The Origin of the Executive Compensation Industry...

From a book I'm reading - The Firm: The Story of McKinsey and its Secret Influence on American Business by Duff McDonald:

"A small number of McKinsey consultants did manage to stand out from the rest. In 1951, Arch Patton became the first consultant since the founder himself to Arch pioneer an entire field. General Motors had hired Patton to do a study of executive compensation, and he did so by surveying 37 major companies. The results, published in Fortune and the Harvard Business Review, showed something remarkable. Worker wages had risen faster than management wages. Management tool special note of this development, and demand for Patton's help on executive pay packages went through the roof.  Once started, this demand became a perpetual rotation machine, with Patton writing more than sixty articles on the subject over the years."

I'm only 50 pages in, but I've got a highlighter out for this book. Many things we take for granted in American business and management emulated from early McKinsey practices. 

As for the Arch Patton story above, it's a cautionary tale for giving the people what they want, as well as for giving people in power what they want. It's fair to say that this development at McKinsey created a whole segment/industry (executive compensation) that has a lot of implications for where we find ourselves today - regardless of your belief system.

When creating work product, it's always best to create something that more than one person has a need for. Create something - a process, a service, a product - and be capable of marketing it to many.

That's the gold standard. 

What can you create that could be repurposed multiple times in your job or help you get your next job (or two)?  That's the question all of us should be attempting to answer.


Cards Against Humanity Buys Small Company, Makes It Employee-Owned...

Interesting pull from the news for you today with a little Capitalist analysis.

You've heard of Cards Against Humanity. Have you heard of a acqui-hire?  It goes a little something like this: Clickhole

ac·qui·hire
/ˌakwiˈhīr/
noun
noun: acqui-hire
1. an act or instance of buying out a company primarily for the skills and expertise of its staff, rather than for the products or services it supplies.
"this would appear to be a straight acquihire to pick up an engineering and product design team"

The art of the acquihire is alive and well for companies like Google with unlimited resources, who often buy companies strictly for a key group of talent - often 10-20 key employees - even though they think the product of the company they are buying is trash. Put some wealth in the pockets of the targeted talent, lock them in with employment agreements and slowly push them towards projects/lines of business you think have more value.

Back to Cards of Humanity - they're in the news with an acquihire, but with a twist - they're giving a large part of the acquired company to the employees of the company. More from BuzzFeed:

Cards Against Humanity, the card game company, purchased ClickHole.com from its owners at G/O Media on Monday for an undisclosed amount in an all-cash deal, BuzzFeed News has learned. ClickHole’s employees will become the majority owners of the site. Although terms were not disclosed, the Wall Street Journal reported in November that the sale price was likely to be less than $1 million. The Onion, which created ClickHole, will remain a part of G/O Media.

Max Temkin, the cofounder of Cards Against Humanity, told BuzzFeed News that the deal will allow ClickHole to bring on additional staff — it currently has only five full-time employees — and explore new revenue streams. He also said the site would operate independently, with financial support from Cards Against Humanity. ClickHole staffers will not be involved in writing any Cards Against Humanity content.

“We’re giving them funding, and if they ask us, we’ll be an advisor,” Temkin told BuzzFeed News, saying that the ClickHole team will operate independently, with financial support. “We just want to give them a chance to do their thing. They’re really capable — really smart and innovative. And I don't know if they’ve had that opportunity before to try all these creative [ideas for the site].”

The Onion launched ClickHole in 2014 as a send-up of sites like Upworthy and BuzzFeed. It moved on to satirizing online political discourse with PatriotHole and ResistanceHole. Yet it has consistently transcended mere parody and created its own sublimely absurd universe. Quizzes like “Which One of My Garbage Sons Are You?” or its running series of fake banal quotes from celebrities earned it a loyal, independent following.

Cards of Humanity is doing an acquihire with a twist with this acquisition - they found a troubled company for sale, and believed in the talent that existed. BUT - this form of acquihire transfers wealth to the talent not directly to their bank account, but by giving them ownership in the company.  That's a powerful retention tool, and if for some reason they can't make it work, the talent is sure to remember that Cards gave them a chance to save the company and turn it around through their investment and subsequent transfer of ownership.

Moving acquired talent to ownership positions is a powerful play.  And by "talent", I mean people that make up quizzes like "Which one of my garbage sons are you?" It's 2020 - quizzes like these matter!

