Archives for posts with tag: Compensation

How to Hire People

January 6, 2016 //
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The Wall Street Journal just had an article about a new staffing trend some companies are using, Blind Hiring. The idea is to remove key information from resumes, like schools, past employers and even prospects’ names. The hope is this will reduce built-in bias that many managers have to favor people from their alma mater, or from a trendy tech firm, or to not chose equally qualified women versus men. These firms, like parts of IBM, are sometimes inserting a mock project into their process to try to focus on people’s real talents not words on a resume.

As many of you know, I have strong feelings about how, in many firms, Human Resource people have taken on too much power and hiring is a good example. So what are some thoughts I have on how to hire people?

  1. The hiring manager should research the job market themselves and write the job description or ad. When this happens the manager knows more about the role, skills required and pay than any HR person would ever know.
  2. My old boss and successful business owner, Don Brown, had some very unique things he would do when hiring people. And since he hated to read, resumes were not a part of his process.
    1. He would sit and talk to someone face to face and alone to get to know them. When I was “interviewed” for a senior financial role we talked about my son joining Indian Guides, Shetland Sheep dogs and family. No technical stuff at all. He was interested in me, as a person, not as a young CPA.
    2. For a critical senior job that I helped on, Don Brown met the prospect 5 times in the office, once over lunch and once with the person’s spouse for dinner. It resulted in a great hire.
    3. When he could, he would watch the job prospect walking back to the parking lot. Did they still seem to have energy and pride in their walk or were they just acting that way in the interview.
    4. Don Brown tried to hire quality people which he knew meant they would probably be quality employees. If you spend the time to get to know someone, the odds of a good fit increase!
  3. When I have followed most of these steps, I ended up with excellent, loyal and long-time employees. It is all about spending time to get the know the person, not being impressed with what is on a resume.

 

Reminder: my book, The Business Zoo by Brad James is now available on Amazon.com as both a paperback and an e book.

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No Human Resources!

July 2, 2014 //
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This was the focus of a Wall Street Journal article a month ago. I got so excited, I spilled my coffee! The article was surprisingly balanced and covered the pros and cons of having no formal HR group. The subtitle was, Is it a Dream or a Drag?

The article points out that many smaller firms start out with no HR. Then, after growing to a couple dozen employees, firms tend to setup HR. The same occurs right after a company is hit with a huge employment related litigation like a discrimination or harassment suit. (This is a reaction due to fear which is not good in business or in a zoo!)

Larger firms and especially public ones have large human resources groups. The article states that companies have, on average, 1.5 HR people for every 100 employees. Wow! And even those half ones can be costly and dangerous.

Having worked in both smaller, private firms and large, public ones I do have an opinion or two on this HR debate. When private company Donn was acquired by public USG Corp. we had no HR professionals at our main Ohio headquarters. With our two large operating plants there, we had just under 1,000 employees which generated sales in today’s dollars of $200 million. Not a small business. Within a couple years, USG had installed 7 HR, Labor Relations and Safety people. After the recent recession, that was substantially reduced. So how did Donn manage without all this HR help?

Every manager at Donn was their own HR person. You hired people, gave promotions, organized training and fired people on your own. If we had the need for a professional opinion because of the threat of litigation, we hired a specialist lawyer or labor relations consultant. And you learned much more about your people, their ambitions and their concerns because you had to work through issues directly with them, not with an HR person along your side (or in your way.)

That said, I believe there is a role for HR especially in larger firms. As they grow, companies need some standardized approach to compensation and promotions. Good HR people, like my USG friend Gary, can also help a firm introduce bold, new programs like mentoring and diversity (not an easy thing twenty years ago in the male oriented construction industry!) But good HR groups needs to remember that it is a staff, advisory group, not a sole decision maker or star maker in people’s careers.

We have many more stories about HR coming in The Business Zoo!

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M.B.A.s and other Certifications

April 14, 2014 //
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One of the young men, we will call him Bob, that I have been advising on his career asked me an interesting question about advanced degrees or certifications.  Bob recently received a M.B.A. from a good school in Ohio. Bob is currently employed with a small, private firm as a combined Office Manager and Controller.  In trying to change jobs and upgrade his position and pay, Bob was finding that the M.B.A. alone was not providing him with much of an edge. So his question was, what about working on a CPA (certified public accountant) or a CMA (certified management accountant). Although his question was rather specific, it reminded me of the countless times I have been asked about advanced degrees or certifications by young business people.

