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Author: Todd Henneman

Posted on April 20, 2015June 19, 2018

Paying the Boss: Compensation Rises — as Does Performance Expectations

As the 2015 proxy season nears, a new survey of executive compensation hints that the C-suite has fared well in the past year.

The Association of Executive Search Consultants surveyed 900 members of its candidate database in October and November 2014 and found that 43 percent of the CEOs and 56 percent of other C-suite executives got base salary increases in 2014. Of CEOs whose compensation grew, almost one-quarter got raises of 16 percent or more.

The raises reflect a closer alignment between CEO compensation and company performance, said Julia Salem, senior marketing manager at the association. The U.S. market ended 2014 with solid gains. Executive pay has increased as profits have risen now that the economy has emerged fully from the recession, she said.

Few C-level executives saw their pay dip. The 2014 AESC’s “BlueSteps Executive Compensation Report” shows that 4 percent of CEOs and only 2 percent of other C-suite executives saw a decrease.

The average CEO compensation in AESC’s survey was $312,494.

The AESC cautions against using its data to predict what proxy filings will show. To be sure, AESC’s survey captures data from a diverse group of organizations. Its executives lead organizations with annual revenue from less than $5 million to more than $50 billion. Sixty-eight percent are privately held, 28 percent are public and 4 percent are nonprofit. The average CEO compensation in AESC’s survey was $312,494.

It is the latest report showing that CEO compensation has been surging.

At Standard & Poor’s 500 firms, the median total compensation for CEOs was $10.1 million in 2013, according to compensation-research firm Equilar Inc., up from $9.3 million in 2012. That’s more than $27,671 per day. Companies will disclose executive compensation for 2014 as they file proxy statements in the coming months.

Trends that have defined the makeup of executive compensation are expected to remain dominant in 2015, experts say.

CEO compensation continues to shift toward equity with performance hurdles, said Aaron Boyd, director of governance research at Equilar. Never before has as much of CEO compensation come from equity as it does now, Equilar data show.

“What I think you’re really starting to see now — because a lot of people have moved to performance in equity in the last several years — is a refinement of it,” Boyd said.

A decade into the trend, companies have gained a better sense of how to set reasonable-yet-challenging targets with effective metrics that serve investors.

Simultaneously, discretionary bonuses have fallen out of favor with shareholders.

“Positive discretion is one of those things we don’t see exercised very often,” Boyd said. “And when it is, it’s highly securitized.”

The trends have resulted in what compensation consultant Greg Arnold calls “homogenization” as companies comply with what Institutional Shareholder Services Inc. and Glass Lewis & Co., the nation’s two major proxy advisers, consider to be good pay programs.

“Homogenization doesn’t make sense for all companies and all circumstances,” said Arnold, a principal at Semler Brossy, an executive-compensation consulting firm. “The challenge for the [compensation] committee is to figure out when to go along with those things that are viewed as ‘best practice’ and when to deviate.”

Some compensation committees are beginning to question the reliance on what has emerged as the most popular gauge: total shareholder return.

“It’s not the silver bullet metric that solves every problem,” Boyd said.

A key shortfall: Total shareholder return tends to reward companies that are more volatile because they’ll rebound from lower performance and then outperform because of their low starting point,  Arnold said.

“These things started to get put in place at the beginning of Say on Pay,” Arnold said. “Now people are starting to see payouts on them and starting to realize maybe they’re not exactly what they thought they were.”

Public companies have been required to conduct Say on Pay votes since 2011. These nonbinding votes have largely ended gross-up payments to cover an outgoing CEO’s IRS bill, Arnold said, and checked absolute compensation growth.

“They’re at the top of everyone’s mind,” he said, “and they drive a lot of the plan design elements we’re seeing.”

Posted on April 20, 2015June 19, 2018

Directors Pay Evolves

Lifted by larger equity awards, pay for board members of the largest U.S. companies rose to a median of $240,000 in fiscal 2013, according to research from consulting firm Towers Watson & Co.

That’s 6 percent more than what board members earned in 2012 and 39.5 percent more than what they were paid in 2007, when proxy disclosure rules began requiring companies to report actual values received by directors.

The pay raise came in the form of stock compensation. Cash payments remained flat, but annual and recurring stock awards increased 4 percent.

But the structure behind cash payments has evolved, said Robert Newbury, director of executive compensation resources at Towers Watson.

Companies are moving away from per-meeting fees and toward fixed retainers. Less than one-quarter of companies pay directors per-meeting fees for attending board meetings and only 28 percent pay-per-meeting fees for attending committee meetings, Towers Watson data show.

Retainers have increased for serving on audit committees and others under increased scrutiny and requiring more work in an era of increased shareholder activism and rules in the Sarbanes–Oxley Act of 2002 and other laws, Newbury said.

Aaron Boyd, director of governance research at pay-data firm Equilar Inc., said the more frequent discussions among board members introduced a basic problem with pay-per meeting: What qualifies as a “meeting”?

“We’ve seen companies move away from meeting fees toward retainers because the job has become more involved and because directors are spending more time on it, defining what a meeting fee is a little fuzzier,” Boyd said.

Fortune 500 companies also increasingly separate the roles of CEO and board chair, with 47 percent adopting this board-leadership structure, Towers Watson said.

Calls for independent board chairs were the most prevalent type of shareholder proposal at annual meetings in 2014, according to Institutional Shareholder Services Inc., the nation’s biggest proxy adviser.

“More and more companies are under crosshairs of maintaining independent board leadership and getting people with combined chair and CEO roles to give up that role,” Newbury said.

Companies paid these nonexecutive board chairs a premium — a median of $150,000 — for their services, Towers Watson’s research found.

“When the majority of U.S. companies are separating that role,” Newbury said, “it will be a monumental event in the course of governance practice and board leadership among companies.”

Posted on March 25, 2015August 3, 2023

Pay Transparency: Paid in Full Disclosure

Namasté Solar practices what CEO Blake Jones calls “extreme transparency.” “There are basically no company secrets,” he said.

Every document and every meeting is open to all 105 employees of the Colorado-based company, which installs solar-powered systems. And everyone knows what everyone else makes.

“At my best employers, there was always a lot of water-cooler talk about how much other people made,” said Jones, whose résuméincludes a stint at a subsidiary of Halliburton Co. “We’re saying, ‘Here’s the exact information. We don’t want you to incorrectly speculate.’ It’s all very clear. We even share what total compensation is — the cost of all health insurance and payroll taxes and everything else.”

Employees have access to salaries, meeting minutes and other documents through the company’s intranet. Namasté Solar also shares finances and other key data in what Jones calls monthly “big picture” meetings. During annual salary reviews, the spreadsheet is distributed by email.

The transparency reflects the values of the 10-year-old company, said Jones, who calls it a “democratic workplace.” It’s cooperative, where 50 of the 105 employees own equal shares. After one year, workers become eligible to buy a share for $5,000.

“An important democratic value is transparency,” Jones said. “It builds trust. It instills a sense of ownership. When everyone understands what’s going on in the company, they ultimately will do a better job.”

No Secret

Namasté Solar is one of a number of young but vocal organizations that have rejected the long-established corporate norm of pay secrecy and instead embrace the other extreme. They’re providing a real-world test to what academics have wondered for decades: What effect would pay transparency have on performance? Such a policy has the potential to avert discrimination, but it also has the potential to create acrimony, if co-workers become jealous of another’s pay. And the uneasiness goes deeper with public employees, who face the ire of taxpayers when their pay — even if justified — becomes the subject of mean-spirited diatribes. It also has organizational leaders and workers debating where to draw the line.

