http://economix.blogs.nytimes.com/2013/06/10/the-once-but-no-longer-golden-age-of-human-capital/?emc=eta1
***************
"People must be taught how to think, not what to think." (Margaret Meade)
***************
According to Nancy Folbre, only slightly more than half of college presidents (54%) believe that a bachelor's degree is worth more than 5 years ago (based on a recent survey by the Chronicle of Higher Education).
And, again according to Folbre, a majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they spend (based on a recent survey by the Pew Research Center).
Folbre's perspective is that the problems are particularly conspicuous on the "supply side:" declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt. To quote Folbre: "The investment costs more than it once did and remains beyond the reach of those who need it most."
Folbre goes into great depth about the economics of what is currently transpiring and notes that students are now being encouraged to think more strategically about their majors. But, as more and more students pile into science, technology, engineering and mathematics (the so-called STEM fields), the wage premiums for those fields could decline.
Interestingly, she also points out that Richard Vedder "...warns against both public and private over-investment in education, pointing to the growing tendency for college graduates to land in jobs that don't actually require the credential they hold."
By the same token, colleges ought to be working more to evaluate the "markets" for the degrees they confer (graduate school, business, etc.). Maybe history majors go to law school. Fine. Where do English majors go? Where do philosophy majors go?
Maybe our current lazy GDP growth will begin to accelerate again as we approach the end of this decade. Hopefully, "jobs" will follow.
Monday, June 10, 2013
Thursday, June 6, 2013
The Current Employment Rate
http://economix.blogs.nytimes.com/2013/06/03/how-work-is-rebounding-or-not-globally/?src=recpb
***************
"Millions saw the apple fall, but Newton was the only one who asked why." (Bernard Baruch)
***************
I think it's great that the Fed has a goal of continuing low interest rates (or whatever they call it) until the unemployment rate gets down to 6.5%. I've never seen the Fed connect that way with a real employment number before (that doesn't mean they haven't).
Edward Lazear, who was the chairman of the President's Council of Economic Advisers (2006-2009), and is a Hoover Institution fellow, and is a professor at Stanford University's Graduate School of Business, says in a June 5 article for the Wall Street Journal: "At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards."
His point is that watching the unemployment rate is not the best guide to the strength of the labor market: "Instead, the Fed and the rest of us should be watching the employment rate." First because the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't: "In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years."
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as the numerator the number of individuals who are actively seeking work but do not have jobs. That's OK, as far as it goes, but there is another more relevant number that covers a larger portion of the population: the "U6." The U6 counts those marginally attached to the workforce, "...including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work."
Lazear: "Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because people are actually working or because people dropped out of the labor market entirely, reducing the number actually seeking work. The employment rate - that is, the employment-to-population ratio - eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working."
So, while the unemployment rate has fallen over the past three plus years, the employment-to-population ratio has stayed almost constant at about 58.5%. So, we're not gaining any ground on where we were in 2006 (63.4%). Why create any more jobs than you need to if you have exceptional manufacturing productivity by producing more with fewer people?
What About the Rest of the World?
Annie Lowrey has looked at a major report from the International Labor Organization published on Monday of this week on employment around the world. As she says, "The study paints a picture of a world struggling to create jobs in the wake of a global recession, with developing economies enjoying stronger growth and a better jobs picture than developed economies..."
Some points:
* The global employment rate of 55.7% is still nearly a percentage point lower than it was before the crisis. The world needs about 31 million jobs to make up the gap.
* Globally, there are about 200 million -- 200 million -- unemployed people.
* For developing economies, employment rates will return to their precrisis levels around 2015. For advanced economies, it will take until after 2017. For some countries, the crisis never ended (Cyprus, Greece, Portugal and Spain).
* For developed countries, a better job market has often gone hand-in-hand with worse jobs. More people are being hired, but those jobs are often part time, low paying or temporary. This is not true for the U.S. The U.S. has fewer jobs, but those jobs are, on balance, of higher quality.
