Executive Pay: The Power of Indirect Incentives

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In a PricewaterhouseCoopers study of 1,106 individual executives across 43 countries, researchers found ample evidence to suggest that the effectiveness of executive pay hinges not only on a total dollar amount, but also on several key intangibles. Despite much focus on variable pay as a key element of executive total rewards packages, the PwC study reports that as a performance driver, variable pay is only a part of the story.

Instead, for this group of executives, their motivation to excel at work appears to stem from a combination of factors including, perceptions of fairness, job satisfaction, recognition and of course, to some degree, the final dollar figure. For example, when asked how much of a cut in pay they would be willing to take if offered their “ideal job”, on average, participants indicated that they would take a cut of up to 28% for the opportunity to pursue a more personally fulfilling job. However, it should be noted, that when asked the same question for someone beside themselves, their threshold for pay cuts was significantly higher in this less personal hypothetical scenario- with some breakouts as high as 70% and averaging at a 60% pay cut.
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Risk Aversion & Executive Pay

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In an economy where compensation is increasingly driven by “pay-for-performance” strategies, executive pay is no different. According to the 2012 EAA National Executive Compensation Survey, base salary accounts for approximately 75% of the total compensation package in Northeast Ohio. In theory, by focusing on variable pay, such as bonuses and other short term incentives, organizations are able to more closely tie executive pay to performance. However, a new international report by PricewaterhouseCoopers suggests that for many of the executives surveyed, certain types of variable pay, namely those associated with high levels of uncertainty, may not be an ideal driver of performance.

In terms of bonuses, the study cites only 28% of participants opting for a riskier, but higher yield bonus structure over a potentially lower dollar base-pay figure of pre-determined value. Taking the inquiry to a more psychological level, the same study then presented participants with several other reward structures of increasing complexity. Once again, the results clearly point to a strong desire for certainty and clarity over total value. Sixty-six percent of participants expressed a preference for a rewards plan based on internally controllable measurements such as profit, over a plan utilizing external factors such as shareholder returns.
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Ohio Training Grant Update

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ERC continues to work closely with the Ohio Development Services Agency (formerly Ohio Dept. of Development) to get the latest news regarding the Ohio Incumbent Workforce Training Voucher Program.

Since the announcement of the grant on 12/21/12 by Gov. Kasich, the Agency has received applications that have expended the $20 million budgeted for the state’s current fiscal year (July 1, 2012 - June 30, 2013). However, within the last week, we received this advice from the Agency:

 “We are still encouraging folks to complete the application. As we begin reviewing applications, there may be ineligible costs that will become available to those that might be in our queue.”

As always, we are here to answer your questions and to help with the application process. For more information contact Pete Bednar at 440-947-1293 or pbednar@yourERC.com.

$20 Million in Training Grant Dollars Available to Ohio Companies

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Update (1/10/13): As of January 10, 2013 over 400 applications have been submitted for the Ohio Incumbent Workforce Training Voucher Program. According to the Ohio Development Services Agency (formerly Ohio Department of Development), many more companies have begun applications. The Ohio Development Services Agency is still encouraging companies to apply for funding.

The Ohio Incumbent Workforce Training Voucher Program has been officially announced, making $20 million available for training opportunities to enhance worker skills.

The ultimate goal of this program is twofold: allow employers to retain and grow their existing Ohio workforce and create a statewide workforce that can meet the present and future demands in an ever changing economy.

Applications are now available at www.OhioMeansJobs.com. Funding is made available on a first come, first served basis. The caps on the program funding will be $500,000 per eligible company and/or $4,000 per eligible employee, with a reimbursement rate of up to 50%; all training must begin and be completed between February 4, 2013 and June 30, 2013.
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Holiday Party Budgets Continue to Grow

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The percentage of employers hosting holiday parties has hovered just under the 75% mark for several years now and 2012 is no different. What we do see is a resurgence in terms of the total budget allocation for both holiday parties and employee gifts. After a sharp decline in 2009, employers have consistently reported that they are budgeting at least as much, if not more, for both of these line items.

Timothy Magaw of Crain’s Cleveland cited the ERC survey in this week’s issue of Crain’s noting, “Even at the recession's peak, the region's workplaces didn't altogether banish their holiday parties. But as the recession's grip loosened, these same companies appear to be spending more on their end-of-the-year blowouts.” More specifically the data shows that of those organizations that are spending more in 2012 to celebrate the season the average budget increase is 25%.