About the same time this occurred, the Wall Street Journal ran an article about how prospective M.B.A.s are unhappy with the “strings-attached tuition reimbursement” that many organizations require. The article describes how young people do not always want to remain with their employer for several years to qualify for the full cost reimbursement of these programs. At many of the top prestigious schools, a regular M.B.A. costs $100,000 and an Executive M.B.A. can now run to $175,000. That is a lot of money! Especially to pay on your own with no help from your employer.

So, as a seasoned (read old) recruiter and mentor to many young financial people, what are my thoughts on all this?

First, an M.B.A. for most young people, who want to advance in business today, is a must. An M.B.A. to this generation is like a Bachelors degree was 25 years ago. If you can qualify and afford to attend a top school, either with your own resources or your employer’s help, do it. But for most young people the M.B.A. title is more important than the school. For example, in Chicago, for full-time programs,  you can spend $110,000 at Northwestern or the University of Chicago or you can spend about half that at DePaul University or the University of Illinois. And even less at many other area schools. The prestigious school may help you move faster in your career initially, but twenty years down the road, the key will be that you have an M.B.A.

The  CPA certificate is great and is required if you intend to work in auditing or tax for a long time. Also a CPA is very good for a public company Controller position, dealing with the SEC and accounting rules. In most of general industry, however, the CPA sounds good but doesn’t really bring much to most jobs. If you would like a shot at a CFO (Chief Financial Officer) role someday, I believe a CPA does have value and practical use as well. As a CFO/CPA, I never felt totally lost even in very technical conversations with my Controller or our outside CPA firm.

The CMA is a newer certification and is viewed by most recruiters and Human Resources people as below a CPA, but still a major accomplishment. For most financial people working in industry, the CMA is a good alternative to consider.

In conclusion, all advanced degrees like the M.B.A. and certifications like the CPA or CMA certificates are good for your resume and can, in many cases, actually help you on the job. But, again, for young people in business, your best bet is to get an M.B.A. from somewhere that fits into your budget and life plan not from the highest ranking (and expensive) school you could attend.

Good luck in your continued education!

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Public Vs. Private CEO’s Work Habits

March 31, 2014 //
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The Wall Street Journal recently had an article titled, “Do CEOs of Family Owned Businesses Work Less?”

The article referenced a study by several major universities of 356 chief executives around the world. They concluded that family owned business leaders work about 8% fewer hours than those in public firms. The study was solely about hours worked, not how effective a given CEO was in their job.

Having worked half my career for a family-owned firm and half for public ones, I will offer some thoughts on this topic. In my forthcoming book, The Business Zoo, I often compare and contrast smaller, private firms and larger, public firms on a variety of topics. For example, I compare their approach to many people issues including rewards and incentives, as well as their approach to mergers and deals. But this topic of work hours is new to me.

Private or family CEOs:  I have found that Founders of firms often work and live their business full-time. It is their passion and they have trouble distinguishing between their work and personal lives. A friend gave me a retirement gift of an ancient Chinese saying called “Master in the Art of Living”. It basically says that those who are happiest and luckiest make no distinction between work or play, but simply pursue their vision of excellence in all they do. That is how I would characterize the Founders of many businesses and their work hours know little bounds as well. Don Brown, the private owner of Donn Corp. was like this. He could call you at any time with some new idea. All of his direct reports met with him on most Saturday mornings from nine to noon. Then he fed everyone a catered steak lunch! The article did mention that Founders’ hours might be much different than the typical second or third generation in a family firm. In those situations, the money is already been made or is guaranteed versus the uncertainty and drive the founder may had shown. There is an old saying which is often true: Fortunes are made and lost in three generations!

Private equity companies CEOs: When private equity firms like KKR or Apollo buy an operating firm, they usually grant the CEO and their staff the opportunity to make a lot of money through stock ownership. Sometimes there are time periods to vest the ownership or incentives if the firm performs even better than forecast. These CEOs, I have observed, work very long hours. Like Founders of private firms, they have a lot of skin in the game.

Public company CEOs:. I have found this group to work less than their private company equivalents. In my two large, public firms, by Friday afternoon, the senior executive area was very, very quiet. This was especially true in the better weather when golf was a major distraction for many. In the winter, Fridays could be quiet as well as some executives had second homes in Florida or somewhere warm. Sometimes customer calls had to be made on the way to that warmer locale. Both my old firms had, from time to time, corporate aircraft. An article a couple of years ago stated that official corporate aircraft logs often revealed that up to a third of all flights were to or from an area where the CEO or other very senior people had a second home. Hmm.