* The American middle class is shrinking. And, it has been for three decades. The share of adults living in middle-income households has fallen from 61% in 1970 to 51% in 2010.
Overall, the futurists (and the good ones take everything into account) see the U.S. taking off again by the end of this decade. Between now and then, who knows?
***************
"Millions saw the apple fall, but Newton was the only one who asked why." (Bernard Baruch)
***************
I think it's great that the Fed has a goal of continuing low interest rates (or whatever they call it) until the unemployment rate gets down to 6.5%. I've never seen the Fed connect that way with a real employment number before (that doesn't mean they haven't).
Edward Lazear, who was the chairman of the President's Council of Economic Advisers (2006-2009), and is a Hoover Institution fellow, and is a professor at Stanford University's Graduate School of Business, says in a June 5 article for the Wall Street Journal: "At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards."
His point is that watching the unemployment rate is not the best guide to the strength of the labor market: "Instead, the Fed and the rest of us should be watching the employment rate." First because the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't: "In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years."
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as the numerator the number of individuals who are actively seeking work but do not have jobs. That's OK, as far as it goes, but there is another more relevant number that covers a larger portion of the population: the "U6." The U6 counts those marginally attached to the workforce, "...including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work."
Lazear: "Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because people are actually working or because people dropped out of the labor market entirely, reducing the number actually seeking work. The employment rate - that is, the employment-to-population ratio - eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working."
So, while the unemployment rate has fallen over the past three plus years, the employment-to-population ratio has stayed almost constant at about 58.5%. So, we're not gaining any ground on where we were in 2006 (63.4%). Why create any more jobs than you need to if you have exceptional manufacturing productivity by producing more with fewer people?
What About the Rest of the World?
Annie Lowrey has looked at a major report from the International Labor Organization published on Monday of this week on employment around the world. As she says, "The study paints a picture of a world struggling to create jobs in the wake of a global recession, with developing economies enjoying stronger growth and a better jobs picture than developed economies..."
Some points:
* The global employment rate of 55.7% is still nearly a percentage point lower than it was before the crisis. The world needs about 31 million jobs to make up the gap.
* Globally, there are about 200 million -- 200 million -- unemployed people.
* For developing economies, employment rates will return to their precrisis levels around 2015. For advanced economies, it will take until after 2017. For some countries, the crisis never ended (Cyprus, Greece, Portugal and Spain).
* For developed countries, a better job market has often gone hand-in-hand with worse jobs. More people are being hired, but those jobs are often part time, low paying or temporary. This is not true for the U.S. The U.S. has fewer jobs, but those jobs are, on balance, of higher quality.
* The American middle class is shrinking. And, it has been for three decades. The share of adults living in middle-income households has fallen from 61% in 1970 to 51% in 2010.
Overall, the futurists (and the good ones take everything into account) see the U.S. taking off again by the end of this decade. Between now and then, who knows?
Tuesday, June 4, 2013
What's Behind the Rise in Home Prices?
http://dealbook.nytimes.com/2013/06/03/behind-the-rise-in-house-prices-wall-street-buyers/?src=me
***************
"Even if you're on the right track, you'll get run over if you just sit there." (Will Rogers)
***************
According to DealBook, the comeback in prices for houses is being fueled by institutional money. The Blackstone Group has purchased 26,000 homes in 9 states. Most of these firms are renting out houses with the possibility of unloading them at a profit when the prices get high enough.
Quoting DealBook, "Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't...Nationwide, 68% of damaged homes sold in April went to investors and only 19% to first time home buyers...these investors put a floor under the housing market."
That's the good news. The bad news is what happens when the big institutions decide they want to sell because the market has peaked?
Nobody knows where this is going but wouldn't it be strange if we had a second "housing bubble" to follow up the first?
Stranger things have happened.