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10 Ways to Give Thanks to Your Employees

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This week, we commence the season of giving thanks not only with our families and friends, but also of showing gratitude to our vendors, customers, and employees.

Many of us forget to say "thank you" to all of the people that make our organizations successful, but it's important to step back and acknowledge their contributions, accomplishments, and hard work. This season, in particular, is an ideal time to show thanks to all of your employees and let them know how much you appreciate them and how valuable they are to you.

There are countless opportunities to show your thanks to others in the workplace. Here are some ideas for recognizing people during this upcoming holiday season:
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3 Guidelines When Terminating an Employee

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Unfortunately, some employees don't work out - their behavior or poor performance escalates and they eventually need to be terminated. Many organizations have questions about properly carrying out terminations, including what to do to address the problem, when it's appropriate to terminate an employee, and how they facilitate the termination itself. Here are 3 guidelines when terminating an employee.

1. Address the behavior or performance problem.

Directly address the problem before you terminate an employee, whether it be a behavioral issue such as attendance, tardiness, conduct, attitude, or inappropriate behavior; or poor performance. Approach termination with fairness by bringing the problem to the employee's attention, counseling or coaching them on understanding the problem and disciplinary consequences if they do not change, and providing the necessary training and support for improvement.
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Training: Building Your Talent and the Economy

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Organizations in Northeast Ohio have long understood the importance of offering training and development opportunities to their employees. Whether training is being used as a strategy for attracting and retaining top talent to overall workforce development, ERC/Smart Business Workplace Practices Survey consistently reports that between 80 and 90 percent of organizations provide their employees with financial assistance to upgrade their skills. This percentage is even higher among NorthCoast 99 winners with 96% of these top workplaces offering workshops, trainings, conferences, etc to their top performers.

Training as an Attraction & Retention Strategy

Offering training and development opportunities was cited as is the top strategy, after direct monetary incentives, used to attract and retain top talent from a sample of 102 Northeast Ohio organizations participating in the 2012 ERC Talent Management Practices Survey. This commitment to building a skilled employee base is further demonstrated through the financial commitment made by these organizations. For example, 82% of respondents report offering financial assistance to employees who wish to pursue job-related training, 79% contribute financially towards conferences and 72% put money towards costs associated with professional societies/organizations on behalf of employees.

Training as a Factor for Economic Recovery

In addition to being beneficial for individual employers and their employees, training is also singled out as a key component for economic recovery. In an issue from November, 2012 of Fortune magazine, Nina Easton takes this one step further. She suggests that not only is training key for a recovery, but also warns that without significant investments in training from corporate America, the “job crisis” plaguing the U.S. economy for the past few years is likely to worsen. In today’s global market, she continues, U.S. employers hold the fate of their own recovery in their own hands. According to Easton, if we don’t invest in building the skills of employees here at home the so called “skills-gap” will continue to grow- a trend which she argues could be used by U.S. employers, “as an excuse to go on a shopping spree overseas for talent.”

While the survey data above demonstrates that many Northeast Ohio employers already recognize the importance of a well trained workforce, if Easton and other experts like her are correct, the influence that these organizations can have on the business climate may run even deeper than they realize- right to the heart of the economic recovery.

Additional Resources

Technical Training
Give your people the knowledge and skills to become a more efficient and productive employee. ERC offers a wide variety of technical training courses that are important to the success of your business. Click here for more info.

How to Motivate Employees in 3 Easy, Surprising Ways

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In “Drive, The Surprising Truth About What Motivates Us,” author Daniel Pink suggests that using only traditional rewards and punishment (“carrots and sticks”) to motivate employees is no longer effective and does not suit the greatest needs and challenges of our organizations.

Win a free copy of this book!

Pink explains that historically, most work was algorithmic. Many of the tasks carried out were routine and a formula/series of steps produced a correct solution. Traditional rewards were effective in motivating people to perform well on those tasks. Nowadays, however, only a small percentage of job growth is in algorithmic work, with the majority of job growth lying in artistic, empathic, complex, technological, and service-oriented work. This work tends to be less routine and more creative, enjoyable, and self-directed; but the same traditional rewards do not motivate high performance for this type of work.
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