So for what it is worth, I believe that Founders of family owned private companies and CEOs of private equity firm companies, work more hours than many public firm CEOs! The Wall Street Journal article and the university survey may have had too narrow of a scope.

The more interesting factor affecting hours worked may be the amount of equity ownership the CEO has, whether its a private or public firm. Most large, public firm leaders own very little stock and often paid very little for what they do own. I would exclude Founders like Steven Jobs of Apple who often still own substantial amounts of their firms. I believe the more real investment someone has in a company, especially a financial investment, the harder and longer hours that CEO will work to protect what they have and to grow it even larger. Nothing wrong with capitalism here!

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Nonstandard Accounting and Management Compensation

March 14, 2014 //
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Wall Street Journal 2/27/14: Firms Alter Bonus Playbook and Use Nonstandard Accounting Measures to figure (Management) Payouts

Public company earnings are reported in quarterly and annual reports using what accountants, auditors, and the Security and Exchange Commission call ” generally accepted accounting principles.” These GAAP earnings or a multiple of them, based on how the firm is viewed in the stock market, creates the market price of the stock. Shareholders make money when the stock price increases.

But nowadays some 28% of the largest U.S. public firms calculate Management Compensation using different measures. These firms may start with the reported GAAP earnings but then add back various expenses to make the earnings higher. Some of these add back items can be the cost of stock options (usually to the same group), the write-off of an acquisition premium (or goodwill) even when those same executives may have overpaid to buy another company, and so on.

You are thinking, this is absurd! And very unfair and inappropriate! Well, get used to it. The number of large firms doing this has more than doubled in the last few years and I doubt it will decrease unless the public makes such a stink that the SEC or Boards of Directors force companies to change. One large, public firm in the article, medical products company McKesson’s shareholders voted 3 to 1 to stop this practice, and to require shareholder approval of executive compensation. But their Board of Directors (who are elected by the same shareholders) declined to adopt this measure. The Board cited that they “exercise great discipline” in deciding upon pay. Last year’s McKesson’s calculation started with the reported GAAP earnings of $.75 a share and some how added back enough to get them to $7.21 a share. Now I was the CFO of two large public companies, but even I was impressed with that story of financial artistry!

As discussed several times in my blogs, Shareholders elect the Board of Directors who in turn elect the Senior Executives. Boards rely on the company’s Human Resource people and outside Advisors to decide these matters. In over a decade of Board meetings I attended, only once did a Director get so upset that he convinced the others to throw out an obviously flawed Management Compensation plan. This needs to happen much more often.

In my book, The Business Zoo, I have written that in Board Meetings, the firm’s CEO should explain a new Management Compensation plan and its impact on pay. Not the Senior HR person or the CFO (yes HR often asks us to do controversial things) and certainly not an outside Consultant. If the Board has trouble understanding this new plan, they should hire their own Consultant to explain it or reject the plan until they do understand it and its implications.

And Shareholders, who have the ultimate power, should vote out Boards of Directors who allow practices or compensation plans that enrich Senior Management in ways that are not consistent with Shareholder’s value.

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Private company Incentives-Special Payroll

December 4, 2013 //
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I  really enjoyed the last post about private company incentives and the infamous Donn Corporation Outings. So today we are adding another unique reward that few companies would ever use.  Again this occurred at Donn Corporation while it was private and for reasons you will soon see was quickly discontinued when Donn was acquired by a very public firm. ( Warning: Some former Donn Corporation managers may want to delete these from their spouses’ computers or create one heck of a backup story!)

The Special Payroll Account:

The Donn payroll manager, Opal, maintained what we called the regular office/management semi-monthly payroll. This payroll worked like thousands of other ones at other firms.  But Donn’s Chief Financial Officer (my old mentor George, then me and our trusted Administrative Assistant, Kathy) maintained the special payroll Account. Both of these payrolls were, of course, reported to the IRS and the applicable state taxing people, but the special payroll offered people some unique benefits. The regular payroll only covered annual salaries to a fixed amount of say $75,000. Any base salary or bonus over that amount was paid quarterly from the special payroll Account. This insured that no one in payroll or accounting or anyone in a small department would ever know any top managers’ total compensation. Likewise, no one would ever know Don Brown’s or his family members’ total compensation. The accounting was handled by charging the special payroll in a large lump with no detail.

