http://knowledge.wharton.upenn.edu/article.cfm?articleid=3262#.UaIrILV8JrM.email
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"Before you become a leader, success is about growing yourself. When you become a leader, success is all about growing others." (Jack Welch)
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K@W has put out an article this month that addresses the issue of pay equity. There aren't many people who know what they're doing on this issue.
Doing it right involves relative ranking of jobs inside a company and those relationships can be different in different companies.
It all starts with competitive pay data. If you can get salary survey data for your industry or function, then you can reduce it to trend lines by job or job area. Place your salary data up against the industry quartiles and see where you rank. If your overall pay trend line is "average," then expect "average" performance. If you want to be a "third quartile" performer (Top 25%) for your industry, you better pay like it. Third quartile pay is the norm for top companies in the Fortune 500.
Once you get base pay to third quartile, then what happens when bonuses kick in? Usually, management bonus plans kick in for the top 100 or top 200 executives. That's a separate "total cash" trend line. Most companies that are third quartile in base salaries want to be there with their bonus trend lines as well. Here, specific goals that relate to incentive payouts are critical.
Believe it or not, what's important here in any company, is what the employees think of the pay system. If they feel that the relative ranking of jobs internally in a company reflects both the "market" and how "their company" values a job versus other jobs inside their company, then things move along smoothly. This is hard to get to. You have to have excellent competitive pay data and you have to have an excellent job evaluation system that reflects how the line management views the "value" of jobs in a company. For example, GM may pay its sales people less in base and bonus than Ford does because GM places less value internally on their sales force. GM may spend more on advertising than Ford does. You have to know what you're doing and your employees have to feel that you do.
The 204 multiple (CEO pay versus the average pay of a worker) referred to in the Wharton article helps to define the issue of "fair pay" but CEOs tend to be outliers in many cases anyway because they are turning around companies or keeping companies at the top of whatever industries they're in. Under the heading of "how much would you have to pay me to jump off a cliff..." what would our pay gurus think it took to get Ron Johnson to leave his former company to join a sinking ship in a different industry? In situations like that, the termination pay (if you can't get the job done, or the job is impossible) is in the contract.
Smart companies watch turnover rates at every level. They might adjust pay levels for certain jobs or departments if they thought they needed to. That's management.
The "Apple" example referred to in this article implies that the company has all the money in the world to pay their college graduates more (than $12 to $14 an hour) to work in their retail stores. Actually, Apple does have almost all the cash in the world but why would they pay more money than what's "competitive" for retail store employees. They're not stupid.
The better you communicate pay systems to employees, the more the "procedural fairness," as John Paul MacDuffie explains in the article. In many cases, it's not the pay that's unfair, it's the communication that's lousy.
Tuesday, May 28, 2013
Saturday, May 4, 2013
Jobs, Wages & the Sequester
http://www.nytimes.com/2013/05/04/opinion/jobs-wages-and-the-sequester.html?hp
http://economix.blogs.nytimes.com/2013/05/03/keeping-up-not-getting-ahead/
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"I've never known anyone who said, 'I love problems,' but I've known many who have admitted that their greatest gains came in the middle of their pain." (John C. Maxwell)
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The Times Editorial Board points out that the employment report released Friday showed job growth for March revised upward to 138,000 new jobs followed by April even higher at 165,000.
So, quoting the Times: "But both tallies represent a big drop from February, which showed a healthy gain of 332,000 jobs. One interpretation is that the sequester-induced economic headwinds that began in March are hurting job growth, which might otherwise have taken off this year. Seen in that light, the April report portends elevated joblessness and low wages for at least as long as the sequester lasts, and possibly longer, depending on the extent of the economic damage from self-inflicted austerity."
Further: "At the average pace of job growth this year, it would take 5 years to return to the prerecession unemployment rate of 5%. It is doubtful that even the current pace can be sustained."
This Editorial Board note followed an article by Binyamin Appelbaum (Economix, 5/3/13), Keeping Up, Not Getting Ahead, where the perspective was that the American economy continues to add jobs in proportion to population growth: "Nothing less, nothing more."
The most important thing in Appelbaum's article is the "chart" which which shows the share of American adults with jobs has barely changed since 2010, hovering between 58.2% and 58.7%. This is roughly four percentage points lower than the employment rate before the recession, a difference of roughly 10 million jobs.
Appelbaum: "The lack of progress has been obscured by the steady decline of the high-profile unemployment rate, which continued in April. But the unemployment rate is easily misunderstood. The government counts as unemployed only those who are actively looking for new jobs. As people have given up, the unemployment rate has declined - not because more people are working, but because more people have stopped looking for work.
