The Brossard Group

The sorry state of market data

Sylvie Brossard — Wed, 12 Aug 2009 16:01:16 -0700

There was a time, not so long ago, when the news that so and so was having access to such and such survey results was making grown up men and women yellow with envy and lusting for a peek at it like they had not since their last tantrum for a pony or a red firetruck. Nowadays, you could stay all week on the parking lot of Target, giving away whole reports of brand new market data and you would not get any taker. And why is that ? Because the limits of the science and the boldness of the art that go in the making of market data do not fare well during the recession. At all.
First of all, some companies did cut their participation to some surveys (the old practice of "once every other year" , although a recipe for disaster, was too tempting in times of budget cuts deeper than the worry wrinkle on Bernanke's forehead). Second, the dynamics imposed by the lay-offs on the average salaries are very complex. For the companies in real trouble, the fire sale of talent has impacted solid contributors with oh-too-visible high salaries, bringing down the average of some jobs. For companies just worried about the future, the employees with non critical skills or performance were let go, changing for ever the composition of the workforce and reducing the salary growth expectations of the remaining top talent. Last but not least, the dramatic hiring freeze nation wide has deprived the market of a quasi automatic increase.Not only companies do not have to compete as strongly, but the dreaded "salary compression " issue will find itself way down on the list of concerns when the next salary review will come (whenever that is).
A quick review of the greatest and latest data in some surveys shows what , being so naive, I would have called "inconsistent data" just a year ago. The data itself is not necessarily that bad but we have to refrain from using market data the way we are used to. There is no need to analyze the data year over year because not only are the numbers all over the place for the reasons invoked above, but more importantly because there is no value in doing so : if your company is merely surviving, hoping to make it till the end of the recession, the engagement and commitment of your remaining talent should be achieved by ways that have nothing to do with salaries and if your company is doing better than average and can afford keeping its top talent motivated by giving increases, the market data is not going to be able to tell you how much. Not this year. Not next year. Who knows, it might help the thousands of compensation professionals who, each and every year, make an attempt to explain their management that there should be other considerations in deciding a salary increase budget than just "what the market is doing".

What are they thinking?

Sylvie Brossard — Wed, 25 Feb 2009 20:59:21 -0800

In one of their latest newsletters, Equilar reveals what their clients are inquiring about... This is a really good insight into what is in the works or at least what is intriguing the companies these days.

It is interesting to see that Option Exchange remains the hot topic in an environment where retention may not be the most pressing concern. I tend to think that companies should use these times to protect their executives from the raising suspicion regarding Incentive and Bonus payments in "bad performance " years . Revising performance metrics, setting clear targets should be a priority for companies if they want to be able to make a compelling argument for attractive compensation package when the economy recovers.

Risks and Opportunities...

Sylvie Brossard — Fri, 05 Dec 2008 11:34:04 -0800

These are tough times... And Compensation professionals are wondering what can be done to help the company maintain profitability while keeping the employees engaged. In some cases, it is a matter of keeping the employees employed. Clearly, coming up now with added compensation or benefits costs recommendations may not qualify you for an accelerated promotion path. However, Compensation professional can and must still demonstrate creativity as risks and opportunities are presenting themselves.
An area of many risks, of different sorts, is Executive Compensation. You should all read the F.W Cook essay on a recommended framework to avoid Executive Compensation practices leading to excessive and damageable risk taking by the CEO and other top executives.It reminds us that "pay at risk" does not necessarily equates to "pay for performance". You can read this article here . Executive Compensation presents of course an other risk, one brought upon us by the added scrutiny of both general public and shareholders on the pay packages. Beyond the inflamed reactions of the public to the use of private jets for the CEOs of the big 3, there will be more questions, more reviews and probably even more difficult discussions with the Compensation Committee. The way out this additional pressure, and this is not new as it should always have been the main concern on our mind, is to "bad-performance proof " your executive Compensation packages. The shift to Restricted Stocks, the all too natural tendency to pay "some" bonuses even in bad performance times for retention purposes has been hurting the linkage between pay and performance. The current situation reminds us that the link between pay and performance should not be a one way street...
Pay for performance is also the key word in the area where we can find opportunities to improve upon the compensation packages and practices during troubled times : Sales Compensation. Now is the time to assess the effectiveness of your Sales Compensation Plans. When you try to conduct such assessments in periods when the company is doing really well , you encounter a lot of difficulties : concerns of the sales force that you are just trying to cut their pay, lack of motivation from Sales and Finance management because, after all, why fix it if it is not broken. But there is more to the effectiveness of a Sales Compensation plan than changing the Target Salaries. Actually, improving the effectiveness of Sales Compensation Plans usually has nothing to do with cutting the On Target Earnings. It has to do with re-assessing the behaviors that the plans are trying to drive, re-directing the efforts of the sales population towards more critical, more profitable, more strategic products, identifying the areas of "lost productivity", reviewing the "side effects" of some programs , as well as the "interactions" of spiffs and other promotional programs on the total results.
This analysis has to be done, and now is the time.