ON THE WEB

Transparency Is Key

Don Tapscott, co-author of “The Naked Corporation” calls transparency one of the key principals of what he labels the Open World. In the era of the naked corporation, he said “fitness is no longer an option.” Companies must “undress for success.” Workforce.com/NakedCorporation.

“There really hasn’t been a definitive series of research studies that say all you have to do is make public and you’ll have a disaster or everything will get better,” said Edward Lawler III, director of the Center for Effective Organizationsat the University of Southern California Marshall School of Business. “There are a lot of ifs, ands or buts.”

Lawler, who has studied the topic for 50 years, has found negative effects in pay secrecy. People tend to overestimate the pay of others and become dissatisfied, leading to turnover because employees perceive they’re underpaid.

“If you don’t give people information, they make assumptions,” he said.

SumAll, a New York-based a data analytics company,maintains a file on its network that lists the equity allocations and the salaries of everyone who works there. Its 50 employees have access to it, CEO Dane Atkinsonsaid, and a transparency committee ensures the data are kept current.

Atkinson creditsthe salary transparency with producing a lot of“natural positive effects”: fairness instead of inequities, dedication instead of detachment, and collaboration instead of fiefdoms.

“It does make for a better company, and it does make for a more equal world,” Atkinson said. “It’s a necessary idea.”

It also helps employees take charge of their careers, modeling behavior after co-workers who earn more or switching to jobs that pay more. But he acknowledges that the transparency also forces executives to explain, rather ignore, the fact that the company’s salespeople make a lot of money considering their backgrounds.

“We have to talk to spectacularly trained scientists who went to Harvard about how the guy who went to Miami University is making the same amount of money as he does,” Atkinson said.  “Those are the hard conversations that usually people are spared, but in our environment they have to live through.”

Transparency hasn’t fueled turnover, he said. In fact, SumAll has less than 10 percent churn, Atkinson said, compared with an industry range of 30 to 50 percent.

Social media startup Buffer went a step further. It gained national attention in 2013 when CEO Joel Gascoigne posted on his blog the company’s salary formula along with all of its employees’ salaries. Buffer continues to use those formulas, spokeswoman Courtney Seiter said. This January, Gascoigne introduced the Transparency Dashboard, where visitors may access salaries, revenue and other key data.

In some ways, these startups are mirroring what has happened in the public sector. Pay of public officials long has been available through state and federal freedom of information laws. In recent years, some states have passed laws that make government pay and benefits more easily accessible. Arkansas, for example, created a website in 2011 that allows anyone to search for salaries by employee name.

AnneWeismann, interim executive director of the government-watchdog group Citizens for Responsibility and Ethics, believes that government accountability includes taxpayers having a right to know the salaries of public employees.

“You’re using taxpayer money,” Weismann said. “Taxpayers are entitled to some accounting for it.”

Several watchdog organizations asked the Obama administration to disclose publicly the calendars of public officials, inspector general reports and correspondence with Congress.

“It stems from the same fundamental belief that how public officials function, who they are meeting with is of public interest and should be readily available,” Weismann said.

However, transparency comes with a price. After a California newspaper published a story about more than 500 teachers earning six-figure salaries, hundreds of readers posted comments debating their wages — something that management consultants, software engineers and many other occupations never experience.

“While many schools suffer financially these rich teachers laugh all the way to the bank,” a commenter registered as Jerry Jones wrote. “Then sit in front of their tax preparer looking for ways not to pay taxes.”

Commenter Adrian Arancibia wrote: “Teachers’ hefty salaries are driving up taxes, and they only work nine or 10 months a year. It’s time we put things in perspective and pay them for what they do — babysit. We can get that for less than minimum wage.”

Labor economist Linda Barrington said employees have begun to question pay as websites such as aGlassdoorand PayScale began posting salary data.

“They think it may be good comparison data, but it may not be,” said Barrington, executive director of the Institute for Compensation Studies at Cornell University. “But it’s out there. And then they think, ‘How come that’s not me?’ ”

Pay for Performance

The structure of pay also has changed. American employers increasingly have shifted from paying hourly wages to performance-based salaries. Anxiety about pay has been an unintended consequence of pay for performance, Barrington said.

“There’s more of your income being determined in this black box, which is you met your objectives to this degree and, therefore, you’re getting paid this much,” she said.“People start to wonder: ‘Am I being evaluated fairly? Am I being paid fairly? Maybe everyone should just post all the salaries.’”

Often when people think of transparency vs. secrecy, they think of it as all or nothing, Barrington said. In reality, there’s continuum. Companies could be transparent about how a particular performance score translates into a particular merit increase. Or companies could be transparent about pay grades.

In a way, a lot of power rests with employees. They could make pay transparent. That’s because employees could write their pay on a chart in the break room, she said.But people shy away from pay transparency when it’s posed that way.

“Part of the catch is psychological,” Barrington said. “You want to know everyone else’s pay, but you don’t want everyone else to know yours.”

Cynthia Estlund, a professor at New York University School of Law, said company rules — and tacit norms backed by threats of discipline — that forbid co-workers from discussing pay violate the National Labor Relations Act.

“Not only should employees have the right to talk about their pay,” Estlund said, “they do have the right to talk about pay.”

An engineering firm in Texas learned that lesson in 2013. The National Labor Relations Board determined that Houston-based Jones & Carter Inc. illegally had fired an employee for talking about pay with co-workers.

The board ordered Jones & Carter to rescind its policy that had forbidden employees from discussing salaries and to pay back wages and offer reinstatement to the fired employee.

Estlund herself has worked for private universities, where pay wasn’t disclosed, and public ones, where pay was known. She appreciated the accountability that came from more openness about pay, but she acknowledges that she has mixed feelings.

“I’m not rushing to talk with my colleagues about pay here,” Estlund said. “I can understand why employers, in the interest in workplace harmony, might want to keep pay secret.”

However, she has concluded that the benefits of pay transparency outweigh the costs. The No. 1 benefit: shining a light on pay gaps based on gender or other unjustifiable reasons.

‘When everyone understands what’s going on in the company, they ultimately will do a better job.’

—Blake Jones, CEO, Namasté Solar

“I don’t know if there is anything on the other side that is as clear of a loss as that clear gain from transparency,” she said.

Whole Foods Market Inc. remains the largest company to make salary information of all employees available to any team member of its 400-plus stores.

John Mackey, the company’s co-CEO, has said that the transparency eliminates gossip and averts favoritism and nepotism.

The naturaland organicgrocery chainalso limits the salaries of its executives, most recently setting it at 19 times the average full-time team member’s salary.

One challenge for large companies to adopt pay transparency: skeletons in the closet, said Lawler, the USC business professor.

“Often when I’ve preached to companies about making pay more public, they’ll say, ‘Give us a couple of years to get things in order, and then we’ll make it public,” Lawler said. “The veil of secrecy encourages, or at least allows, people to think they can get away with indefensible pay decisions.”

Little research has assessed effects of pay transparency outside of the lab.

Economist David Card of the University of California at Berkeley and his colleagues conducted one of the few studies to look at the effects in the real world. They evaluated the happiness of a sample of University of California employees before and after they were told about a database that gave salaries of all state employees.

Workers with salaries below the median for their occupation were more dissatisfied with their pay and job after they knew that they earned less. That finding may not be surprising. But the researchers also found that employees earning above the median reported no higher pay or job satisfaction after they knew they were in the top half.

Maureen Driscoll, a principal in the Minneapolis office of compensation and benefits consulting firm Verisight Inc., believes that employees should be encouraged to treat their own compensation levels as confidential and that employers should help employees understand the organization’s total rewards philosophy.

She encourages her clients to show employees the salary range for their job, where they fall within the range and ways to merit a raise.

She also recommends educating managers and supervisors about the basics of compensation — the source of benchmarking data, how often it’s updated and why the organization considers it reliable — so they’re able to address questions.