The federal government counts 11.7 million Americans as unemployed. The real number is more like 17 million.
If the labor force participation rate should be at (roughly) 63%, what's being done to give us confidence that there will be 10 million job opportunities out there? Government employee lay offs don't appear to be helping anything. Wait, those lay offs are saving money. But taxes from companies investing in the U.S. economy because of lowered tax rates would have paid for those jobs.
Investment, innovation and job creation seem to go together. We need to encourage whatever makes that happen!
http://economix.blogs.nytimes.com/2013/05/03/keeping-up-not-getting-ahead/
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"I've never known anyone who said, 'I love problems,' but I've known many who have admitted that their greatest gains came in the middle of their pain." (John C. Maxwell)
***************
The Times Editorial Board points out that the employment report released Friday showed job growth for March revised upward to 138,000 new jobs followed by April even higher at 165,000.
So, quoting the Times: "But both tallies represent a big drop from February, which showed a healthy gain of 332,000 jobs. One interpretation is that the sequester-induced economic headwinds that began in March are hurting job growth, which might otherwise have taken off this year. Seen in that light, the April report portends elevated joblessness and low wages for at least as long as the sequester lasts, and possibly longer, depending on the extent of the economic damage from self-inflicted austerity."
Further: "At the average pace of job growth this year, it would take 5 years to return to the prerecession unemployment rate of 5%. It is doubtful that even the current pace can be sustained."
This Editorial Board note followed an article by Binyamin Appelbaum (Economix, 5/3/13), Keeping Up, Not Getting Ahead, where the perspective was that the American economy continues to add jobs in proportion to population growth: "Nothing less, nothing more."
The most important thing in Appelbaum's article is the "chart" which which shows the share of American adults with jobs has barely changed since 2010, hovering between 58.2% and 58.7%. This is roughly four percentage points lower than the employment rate before the recession, a difference of roughly 10 million jobs.
Appelbaum: "The lack of progress has been obscured by the steady decline of the high-profile unemployment rate, which continued in April. But the unemployment rate is easily misunderstood. The government counts as unemployed only those who are actively looking for new jobs. As people have given up, the unemployment rate has declined - not because more people are working, but because more people have stopped looking for work.
The federal government counts 11.7 million Americans as unemployed. The real number is more like 17 million.
If the labor force participation rate should be at (roughly) 63%, what's being done to give us confidence that there will be 10 million job opportunities out there? Government employee lay offs don't appear to be helping anything. Wait, those lay offs are saving money. But taxes from companies investing in the U.S. economy because of lowered tax rates would have paid for those jobs.
Investment, innovation and job creation seem to go together. We need to encourage whatever makes that happen!
Tuesday, April 23, 2013
The Jobless Trap
http://www.nytimes.com/2013/04/22/opinion/krugman-the-jobless-trap.html?src=ISMR_AP_LO_MST_FB
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"Most people evaluate events in their lives according to how they will be personally affected. Leaders think within a broader context." (John C. Maxwell)
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Krugman is still on his "DEBT" perspective. He sees what we've done to respond to the worldwide financial crisis as "...a monstrously failed response to economic depression." He calls it "debt hysteria" and defines it as "fear that unless we slash spending we'll turn into Greece any day now."
But, about the real danger, he is 100% correct: "the corrosive effect, social and economic, of persistent high unemployment. And, even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed."
He adds: "Five years after the crisis, unemployment remains elevated, with almost 12 million Americans out of work ... with 4.6 million unemployed for more than 6 months." And, the sad news here is that potential employers assume that something must be wrong with people who can't find a job, even if the real reason is simply "the terrible economy."
According to studies, a rising number of job openings does nothing to reduce the numbers of the long-term unemployed. According to Krugman, we are creating a permanent class of jobless Americans.
Krugman: "Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe." And we continue to make it worse by spending less and creating more unemployment. Oh, and let's not spend government money on badly needed road repair and other important infrastructure projects that would fix things that need to be fixed and create employment (on a 1/1.5 dollar spend ratio).
Krugman is right.
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"Most people evaluate events in their lives according to how they will be personally affected. Leaders think within a broader context." (John C. Maxwell)
***************
Krugman is still on his "DEBT" perspective. He sees what we've done to respond to the worldwide financial crisis as "...a monstrously failed response to economic depression." He calls it "debt hysteria" and defines it as "fear that unless we slash spending we'll turn into Greece any day now."
But, about the real danger, he is 100% correct: "the corrosive effect, social and economic, of persistent high unemployment. And, even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed."
