Talent: how to get it, check it & keep it

In most working environments around the world, leadership groups, including HR  managers are confronted with the reality of a shortage of good people with the skills, knowledge and experience needed to implement business plans and achieve the objectives of their enterprise. Many observers and participants believe with good reason that the resources sector is a major cause of the labour shortage around the country and ironically, the most constrained by it.

Attracting the top talent to a company requires a strong corporate brand. This includes, but is not limited to, solid growth prospects, good assets, a reputation as a responsible corporate citizen and an excellent operational track record.            Importantly, the best marketers of this brand are existing employees. Our industry is small and very well networked, especially at the senior levels.

Although companies have little choice but to offer competitive reward to attract and retain the best people, the need for a superior corporate brand and a positive culture,   supported by good people systems, especially career development and  succession planning will distinguish the leaders.

An attractive employment brand is the key to attracting better candidates. A “brand” that is of course unique demonstrating the organizations approach and commitment to:

• Personal and professional development
• Reward and incentives
• Career planning and mobility
• Organizational culture, values and aspirations
• Alignment of these principles with incentives and training

It is not enough to talk about these components. Particularly younger candidates, will want to see tangible evidence of a well thought out approach to a “total package”.

Talent is scarce but this should not discourage companies from continuing to undertake robust candidate assessment. This activity should not be seen as a barrier to attracting the right individuals. In fact the best candidates will aspire to joining those organizations that have the most rigorous standards.

Talent risk is today a regular item on the agenda of meetings of Boards and executive committees. The risk of inadequate skills or inexperienced leadership supervising new projects will create significant cost overruns, destroy shareholder value and client  relationships. In response, employers are going to greater lengths to minimize the  possibility of failure, in their efforts to predict successful fit using such techniques as:

o Psychometric testing
o Requisite fit
o Behavioral assessment
o Proprietary tools etc
o Reference checking

Whatever approach is adopted, just like an employment brand, it needs to be tailored to the company’s business challenges and aspirations.  A selection approach borrowed from others will ultimately lead to mediocrity.

John Murray
Managing Director

Executive remuneration: it’s ‘what for’ not ‘how much’ that matters

One of the features of the US bailout package conceded at the second draft was the introduction of a cap on executive compensation – the details have yet to be determined by Treasury. The cap refers to the amount that can be payable to an    executive of a company availing itself of bailout relief.  Capped it is proposed, will be the amount payable and/or deductible for tax and, included in the definition, it is also proposed will be long term incentives such as stock options - a big change from the limit of $1m of base salary currently deductible.

Of course the provisions only apply to new executives, not those that got their companies into hot water in the first place and the package has a built in loop hole, depending how relief is received.  A matter of gate closing after horses have bolted?

The US has considered the idea of salary caps for CEO’s in the past and while this time it will almost certainly be limited to those in the financial services sector, its purpose is to assuage the concerns of tax payers that their money is not going to fund the compensation of corporate risk takers rather than as a device to curb  perceived excess per se.

The notion of capping compensation is intriguing and raises several questions: will this help affect the most needy organizations to retain top talent; why not impose a salary cap on any organization receiving any form of government funding; why limit the cap to the CEO and could we see this trend emerging with Banks extending them to corporations that borrow money? 

OK, maybe a little farfetched, but that was the reaction too when the expensing of stock options was first suggested.

The thought that we would like to pose in this article is that the amount of money is less important than what it is being paid for.
 
Executive compensation usually comprises four elements; Base Salary, Short Term Incentive (STI), Long Term Incentive (LTI) and the value of perquisites and benefits. Media attention has been focused on the size of compensation payments with very little reference to what the money was paid for. There is clearly a disconnect in public opinion between the amount of compensation paid and the value that was created.

We are all aware in the business community that often these so called excessive amounts relate to the cashing out or maturing of years of accumulated stock or stock options and therefore, although received in a single year, were actually earned over many.   That aside, the real call for compensation caps stems from the belief that in earning such rewards the executive team took excessive risk and by implication put the organization at risk. On the face of things, clearly the case with US financial institutions that simplistically lent money without appropriate security. But should it be the place of government to attempt to curb risk in publicly traded corporations through fiscal penalties?

Over the last few months in these pages we have addressed the issue of recruitment in the context of employment brand and its various components. The blemish of “excessive risk” will no doubt affect the future ability of these employers to attract the brightest and the best.
We have also addressed the important question of alignment within the employment brand; do the values that your organization espouses actually line up with the features and practices of your human resource programs and the       behaviors that you are incenting?

In the case of the financial institutions in the US and elsewhere the Board of Directors appeared to impose no such value judgment on how much was enough. Compensation plans with no upper limits driven by open ended formulas encourage excessive behavior. Boards need to impose such a pause in the reward structure to ensure that excessive behavior is curbed. It may also be prudent for the compensation committee to exercise judgment on what under any successful scenario is a maximum amount that the CEO of our company should be paid.

These controls are much more difficult to impose on plans that are driven by stock or stock options where value is driven by the market.

Perhaps this discussion over pay caps will therefore be the final death knell for stock options that began with Sarbanes Oxley.

Moving to a cash based long term incentive model complemented by a healthy stock ownership requirement (with stock purchased by the executive) places more control to manage risk in the hands of the Compensation Committee.

Some observers have suggested that incentive payments should be deferred for a year to permit claw back in the case that events subsequently emerge that damage the company.

A fine idea but this probably would not have done a lot of good in terms of saving the institutions caught up in the subprime mortgage melt down.
 
When corporations and compensation  committees determine what should be paid to their top executives they typically look (through the eyes of formulaic consultants) at competitive pay benchmarks in other organizations e.g. base salary, target      incentive and target long term overlaid by recent payout history. In comparing these amounts in other organizations there is very little consideration of the relative stretch  required to achieve the desired target or maximum payout. Perhaps this is an area where the human resource industry needs to spend more time to enable organizations to develop the controls that we now are expecting government to impose.

Paul Pittman
Practice Director,
Consulting
Services,
The Swann Group
& Founder
The Human Well

At Swann Global, we take communication seriously. Therefore, if you have any comments or questions about these articles or our services, feel free to contact me personally at John.Murray@swannglobal.com

I look forward to your feedback.
John Murray, Managing Director, Swann Global.