For some of my thoughts on options backdating and the troubles they cause for HR executives, please read the cover story in this month's Human Resources Executive magazine.
Editorial Note: Human Resources Executive magazine misstates my name as "Michael R. Rosenthal" rather than "Michael H. Rosenthal".
Friday, June 1, 2007
Gender Discrimination in the Workplace? Gee. . . No, its GE.
Do you think that executives are immune from workplace discrimination? Not according to GE Transportation General Counsel, Lorene F. Schaefer, who accuses GE of systemic company-wide discriminatory treatment of (1) female executive band employees, and (2) all female attorneys. Schaefer is highest-ranking legal employee in General Electric’s $4.2 billion Transportation Division. She is seeking to change GE’s alleged discriminatory pay and promotion policies and practices. Schaefer also seeks $500 million in damages for a class of approximately 1500 Executive Band female employees and female attorneys. Each female Executive Band employee and female attorney would receive, on average, approximately $300,000. Schaefer said that “[t]his suit is not only for GE women, but for my daughters and all daughters who should not have to face what I have faced at GE.”
Schaefer’s lawsuit came on the heels of a Supreme Court decision that limits the right of executives and other employees to remedy pay discrimination based on gender or other impermissible reasons. Although a bill will soon be introduced in the Senate to overturn the decision, Judge Alito’s remarks at his Senate Confirmation hearing are worth considering:
Ferreting out those subtler forms of discrimination may be difficult. But executives who are not satisfied with their career path should consider whether the differences in pay,responsibility and promotion opportunity are truly merit based or instead a by-product of “underground” discrimination.
Schaefer’s lawsuit came on the heels of a Supreme Court decision that limits the right of executives and other employees to remedy pay discrimination based on gender or other impermissible reasons. Although a bill will soon be introduced in the Senate to overturn the decision, Judge Alito’s remarks at his Senate Confirmation hearing are worth considering:
There are subtle forms of discrimination and the judicial process has to be attentive to the fact that discrimination exists and, today, a lot of it’s driven underground.
Ferreting out those subtler forms of discrimination may be difficult. But executives who are not satisfied with their career path should consider whether the differences in pay,responsibility and promotion opportunity are truly merit based or instead a by-product of “underground” discrimination.
Tuesday, March 6, 2007
Leading From Below
The Wall Street Journal published a great article on leadership, “Leading From Below,” in its March 3-4 weekend edition. Executives and managers below the “C-suite” level must look at themselves for leadership initiative and risk-taking because senior managers may be distracted by “demands from investors and analysts for immediate results.” The authors, James Kelly and Scott Nadler, studied managers in two areas that are rarely at the top of a company’s agenda: environment, health and safety and corporate social responsibility. The authors found certain “common threads” among those lower-profile managers who shifted to leadership positions.
The bullet points for the aspiring leader include:
• Make the decision to become a leader.
• Focus on influence, not control -- do your job with your colleagues. “[G]etting people to act on their own to achieve the goals you have in find is far more effective than having them react to your direction.”
• There may never be a “perfect” time to risk taking the lead, so just look for situations where you may be assert your leadership and do not wait for an invitation from the C-suite.
The authors note that in many of the cases they studied, the managers were able to demonstrate leadership without any support from the C-suite. But the authors also recognize that senior executives can take steps to encourage leadership development such as:
• Seeking a broader range of perspectives and encouraging managers, especially those aspiring leaders, to do the same.
• Creating vacuums by identifying important issues without “dictating the source or nature of answers.”
• Posing “what-if” questions that require others to think through the consequences of each step of a proposed course of action. Different approaches may prove to be preferable and managers will become more comfortable with exercising critical thinking skills, rather than merely accepting a decision and executing directives from above.
In my view, the ideas presented in the article apply to all aspiring business leaders regardless of their area of managerial responsibility. At the macro level, the business world may be moving towards a more collaborative model (e.g. Wikinomics: How Mass Collaboration Changes Everything). At the micro level, a collaborative model may be even more powerful because, as the authors note, "[p]eople simply react more enthusiastically to being enlisted in a common cause than they do to being ordered around." The complete article is on the website of the MIT Sloan Management Review, a “journal of management research and ideas.”
