Chief Executives get richer by hiring remuneration consultants

stick_figure_crank_pound_500_wht_7405Organisations are using remuneration consultants to give a “cloak of respectabilityto justify over-generous pay increases, according to a study at Cambridge University.

Those that use external experts end up paying 7.5% more to their CEOs than those who set their pay in-house.

The Judge Business School analysed a thousand American companies and found a direct link between the hiring of executive pay consultants and higher CEO pay.

Professor of Finance Raghavendra Rau argues that the common practice of benchmarking pay against similar sized companies is counter-productive as it prompts each company to pay slightly above average.

“If everybody wants to be above average, the average will keep going up”  (and this applies to other aspects of organisational life e.g. see “No-one wants to be rated as average”).

It’s not necessarily the large multi-national consultancies – for example, Towers Watson, PwC, and Hay Group –  that are to blame as  when smaller “boutique” consultants are used CEOs are paid about 10% more.

Shareholders have been known to rebel against advice on boardroom pay e.g. at Aviva and Burberry.

Former chancellor Lord Lawson caused a storm last year when he described pay consultants as “a profession that makes prostitutes thoroughly respectable“. As you  might expect that didn’t go down well with the Remuneration Consultants Group which represents the industry and which said he was “ill-informed“.

I posted about the impact of using inter-company comparisons four years ago as I believed it had led to the inflation of public sector pay especially in those organisations which had been privatised.

Interesting as this latest study is, talking about 7.5 – 10% overpayment doesn’t mean much to the average employee when average pay for directors at British blue-chip companies rose by 21% to £2.4 million this year according to Incomes Data Services with CEOs taking home about £4.5 million a year.

Pay differentials between the top and the bottom of companies have never been more extreme, or obscene.  In America most people think that CEOs earn about 30 times what the average employee earns when the reality is it’s currently 350 times! No wonder some observers are warning that “the pitchforks will be coming out.

 

When did you last ask for a pay rise?

shaking_figure_for_money_anim_500_wht_12913It appears that 50% of UK workers have never asked for a pay rise.

54% of working adults feel that they are not paid enough and half of these know other companies in their industry pay  more – but that doesn’t mean they will necessarily be asking for a pay rise.

It seems that we Brits are uncomfortable talking about money. Some people they don’t ask because they don’t want to appear ungrateful and others say they don’t want to spoil the relationship they have with their boss.

About 1 in 5 say they would be worried about losing their job if they asked for more and another 1 in 5 said they were too nervous to ask.

Even though 1 in 3 knew their colleagues were paid more for doing the same job only 1 in 3 of this group felt confident enough to ask for more money.

The data comes from a survey by Slater & Gordon, an employment law company, which asked 2,000 working Brits about how fairly they thought their employers treated them.

Not very fairly overall it would seem!

The newly appointed  “wellbeing Czar“, Lord O’Donnell, said that saying “thank you” and giving staff more autonomy could make them happier than giving them a pay rise.

Which is probably true but it doesn’t pay the rent for employees who have suffered from static pay since the start of the recession in 2008.

And it’s not only employees in the UK. One in six Germans is at risk of poverty because they earn so little. And this in the powerhouse of the EU. Although unemployment is among the lowest in the EU the economy is run by part-time workers in “Mini jobs” created by the previous chancellor.

About 13 million Germans earn less than €12,000, 60% of the national average. The chairman of Germany’s Welfare Equality Association blames the “Americanisation” of jobs i.e. low-paid and often temporary.

In the UK the voluntary “living wage” has just been increased to £7.85 an hour (£9.15 in London). This is the amount considered necessary to meet basic living costs and is supported by about 1,000 employers.

Even so about a quarter of the working population still earn less than the living wage and organisations like the IoD and the FSB aren’t particularly positive about the idea of helping people earn a decent income.

NB The current statutory minimum wage is £6.50 an hour for adults.

 

Authentic Communication

Originally posted on Otrazhenie:

From http://hr.toolbox.com

 Authentic communication is not always easy, but it is the basis of successful relationships at home and real effectiveness at work. Yet people constantly back away from honesty to protect themselves and others.

As Sheryl Sandberg points out, this reticence causes and perpetuates all kinds of problems: uncomfortable issues that never get addressed, resentment that builds, unfit managers who get promoted rather than fired, and on and on. Often these situations don’t improve because no one tells anyone what is really happening. We are so rarely brave enough to tell the truth…

From The Grumpy Poet

However, authentic communication is not simply about saying what we think at all costs. Communication works best when we combine appropriateness with authenticity, finding the sweet spot where opinions are not brutally honest but delicately honest. Speaking truth fully without hurting feelings comes naturally to some and is an acquired skill for…

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Innovating Innovation

Originally posted on Please Understand Me:

He wasn’t talented enough, he thought.

To join Disney Animation Studios as an animator.

So he became a scientist

A Computer Scientist.

He has had a hand in innovating with a team, in a whole new way.

Necessity is the mother of invention.

Now he is the President of Disney Animation Studios… and Pixar Animation Studios … and Disney Toons Studios.

Computer Science, Ed Catmull, and Innovation has come a long way baby…

And you haven’t seen nothing yet.