What people are talking about this week...

Sylvie Brossard — Fri, 07 Nov 2008 14:37:44 -0800

Well, I mean, apart from the obvious...
It seems that the buzz in compensation is all about Underwater Options Exchange. There are plenty of good reasons for that : Options are more underwater than ever after the terrible month of October, regranting a new batch is not a viable choice in front of a Board since the pressure on dilution control has not diminished, and last but not least, the process of exchanging options is today far less cumbersome than it was before FAS 123r (no more 6 months plus one day, "tender offers"....)
So, it is all over the Compensation news : it will be one of the subjects reviewed in the next Equinar webcast ("Executive Compensation in troubled times"), the same Equinar is launching a new product "the Option Exchange tracker" to follow step by step what companies are doing, and the normally very austere NASPP (National Association of Stock plans Professionals) is advertising their next San Francisco Chapter luncheon with the fetching title : "The Reprice is Right! Ways to Make Your Underwater Options Come On Down! ".
What will be interesting will be to see the extend of the exchanges when implemented : up till now, sunch exchanges had no chances to be approved by shareholders unless they specifically excluded the executives from the program. They therefore were mostly a tool for the "rank and file" (since this term seems to be used by CEOs for everyody that is not one of their direct reports or not an officer of the company). I am curious to see how this will fit in a toolbox to fix the "troubled times of executive compensation".
I would love to hear from any of you : opinions, experiences, please share with us !

Even more difficult than the 1 million dollar question, the “4%” question ….

Sylvie Brossard — Sun, 26 Oct 2008 10:37:06 -0700

4% as in the “default “ number picked by a majority of companies in the last few years when deciding upon the annual salary review budget. 4% as in: 3.5 merit and .5 promotion, or 3 merit and 1 promo and adjustment, or any variations thereof. The fact is, absent a major gap to market issue or exceptional economic duress, 4 % was as good as a number as anything else. With the controlled inflation of the last 10 years, this budget was enough (OK, almost) to help companies develop and strengthen their pay for performance policies and practices.

Then came the financial crisis, and the gas price hike and most recent relative fall, and the fear of recession, and suddenly, 4% does not look like the answer anymore, or does it ?

I hear a lot about companies pondering between 4% and 0%, only to opt for a difficult to explain- difficult to manage 2% budget. I hear compensation professional exhaling sighs of relief that their budget was approved before the crisis and others, happy that they do not process anything before April, leaving them ample time, so they think, to see what the market is doing. And I also see the agony of the companies with a focal in December, or November, who have to make recommendations to their CEOs. The risks are burning cash and jeopardizing the future with a 4% budget if a recession is indeed confirmed, or losing all your talents to the competition if you go for 0 and the others still go for the magic number (4). The risk can even be greater: paralyzed by the fear of recession, you cut the budget, thus creating the condition of your own demise, by reducing the purchasing power of your employees and therefore fueling the recession…

As always, the resources for your answer are probably right there in your company: is your product more or less sensitive to short term market evolution? Do you have a strong sustained need for talent because of what is in your development pipeline? Is your company cash rich or poor? How difficult is it to recruit your talent? Who are you competing with? How is the state of your employee engagement?

One thing is sure “4%” is not the answer anymore, but “5 minus 2 plus 1 %” might be just what the doctor ordered….

The impact of the financial crisis on Executive Compensation.

Sylvie Brossard — Thu, 16 Oct 2008 00:13:25 -0700

The recovery act contains much publicized measures on Executive Compensation for companies in the financial industry but it is fair to say that the crisis itself is going to have an impact on how decisions are made for Executive Compensation.

There is some expectation that the crisis may five a boost to the “Say on Pay” provisions . The number of say-on-pay proposals have increased in each of the last 3 years and the number of proposals this year is already above the previous three years combined. The opponents of the Say-on-pay proposals argue that these provisions are unnecessary because the disclosure rules have already made the shareholders and the board more knowledgeable in the pay matters and less likely to be blindsided by executive pay decisions. In any case, the scrutiny that shareholders and boards exercise on the levels of the pay packages, the linkage between pay for performance and the severance packages in only going to increase. It will be compounded by the fact that the crisis has reinforced the American public in the opinion that their CEOs are overpaid. The pressure from your Compensation Committee to provide more in-depth, totally independent advice on your Executive Pay Packages in not going away any time soon.

There will be more news and experiences to share as time passes and next year proxy season sure promises to be thrilling !

Tell us what you think, share your experience and your questions by posting a comment .
For more info on the specific measures of the Recovery Act on Executive Compensation, CLICK HERE

If a tree falls in a forest and there is nobody to hear it, does it still make a noise?