“Let’s say a company has a very generous benefit program, better than what the market provides. The company might choose to have its base salaries slightly below the market because its total package is actually better than the market,” Driscoll said. “Part of it is an education process with managers and supervisors to understand what is the philosophy in our organization about our total package.”

Recently, Namasté Solar asked its employees about its complete compensation transparency. Should the status quo continue? Or should the company remove names or move to total secrecy? The result: Near-unanimity to maintain complete transparency, the company said.

“Once everybody is used to it, it’s just not a big deal,” Namasté’s CEO Jones said. “And we can say that from experience.”

Posted on March 10, 2014June 20, 2018

The Insiders or the Outsiders?

"Insiders" who went on to lead large companies include Mary Barra, Tim Cook and Satya Nadella. Some “outsiders” include Marissa Mayer, Alan Mulally and Lou Gerstner Jr.

After a search that stirred anxiety among other boards of directors that it would poach an outsider as its new leader, Microsoft Corp. instead appointed a 22-year insider as its new chief executive.

Satya Nadella, who had served as executive vice president of Microsoft’s Cloud and Enterprise group, succeeded Steve Ballmer as the world’s largest software-maker struggles with disappointing sales of Windows 8 and to expand beyond software.

Microsoft’s announcement on Feb. 4 of its leadership transition comes after a number of other prominent companies have chosen longtime company insiders for their top jobs. At General Motors Co., a 33-year veteran of the automaker took its helm in January. At Wal-Mart Stores Inc., a 23-year company veteran became CEO on Feb. 1. And at defense contractor The Raytheon Co., a 10-year insider is slated to take charge on March 31.

By the end of 2013, more than 1,245 organizations had changed CEOs, according to Chicago-based outplacement firm Challenger, Gray & Christmas. That’s the highest rate of CEO turnover since 2008, just after the dawn of the Great Recession.

At the same time, CEOs appear to be serving shorter terms. The average CEO tenure was 8.1 years in 2012, according to The Conference Board, a business research and consulting group, compared with a decade high of 11.3 years in 2002.

The pace of change and the number of prominent transitions has corporate America again debating where to look for the next generation of leaders. The answer? A company’s decision whether to select an internal or external candidate should hinge on the skills and competencies needed to achieve the strategy of the future — and on the bench strength, experts say.

“Internal is better in every case unless you have a really deficient internal candidate,” said John Thompson, vice chairman of the global CEO and board practice, at executive-search firm Heidrick & Struggles, whose clients have included Amazon.com Inc., Microsoft and The Walt Disney Co. “External candidates should really be head and shoulders above internal candidates to be chosen.”

Indeed, companies with insider CEOs delivered better shareholder returns during their tenures, according to research from management consulting firm Booz & Co. From 2009 to 2011, insiders outperformed their regional stock market index by a median 4.4 percent, while outsider CEOs delivered 0.5 percent shareholder return.

From Within

Most companies appear to be developing their future leaders from within. Booz found that public companies selected insiders as CEOs 71 percent of the time in 2012, the most recent year from which data were available. A quarter had worked at the company their entire careers.

Boards of directors have become more involved in succession planning since the Sarbanes-Oxley Act of 2002. The reduced average CEO tenure reflects their increased oversight, Thompson said. Board members face scrutiny by investment advisers such as Institutional Shareholder Services Inc. and Glass Lewis & Co., which will recommend that shareholders withhold votes during elections if the firms believe that board members haven’t been good stewards. Activist investors also will pressure the board to act if they feel a company’s performance has lagged, he added.

Even organizations enjoying success shouldn’t reflexively seek a clone of the outgoing chief executive, said Steve Krupp, CEO of the Conshohocken, Pennsylvania-based leadership-development consultancy Decision Strategies International. They need to identify the leadership skills and attributes needed to achieve the future business strategy.

“There has to be time spent developing what the criteria are: What is the profile of the CEO of the future?” Krupp said. “That is the conversation that happens first.”

Working with the chief human resources officer, boards then can use the criteria to identify potential candidates internally and compare them with executives externally, said Jane Stevenson, who leads the global CEO succession practice at Korn Ferry International.

Some companies hire search firms to identify outsiders who match the future CEO profile, and look at their experience but never meet with them. Other boards get to know external executives.

‘Internal is better in every case unless you have a really deficient internal candidate.’

—John Thompson, vice chairman, Heidrick & Struggles

“It helps boards to hold leadership to a different standard because they start to see where the leadership stacks up and to have a firsthand perspective,” Stevenson said.

Comparing internal to external candidates also gives the board something to trumpet, said Charley Polachi, managing partner at Boston-based Polachi Access Executive Search.

“When that happens,” Polachi said, “the board can say to the press and the industry analysts, ‘We did a thorough and exhaustive search. We looked at a dozen candidates, and at the end of the day the best person to do this job is right here. And is that a testament to how good we are at developing talent?’ ”

Many companies identify an “heir apparent,” said Jim Westphal, a professor of strategy at the University of Michigan. This approach lets the current CEO mentor and train the next one.

Some of the biggest transitions in recent years followed this model.

Apple Inc. co-founder Steve Jobs promoted Tim Cook several times after he joined Apple in 1998. Jobs named Cook acting CEO during the co-founder’s three medical leaves before the terminally ill Jobs resigned in August 2011. Chip-maker Qualcomm Inc. recently promoted Steve Mollenkopf, who had been second-in-command, after news broke that Microsoft’s board was eyeing him. And before Ford Motor Co. CEO Alan Mulally took himself out of the running for the Microsoft job, Wall Street interest intensified in Ford Chief Operating Officer Mark Fields, who is widely considered Mulally’s heir apparent.

“Ford has taken grooming the next generation of leadership very seriously,” said Washington and Lee University Professor Michael Smitka, who specializes in the economics of the auto industry.

Succession planning should extend beyond one potential CEO turnover, says Korn Ferry’s Stevenson. Companies should be identifying and preparing three generations of leaders.

The first-generation leader is for the role tomorrow if the current chief executive is hit by the proverbial truck, Stevenson said, while the third generation includes candidates for a decade from now.

“What you’re looking for in the third-generation leader is probably not what you want in the first-generation leader,” Stevenson said. “Why? You would hope that the business strategy is going to change and develop over time.”

The board and CEO should be looking at strategic priorities today and down the road and linking them with the evaluation of the organization’s leadership bench strength, she said. It serves two purposes: understanding today’s talent and helping to prepare tomorrow’s leadership.

To be set on a path to the corner office, high-potential talent needs to be given rotational assignments, to evolve from functional experts to business leaders and to direct businesses within the company, said Tracy Benson, founder and CEO of the business consultancy On The Same Page, whose clients include Merck & Co., PepsiCo Inc. and Travelocity.

“They’ve got to give them a hot-seat opportunity to perform,” Benson said.

The Outsiders

Sometimes the profile of the next CEO calls for an outsider. Think Mulally, who helped turn around Ford, or Marissa Mayer who now heads Yahoo Inc. after a successful stint at Google Inc. There’s also Lou Gerstner Jr., who came to IBM Corp. in 1993 from RJR Nabisco Inc. and guided the company from the verge of bankruptcy to one of the turnaround stories of the decade.

Chief executives plucked from outside the company are more willing to make big changes, Westphal said. When a company needs dramatic change in strategy, it should at least consider outsiders.

Car rental company Dollar Thrifty Automotive Group changed chief executives twice during Maryann Keller’s 12 years on its board.

The first time, the board tapped an insider.

The second time, the board chose someone who was essentially an outsider. Scott Thompson, hired as chief financial officer in May 2008, was elevated to CEO that July. A key criterion: someone who could help the company, which Keller described as in “a desperate financial situation,” talk to banks.