***************
"Even if you're on the right track, you'll get run over if you just sit there." (Will Rogers)
***************
According to DealBook, the comeback in prices for houses is being fueled by institutional money. The Blackstone Group has purchased 26,000 homes in 9 states. Most of these firms are renting out houses with the possibility of unloading them at a profit when the prices get high enough.
Quoting DealBook, "Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't...Nationwide, 68% of damaged homes sold in April went to investors and only 19% to first time home buyers...these investors put a floor under the housing market."
That's the good news. The bad news is what happens when the big institutions decide they want to sell because the market has peaked?
Nobody knows where this is going but wouldn't it be strange if we had a second "housing bubble" to follow up the first?
Stranger things have happened.
Friday, May 31, 2013
Why Companies Aren't getting the Employees They Need
http://economix.blogs.nytimes.com/2013/05/31/how-to-cure-the-college-dropout-syndrome/?ref=business
***************
"In preparing for battle, I have found that plans are useless, but planning is indispensable." (General Dwight D. Eisenhower)
***************
Peter Cappelli is the George W. Taylor professor of management at the Wharton School (UPENN) and the director of Wharton's Center for Human Resources. Cappelli coined the term "purple squirrels" to describe what employers say they want when searching for employees because they are in no hurry to fill jobs. So, unless they find the perfect person, they won't fill the job.
As Cappelli says, "Employers are quick to lay blame. Schools aren't giving kids the right kind of training. The government isn't letting in enough high-skill immigrants. The list goes on...But I believe the real culprits are the employers themselves...With an abundance of workers to choose from, employers are demanding more of job candidates than ever before. They want prospective workers to be able to fill a role right away, without any training or ramp-up time...In other words, to get a job, you have to have that job already...It's a Catch-22 situation for workers - and it's hurting companies and the economy."
Cappelli concludes: "To get America's job engine revving again, companies need to stop pinning so much of the blame on our nation's education system. They need to drop the idea of finding perfect candidates and look for people who could do the job with a bit of training and practice."
From Cappelli's article in the Wall Street Journal which was recently re-published this past week, Cappelli quotes data from the staffing company ManpowerGroup which reports that 52% of employers surveyed say they have difficulty filling positions because of talent shortages. As Cappelli says, "...the problem is an illusion." More data from that survey:
* 47% of employers blame prospects' lack of hard job skills or technical skills
* 35% of companies cite candidates' lack of experience
* 25% of companies blame lack of business knowledge or formal qualifications
* 28% of companies are increasing staff training and development
With that last bullet above, I suspicion that these are departments that were eliminated to reduce costs and are now being restored as companies realize the positive impact these departments have on productivity.
Now, if we could link up Cappelli's thoughts with the work of Jeffry Selingo, former editor of The Chronicle of Higher Education and author of the new book College (Un)Bound, there might be some progress in how we look at employment and training for high school and college graduates.
Selingo's perspective is: what needs to be done about the fact that slightly more than 50% of American students who enter college leave with a bachelor's degree? It begins with college selection: students end up poorly matching their campus - a third of students now transfer and many drop out. In addition: "...we have this fascination with the bachelor's degree in the United States, and we think everyone needs to earn one at the same point in their lifetime, enrolling at 18 years old." Not everyone is ready for college at 18.
Plus, as Selingo looks at it, campus culture and money play a role, "If you go to a college with a low graduation rate, your peers have an impact on your thinking: if no one else is graduating in four years, why should I?"
So, why does everyone have to go to college at 18? Again Selingo, "For some, a two year degree might be more appropriate at 18. And, recent studies of wage data of college graduates...show that the wage returns of two year technical degrees are greater than many bachelor's degrees in the first year after college...Let's think of extending the period for a bachelor's to be sure more students succeed in getting one. We don't need alternatives to the bachelor's degree, just more constructive detours on the pathway to college for those who are not ready at 18."
