Key elements of high performance include employee goal setting, development, and coaching. These components must be linked to the core goals of the employer. Behavior and results must be driven from the executive level downward. Focus is also on competencies - the skills, knowledge, attitude and behaviors that describe how superior employees achieve desired results. It is not enough for an employee to "make the numbers" if the means do not support the vision, mission or long term goals of the company.
You can use informal or formal surveys (hint, hint), employee focus groups, or coaching sessions to make sure everyone is 'on the same page'. It's easy to get answers...just ask.
We are The Watson Company, a leader in performance optimization products and services. For more information about our Miramar Beach, FL company, check out the rest of our website (www.watsoncompany.com).
Labels: compensation, pay, performance management
The Bottom Line
We've discussed how important it is to motivate and be motivated in your job ("I Love My Job, But..."). We also discussed that incentives alone only work for a small percent of people ("One Size Does Not Fit All") and that salary adjustments and benefits alone provide little to differentiate on the basis of individual performance ("It's Not All About Money"). And finally, we discussed how to become a superior employee and how employers need to understand what motivates their employees. ("Figuring It Out").The bottom line: Employers must deal with the competitive pressures of attracting and retaining quality employees and implement strategies that motivate their employees. It should be obvious by now that the inclusion of "all employees" is key. And how is this done? The answer is to implement an effective performance plan with all the critical elements to attract, retain and motivate your employees. The importance of continuous improvement, quality, employee development, and the achievement of overall business goals need to be reinforced continuously. And the employee must be engaged in the process and the development of the plan
The design, structure, and implementation of an effective performance optimization plan are of vital importance. It must be easy to set up and maintain. It must be able to be implemented within a short period of time and have immediate impact on performance.
We are The Watson Company, a leader in performance optimization products and services. For more information about our Miramar Beach, FL company, check out the rest of our website (www.watsoncompany.com).
Labels: compensation, pay, performance management