The bullet points for the aspiring leader include:
• Make the decision to become a leader.
• Focus on influence, not control -- do your job with your colleagues. “[G]etting people to act on their own to achieve the goals you have in find is far more effective than having them react to your direction.”
• There may never be a “perfect” time to risk taking the lead, so just look for situations where you may be assert your leadership and do not wait for an invitation from the C-suite.
The authors note that in many of the cases they studied, the managers were able to demonstrate leadership without any support from the C-suite. But the authors also recognize that senior executives can take steps to encourage leadership development such as:
• Seeking a broader range of perspectives and encouraging managers, especially those aspiring leaders, to do the same.
• Creating vacuums by identifying important issues without “dictating the source or nature of answers.”
• Posing “what-if” questions that require others to think through the consequences of each step of a proposed course of action. Different approaches may prove to be preferable and managers will become more comfortable with exercising critical thinking skills, rather than merely accepting a decision and executing directives from above.
In my view, the ideas presented in the article apply to all aspiring business leaders regardless of their area of managerial responsibility. At the macro level, the business world may be moving towards a more collaborative model (e.g. Wikinomics: How Mass Collaboration Changes Everything). At the micro level, a collaborative model may be even more powerful because, as the authors note, "[p]eople simply react more enthusiastically to being enlisted in a common cause than they do to being ordered around." The complete article is on the website of the MIT Sloan Management Review, a “journal of management research and ideas.”
Sunday, January 28, 2007
More on Potential Limits to Deferred Compensation
Gretchen Morgenson's "Fair Game" column in the January 28 edition of the New York Times highlights the potential problems for executives who participate in deferred compensation programs if the Small Business and Work Opportunity Act passes in its current form. The proposal would apply both to initial deferrals and to earnings on those deferrals and will affect even executives who earn substantially less than the $1 million maximum cap. As the article states, "'[t]he vast majority of people affected by this will be in the $100,000 range.' And it is unlikely that their companies will cover taxes generated by exceeding the limit."
From a policy standpoint, it is unfair to impose a tax on money that you have not yet received and have no control over. But the Senate Finance Committee would argue that employers can easily solve that problem by paying higher (taxable) salaries if they want to maintain a certain level of compensation for key employees. Or, they can limit deferral amounts to essentially 100 percent of salary, which is far more than the average worker can defer in 401(k) plans.
There is no specific reason to limit deferrals to 100 percent of yearly compensation, other than it is a convenient measure and one the probably tests well politically. Perhaps the final proposal will be modified to raise the limit, but in the wake of the various executive pay controversies and scandals (e.g., option backdating, enormous severance packages), Congress is unlikely to feel substantial pressure to drop the proposal entirely from the bill.
- Example: If your salary is $100,000, and you have $1 million in your deferred compensation account, your savings would have to earn only slightly more than 10% to push you over limit. If that happened, your entire account would be subject to taxes and the penalty.
- Example: A start-up company pays a small salary but has a generous equity-based deferred compensation program. If the value of the deferred equity in one year fails the annualized compensation test, the entire account becomes taxable and subject to penalty.
From a policy standpoint, it is unfair to impose a tax on money that you have not yet received and have no control over. But the Senate Finance Committee would argue that employers can easily solve that problem by paying higher (taxable) salaries if they want to maintain a certain level of compensation for key employees. Or, they can limit deferral amounts to essentially 100 percent of salary, which is far more than the average worker can defer in 401(k) plans.
There is no specific reason to limit deferrals to 100 percent of yearly compensation, other than it is a convenient measure and one the probably tests well politically. Perhaps the final proposal will be modified to raise the limit, but in the wake of the various executive pay controversies and scandals (e.g., option backdating, enormous severance packages), Congress is unlikely to feel substantial pressure to drop the proposal entirely from the bill.
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