The Way Forward
According to Selingo, in 2023 the biggest difference in the college curriculum will be that more courses will be taught in the hybrid format: a mix of face to face and online. That will allow for a more personalized experience for students so they can learn at their own pace and break the traditional idea of the academic calendar where everyone needs to start in September and end in May.
According to Cappelli, there are three ways in which employees can get the skills they need without the employer having to invest in a lot of upfront training:
* Work with education providers: community colleges in many states have proved to be good partners with employers by tailoring very applied course work to the specific needs of the employer.
* Bring back aspects of apprenticeship: apprentices are paid less while they are mastering their craft - so employers aren't paying for training and a big salary at the same time.
* Promote from within: employees have useful knowledge that no outsider could have and should make great candidates for filling jobs higher up.
If the best companies and colleges listen to what Cappelli and Selingo have to say, unemployment rates will go lower and college graduation rates will go up.
I hope for the best.
***************
"In preparing for battle, I have found that plans are useless, but planning is indispensable." (General Dwight D. Eisenhower)
***************
Peter Cappelli is the George W. Taylor professor of management at the Wharton School (UPENN) and the director of Wharton's Center for Human Resources. Cappelli coined the term "purple squirrels" to describe what employers say they want when searching for employees because they are in no hurry to fill jobs. So, unless they find the perfect person, they won't fill the job.
As Cappelli says, "Employers are quick to lay blame. Schools aren't giving kids the right kind of training. The government isn't letting in enough high-skill immigrants. The list goes on...But I believe the real culprits are the employers themselves...With an abundance of workers to choose from, employers are demanding more of job candidates than ever before. They want prospective workers to be able to fill a role right away, without any training or ramp-up time...In other words, to get a job, you have to have that job already...It's a Catch-22 situation for workers - and it's hurting companies and the economy."
Cappelli concludes: "To get America's job engine revving again, companies need to stop pinning so much of the blame on our nation's education system. They need to drop the idea of finding perfect candidates and look for people who could do the job with a bit of training and practice."
From Cappelli's article in the Wall Street Journal which was recently re-published this past week, Cappelli quotes data from the staffing company ManpowerGroup which reports that 52% of employers surveyed say they have difficulty filling positions because of talent shortages. As Cappelli says, "...the problem is an illusion." More data from that survey:
* 47% of employers blame prospects' lack of hard job skills or technical skills
* 35% of companies cite candidates' lack of experience
* 25% of companies blame lack of business knowledge or formal qualifications
* 28% of companies are increasing staff training and development
With that last bullet above, I suspicion that these are departments that were eliminated to reduce costs and are now being restored as companies realize the positive impact these departments have on productivity.
Now, if we could link up Cappelli's thoughts with the work of Jeffry Selingo, former editor of The Chronicle of Higher Education and author of the new book College (Un)Bound, there might be some progress in how we look at employment and training for high school and college graduates.
Selingo's perspective is: what needs to be done about the fact that slightly more than 50% of American students who enter college leave with a bachelor's degree? It begins with college selection: students end up poorly matching their campus - a third of students now transfer and many drop out. In addition: "...we have this fascination with the bachelor's degree in the United States, and we think everyone needs to earn one at the same point in their lifetime, enrolling at 18 years old." Not everyone is ready for college at 18.
Plus, as Selingo looks at it, campus culture and money play a role, "If you go to a college with a low graduation rate, your peers have an impact on your thinking: if no one else is graduating in four years, why should I?"
So, why does everyone have to go to college at 18? Again Selingo, "For some, a two year degree might be more appropriate at 18. And, recent studies of wage data of college graduates...show that the wage returns of two year technical degrees are greater than many bachelor's degrees in the first year after college...Let's think of extending the period for a bachelor's to be sure more students succeed in getting one. We don't need alternatives to the bachelor's degree, just more constructive detours on the pathway to college for those who are not ready at 18."