“We found the right person who had that skill set, and he was able to effect change,” said Keller, who once served as head of Priceline.com’s automotive unit.

The stock rose to $87.50 a share, the price paid by Hertz Global Holdings Inc. when it acquired Dollar Thrifty in 2012, from a low in March 2009 of 62 cents a share.

Outsiders come at a price. Compensation-research firm Equilar found that — based on data from CEOs hired between January 2010 and April 2013 — externally recruited CEOs cost more. Chief executives externally hired into companies in the Standard & Poor’s 500 index received median compensation of $9.5 million, according to Equilar, compared with $7.5 million for those internally promoted.

The difference holds true across company size. Smaller companies paid external candidates an average of $2.6 million compared with $1.9 million for internal ones.

External CEOs cost more because they’re walking away from long-term incentives, said Tony Preston, chief customer strategy officer at SilkRoad, a cloud-based HR software provider. Boards also pay more for what they “perceive the value of someone is,” he said.

Preston cautions that turnover tends to be higher when an outsider takes the reins. Those executives often fill the C-suite with their own people, Preston said, and assume that “they need to fix things that are broken.”

But turnover is a risk for companies that promote from within, too. Employers risk losing runners-up, especially when the selection devolves into a “public horse race” between two or three candidates.

Executive compensation consultancy Pearl Meyer & Partners surveyed 153 Fortune100 companies and nonprofits in 2011. Of those that had changed CEOs within five years, 32 percent said key internal candidates left the firm to work for another organization or retired after being passed over. Another 31 percent said they adjusted the pay or position of those internal candidates so they would stay.

At General Motors, the board changed the automaker’s leadership structure after Dan Akerson stepped down as chairman and CEO, giving top spots to two leading internal candidates. Mary Barra, who had been the global product development chief, became CEO. Daniel Ammann, who had served as GM’s CFO and was widely considered a candidate for CEO, became president. In addition, Theodore Solso, a former CEO of engine-maker Cummins Inc., became the nonexecutive board chairman.

“While Mary Barra got the title CEO, she did not get what I would consider the kind of totality of control that her predecessor had,” said Keller, an auto industry consultant.

Boards can reduce the chances of losing runners-up by avoiding a public competition, experts say.

“When you have a visible horse race, the stakes get higher and egos get bruised,” said Krupp, who has worked with Deutsche Bank, Johnson & Johnson and United Airlines Inc.

Emphasizing leadership development helps make succession planning “invisible,” said Korn Ferry’s Stevenson.

“The more the company focuses on leadership development as a course of business all day, every day, all year, every year, the less it created a horse race,” Stevenson said. “Where it becomes problematic is when a process is started around a transition.”

If executives know they were runners-up, board members should tell them that they’re valued and point out what they could gain by working with the new CEO, said Heidrick & Struggles’ Thompson.

“If you go outside, how do you keep internal people from bolting?” Thompson says. “Sometimes, you can’t.”

Todd Henneman is a writer based in Los Angeles. Comment below or email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.

Posted on February 9, 2014June 20, 2018

You, Biased? No, It’s Your Brain

Walk into the buff-brick building in New York’s Greenwich Village, ride an elevator to the seventh floor and you’ll enter a neuroscience lab, where scientists study brain processes linked to biases.

Past a waiting area are two rooms: one filled with caps studded with electrodes and black faux leather chairs facing computer monitors, the other with devices to monitor physiological responses.

Inside these two rooms, David Amodio has spent the past eight years at New York University using electroencephalograms, or EEGs, functional magnetic resonance imaging, or fMRI, and other tests tracking brain functions and searching for clues to curb discrimination.

Research by Amodio and a cadre of other scientists during the past decade points to a troubling fact: Eliminating bias is far more difficult than once thought.

“Bias is a real problem,” said David Rock, director of the NeuroLeadership Institute, an international research association not affiliated with NYU. “It’s much bigger than we realized, and educating people doesn’t seem to do very much.”

‘We’re all fairly equally exposed to these pervasive messages about who is most fit to do science. Those stereotypes are very robust. When we imagine a scientist, we imagine a man.’

— Corinne Moss-Racusin, assistant professor of psychology, Skidmore College

Modern bias isn’t the domain of a few bad apples driven by animosity or hate, experts say. It plagues everyone and infects behavior without people consciously knowing it. As science has shed light on automatic biases, employers have introduced training methods to raise awareness of unconscious attitudes and ways to mitigate them.

“In terms of trying to get under the surface — kind of like popping open the hood of your car to see how it actually works — neuroscience has been able to shed light on more specific mechanisms,” Amodio said. “While many people are interested in developing interventions to reduce bias, in order to do that, it’s critical that people understand the underlying processes that give way to bias.”

Unconscious Bias

Since the 1980s, numerous studies have shown that people can act in biased ways despite explicitly believing that prejudice and discrimination are wrong. This dichotomy comes from what social psychologists call implicit — unconscious — biases, the result of pervasive messages that perpetuate stereotypes.

Implicit bias likely is a reason why progress has been slow across sectors and institutions, said Corinne Moss-Racusin, an assistant professor of psychology at Skidmore College in Saratoga Springs, New York.

For example, corporate boards in America remain overwhelmingly the bastions of men, and fewer than 6 percent of executives are people of color.

“When we look at the numbers of women and people of color who are represented in all sorts of institutions — from our academic institutions to the political forum to the corporate workplace — diversity has increased,” Moss-Racusin said. “But it has increased very slowly. And there are still some stark disparities in areas where we have not been able to make the sort of improvements we might have thought would be possible.”

What implicit bias suggests: Racism, sexism and homophobia come from people who are not racist, sexist or homophobic.

A 2012 study explored the hiring decisions of biology, chemistry and physics faculty members — professions that pride themselves on objectivity. They were given applications identical in every way except for the applicant’s sex. The professors favored the male job applicant “John” over the female job applicant “Jennifer.” They rated him as more competent, offered him more mentoring and selected a higher starting salary for John. 

Young and old, male and female faculty members reached similar conclusions.

“We’re all fairly equally exposed to these pervasive messages about who is most fit to do science,” says Moss-Racusin, who led the research. “Those stereotypes are very robust. When we imagine a scientist, we imagine a man.”

The concept of implicit bias hit the mainstream in 1998 when an unconscious-bias assessment went online. Since then, more than 6 million people have taken the Implicit Association Test, the result of a collaboration among psychologists at Harvard University, the University of Virginia and the University of Washington.

Its goal: to create awareness about unconscious biases in self-professed egalitarians.

The test gauges unconscious prejudice by measuring the speed of making associations. For example, the test can measure how quickly someone pairs a white face with a positive term and then compare it with how quickly that person pairs a black face with a positive term.

Now neuroscience proves that people weren’t falsely claiming to believe in equality. Instead, neuroimaging shows that decision-making automatically triggers specific regions of the brain responsible for unconscious processing, including those measured by the Implicit Association Test.

Insights about which regions are activated could help scientists understand how biased associations are learned and how to counter them.

The amygdala, an almond-shaped set of neurons deep in the temporal lobe, has emerged as a key region in bias research. It is the part of the brain that reacts to fear and threat. Scientists have found a correlation between amygdala activity and implicit racial bias.

The amygdala isn’t the only part of the brain involved in unconscious bias.

Amodio and his colleagues also have found implicit stereotyping associated with the left temporal and frontal lobes. The left temporal lobe is important for storing general information about people and objects, and Amodio said this seems to be an important place for social stereotypes. The medial frontal cortex is important for forming impressions of others, empathy and various forms of reasoning.

And a 2012 study by Columbia University psychologists G. Elliott Wimmer and Daphna Shohamy found that the hippocampus, which forms links between memories such as dates and facts, also subconsciously steers people toward choosing one option over another.