For great point of view on all things employee ownership and ESOP, follow who I do - Jennifer Briggs.


In Defense of Not Broadcasting Salaries in the Jobs You Post...

When you try to optimize your openings for Google Jobs, you'll turn to the Google Jobs schema for guidance. If you've already been working on this, you'll find that most of the world has two remaining opportunities:

--Address information for individual openings, and Accountant

--Salary Information about the job.

Optimizing location/address information for Google Jobs is a transaction/project. You either have an ATS that can accurately index this information or you don't, and you either want to do the legwork to get location/address info broadcasting or you don't. No big deal. Either do it or don't.

But providing salary information about the job?  That's a whole other can of worms, my friend.

Most of my HR friends doing the work would agree with this statement. They know they can't broadcast this information at their company due to compression issues, company culture and more.

But their's a growing voice in the world that says we should be more transparent about what jobs pay, and even what everyone earns inside our companies. The reasons for this call are legit - there's a lot of inequity across workplaces when it comes to gender, race and other factors. 

We should fix those things.  I personally like moves like the one Salesforce made, where they made a big push towards pay equality. Sure, they promoted the hell out of the move, but they took action, and their company is stronger for it.  Let me say it again - WE SHOULD FIX PAY EQUALITY.

Now let me give you a reality. I think posting salaries in the recruiting process is a weak play.

When I post a job, I'm entering a marketplace. There are overqualified people (code for old people, but that's another post), people who are a direct fit for the job, and people who don't have what it takes, but on livin' on a prayer.

When you post the expected salary for the job, or its weak cousin - the salary range - you're narrowing your marketplace. People with great experience won't apply because you're 10K light. The rest of the people come in with a clear expectation of what you're going to pay.  That sounds fair, right?

Not really. The interview process is a marketplace. When I post a job, I'm looking for the best person available.  Here's a couple of scenarios that happen when I post the $$ for a job:

1--Person with great experience doesn't apply. I never get the chance to feel the experience, see the match and go to bat for the extra 15K I need to sign her up.

2--Person who is a fit comes in expecting the offer to be 80K, but as it turns out, they don't have the experience I need and they're not a true fit. They're actually worth 70K in my eyes, but I never get to make the offer because the negotiation is done once I post a salary.

3--The person with no experience who applied and was lucky enough to catch my eye with that project they worked on in their first job? Well, I can't hire them because they applied for an 80K job, and they'll always think I screwed them by offering them 55K.  I'm actually filling the FTE with a different job, but it doesn't matter, the damage is done.

I won't even bore you with the fact there are a ton of sites that provide research on salary levels that candidates are using that may or may not match up with the salary info you provide (See Glassdoor screenshot at the top of this post). There are a ton of stupid people out there who are horrible human beings. I'm not one of them, and neither are most of you.

I believe we can be trusted with pay equity moving forward. If you have issues in your company, do what Salesforce did - invest and solve the problem.

But stop telling me we need radical transparency in areas like listing salaries in job postings.  You think you're promoting equal opportunity, but the unintended consequence of this action is you're actually making it harder for great people to find their next job.


Why Paying 100K for a Taco Bell Manager Makes Complete Sense...

Taco Bell is going to pay managers 100K per year.  Insert your joke <here>.

The home of Doritos Locos Tacos says it’s going to test paying managers $100,000 a year at some company-owned locations in the Northeast and Midwest Taco bellstarting later this year. Taco Bell/Yum announced the plan Thursday and also said that as of Jan. 1, 2020, all of its company employees “can become eligible to receive” at least 24 hours of paid sick time per calendar year.

Translation - the job market is really, really tight. The people we see landing in our store GM roles aren't what we need them to be.

But 100K to run a Taco Bell location?  That's crazy, right?

Not so fast, my friend. It's not crazy. Let's run some numbers.

Taco Bell said it will start the six-figure salary pilot later this year, but did not name an exact date. The company does not yet know how many managers at its 450 company-owned stores will get the $100,000 salaries or how long it will offer the higher salaries. Current salaries for general managers at Taco Bell’s company-owned stores range from $50,000 to $80,000, a spokeswoman said.