He adds: "Five years after the crisis, unemployment remains elevated, with almost 12 million Americans out of work ... with 4.6 million unemployed for more than 6 months." And, the sad news here is that potential employers assume that something must be wrong with people who can't find a job, even if the real reason is simply "the terrible economy."
According to studies, a rising number of job openings does nothing to reduce the numbers of the long-term unemployed. According to Krugman, we are creating a permanent class of jobless Americans.
Krugman: "Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe." And we continue to make it worse by spending less and creating more unemployment. Oh, and let's not spend government money on badly needed road repair and other important infrastructure projects that would fix things that need to be fixed and create employment (on a 1/1.5 dollar spend ratio).
Krugman is right.
787 Battery Approval
http://www.nytimes.com/2013/04/24/business/safety-board-examines-787-battery-approval.html?ref=business
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"Each time another person in the organization embraces the vision and passes it on, it's like giving the vision 'fresh legs." (John C. Maxwell)
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The National (Safety) Transportation Board opened a two day hearing on Tuesday to determine how 5 years of work by Boeing and the Federal Aviation Administration resulted in the approval of a lithium-ion battery for the Boeing 787 that could catch fire.
The board is looking at whether Boeing underestimated the risks involved with the new technology and how well regulators can evaluate new technologies when technical innovation is moving quickly, making it difficult for government regulators to keep up.
The FAA last week approved Boeing's plans to fix the plane's batteries. So, while the 787s could soon be flying again, investigators in the U.S. and Japan have not yet figured out "why" the batteries overheated in the first place.
I know there is a lot at stake financially but I'd want to know "why" those batteries were burning before I flew on that plane again.
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"Each time another person in the organization embraces the vision and passes it on, it's like giving the vision 'fresh legs." (John C. Maxwell)
***************
The National (Safety) Transportation Board opened a two day hearing on Tuesday to determine how 5 years of work by Boeing and the Federal Aviation Administration resulted in the approval of a lithium-ion battery for the Boeing 787 that could catch fire.
The board is looking at whether Boeing underestimated the risks involved with the new technology and how well regulators can evaluate new technologies when technical innovation is moving quickly, making it difficult for government regulators to keep up.
The FAA last week approved Boeing's plans to fix the plane's batteries. So, while the 787s could soon be flying again, investigators in the U.S. and Japan have not yet figured out "why" the batteries overheated in the first place.
I know there is a lot at stake financially but I'd want to know "why" those batteries were burning before I flew on that plane again.
Friday, April 19, 2013
The Excel Depression
http://www.nytimes.com/2013/04/19/opinion/krugman-the-excel-depression.html?hp
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"You've got to think about the 'big things' while you're doing small things, so that all the small things go in the right direction." (Alvin Toffler)
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"The story so far: At the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, "Growth in a Time of Debt," that purported to identify a critical "threshold," a tipping point, for government indebtedness. Once debt exceeds 90% of gross domestic product (GDP), they claimed, economic growth drops off sharply."
According to Krugman, their paper achieved an almost "sacred status" amongst self-proclaimed guardians of fiscal responsibility.
Unfortunately (or fortunately), their claim could not be substantiated by other economists using the same approach to the data analyzed. Nobody could prove that 90% was the tipping point for reversion to slow GDP growth!
Finally, researchers at the University of Massachusetts looked at the original spread sheet that Rogoff and Reinhart used and the mystery was solved: "First, they (Rogoff & Reinhart) omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error." So, as Krugman points out, if you correct for some of these errors, there is some correlation between high debt and slow growth, with no indication of which is causing which, and no sign of that 90% "threshold."
Krugman sees the Reinhart-Rogoff fiasco in a broader context: "the obviously intense desire of policy makers, politicians and pundits across the western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programs."
I see it as somewhat worse than that - it's an indictment of "economics" as a profession. Why can't that profession make up its mind whether spending into a "depression" (Krugman's term for what we were and "are" in) is the right or wrong thing to do. They can't even agree on that.
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"You've got to think about the 'big things' while you're doing small things, so that all the small things go in the right direction." (Alvin Toffler)
***************
"The story so far: At the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, "Growth in a Time of Debt," that purported to identify a critical "threshold," a tipping point, for government indebtedness. Once debt exceeds 90% of gross domestic product (GDP), they claimed, economic growth drops off sharply."
According to Krugman, their paper achieved an almost "sacred status" amongst self-proclaimed guardians of fiscal responsibility.
Unfortunately (or fortunately), their claim could not be substantiated by other economists using the same approach to the data analyzed. Nobody could prove that 90% was the tipping point for reversion to slow GDP growth!