The implications of widespread automatic biases have begun to change diversity programs within corporate America.

At Chubb Corp., it began with a few phone calls. The property and casualty insurer, which has earned praise for its inclusive culture, began receiving calls from managers. They had completed training about microinequities, the small messages that discount talented employees who are perceived as different.

They said, “ ‘You haven’t dealt with the elephant in the room,’ ” recalled Sabrina McCoy, assistant vice president and diversity manager.

The “elephant” was bias. They wondered if unconscious bias could explain why some people weren’t as far along in their careers as expected, McCoy said.

They turned to Mahzarin Banaji, a social psychologist at Harvard University who uses fMRIs to study social attitudes and beliefs and is one of the creators of the Implicit Association Test. Banaji spoke to Chubb’s senior leaders, and explained unconscious bias from a scientific point of view.

“It takes the judgment off the table,” McCoy said.

The executives found it so valuable that they had all U.S. managers learn core concepts and go through scenarios such as avoiding unconscious bias when reviewing résumés, said Trevor Gandy, Chubb’s senior vice president and chief diversity officer. The company hopes to cascade training to all employees in the coming year.

For now, Chubb considers the metrics to be how many people have been introduced to the idea of unconscious bias with the expectation that they apply their awareness.

“We know that providing the training and awareness is certainly the first strong step for us,” Gandy said.

Banaji said her goal is to educate people about basic forms of bias that may hinder their judgment.

“I regard awareness to be a singularly important experience because the problem lies in the lack of awareness,” Banaji said in an email.  “When good people discover their blind spots, they are inherently motivated to wish to change. I try to make use of that motive to do good and take it one step further — to ask about the extent to which people are willing to doubt their own intuitions.”

PricewaterhouseCoopers also turned to Harvard’s Banaji. The accounting and professional-services firm hopes to accelerate the diversity of its leadership, said Jennifer Allyn, the firm’s managing director of diversity.

Banaji spoke to the top 100 partners of the firm and challenged them to think about some unconscious assumptions made when they say “so and so is not ready yet,” Allyn said.

“It’s something common that people say,” Allyn said. “It’s also a real phenomenon. An individual might not be ready for a particular role.”

‘Mind Bugs’

Before There Was Bird Brain, There Was Lizard Brain

The term “lizard brain” has become pop-culture shorthand for unconscious habits and other instincts that once served humans well, but today may cause problems in the workplace.

“It’s a pop term,” said David Rock, director of the NeuroLeadership Institute.

And it’s popping up in blogs, books and TED talk videos.

The “lizard brain” can cause problems in the workplace, said Terence Burnham, a business professor at Chapman University and author of the book “Mean Markets and Lizard Brains.”

Take email. Humans have good instincts for working face-to-face, Burnham said. But much of business relies on email. There is no reason to believe that a person will know instinctively how to deal with email. People need to create systems to succeed.

The lizard brain also may let people get fooled by others who they see only a few times, Burnham said. In ancestral settings, people knew everything about everyone else. Mistaken assumptions based on initial interactions became corrected over time. But in the business world, mistaken assumptions can lead to long-lasting commitments. The lizard brain wasn’t designed for slick salesmen rewarded for posturing and burnishing the right image, he said.

Despite books devoted to taming the lizard brain, the phrase itself rests on a fallacy.

Dr. Paul D. MacLean, a researcher at Yale Medical School in the 1950s, developed a theory that the brain has three layers: the limbic, the neocortex and the reptilian complexes.The reptilian complex includes the basal ganglia, which plays a key role in forming habits.

MacLean and other scientists of his era thought that the forebrains of reptiles consisted mostly of basal ganglia, a notion later found to be false. In fact, the reptile complex predates reptiles — with some parts traced back to jawless fish.

Some contemporary authors even use “lizard brain” to refer to fear controlled by the amygdala, which isn’t even part of the reptilian complex. It’s in the limbic.

But the term lives on, and it represents the misguided instincts of humans.

“Your lizard brain is here to stay,” wrote marketing guru Seth Godin on his blog, “and your job is to figure out how to quiet it and ignore it.”

—Todd Henneman

They considered “mind bugs,” as Banaji calls them, such as the prototype bias, occupation-specific stereotypes for particular job functions.

After Banaji’s three-hour session, one senior leader told Allyn that he had prided himself on being able to sum up someone in five minutes.

“That’s my talent as a leader,” the partner told Allyn. “After this session, I’m not going to say that anymore because the things that I’m basing that immediate impression on are all subjective and all open to bias.”

Another partner began printing the list of her entire team before selecting someone for a special assignment, as a way to safeguard against picking someone who may be top of mind simply because that person is similar to her or works nearby.

Tony Greenwald, however, is skeptical if training can eradicate implicit biases.

Greenwald, co-author with Banaji of the 2013 book “Blindspot: Hidden Biases of Good People,” said training can be useful in making executives aware of ways in which they or their organizations might be discriminating, even with no intent to discriminate.

“Blinding” strategies — hiding information such as a candidate’s gender — work well, as do evidence-based guidelines for making judgments, he said.

But he cautions that Project Implicit, the collaboration behind the Implicit Association Test and of which he is part, can’t claim yet to have “satisfactory validated evidence of efficacy” in producing change.

Andrés Tapia, a senior partner in Korn Ferry’s leadership and talent consulting division, said unconscious bias lacks good answers for how to reverse it.

Tapia suggests a three-step approach: Learn about unconscious bias, build skills around cultural dexterity, and then use these insights to create a “third culture,” which draws upon the strengths of people’s cultural differences.

“Awareness and the ‘a-ha!’ moment can happen in 60 seconds,” Tapia said. “The work of building the skills to mitigate that is a lot more heavy lifting, but that’s where the payoff is.”

Neuroscience continues to provide clues.

The NeuroLeadership Institute has spent the past 12 months looking at how to mitigate bias by categorizing them neurologically, said Rock, the institute’s CEO.

Some biases result from cognitive laziness: accepting the easiest answer, he said. Picking someone for a team because you frequently work with that person would be an example of cognitive laziness. Rock said he believes that rewarding people for identifying errors in their thinking will motivate them to avoid these biases.

Rock has developed a three-part strategy: accept that individuals and systems are intrinsically biased, label the type of bias likely to happen, and develop a plan to mitigate it. He still is identifying the categories of biases, but he hopes to test the three-part strategy in companies during 2014.

It may be tough to unlearn unconscious biases, said Amodio, an associate professor of psychology and neuroscience. His research into the amygdala suggests that part of implicit bias involves classical fear conditioning, a process in which something neutral elicits fear because we have learned to associate it with something bad.

“That suggests that implicit prejudices are learned quickly and they may be indelible,” Amodio said. “They may be impossible to completely unlearn.”

It may be more effective to find ways to help people override their implicit prejudices rather than try to undo those automatic biases, he said.

Amodio’s research has found that the brain is well-equipped for controlling unwanted biases — if the person detects their presence.

The anterior cingulate cortex, which plays an important role in cognitive control, can detect the activation of implicit attitudes. This region appears to detect conflicts between a person’s overarching goal — such as being egalitarian — and automatic behaviors that conflict with it — such as prejudiced thoughts or intentions.

The anterior cingulate then signals the dorsolateral frontal cortex, which is involved in making moral decisions, creating the possibility of overriding implicit biases.

“So although biases are sometimes difficult to detect and override,” Amodio said, “they are by no means inevitable or uncontrollable.”

Todd Henneman is a writer based in Los Angeles. Comment below or email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.