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Hierarchical Management – a reprise

down_the_chain_1600_wht_5908Employers who want peak performance from their employees might do better by ensuring that they have a strong but fair hierarchy in place.

Aaron Kay at Fuqua Management School of Business at Duke University, Carolina,  thinks leaders should worry less about empowerment and equality.

He says “In organisations there is a move to become flat but that is not always the best thingy you want to keep employees working hard”.

“People may say that they want to work in an egalitarian workplace but sometimes they actually function better in a hierarchy” regardless of where they sit in the organisation.

It’s not  just that a hierarchy offers more chance of promotion – although some staff will appreciate seeing a ladder to climb – but that hierarchies offer staff a sense of order and structure which they like.

When times are turbulent and external circumstances reduce their sense of control preference for hierarchies increases. Kay says “People seek out guidance and leaders”  And a  hierarchy helps them feel that they are in a safe, stable environment … where they can predict the outcome of their behaviours.

His research also suggests that a strong hierarchy helps people feel that they are being more effective in tackling long-term goals. “If you lead an organisation where you need employees to work on long-term projects, committed to long-term goals, it’s tempting to think that if you give them autonomy they will be more interested and it will drive the right behaviour”.

But as he points out long-term goals are hard to achieve and people need to forgo immediate reward to focus on something way off in the future. They have to trust the system. Having a clear structure and a hierarchy reassures employees that things won’t change before they complete the task.

Hierarchy might also be better for complex tasks where each person needs to complete their part exactly as it is specified. This doesn’t necessarily mean managers should adopt a directive or autocratic approach. Employees obviously like to know where they stand but managers shouldn’t lord it over them and be open to new ideas.

Other experts disagree. One said  ‘it’s naive to think that structures always work the way they were intended”. In some organisations employees feel that although there is a structure and the rules are fair, they are not always applied fairly.

It seems to depend on whether or not you can trust the leaders and managers to be fair and whether or not the rules change as you are working.

See also my earlier post on this topic. 

Get the best out of your team

everyone_has_an_idea_500_wht_12709 There is a lot of research on how to develop more effective teams and research that shows what hinders a work group becoming a good team.

And what happens when a  group is set up to achieve a particular task? A common problem is that the more confident, extroverted members tend to hog the limelight and the real experts often take a back seat which reduces their contribution.

Bryan L Bonner, at the University of Utah, and Alexander R Bolinger, at Idaho State University, say the following intervention can help to change that dynamic.

Ask the team, early in the meeting, to check what each individual can contribute to the problem. This period of reflection can increase the team’s performance  probably because the process of collectively assembling the knowledge within the team increases overall understanding of the task and how to complete it.

In the experiments set up by Bonner and Bolinger – reported in HBR September 2014 – university students were set up in 3-person teams and all given estimation problems e.g. heights of mountains or weight of heaviest person who ever lived.

Some teams were instructed to begin by coming up with two pieces of information each which could be helpful. In some teams this was done individually and then brought to the team (a bit like the improved version of brainstorming) but the rest did it as a group. Other teams, used as controls, were given no guidance.

In the control teams they tended to defer to the whoever seemed most confident – and they had the worst performance.

The best performance came from teams that inventoried their team knowledge as a group and used that knowledge to devise ways of solving problems.

The process sounds simple but is not unique. In Action-Centred Leadership participants in the leadership training exercises are encouraged to check their teams for relevant knowledge and/or experience.

Bonner and Bolinger rightly point out that on their own teams rarely  allow time for this kind of intervention so team leaders should encourage the group to assess the knowledge and experience within the team.

This shifts the emphasis from social influence to informational influence and helps the team to filter out irrelevant factors such as confidence, extraversion, status, assertiveness, gender and race.

 

Leadership capabilities necessary for a successful merger or acquisition

puzzle_people_working_together_1600_wht_6984Growing through mergers and acquisitions is a common strategy but the sad truth is that 40-80% of mergers fail to meet their objectives.

A study of 94 mergers by a Washington-based consultancy firm Potentious found that, using the Korn-Ferry 360 degree evaluations, the following leadership capabilities were the key to success.

In the acquiring company

  • Motivate others
  • Influence others
  • Build relationships
  • Develop others
  • Act with integrity
  • Show adaptability
  • Focus on customer needs

In the target company

  • Motivate others
  • Influence others
  • Build relationships
  • Provide direction

The findings are  based on a five year study using a range of financial indices as well as the 360 data.

Although there is an overlap in the capabilities for both organisations the study revealed that they were more important in achieving success at senior level in the acquiring company but at middle management level in the target company.

I wonder if this is because senior executives in the target company are more likely to be demoralised or worried about their future whereas middle managers might see it as an opportunity?

Cary Cooper and colleagues did some research in the UK into mergers and acquisitions back in the late 1980s and found that morale and productivity (what we would now call employee engagement) often took 12 – 18 months to recover.

Based on these findings the author of the study, J Keith Dunbar, proposes that :

  • assessing the collective leadership capabilities should be part of the due diligence carried out before any merger, and
  • that the middle managers at the target companies, who are crucial to success, should be offered contracts which will keep them there.

Source: HBR September 2014

from SGandA

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