According to Statista, the average per unit sales for Taco Bell restaurants in 2017 was $1.5 million.  The average reports have found that average pre-tax income for franchisees in the food and beverage industry is roughly $90,000

Let's say you own a string of 10 Taco Bell locations, and your stores average 1.5M in revenue per year and 90K in pre-tax income. You replaced 3 of your managers last year, and you offered a salary of 70k. You were concerned about your inability to find good people.

If you're progressive with how you view the impact the right manager can have on revenue, the decision to test a 100K salary from your current level of 70K is a no-brainer.

BTW - note that this trial is at company-owned stores. My scenario was as a franchisee, but in reality, franchisees ARE GOING TO HATE YUM BRANDS FOR DOING THIS. 

What impact can a 100K person have on a single Taco Bell location? I think it's dramatic impact. 

But you still have to find the right person, then sell them on the opportunity and convince them to give it a try. Simply paying the talent you see now more money doesn't do anything - you have to go out and upgrade the type of candidate you're talking to in order for this trial to have the impact Taco Bell seeks.  And that's the catch - there's work to be done with how you recruit to unlock the potential of this trial.

Me? I'll take 3 Bean Burritos, fresco-style. And a large Diet Mt. Dew with no ice.

No sauce.


How To Know If Your Defined-Benefit Pension Plan Is In Trouble...

I'm not an expert on pension plan funding. But if you're relying on a pension in retirement, you might want to take a look at what % of obligations are funded currently in your pension plan.

Why would I say that? Because while I'm no expert, I can tell you when your pension plan is in trouble. Here's how you know: Ge1

You know your pension plan is in trouble when your company announces they're freezing pension benefits, IN THE MIDDLE OF THE BIGGEST ECONOMIC EXPANSION IN HISTORY.

More specifics from the Wall Street Journal:

"General Electric Co. GE +0.06% said it was freezing its pension plan for about 20,000 U.S. workers and offering pension buyouts to 100,000 former employees, as the conglomerate joins the ranks of U.S. companies phasing out a guaranteed retirement.

GE’s traditional pension and post-employment benefits programs, which were underfunded by $27 billion as of the end of 2018, are one of the company’s biggest liabilities. The company said the latest changes could reduce its pension deficit by as much as $8 billion.

GE is still responsible for lifetime payments to more than 600,000 retirees, workers and beneficiaries. The latest changes won’t affect retirees or others already receiving pension payments.

The company’s pension plan is the second largest by projected obligations, only behind International Business Machines Corp.’s,according to consulting firm Milliman Inc., which compiles data on the 100 U.S. public companies with the largest pension plans.

GE had funded 76% of its projected pension obligations at the end of 2018, according to Milliman, compared with 91% funded at IBM. The median funding level was 89% for the group.

Man. While freezing pension plans has become a common technique to reduce risks and shrink corporate balance sheets, when you're doing it in the middle of the biggest expansion in history, you kind of know you're screwed. 

Let's do story time and look at another classic buy high, sell low type of investment fund for the common good.

My state has a Prepaid Affordable College Tuition program, created by the Legislature in 1989 and managed by the state treasurer. It almost collapsed during the last recession. Imagine the Dow at 14,000 in early 2007. Well, that investment group was struggling to meet the member requirements in 2007, and the Dow went to 7,000 during the recession, at which time they exited securities and went to a cash position. Buy high, sell low.  Great work, team! That decision combined with sharp tuition increases (healthcare costs as a comparison in a pension, anyone?) caused the fund to go insolvent and require a state bailout.

The point? If you're freezing pensions at the Apex of the market and the biggest expansion is history, sh#t's going to get real in even a moderate recession of any length.


FLSA Games: Exempt Salary Threshold Moves from 23K to 35K...

Heads up, HR friends at all levels...

Employees who make less than $35,568 are now eligible for overtime pay under a final rule issued today by the U.S. Department of Labor (DOL). The new rate will take effect Jan. 1, 2020.

To be exempt from overtime under the federal Fair Labor Standards Act (FLSA), employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1 1/2 times their regular hourly rate for hours worked in excess of 40 in a workweek.

The new rule will raise the salary threshold to $684 a week ($35,568 annualized) from $455 a week ($23,660 annualized). A blocked Obama-era rule would have doubled the threshold, but a federal judge held that the DOL exceeded its authority by raising the rate too high.

The new rule is expected to prompt employers to reclassify more than a million currently exempt workers to nonexempt status and raise pay for others above the new threshold. 