Sylvie Brossard — Wed, 15 Oct 2008 23:21:38 -0700

It has been a while since I took the time to ponder the answer to this question but I recently found myself facing myself a very similar situation. And I am sure you did too. If a specific job title does not exist in any salary survey and you systematically report your incumbents on a different job code, does it mean that this first job title does not have a different market value?

Let’s take the job “Design Engineer, Analog and Mixed signal“ for example. This job does exist; it shows on a regular basis on Monster, Career builder and other job search sites. Yet, even the surveys that are known for covering a lot of the specific engineering jobs do not collect specific information for it. You usually report your incumbents in this job either in some roll-up position or in the closest position available. But when the head of the department send you an email to point out that “really, analog design engineers do command a premium on the market and please can you find out what it is so that you can create a specific range for this job”, the only answer you are left with , and let’s face it, this answer is not going to work for the head of the department, is” if there is no specific market data, then, I cannot give you a specific market value”.

Sometimes, the only way to access this type is data is by relying on the “salary calculator sites”, these compensation professionals dreaded sites that tell our employees that with all these years of experience they should be making at least 25 % more that what they are making. I am talking about these sites that are using mostly data provided by employees in opposition as data provided by the employers. It is a little bit the same as building salary ranges using the information in the “salary expectation” of the job application form. However, sometimes this is all that we have, and the analysis of this data reveals some very interesting findings and provides meaningful lessons for your managers: it looks like in many cases, some jobs end up attracting some of the top performers of a function. And when you try to measure a “market premium’ you are indeed measuring the positive effects of years of successful pay for performance policies. And this gives you your answer to that head of department: maybe the incumbents in this job do command a premium but maybe it is because they are more experienced and better performers than others. This means that the solution to the manager’s problem is not with new ranges but with a more targeted utilization of its merit budget, to ensure that the employees with the most critical contribution to the company do receive bigger rewards.

Welcome to thebrossardgroup.com

Sylvie Brossard — Thu, 02 Oct 2008 09:19:15 -0700

Evidently, we would love to have a chance to discuss with you how we can help you and you can get to know who we are and what we are doing by clicking on the categories on the right of this column. But the purpose of this website goes well beyond simply offering our services. As compensation professionals , we experienced first hand the frustration rising from the proliferation of the issues : there was a time when there were a few major issues that came up every year, to stir up the Compensation professionals community and it was almost easy to keep up with the newest idea.

A monthly issue of the A.C.A magazine was enough to know what was brewing… Then companies started testing new concepts, going overboard with creativity. You just had started to figure out what Broadbanding would look like in your company and why it would be a good/bad idea (choose your side !), and we would start seeing articles about the “modified broadbanding” . Just when we were getting a sense of the extent of the changes that Stock Option expensing was going to introduce in the Compensation practices, Microsoft went “All Restricted Stock” on us, tender offers were a great idea, no, wait, a bad idea…transferable options were the way to go, well, maybe not for everybody. Meanwhile, the niche specialized knowledge about compensation levels in China became a prerequisite to apply to a entry level job and the hot skills suddenly became about Ukraine, 409(a) regulation, ISS guidelines, China again (but a different region), web based compensation management systems (in house or off the shelf ? Java or Cold Fusion ?), equity plans regulation in India, Corporate Governance, proxy disclosure, getting chummy with your Compensation Committee. And all of that of course, while keeping an eye on your exempt/non exempt classification issues… In a few words, it suddenly became as difficult to keep track of compensation issues as it is to keep track of whatever is the name these days of what used to be Buck-Iquantic-Mellon and whatever happened to Forster and Crosby of the old T.P.F&C.

The internet and the various search engine are one of the best way, not to keep up with , but to catch up or freshen up on the major issues. “ Hi, my name is Jane Compdoe, I am a compensation professional and a Google abuser”. The knowledge is there, all the raw information is available, there is just so much of it that it is even difficult to sift through everything to find what is merely relevant. This website is not going to solve our problem. The need to rely heavily on consultant expertise is just starting to increase and Compensation professionals will learn about the need for “a second opinion”. What will help us not waking up one morning and finding a compliance or a retention issue already too widespread to be fixed easily is to keep all these issues on our radar screen. The companies that first saw the “blip” of the FLSA classification issues were able to address them before it became a full time job for a team of 5 for a full year. This is where thebrossardgroup.com will attempt to help you. This website will be updated on regular basis, with little columns, blurbs, links, article excerpts, full blown contributions from experts in Europe and Asia as well as, hopefully, comments from you, readers. The content will be limited (so to speak) to issues affecting the Compensation and Equity professionals . We will not solve problems, we will not provide miracle solutions, roadmaps to the ultimate successful compensation strategy, just try to bring issues, ideas and compensation news to your attention. The format of the website allows readers to post comments and we have no doubt that some riveting discussion threads will be started.