Finally, researchers at the University of Massachusetts looked at the original spread sheet that Rogoff and Reinhart used and the mystery was solved: "First, they (Rogoff & Reinhart) omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error." So, as Krugman points out, if you correct for some of these errors, there is some correlation between high debt and slow growth, with no indication of which is causing which, and no sign of that 90% "threshold."
Krugman sees the Reinhart-Rogoff fiasco in a broader context: "the obviously intense desire of policy makers, politicians and pundits across the western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programs."
I see it as somewhat worse than that - it's an indictment of "economics" as a profession. Why can't that profession make up its mind whether spending into a "depression" (Krugman's term for what we were and "are" in) is the right or wrong thing to do. They can't even agree on that.
Friday, April 5, 2013
The Spring Swoon
http://www.nytimes.com/2013/04/06/business/economy/us-adds-only-88000-jobs-jobless-rate-falls-to-7-6.html?hp
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"Progress is often just a good idea away." (John C. Maxwell)
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So "employers" increased their payrolls by 88,000 last month, compared with 268,000 in February based on Labor Department data released today. This is the slowest pace since last June and half of what economists expected. But, then again, we're talking about "economists."
The "Spring Swoon:" this is what economists have started calling a drop in employment at this time of year since it is the third consecutive year that it has happened.
According to Steve Blitz (director and chief economist at ITG Investment Research), this data underscores what their information is indicating: "...a growing but not accelerating economy."
The unemployment rate (which comes from a different survey) dropped down to 7.6% from 7.7% but, as Catherine Rampell says, "...primarily because more people dropped out of the labor force, not because more people got jobs."
The "Labor Force Participation Rate" has not been this low - 63.3% - since 1979. That's 1979! Again, according to Catherine Rampell, 1979 was "...a time when women were less likely to be working." Dropping out has everything to do with discouragement about job prospects in a mediocre economy and that's a major force here.
"Sequestration," a term that only government could come up with, has NOT caused the current weak numbers. Government employment actually "rose" in March. (That's a "net" number since the Post Office did lay off 12,000 people) Sequestration is not expected to play into the overall numbers until September. Weak retail numbers, based on the assumption that consumers are spending less in reaction to the expiration of the payroll tax cut, factored in as expected.
When you look at the mix of jobs that have been lost versus jobs that have been added over the past few years, the majority of jobs lost during the downturn were in the middle range of wages and the majority of those added during the "recovery" (is that what we're in?) have been low paying (per the National Employment Law Project). Not even the same people.
So, I'll believe we're in a "recovery" when the Fed decides to raise interest rates because unemployment is down to 5%. Until then, no.
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"Progress is often just a good idea away." (John C. Maxwell)
***************
So "employers" increased their payrolls by 88,000 last month, compared with 268,000 in February based on Labor Department data released today. This is the slowest pace since last June and half of what economists expected. But, then again, we're talking about "economists."
The "Spring Swoon:" this is what economists have started calling a drop in employment at this time of year since it is the third consecutive year that it has happened.
According to Steve Blitz (director and chief economist at ITG Investment Research), this data underscores what their information is indicating: "...a growing but not accelerating economy."
The unemployment rate (which comes from a different survey) dropped down to 7.6% from 7.7% but, as Catherine Rampell says, "...primarily because more people dropped out of the labor force, not because more people got jobs."
The "Labor Force Participation Rate" has not been this low - 63.3% - since 1979. That's 1979! Again, according to Catherine Rampell, 1979 was "...a time when women were less likely to be working." Dropping out has everything to do with discouragement about job prospects in a mediocre economy and that's a major force here.
"Sequestration," a term that only government could come up with, has NOT caused the current weak numbers. Government employment actually "rose" in March. (That's a "net" number since the Post Office did lay off 12,000 people) Sequestration is not expected to play into the overall numbers until September. Weak retail numbers, based on the assumption that consumers are spending less in reaction to the expiration of the payroll tax cut, factored in as expected.
When you look at the mix of jobs that have been lost versus jobs that have been added over the past few years, the majority of jobs lost during the downturn were in the middle range of wages and the majority of those added during the "recovery" (is that what we're in?) have been low paying (per the National Employment Law Project). Not even the same people.
So, I'll believe we're in a "recovery" when the Fed decides to raise interest rates because unemployment is down to 5%. Until then, no.
Thursday, April 4, 2013
The Continuing Soap Opera @ HP
http://www.nytimes.com/reuters/2013/04/04/business/04reuters-hp-chairman.html?ref=business
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"Advice is seldom welcome, and those who need it most like it the least." (Samuel Johnson)
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Perhaps our "saying" applies to Ray Lane who is giving up his title as Chairman of the Board at HP. Among other things, Lane has come under fire for his role in the "botched," costly acquisition of British software company Autonomy Plc. Lane will remain on HP's board.