My experience is that the new law impacts small to medium sized business the most, as they'll have a good number of employees labeled as exempt who have a salary in the low 30k's.  They'll be some exposure to huge companies that still have salaried supervisors in places like call centers in the low 30k's as well.

Feel bad about this?  Remember that the Obama rule was going to raise the threshold to 47K, my friends.

More details here from CNBC.

A good rundown here from SHRM of second-level details you'll need to know behind the broad threshold change.

 


Can the Young Star Ever Earn Less Than the Employees They Manage?

Capitalist Note - Got an email about this from a young gunner over the weekend, and sent her this post.  Felt like I should share again.  Cliff notes - you play to win the game, not win today.

-------------------------

In a word, yes.  It's rare, but it happens.

Here’s my take - most star managers on the upswing of their careers have usually faced the prospect of either managing someone who has either:

a) earned more than they have, or

b) earned close to what they have. 

It happens more often with rising stars who are relatively young in an organization, because they tend to aggregate additional responsibilities beyond their years.  You’re aggressive with the star within the definition of “aggressive” within your company, then the department of the star has to grow, you move people around internally to work for them and BAM!  You also experience the reality that in order to hire people with the skills to work for the young star in the growing department, those new hires need to come in at or around the salary you have the star at…

Is that a problem?  Many would say yes.  To anyone (this message is for you, young star) who finds themselves in that situation, I would say "have patience, young grasshopper".  If you are that star who finds themselves managing people who earn more or close to what you earn, you're right, there should be more of a divide.  However, note this - you got to where you are because you are viewed as a high, high potential asset to your company.  There's probably only one way you can mess that up if you continue to perform - by not handling the situation with class.

If you make it about the money, some people will chalk that up to maturity, and you might see theMo money upward arc of your career slow down a bit.  If you find a classy way to bring it to someone's attention without demanding any immediate action, I can guarantee you one thing: You're going to make a LOT more money than the people you're currently managing over the course of your career.
 
To the stars of the world who find themselves in this situation, I say: "Be the ball, Danny".  Don't let pride or some shortsighted advice from your Uncle Tommy drive your reaction to this situation.  You've managed to be different than everyone else to this point.  Keep being different. 

Play to win the game, not this possession.


PODCAST: e4 - This is HR - Women's Soccer Pay Equity, Management by 2Pac, Productivity Woes

(Email subscribers, if you don't see the podcast player, click here to listen to the podcast)

In Episode 4 of THIS IS HR, Jessica Lee (VP of Brand Talent, Marriott) is joined by Tim Sackett (President of HRU) and Kris Dunn (CHRO at Kinetix) for a discussion of industry news that only true HR pros could love.

The gang covers:

--Shots fired in pay equity between the USA Women's National Soccer team and the US Soccer Federation, which have different talking points when comparing total comp of the USA Men's and USA Women's National Soccer Teams (3:19).

--A Iowa state Director of Human Services gets canned for broad use of 2Pac lyrics in his management style, which begs the gang to wonder aloud how much 2Pac is too much if you're trying to lead a department of public servants... in Iowa (18:40).

--A new productivity study is out and has some interesting outcomes related to which days are the most productive (22:15).  The gang has issues with some of the findings, including that Thursdays suck.

KD closes it out by forgoing the mailbag and forcing the JLee and Tim to pick a single 2Pac song that most represents their management style, which includes the awkward reading of rap lyrics to defend said favorite 2Pac songs (28:53)

Just another day in the office at THIS IS HR.  


New Data Tells Us Which Companies/Vendors Owns Corporate Expense Accounts...

If you've ever wondered (what, just me?) what companies and vendors have the biggest share of corporate expense accounts/submitted expenses for approval, look no further.

The Certify SpendSmart™ quarterly report analyzes the most recent business expense transactions and vendor ratings data to provide valuable insights to Certify clients and the corporate T&E industry at large.

Translation - who is spending money on what?

In a bit of a surprise, Uber Technologies, Inc was the most frequently expensed vendor last quarter, according to Certify, a software provider enabling companies to manage travel expenses. Uber receipts made up 12.7% of all corporate transactions among Certify customers. On average, travelers spent $25.37 per Uber transaction.