The Way Forward
According to Selingo, in 2023 the biggest difference in the college curriculum will be that more courses will be taught in the hybrid format: a mix of face to face and online. That will allow for a more personalized experience for students so they can learn at their own pace and break the traditional idea of the academic calendar where everyone needs to start in September and end in May.
According to Cappelli, there are three ways in which employees can get the skills they need without the employer having to invest in a lot of upfront training:
* Work with education providers: community colleges in many states have proved to be good partners with employers by tailoring very applied course work to the specific needs of the employer.
* Bring back aspects of apprenticeship: apprentices are paid less while they are mastering their craft - so employers aren't paying for training and a big salary at the same time.
* Promote from within: employees have useful knowledge that no outsider could have and should make great candidates for filling jobs higher up.
If the best companies and colleges listen to what Cappelli and Selingo have to say, unemployment rates will go lower and college graduation rates will go up.
I hope for the best.
Thursday, May 30, 2013
CEOs & George Costanza
http://www.nytimes.com/2013/06/02/magazine/ceos-dont-need-to-earn-less-they-need-to-sweat-more.html?ref=business&_r=0
***************
"Ultimately, a genuine leader is not a searcher for consensus, but a molder of consensus." (Martin Luther King)
***************
Deep Thoughts For This Week (Adam Davidson - NY Times):
(1) A lot of people want CEOs to make less money.
(2) So why are they making so much more?
(3) Maybe they should be more afraid.
While the Dodd-Frank law requires a shareholder vote on executive pay at least every 3 years, the vote is not binding. So, Rex Tillerson's shareholder vote on his CEO pay at Exxon ($40 million) dropped from 78% approval last year to 70% this year (numbers approximate) but nobody's wringing their hands over it - that may be because Exxon is coming off its second biggest profit ever, earning $44.9 billion for 2012.
Technically, the board controls CEO pay, but, as Adam Davidson points out, boards suffer from knowing less about what a CEO does than the CEO himself. In addition, the consultants show the board third quartile pay trend lines that end where Tillerson is - he's the "top dot!" Davidson calls this the "principal-agent problem" where the "employer" (principal) doesn't know as much about the job as the "employee" (agent). So, "George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn't doing much at all. 'When you look annoyed all the time', he once told Jerry and Elaine, 'people think that you are busy'."
Again, according to Davidson, "Boards and CEOs don't suffer from Costanza-like ineptitude, but they are harder to rein in. They are often rewarded when they don't succeed but are not usually penalized enough when they do a lackluster job."
So, "Whether it's Jamie Dimon or George Costanza, capitalism works only when people are truly anxious, not faking it. CEOs need to be afraid that shareholders will cut their pay if they don't do better."
And, how much did the Dodd-Frank law help with that?
***************
"Ultimately, a genuine leader is not a searcher for consensus, but a molder of consensus." (Martin Luther King)
***************
Deep Thoughts For This Week (Adam Davidson - NY Times):
(1) A lot of people want CEOs to make less money.
(2) So why are they making so much more?
(3) Maybe they should be more afraid.
While the Dodd-Frank law requires a shareholder vote on executive pay at least every 3 years, the vote is not binding. So, Rex Tillerson's shareholder vote on his CEO pay at Exxon ($40 million) dropped from 78% approval last year to 70% this year (numbers approximate) but nobody's wringing their hands over it - that may be because Exxon is coming off its second biggest profit ever, earning $44.9 billion for 2012.
Technically, the board controls CEO pay, but, as Adam Davidson points out, boards suffer from knowing less about what a CEO does than the CEO himself. In addition, the consultants show the board third quartile pay trend lines that end where Tillerson is - he's the "top dot!" Davidson calls this the "principal-agent problem" where the "employer" (principal) doesn't know as much about the job as the "employee" (agent). So, "George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn't doing much at all. 'When you look annoyed all the time', he once told Jerry and Elaine, 'people think that you are busy'."