Today's announcement comes weeks after Lane, Kleiner Perkins managing partner, narrowly won reelection at HP's annual shareholder's meeting.
According to the NY Times, director and activist Ralph Whitworth will become interim chairman.
Under the "Wait, There's More" category heading, HP says that it is looking for a "non-executive board chairman" to replace Lane. For anyone with any experience at this level, what that means is that Whitworth is looking for a chairperson with no teeth who will be happy to "preside" at board meetings without any real responsibilities. Anybody qualified for that job is not qualified. So they'd fit right in.
But wait, there's more. The position of "lead independent director" is being eliminated. Since Rajiv Gupta was that person, I'm sure he's relieved to find out that he is still on the board and is now chairman of the audit committee.
So what has "The Gang That Couldn't Shoot Straight" accomplished over the past few years? After 3 years of booking net income of between $7 billion and $9 billion, HP suffered an annual loss of $12.65 billion in 2012. The "loss" was caused by the incurring of after tax costs of $20.7 billion, or $10.46 per diluted share, related to the impairment of goodwill and purchased intangible assets, restructuring charges, amortization of purchased intangible assets, charges relating to the wind down of non-strategic businesses, and acquisition-related charges. This is what you say in accounting language when you paid $8 billion too much for "Autonomy."
The problems go back before last year. In the last two years, HP has written off more than $17 billion to account for three acquisitions that didn't turn out so well: technology consulting service EDS, device maker Palm and business software maker Autonomy.
In addition to the recent write-downs, HP has also had to overcome a continuing decline in personal computer sales. Half of HP's revenue comes from two divisions: personal computers and printers. Both are in a long term decline. That's why HP has been trying to change from a hardware company to a software and services company over several years. Poor choices and top management turnover have literally caused them to fail. Plus, they face stiff competition from three companies that already occupy the market space that HP has aspired to: IBM, Oracle and SAP.
Meg Whitman, HP's CEO, recently stated that the new restructuring strategy will pay off in 2014. So, I guess that leaves this year out.
Is it possible to take a great company and mess it up any worse than this?
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"Advice is seldom welcome, and those who need it most like it the least." (Samuel Johnson)
***************
Perhaps our "saying" applies to Ray Lane who is giving up his title as Chairman of the Board at HP. Among other things, Lane has come under fire for his role in the "botched," costly acquisition of British software company Autonomy Plc. Lane will remain on HP's board.
Today's announcement comes weeks after Lane, Kleiner Perkins managing partner, narrowly won reelection at HP's annual shareholder's meeting.
According to the NY Times, director and activist Ralph Whitworth will become interim chairman.
Under the "Wait, There's More" category heading, HP says that it is looking for a "non-executive board chairman" to replace Lane. For anyone with any experience at this level, what that means is that Whitworth is looking for a chairperson with no teeth who will be happy to "preside" at board meetings without any real responsibilities. Anybody qualified for that job is not qualified. So they'd fit right in.
But wait, there's more. The position of "lead independent director" is being eliminated. Since Rajiv Gupta was that person, I'm sure he's relieved to find out that he is still on the board and is now chairman of the audit committee.
So what has "The Gang That Couldn't Shoot Straight" accomplished over the past few years? After 3 years of booking net income of between $7 billion and $9 billion, HP suffered an annual loss of $12.65 billion in 2012. The "loss" was caused by the incurring of after tax costs of $20.7 billion, or $10.46 per diluted share, related to the impairment of goodwill and purchased intangible assets, restructuring charges, amortization of purchased intangible assets, charges relating to the wind down of non-strategic businesses, and acquisition-related charges. This is what you say in accounting language when you paid $8 billion too much for "Autonomy."
The problems go back before last year. In the last two years, HP has written off more than $17 billion to account for three acquisitions that didn't turn out so well: technology consulting service EDS, device maker Palm and business software maker Autonomy.
In addition to the recent write-downs, HP has also had to overcome a continuing decline in personal computer sales. Half of HP's revenue comes from two divisions: personal computers and printers. Both are in a long term decline. That's why HP has been trying to change from a hardware company to a software and services company over several years. Poor choices and top management turnover have literally caused them to fail. Plus, they face stiff competition from three companies that already occupy the market space that HP has aspired to: IBM, Oracle and SAP.
Meg Whitman, HP's CEO, recently stated that the new restructuring strategy will pay off in 2014. So, I guess that leaves this year out.
Is it possible to take a great company and mess it up any worse than this?
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