Posted on November 10, 2013August 1, 2018

The Culture of M&A

Corporate bedfellows continue to rush through courtships and say “I do” to organizational marriages whose financial performances prove disappointing in the boardroom.
Decade after decade, studies find that the vast majority of mergers and acquisitions falter. One reason often cited: culture. More than 90 percent of mergers-and-acquisition professionals surveyed by consultancy McKinsey & Co. say that their deals would have “substantially benefited” from better understanding the organizational cultures before the merger.
Consultants offer these four tips for increasing the odds of a happy organizational union.
1. Know thyself, said Dan Avery, a principal with the mergers-and-acquisition practice of Point B, a management consulting and venture investment firm. Often, acquirers focus on assessing the culture of the target, he said. But the acquirer needs a deep understanding of both cultures.
2. Use data from your human resource information system, said Karen Bundy, a principal with Mercer’s mergers-and-acquisition business. “It can be very telling as to how your organization behaves, what employees actually ‘do’ vs. what they ‘say,’ ” she said.
One company looked at a potential merger partner’s internal labor flow map—a picture that shows how people move into, through and out of an organization —and turnover data. They showed that, though the potential partner said it had a performance-management culture, it was “managing out” its good talent because its practices were too black-and-white, Bundy said.
3. Focus on shaping culture rather than integrating it, said Kevin Knowles, principal at Deloitte Human Capital Consulting. “You can integrate people, processes and technology,” Knowles said. “But you can’t integrate culture—effectively.”
Mergers and acquisitions succeed when culture and strategy reinforce each other and enable an outstanding employee experience, a differentiated customer experience and superior business performance, he said.
“We have the ability to precisely define where behavior will inhibit or execute strategy, but more often than not I see clients using a standard one-size-fits-all approach to their culture,” Knowles said. “Shaping culture is more a science than an art — but unless it’s fully committed to enabling strategy and delivering value, it will always be a silent killer of value in M&A.”
4. Acknowledge the transition may feel scary and that your workforce may have questions that can’t be answered yet, said Linda Fite, vice president of training and consulting with Pritchett, a firm that specializes in change-management and merger integration. “Set their expectations to meet the reality that they’re going to experience,” she said. “Otherwise, they’ll see that reality as proof it’s not working out and that they should start looking for another job.”
 

Todd Henneman is a writer based in Los Angeles. Comment below or email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.

Posted on March 22, 2013August 3, 2018

Is HR at Its Breaking Point?

Three years ago, Toronto-based G Adventures held a funeral for its human resources department.

“We had a company function where I put up crossbones and skull with the title ‘Death of HR,’ ” says Bruce Poon Tip, founder of the adventure-travel company, which employs 1,500 people.

Poon Tip took the drastic action after spending a year looking for a veteran of the field to

become vice president of human resources, which would have been a new position overseeing the five-person department. He received 600 rèsumès and spent months interviewing candidates.

“Every meeting I had, I couldn’t wait for it to end,” he says. “It seemed like HR was the art of oppression. I knew I didn’t want that in my company.”

The debate over HR’s shifting function and format continues, but it is apparent that as executives shift their corporate priorities, HR is following suit. Some companies have chosen to outsource their HR functions; others have shifted responsibilities to front-line managers in efforts to transform HR leaders into business leaders; and some, like G Adventures, have no HR department whatsoever.

Poon Tip moved administrative tasks into the finance department and created two new departments. The so-called “talent agency” focuses on recruiting and talent management. The “culture club,” where everyone has the title “karma chameleon”—named after the hit 1980s song sung by Boy George—organizes everything from fundraisers for the company’s nonprofit foundation to holding celebrations whenever G Adventures wins an award.

Poon Tip’s approach wouldn’t work for many organizations, but a growing number of companies are reimagining their HR structures along with who executes their people strategies. Almost 45 percent of organizations indicated that they will change their HR structure by the end of 2013, according to Towers Watson & Co.’s 2012 HR Service Delivery Survey, up from 28 percent in the previous year’s survey.

Jac Fitz-enz, founder of the consulting firm Human Capital Source, says it’s time for the C-suite to forget tradition. Organizations should pull apart HR departments and place pieces where they fit naturally. “We have patched together a function that isn’t working very well,” Fitz-enz says.

If it’s the sunset of HR as we know it, the new era’s dawn can’t come soon enough for Robert Bolton, a partner in KPMG’s HR Transformation Center of Excellence. The field has “relentlessly pursued best practices and generic models” with a blind eye to business strategies or even industries. “If people are significant for your organization in relation to achieving a competitive advantage, and if you are trying to steal a march on your competition, then that calls for a differentiated HR function, not one that looks like everybody else’s,” Bolton says. This never-ending chase of best practices and copycat models has put HR in a “doom cycle,” he says. “To my mind,” he says, “HR has got to break out of that or die.”

Deerfield, Illinois-based Beam Inc. might be a bellwether of how larger organizations can branch out. The maker of Pinnacle vodka and Maker’s Mark bourbon is midway through reinventing its approach to HR and talent management, a process that began 18 months ago.

In October 2011, Beam became a stand-alone spirits company after Fortune Brands Inc. split up its three enterprises. Fortune Brands sold its golf business, best known for its Titleist golf balls. It then spun off Fortune Brands Home & Security, whose brands include Moen faucets. The remaining business, which includes the Jim Beam whiskey brand, became Beam Inc. It has 3,400 employees.

At the new Beam, executives wanted a culture that encouraged managers to think and act more like entrepreneurs. Based on that concept, they thought about what entrepreneurs do.

“If I’m an entrepreneur running a small business, the first thing I don’t do is go out and hire an HR person,” says Steve Molony, Beam’s director of people strategy and solutions. “If I’m starting a small business, I should be making all these decisions. Big companies get bloated with bureaucracies and these big, huge back offices that remove the business leaders from making some of these decisions. We wanted to reverse that trend when we were still lean and nimble enough to do this.”

Beam hopes to nurture what Molony calls “holistic managers,” who take on deeper HR responsibilities. “That means they don’t just have their job of operational and financial management of whatever part of the business they’re in,” Molony says. “But their responsibilities are to attract, develop, retain and compensate the people on their team, which are traditional HR roles that would have been done by centralized HR teams.”

Take plant managers. In the past, they would tell HR what role needed to be filled, wait for a list of candidates and then be told the new hire’s start date after making the selection.

In the future, plant managers first will decide whether the job is necessary. If it is, they next would decide whether they have an internal successor or need to look outside. They also would look at market data about salaries, negotiate the pay and onboard the new hire.

The change isn’t happening overnight. It requires training, such as helping managers and other leaders understand what would happen if they paid everyone at the 75th percentile of the market, for example. And they won’t be without help from seasoned HR professionals—just fewer of them.

As part of its transformation, Beam is centralizing its disparate HR departments.

It has adapted the business-partner model first championed in 1997 by Dave Ulrich, a business professor at the University of Michigan. His model rests on three pillars: a shared service center, whose centralized staff handles administrative and transactional tasks; centers of excellence, which offer specialized consultants on topics such as training or labor relations; and business partners who advise business-unit leaders on talent strategy such as succession plans.

Beam didn’t adopt Ulrich’s framework wholesale. Its tailored tactic lets the company have a leaner business-services staff and fewer HR business partners, Molony says. In the traditional framework, those HR practitioners would have handled many of the activities Beam envisions managers taking on.

The goal: Develop a better caliber of business leaders that will help Beam outperform its competition. It’s not an HR cost-cutting exercise, Molony says. “We feel like if we give our business leaders these skills, it will differentiate us in the market,” he says.

The goal of HR leaders becoming business leaders and front-line supervisors taking on more HR-like work remains an aspiration, not a reality, particularly for small to midsize employers. “The HR people are absolutely drowning in many cases in the transactional-type stuff,” says management consultant Susan Heathfield, who covers HR for About.com.