Again, according to Davidson, "Boards and CEOs don't suffer from Costanza-like ineptitude, but they are harder to rein in. They are often rewarded when they don't succeed but are not usually penalized enough when they do a lackluster job."
So, "Whether it's Jamie Dimon or George Costanza, capitalism works only when people are truly anxious, not faking it. CEOs need to be afraid that shareholders will cut their pay if they don't do better."
And, how much did the Dodd-Frank law help with that?
Wednesday, May 29, 2013
Larry Summers
http://www.slate.com/blogs/moneybox/2013/05/27/summers_for_fed_chair_no_way.html
***************
"Leaders are made, they are not born. They are made by hard effort, which is the price all of us must pay to achieve any goal that is worthwhile." (Vince Lombardi)
***************
A good friend sent me a blog post from "Slate" about Larry Summers and how he's being pushed as a replacement for Ben Bernanke as chairman of the Federal Reserve. Bernanke did not attend the annual Fed meeting in Jackson Hole this year which is considered a sign that he might be leaving.
If Bernanke is leaving, that would be a shame. He's done everything he could to put "liquidity" back into the U.S. system since the worldwide recession and has connected that to the unemployment rate: basically, he won't let up until the U.S. unemployment rate drops to 6.5%. That's never been done before and it shows a certain social awareness that more people in government ought to have.
On to Larry Summers: this is a guy that got fired when he was president of Harvard! That's hard to do. So, how did he achieve that lowly distinction? Let me quote the blog post: "...the guy who said women don't succeed in academia because math is too hard for them..."
Really.
Yet, President Obama saw fit to appoint him guru of economic matters in an effort to respond to the worldwide economic crisis. Obama was rewarded, in that case, with Summers' great quote that "...there's no adult in charge." I'm sure that President Obama likes to think of himself as an "adult."
Janet Yellen is vice chairwomen of the Federal Reserve and the next in line. If we don't like that, then Christina Romer is a good choice for many reasons, not the least of which is that she pretty much disagreed with Larry Summers on everything when she was part of the administration's economic team.
So, let's have anybody but Larry Summers.
***************
"Leaders are made, they are not born. They are made by hard effort, which is the price all of us must pay to achieve any goal that is worthwhile." (Vince Lombardi)
***************
A good friend sent me a blog post from "Slate" about Larry Summers and how he's being pushed as a replacement for Ben Bernanke as chairman of the Federal Reserve. Bernanke did not attend the annual Fed meeting in Jackson Hole this year which is considered a sign that he might be leaving.
If Bernanke is leaving, that would be a shame. He's done everything he could to put "liquidity" back into the U.S. system since the worldwide recession and has connected that to the unemployment rate: basically, he won't let up until the U.S. unemployment rate drops to 6.5%. That's never been done before and it shows a certain social awareness that more people in government ought to have.
On to Larry Summers: this is a guy that got fired when he was president of Harvard! That's hard to do. So, how did he achieve that lowly distinction? Let me quote the blog post: "...the guy who said women don't succeed in academia because math is too hard for them..."
Really.
Yet, President Obama saw fit to appoint him guru of economic matters in an effort to respond to the worldwide economic crisis. Obama was rewarded, in that case, with Summers' great quote that "...there's no adult in charge." I'm sure that President Obama likes to think of himself as an "adult."
Janet Yellen is vice chairwomen of the Federal Reserve and the next in line. If we don't like that, then Christina Romer is a good choice for many reasons, not the least of which is that she pretty much disagreed with Larry Summers on everything when she was part of the administration's economic team.
So, let's have anybody but Larry Summers.
Tuesday, May 28, 2013
Fair Pay
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3262#.UaIrILV8JrM.email
***************
"Before you become a leader, success is about growing yourself. When you become a leader, success is all about growing others." (Jack Welch)
***************
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.
***************
"Before you become a leader, success is about growing yourself. When you become a leader, success is all about growing others." (Jack Welch)
***************
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.
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