Talent Management - July 2008 - (Page 29)

won’t be any different than what happened in Major League Baseball. The more you disclose, the more compensation escalates — the more comparability we have. The star performers are going to make more money.” Transparency Talent managers have a responsibility to executive boards and compensation committees to ensure the level of pay provided to executive teams is based on tangible performance. All pay decisions must be defensible, requiring a high level of comparative analysis in the compensation-design process. Talent managers’ executive-compensation programs must illustrate how to drive shareholder value, increase share price and be competitive and reasonable. “There have been problems with excessive payments for mediocre performance with a signiﬁcant disparity between what the CEO is making and what his or her next-level executives are making. This has led to a lot of criticism, and in many cases it’s justiﬁed,” said Speidel. “I see a dramatic difference in the way compensation committees and boards viewed executive pay ﬁve, 10 years ago than how they do now. Then, the focus was around being competitive. That’s still true, but now there needs to be clear links to performance and links to increased shareholder value.” The new proxy-disclosure rules ask compensation committees to detail the connection between executive pay and performance in a compensation discussion and analysis that explains how they make decisions, the process or rationale for those pay decisions and how they link back to actual company performance in a given year. “HR professionals need to think more carefully about the design of these programs,” he said. “There’s much more transparency spelling out costs — particularly on change and control and in termination events — understanding from a shareholder perspective more clearly the amount of wealth creation coming from equity and other things. As I design, I need to make sure there is enough stretch to force the executive to perform well, whether it be increased revenue, proﬁtability or things along those lines.” A company’s performance levels; total shareholder return, or growth in revenue; and proﬁtability, or operating income, all must compare favorably with its overall level of executive payment. Speidel said if there’s a disconnect — if a poor-performing company still is giving out top-level payment — that compensation committee didn’t do its job. “We’re starting to see more companies say, ‘You’re only going to get your bonus if you meet a ﬁnancial or business milestone that is going to increase the overall value of the company.’ What was criticized over the past couple of years around executive pay — no linked performance, excessive use of options and equity when there was not a lot of value coming from it — those things are being changed,” he said. Speidel said talent managers should have an overarching philosophy about pay, focus speciﬁcally on long- and short-term incentives, know what the investment community and shareholder rights groups are focusing on and think carefully about contractual arrangements and whether they provide too much of a safety net or are so excessive that they could hurt a deal. “Right now, employment agreements, severance details, change-of-control agreements, acceleration of equity, all of these things are being criticized,” he explained. “If I bring in an executive or renegotiate an executive contract, I need to look at the contract in the current environment. “We’re starting to see HR people look carefully at reducing severance to maybe one-time base and bonus. A lot of boards, comp committees and advisers are saying, after the two-to-three-year period within the company where you’re adjusted and the risk of termination is low, ‘Do you really need a not-for-cause termination agreement?’ You need to have much stronger justiﬁcation and rationale for providing programs than you ever have.” FREE, LIVE T uesday, July 29, 2008 11AM PT/2PM ET Strategic T alent Acquisition: How to Win in the Global War for T alent Global meta-trends are aligning to produce a shortage of qualified labor talent. These forces include changing workforce demographics, emerging global economies, geopolitical transformation and the evolving requirements of the 21st-century worker. Executive leadership cites the procurement of human capital among its top concerns. The first step to addressing this reality is the recognition that successful talent acquisition no longer is the reaction to monthly and yearly hiring needs, but instead is the process of building long-term strategies. Join Rich Kushner, vice president of market strategy for Select International, in this Talent Management magazine webinar, as he discusses strategic and proactive measures to address the emerging talent shortage. T register, go to o www.talentmgt.com/ events Now featuring “Quick Register” for returning attendees. http://www.talentmgt.com/events http://www.talentmgt.com/events http://www.talentmgt.com/events

Table of Contents Feed for the Digital Edition of Talent Management - July 2008

Talent Management - July 2008 Editor’s Letter Human Performance Leading Edge Learning Connections Guest Editorial Passive Candidate Recruiting: Evolving with a Changing Workforce How Do They Feel? Sec Regulations and Executive Compensation Performance Management: A Retail Perspective Train the Non-Trainer Management-Go-Round: Developing Future Leaders Netflix Creates Its Own Script for Talent Management Intuit Spotlights Strategic Importance of Global Employee Recognition Make HR a Profit Center: Automate Technology to Gather Tax Credit Data Offshoring and the Impact on Talent Management Advertisers’ Index Editorial Resources Full Potential

Talent Management - July 2008

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