At some companies, talent leaders see the potential for other departments to take over aspects of HR. At digital advertising agency Razorfish, Anthony Onesto, director of technology talent development, has asked his recruiting and marketing teams to get together so they work more closely and think about recruiting as a marketing effort. He acknowledges that recruiting likely will not become part of the marketing department, but he also thinks that much of what an HR department does could be done elsewhere.

“This HR group could be dissolved, and folks could be handed some of the responsibilities, and I think we would be OK,” says Onesto, emphasizing it’s a theory, not a plan. But if it happened? “There would be no need for someone like me,” he says. “I would have to reinvent myself. I’ve done it” before.

Other companies already rely on managers to lead aspects of what an HR department does elsewhere. The Container Store Inc., a Coppell, Texas-based retailer with 58 locations nationwide, holds store managers responsible for career development and employee morale, says Eva Gordon, vice president of stores. The Container Store also is famous for its training—263 hours for full-time employees in their first year.

“We hire fantastic people, we train them really well to understand leadership and communication, so who better to manage careers and guide people and answer their questions than their manager?” Gordon says.

Susan Meisinger isn’t so sure. “You can’t tell me there isn’t somebody who is making sure that no matter how they’re doing their talent recruitment, that it is being done in accordance with law and that they’re reaching a pool of candidates who have a higher likelihood of success,” says Meisinger, a consultant who retired as president and CEO of Society of Human Resource Management in 2008. “You can’t tell me there isn’t going to be some consultation going on when there are performance issues, sort of an adviser somewhere in the corporation to help managers improve performance when there are performance issues.”

At Netflix Inc., recruiting largely is considered the responsibility of the hiring manager. The recruiting team handles transactional aspects, and managers determine the market price for salaries through multiple channels, according to spokesman Jonathan Friedland. He declined to elaborate or comment further.

The video-streaming company raised eyebrows in 2011 when it sought a new HR director. Netflix specified that it wanted someone who “thinks business first, customer second, team and talent third” and did not want “a change agent, an OD practitioner, a SHRM certificate, a people person.”

Some observers saw the job posting as a reflection of the C-suite’s frustration with the HR field, which struggles to shed its image as little more than open-enrollment gurus and rule enforcers.

“HR has been for many years scoring on its own score card,” says Dick Beatty, professor of human resource management at Rutgers University.

A recent study suggests Beatty’s right. “Help people grow” was the No. 1 reason HR leaders cited for entering the profession, according the New Talent Management Network, a group of HR professionals started by Avon Products Inc.’s former vice president of global talent management.

“It’s lovely to talk about ‘business partner’ and ‘seat at the table,’ but the challenge for HR leaders is: Do they understand what’s being served at that table?” says Marc Effron, president of the consulting firm The Talent Strategy Group and founder of the network. “It’s a business meal. It’s not an HR meal.”

This gap may explain why CEOs rank talent as a top priority but don’t mention the HR function.

For example, Irv Rothman, president and CEO of HP Financial Services, a wholly owned subsidiary of the Hewlett-Packard Co., keeps talent management as a standing item on his executive team’s agenda. But he doesn’t see it as something the HR department should lead.

“It’s not an HR process,” Rothman says. “It’s a business process because it’s the business that sees people in action. HR has a role. They have a role in creating the environment and creating the infrastructure. For HR to conduct talent management to me seems a little … I don’t know.”

In his book, Out-Executing the Competition, Rothman recommends that no CEO delegate the cultural implications of a merger to the HR department, which he describes as good at such things as benefits. “If the HR department is delivering that message and achieving that visibility, it’s not the inspirational leadership that people are looking for in the aftermath of a merger when just about everybody is as nervous as cat in a roomful of rocking chairs,” Rothman tells Workforce.

Survey after survey continues to find that HR leaders are viewed as low status and better at transactional tasks than strategic planning. “If we’re doing our job well, people don’t say those things,” Effron says. “It’s very easy for HR to whine that people don’t respect us, but people respect those who deliver results.” The solution? Attract a fresh pool of talent into the field that understands business and wants to maximize profits, Effron says. “In many ways, it’s not: ‘Can we teach those in the field to do it better?’—it’s: ‘Can we get different people in the field who truly understand what it takes to succeed in this area?’ ” he says.

During the recession, many global organizations learned that they could do more with less if they had flatter HR departments, fewer job grades and health plans, and used more self-service tools, says Harry Osle, The Hackett Group’s global HR transformation and advisory practice leader.

The result: Leaner HR departments that add more value for every dollar spent than their peer groups and run by professionals skilled in analytics and consulting. “HR organizations in the future are going to be a lot thinner,” Osle says, “but they’re not going to disappear.”

Meisinger, the former SHRM president, says HR departments historically have become leaner during economic downturns. It’s more efficient to have managers do a better job of managing than wait for people problems to emerge and be pushed over to HR.

But even companies that boast that they have no HR department retain someone with HR expertise to help guide recruitment and talent management, she argues.

Still, technological advances will continue to transform the field. Companies have “dramatically” more self-service tools available now than they did 10 years ago, Meisinger says.

“That’s freeing up HR to focus on what it should be: getting in the right talent and making sure they’re developed appropriately and looking at the strategy of the business—where is the business going and what are the talent needs?” Meisinger says. “There are a lot of folks in HR who grew up in the transactional world who aren’t equipped to operate in the strategic world.”

Todd Henneman is a writer based in Los Angeles. Comment below or email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.

Posted on August 3, 2012June 20, 2018

DreamWorks Animation Draws on Experience of Mentors to Integrate New Hires

teacher, classroom

Visual effects artist Zach Glynn was nearing the end of new-employee training at DreamWorks Animation SKG when he mentioned to his mentor that he had a little down time.

His mentor’s response: “If you don’t have anything to do, help me with what I’m working on.”

Soon, Glynn was collaborating on how best to depict a snowball exploding as it hit a character in the 3-D film Rise of the Guardians, which opens in November with Santa Claus, the Easter bunny and the tooth fairy uniting to protect children from a bogeyman.

“It was a really good learning process,” says Glynn, 27, who joined DreamWorks after graduating last year from Brigham Young University. “I’d show him what I’d come up with, and he’d show me what he had been doing. And we just kept that process up, and coming over to each other’s desk and showing the progress we had until we merged these little effects into the snowball.”

New hires like Glynn are paired with mentors within their own departments. “It’s nice because it feels very peer to peer,” says Glynn, who works at the company’s Redwood City campus 28 miles south of San Francisco. The goal: help new employees understand the department’s structure, its place within the overall organization and how to navigate the structure to get things done, says Dan Satterthwaite, head of human resources for DreamWorks Animation.

“In a rapidly growing environment, that can be difficult for a new person to grasp because it can all be overwhelming,” Satterthwaite says. “It also helps connect that new person into the already established community of people who do the kind of work they’re coming into, whether it’s a software developer or an effects artist or an attorney in the business affairs department.”

The mentoring program is one tactic for integrating new hires.

It’s a wise move because fast-growing companies must help new members feel like insiders by creating ways to experience the “tribal connection” forged during the early years, experts say.

“If an organization doesn’t make conscious efforts to not only onboard new team members but also to create cultural moments that give them the experience—not just the language—of the vision, then it’s very difficult for them to feel bonded,” says Anna Liotta, CEO of the consulting firm Resultance.

Liotta, who hasn’t worked with DreamWorks, recommends spreading activities across 90 days.

That’s exactly what DreamWorks Animation does.

After orientation, employees spend four to eight weeks training on the company’s proprietary software. Then within their first 60 days, they attend a “welcome session,” hosted by CEO Jeffrey Katzenberg and other members of the senior management team.