All of this is perfectly legal but with one moral caveat. Many of the top managers insisted that we not mail these special payroll checks to their homes. Rather they would come by personally and get them. Some of these Donn managers maintained special bank accounts of their own where they would deposit these special payroll checks. These amounts could buildup. For example, if you had a base salary of $100,000 and a bonus of $25,000, your special payroll checks that year totaled $50,000 before tax and say $30,000 after tax. After 5 years that’s a $150,000 special bank account. These non-reported-at-home funds could be used for hobbies, to pursue other interests or perhaps even charity.

When the large, public firm USG Corporation acquired Donn, several long-time Donn managers immediately quit rather than risk their marriages with the pending disclosure of their full salary checks. Some of us actually intermingled and disclosed our regular and special checks at home and did not have this problem.

But Donn’s owner, Don Brown, understood human nature and incentive rewards more than most Human Resource professionals. Mr. Brown also understood the little bit of larceny in the hearts of mankind that the Special payroll allowed some people to pursue in private.

This is probably another example of a private company incentive that is best not continued! But a great and true story.

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Private company Incentives-Outings

November 6, 2013 //
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In my book, The Business Zoo, I often compare and contrast how large public companies handle an area versus small, private firms. Some of the most vivid and striking differences involve how they motivate and reward their employees. Large, private firms, with all their Human Resource people, are often more rigid and follow exact guidelines. Private firms, historically, have more creativity and latitude. Here is a favorite example from my days at the very private Donn Corporation.

The Men’s Outing and the Women’s Dinner:  (Warning: These activities occurred and were named before our era of political correctness.)

The Men’s Outing was just that. All the 250 plant and office men at the main Ohio plant, on a Friday, traveled by buses to a nearby state lodge.

The bus ride down started at 7am and was always a treat especially for any innocent office guy who accidentally ended up on one of the plant guy buses. Beer was consumed before the ride as the neighborhood bar, Kelly’s, opened, probably illegally, at 5:30am that one special day each year. Beer was consumed on the bus ride. Beer was, at times, discharged or eradicated on the bathroom-less bus. Beer cans, empty, occasionally were ejected from the bus window, always in a safe and thoughtful manner. I know this firsthand.

My first year at Donn as I walked to the office guy bus, one of the plant managers grabbed me. His nickname for many reasons, was the Bear, and I knew from day one, he was not fond of me. Whenever I passed him in the Donn hallways, I would say Hi and the Bear would say f__ you. It took me months to actually understand what he was mumbling. This day he uses my real name and asks if I would do him a favor. My golden opportunity to bring him into my circle. I say, of course, Bear! He hands me a roster for plant bus #2 and says I am now in charge of making sure everyone is on it and to maintain order! Before I could decline or even asked him a question, the Bear disappeared! This was hard for such a big man to do. I took my roster, got on the plant bus #2 then tried to read the roster and take attendance.

A beer can, full, just misses my head. I made myself invisible for the next few hours. I still am abnormally uncomfortable while on buses. Fortunately, no one was seriously injured or went missing that day from plant bus #2.

The next year I drove, by car, with my old boss, George, to the Outing. Once at the state lodge, you could play golf, go fishing, ride horses, and of course, drink beer. No official Donn business took place.  All the lodge activities, facilities and meals were free to the Donn employees. At night you could play cards, go on nature walks, drink beer or terrorize the other unfortunate guests or those in the nearby community. Although officially no one except a select few senior people, like the owner, Don Brown, or George, were allowed to drive there, somehow a number of our employees managed to make their way to the local towns and bars to, of course, drink beer. But to insure there were no serious problems, the Bear and the other plant managers would visit the local police and sheriff units and drop off a donation (read  alcohol) a few days before the Outing. This somehow bought them a get out of jail free card and the ability to a arrange a private midnight pickup at the local holding cells. Each year at least of couple Donn guys were so reclaimed. It would have been bad form not to have one of the employees return home.

The next morning after breakfast the buses departed for the Westlake plant. The two hour bus ride back was much more somber and quiet. The beer had all been consumed and any stray cans removed by the plant managers so the employees could return to their families with at least a modest level of sobriety.