Below is the entire trend chart (email subscribers click through if you don't see the the image below), which includes some interesting stuff:

Cerify

Note - being at the top of this chart doesn't mean you're generating the most revenue, only that you own X out of every 100 expensed items.

If you click through to see the entire report, you can add up categories to get a better idea on what the total market share is for each industry 

My hot takes on the data:

--Much has been said about today being a bad time to be a taxi driver.  It would also appear it's a bad time to be in the car rental business from the growth of rideshare total expensed receipts over the past couple of years (from 9.5% of corporate expense transactions 2 years ago to today's 16.5%)

--All airlines cited are down .25% of corporate expense transactions over the same 2 year period. Since we're in a peak economic period, the continuing growth and sophistication of video conferencing and virtual meetings would seem to be cutting in to airline growth.

--The presence of Starbucks in the top 2 shows its continued dominance in morning meetings, but the fact it's down a full percentage point of corporate expense transactions (down 18% over a two year period, per ticket price down significantly as well) means people are finding other places to go, growing a bit tired of Starbucks or finance is challenging the expense.

The only thing missing from the report from Certify is the strangest vendor that shows up in the top 100, 200 or 300 results.  I'd like to see that.  The fact that Amazon and WalMart show up as top 10 in corporate expenses hides many of the expensed items/companies we could have fun with.


Bernie Sanders: Proving the Compensation Side of the People Business is Problematic...

Let me start by saying this is not intended to be a political post. It is intended, however, to show the complexities of running a SMB (small to medium sized business).

Need a case in point?  Try Bernie Sanders.  Sanders is a Democratic presidential candidate, and part of his platform has been the need to pay workers a living wage.  No one really Bernie argues that this is a good idea, but once you get into the execution of the idea, it gets complex.

Let's look at the Minimum Wage in America.  Sanders is on record that the minimum wage should be at $15 per hour nationwide, etc.  That's where it gets tricky as he attempts to build out his campaign organization for his presidential run.  More from the New York Post:

"The Vermont socialist senator made history by agreeing that his paid 2020 presidential campaign workers would be repped by a union, United Food and Commercial Workers Local 400, with all earning $15 an hour. But now the union complains some employees are getting less. Worse, someone leaked the whole dispute to the Washington Post. Worse yet, Sanders’ response could be a violation of US labor law, all on its own.

The union’s gripe centers on the fact that field organizers, the lowest-level workers, often put in 60 hours a week but get paid only for 40, since they’re on a flat salary. That drops their average minimum pay to less than $13 an hour.

“Many field staffers are barely managing to survive financially, which is severely impacting our team’s productivity and morale,” the union said in a draft letter to campaign manager Faiz Shakir. “Some field organizers have already left the campaign as a result.”

The campaign’s immediate response, now that it’s all gone public, is to restrict the field workers from putting in more than 40 hours a week. Hmm: If it then brings on more unpaid volunteers to pick up the slack, that’s a different union grievance."

The HR pros who read the Capitalist - regardless of political orientation - know that Sanders has experienced the following:

1--He believed workers should be paid no less than $15 per hour.

2--While he partly accomplished that with how he set up his organization, he either didn't understand or cut a corner by classifying field organizers as "exempt".  My guess is he told his people his intent and they found the path of least resistance to make that marching order a reality while maintaining cost certainty - aka, salary over hourly.

3--The good people that read this site understand it's debatable that field organizers would be classified as "salaried" under the FLSA.  But collective bargaining with a union pushes some of the burden of classification to the background - at least initially.

4--Overtime pay kills all SMBs.  The Sanders campaign has a budget - they can't reclassify those workers to hourly status and make their budget (paying them $15 per hour for all hours worked and OT for hours past 40 per week).  Also, if they reclassified, they'd be on the hook for back pay for OT.  So they do what the only thing available to them - telling salaried field organizers to stop working at 40 hours.

What Bernie Sanders has ran into is a classic small business problem. As a business owner, you'd like for the vast majority of your workforce to be salaried - so you have cost certainty and instruct workers to work until their objectives are met - no overtime. The FLSA exists to provide legal boundaries for SMBs (as well as large companies) related to classification of workers.

The devil is always in the details.  There's never enough resources when you're attempting to bootstrap an organization, and that fact makes you look for the most affordable labor possible in some situations.  

Bernie Sanders is bootstrapping an organization in America.  It's an interesting contrast of ideas, market forces and math.