“Hearing Jeffrey personally talk about what’s important for the business, what his vision is for the company and what his feelings are about the culture and the environment proved to be really, really helpful,” Satterthwaite says.

A perennial favorite: the question-and-answer period that lasts up to 40 minutes, during which new hires pose questions to Katzenberg. “The questions run the spectrum from ‘How do we choose what movies to make?’ to ‘How many hours on an airplane do you spend each year?’ ” Satterthwaite says.

Then after 90 days, new hires sit down one-on-one with someone from Satterthwaite’s team for “best practices sharing,” where they’re asked for ideas based both on their first few months at DreamWorks as well as from their experiences elsewhere.

“We hire so many experienced people that we get lots of interesting ideas from other companies,” Satterthwaite says. “And we hire a good number of recent graduates so we get fresh eyes.”

In one case, new artists shared an idea for software plug-ins that would help create the illusion of 3-D when using Adobe Photoshop, a 2-D-oriented application. Technologists at DreamWorks developed plug-ins that sped up the work of some artists and continues to be used today.

“We’ve got all these interesting ideas from people through that process,” Satterthwaite says.

As Glynn approaches his first anniversary there, he says he feels like a part of the DreamWorks family. But as someone who has dreamed of being an animator since third grade, he’s eager for his real family to see the snowball explosions he worked on with his mentor.

“I’m super-stoked,” he says. “I keep sending out emails to my family, and I can’t wait for the new trailer to drop.”

Todd Henneman is a writer based in Los Angeles. Comment below or email editors@workforce.com

Posted on July 25, 2012June 20, 2018

DreamWorks Animation Etches Out a Creative Culture Through Connectivity

When DreamWorks Animation SKG released Madagascar: Escape 2 Africa in 2008, the studio had 1,693 employees. By June 2012, when it released Madagascar 3: Europe’s Most Wanted, it had 2,403 employees—a 42 percent growth in headcount in less than four years.

It was a blockbuster change.

This workforce expansion—undertaken in a cost-cutting era where rival Walt Disney Studios shuttered its ImageMovers Digital, which had produced the pioneering motion-capture film The Polar Express and the animated flop Mars Needs Moms—dovetails the company’s business strategy.

DreamWorks, which had been releasing just a film or two each year, has adopted a strategy that calls for releasing five films across two-year periods, with a goal of ultimately reaching three a year. It also has moved into Broadway musicals based on movies, such as Shrek the Musical. The move requires a larger workforce, which could have endangered the company’s small-studio feel.

“As DreamWorks has grown and grown in terms of the size of the workforce, we very much didn’t want to lose that characteristic where people feel like individuals and they don’t feel like they’re part of a large corporate machine,” head of human resources Dan Satterthwaite says. “That was one of the mandates that I had when I was brought onboard in 2007, which was at the beginning of that big growth spurt.”

Satterthwaite and other executives looked for new ways of recognizing individualism and perpetuating a sense of organizational intimacy. The outcome: They introduced initiatives that range from paying for the personalization of workspaces to sending daily updates from the CEO.

At DreamWorks, all employees traditionally had gathered for periodic updates by chief executive Jeffrey Katzenberg. But the logistics became increasingly complicated: DreamWorks had expanded its original campus in Glendale, California, acquired a campus in suburban San Francisco and launched a joint venture in India. As the workforce grew, the frequency of all-employee updates shrank.

The solution: Katzenberg began writing daily posts that were sent by email throughout the organization.

“They’re authored by him, they’re edited by no one, and they’re sent to the entire workforce by him, usually at the end of his day, which is 10:30 or 11 o’clock at night,” Satterthwaite says.

The company declined to share an example of a post, which a spokesman characterized as the “most confidential of all company correspondences.” These messages cover everything from with whom Katzenberg met or dined to public feedback on movie previews and his thoughts on the industry.

“They have this intimate insight into what decisions are being made when and what are the strategies,” Satterthwaite says. “Not a lot of people are left wondering what’s going on, what’s happening next, what our priorities are, because they’re constantly being shared that information.”

Culturally, the daily posts also have proven to be organizational glue. They provide a common topic to discuss in hallways, over lunch or over the phone. “The blog posts are something people can relate to because everyone is getting the same information at the same time,” Satterthwaite says.

The big, all-employee gatherings haven’t ended.

Every 18 months, the company holds what it calls a creative update, where executives share drawings, images or clips from anywhere between 10 and 15 films in different stages of production. The goal: to let the entire workforce know, starting from conceptual stages, what’s happening.

Periodically, employees also gather for “DreamTalks,” held in the cafeteria and transmitted live to the Northern California campus. Katzenberg interviews guests who have included Starbucks Coffee Co. CEO Howard Schultz and Avatar director James Cameron.

“It’s a wonderful perk for people to enjoy,” Satterthwaite says. “But the core of it is something a bit more important: That people do need to step away and see outside their own world in order to think differently and in order to challenge the way things get done.”

Mark Tokunaga, who joined the company eight years ago from Disney, says the various forms of updates make everyone, regardless of function, feel connected to the business and to one another.

“Jeffrey is very transparent with all the employees,” says Tokunaga, director of digital operations, who oversees the company’s digital infrastructure and services. “We have regular company updates as well as production updates so we know all the things that are coming down the pike.”

Walk around the headquarters eight miles northeast of Hollywood and you’ll see workspaces decorated so elaborately that they look like a set decorator commandeered the office buildings. One bay of cubicles, for example, with its camouflage netting and sandbag border, looks like an Army barracks. The company provides each person with funds to personalize their space.

“We don’t want this to be a sterile environment,” says Scott Seiffert, who leads tours of the studio. “We want the workspace to be as cool as possible.”

Every film also has a budget for what production designer Kathy Altieri calls team building, and each department holds annual outings to perpetuate the sense congeniality.

“You address business concerns—what would you like to see better at the studio, what can we do for you to make your jobs easier, how are things going—to silly stuff like, ‘Let’s build a paper airplane in five minutes and see who can fly it farthest off the building,’ ” Altieri says.

The first animator hired, Altieri followed Katzenberg from Disney when he co-founded DreamWorks Studios in 1994. (DreamWorks Animation became a separate public company in 2004.) She believes that the studio has retained its small-company feel even as it has tripled in size.

“That feeling of family and that feeling of intimacy,” she says, “and that feeling you can call one of the executives in charge of an area and say, ‘I have an idea,’ or, ‘I have a complaint,’ still is there.”

Todd Henneman is a writer based in Los Angeles. Comment below or email editors@workforce.com.

Posted on March 15, 2012August 8, 2018

The Age of Employer Paternalism

Employers in the 1950s sought lifelong employees and competed for talent by promising employment stability and long-term financial security, says Nelson Lichtenstein, professor of history at the University of California at Santa Barbara.

“One of the major thoughts was: ‘What we need are stable workforces. We don’t want people to leave. We want people to stay,’ ” Lichtenstein says. “That was taught in business schools, in personnel management, and was thought to be the most advanced and efficient way to run a workplace. Today, turnover and contingent work are built into the cake. It’s a product of managerial decisions that this is the way they want to run their workplaces. That’s the biggest shift between the 1950s and today.”

The 1950s was the heyday of the paternalistic company. It also was an era when unions represented one-third of workers. Nonunion companies such as Eastman Kodak Co. and IBM Corp. matched or surpassed the medical and health benefits that unions negotiated elsewhere in hopes of remaining nonunion shops, Dubofsky and Lichtenstein say.

Nonmanufacturing layoffs such as those announced this past February by Procter & Gamble Co. would have been unimaginable in the 1950s, says Dubofsky, co-author of Labor in America: A History. “If anything, they were hiring more people at those levels.”

Todd Henneman is a freelance writer based in Los Angeles. To comment, email editors@workforce.com.

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