On the ride back each Donn employee was given a very nice gift (a small handbag, a folding umbrella) to take home to their spouse or girlfriend. This was how Don Brown included the family and thanked them for letting their guy go away overnight. Mr. Brown usually thought of everything.

The Women’s Dinner was actually that. All the women at the Ohio office and plant were taken to a very nice local restaurant. The Dinner was to include only one alcoholic drink to insure respectability. If only we had that rule on the Men’s Outing buses! But to help make the evening more enjoyable a senior manager, George in the early days and later me, would go over early and buy a round of drinks on the Company and then leave. The Dinner was not on par cost-wise with the Men’s Outing but it was a lot more civilized. We never had to go to the local police stations at the end of the Women’s Dinner. The ladies really enjoyed the event and I miss those Dinners more than the rowdy Outings.

In my next twenty years with two large public firms, there were no events quite like Donn’s Men’s Outing or the Women’s dinner. And maybe that was for the better!

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Private Company Incentives-$1 bills

April 20, 2013 //
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A friend who read some of my Blogs told me that they would certainly appeal to people in large, public firms. After thanking him, I realized I had not been including as many of the stories, found in my book, about private firms. In fact, a unique thing about my background, and the book, is that in many Chapters, I compare and contrast what private companies versus public firms do on subjects like this one-Incentives.

You see, smaller private firms can be more ingenious and expansive in their reward choices and eligibility to receive them then larger, public firms. Part of this is due to their smaller size, but part is due to a lack of standardization enforced by those famous Human Resource types.

Whether good or bad, Incentives and Rewards, like everything, reflect the culture of a company and its leadership style. At my private company, Donn Corporation, many of its unique rewards where invented by its founder, Don Brown, who understood human nature and what motivates people more than most. So what Donn did was, at times, brilliant and ahead of its time, and at times, … well let’s look at a couple and you decide.

$1 Bills:

Each January, Donn had an Annual Review for all its workers. A unique feature, at the time, was to list and manually add up all the employee’s costs. (Nowadays this is all computerized and done by outside firms like Benefacts.) So an office person making $40,000 with pension, benefits, social security etc. could add up as a cost to Donn of say $50,000 a year. A manager level person with a base salary of $60,000, a $15,000 bonus, expenses, pension, benefits and social security could add up to $100,000.

The Annual Review book went one step further and showed that, based on 50 working weeks a year this $100,0000 person cost Donn $400 a day. In the early years, Mr. Brown did most of these Annual Reviews himself. And to really emphasize what this really meant to his Company, Mr. Brown added some of his dramatic flair. He would have hidden, in his desk, a stack of, in this case, 400 $1 bills. Mr. Brown would Slap them down in front of his employee and say that this was the amount of money it cost the company for every day that employee came to work! The first time or two this happened was impressive to a new employee. In later years, the theory was, the employee would see the stack of $1 bills get larger and larger as he made more money and cost the company more. At the end of each Annual Review, both the employee and Mr. Brown would sign the compensation book and Mr. Brown would scoop up the $1 bills and recount them for his next employee meeting.

Then one year something happened. Apparently, Mr. Brown was in a hurry to leave and left a relatively new employee to finish reading and signing his Annual Review book. Mr. Brown forgot to collect the $1 bills. The employee thought the $1 bills were for him, so he took them! From that day on, every employee got to take the $1 bills. This created some new issues.

For one, more employees now looked forward to these Annual Reviews knowing they would leave with a stack of money. Some of the employees took the money home to share with their spouses and families. Some employees, including some of the top managers I knew, would keep this new found cash a secret, (until now if they read this), from their spouses and use the money for other hobbies or interests.  And these $1 bills, as you will learn in my book, were not the only form of “soft” currency managers were capable of receiving from Donn.

But this new practice created problems for Donn’s payroll lady, Opal. Each January she would have to order the dollar bills in advance from our local bank branch. At the peak, I recall Opal going to pick up $50,000 in $1 bills from the bank. We sent along a couple of husky accounting kids to guard her and the money. We even had to buy her a large safe.

After USG Corporation acquired Donn, the $1 bills were over. This is probably a good thing as current U.S. banking laws might have an issue with a one time cash withdrawal of $50,000 in $1 bills; it just does not look or sound good.

Donn also had specific incentives for its plant workers, one of which we will cover next week.

Meanwhile, thanks to all for reading the blog. We are still in the process of working to get The Business Zoo published  so please stay tuned!

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