Executive Briefing - Confidence Drops As Pressure On Leaders Rises

By Steve Bates Feb 1, 2004
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HR Magazine, February 2004Also: IRS initiative on executive pay; employees not as happy as employers think; strategic HR a work in progress; more.

The increasing pressure on today’s business leaders could cause many to retire prematurely, leading to a crisis as not enough young people are ready to succeed them in the United States and elsewhere, warn officials of Development Dimensions International (DDI), a Bridgeville, Pa.-based consulting firm.

Based on a survey of more than 1,500 leaders and 1,400 associates from 14 countries, DDI’s recent leadership forecast found:

  • Nearly three-fourths of business leaders feel greater pressure to perform than they did just one year ago, and nearly two-thirds feel that their performance is being judged more stringently.
  • Leaders say they are strong in only one-third of the skills they need to do their jobs.
  • More than two-thirds show the potential for becoming derailed at some point.
  • Seventy-eight percent of all business organizations surveyed say they have trouble identifying qualified leadership candidates.

“Work hours are getting longer, challenges more difficult and resources scarce,” says DDI Senior Vice President Rich Wellins. “Many leaders are getting fed up. There is a pressure to do more with less, and leaders are feeling the stress.”

Particularly in C-level positions, “leaders feel neglected,” says Wellins.

But HR professionals can help. “They need to be a champion of making the business case for training at the C level.”

Employees Not as Happy With Benefits as Employers Believe

Workers are a lot less satisfied with their benefits than their employers think they are, according to a new study from New York-based insurance and financial services provider MetLife.

Forty-one percent of employers say they believe that their workers are content with their benefits, but only 32 percent of employees polled at the same time said they are happy with their benefits. Similarly, 54 percent of employers polled say job satisfaction is high among their workers, whereas only 44 percent of employees agree.

The share of workers satisfied with company-provided benefits has dropped substantially in the past year, from 41 percent to 32 percent, as many U.S.-based employers have raised the cost to employees, scaled back benefits or both. The decline in satisfaction is particularly severe among men, according to MetLife: from 41 percent to only 29 percent.

The firm says benefits satisfaction is strongly correlated with overall attitudes toward one’s employer. MetLife found that among employees who are highly satisfied with their benefits, at least 64 percent say that benefits are an important reason why they stay with their employer, why they are satisfied with their job and why they feel strong loyalty toward their employer.

The results of the survey “should be a wake-up call for employers,” says Jim Gemus, senior vice president of MetLife’s institutional business. “Once the job market opens up, these companies could be at risk of losing their top talent.

“To improve employee satisfaction with benefits, employers should focus on increasing employee awareness and utilization of their benefits,” says Gemus. Regular communication to workers about the importance of decisions about their benefits “will make employees more aware of the value of their benefits and help them to make sound financial decisions.”

IRS Plans New Scrutiny of Executive Compensation

In a little-noticed initiative, the Internal Revenue Service (IRS) says it is starting to audit large companies’ executive compensation practices to determine if organizations are paying their proper share of taxes. Among the practices to be given new scrutiny are corporate travel, housing, retirement contracts, executive loans and nonqualified deferred compensation plans. However, other issues could be involved, according to media reports and consultants monitoring the policy.

The tax agency’s initiative comes on the heels of corporate governance drives by the Securities and Exchange Commission and Congress, through its landmark Sarbanes-Oxley law. “This is a big, big issue,” and one that could ultimately affect medium and small companies as well, says Brent Longnecker, president of Longnecker & Associates in Houston. “Everybody should be a little nervous.”

The IRS has indicated that executive compensation will be investigated routinely as part of corporate tax audits. Longnecker suggests that the IRS is more concerned about the way compensation packages are designed than their total value.

“They’ll probably be looking for people who are interpreting the tax code very aggressively,” says Longnecker. “They’ll probably create a game plan or template” for agents to use in corporate audits. “The person who is most susceptible is the small- to mid-cap company,” which does not have the same resources as larger corporations to structure and defend executive compensation tax practices, he adds. “Don’t wait for the IRS to knock on your door” to ensure that your executive compensation practices meet tax laws, says Longnecker.

Outside Directors’ Compensation Soars After Scandals

After a couple years of scandals centering on poor corporate governance at several well-known U.S. firms and a push for more qualified, independent directors, those directors are getting paid better for their efforts, reports the New York-based Conference Board, a business advisory organization.

Pay for members of boards of directors was up last year in all three industry sectors studied, based on a survey of practices at more than 600 companies, according to the Conference Board. With organizations under pressure to clean up their acts, audit and compensation committee retainers are also up in the past year.

The Conference Board survey found that in the manufacturing sector, median total compensation for outside directors has reached $69,620, a substantial increase from $55,700 a year ago. In the financial sector, director pay rose from $41,450 to $55,000. Service sector directors saw their compensation rise from $48,400 to $60,000.

Total compensation includes all fees and retainers; annual, one-time or periodic grants of stock; restricted stock grants; and the value of stock option grants. Typically, outside directors are required to attend meetings about six times a year, says the Conference Board report.

A separate Conference Board study found that CEO compensation rose in 2002, the last year for which it has comprehensive data, compared with 2001—despite a struggling economy and poor economic outlook for much of 2002. The telecommunications industry was the only major sector in which CEO pay dropped that year, according to the study. Stock option grants “were smaller in the majority of industries” in 2002, says Charles Peck, The Conference Board’s compensation specialist and author of the report. “This may signal a trend away from using this device.”

HR Transformation: Still a Work in Progress

Human resources is still largely caught up in its traditional, transactional role, professionals concede in a survey by New York-based consulting firm Towers Perrin, but HR leaders are rethinking their structure, staffing models and required competencies for the eventual shift to a more strategic profession.

Confirming the key findings of a study conducted by the Center for Effective Organizations at the Marshall School of Business at the University of Southern California, the new Towers Perrin survey, titled “Tougher Times, Tougher HR,” offers some good news: HR’s agenda does seem to be well aligned with the needs of business; HR managers feel that they are meeting key objectives, such as redesigning health care programs; and HR is collaborating well with other functions, notably finance.

However, there are a couple major stumbling blocks for HR in shifting toward a more analytical role, says Towers Perrin Principal David Rhodes, who was involved with the report. These involve metrics and who is best suited for strategic HR.

Many HR people fight “real measures of people effectiveness,” says Rhodes. Many say they shouldn’t be held accountable for results beyond their own department because they cannot control those results, notes Rhodes. He adds that HR people have to take the plunge and commit to measuring key business outcomes and not worry about who looks good or bad but focus on improvement.

And some HR people might not be well suited to the high-profile, strategic-oriented leadership roles being carved out in many organizations, Rhodes comments. “There is something about selecting for the new, transformed HR positions” that will depart from previous processes for selecting and promoting HR professionals, he says. “It’s a bit hard-nosed” but essential, Rhodes continues.

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