Thursday, January 2, 2014

Training Paradox: training and development in the workplace



Now that I am back in School for my MBA my schedule has gotten busier than ever.  However, it has also given me so many more ideas for articles that now all I have to do is find the time to take these ideas and put them into some sort of coherent format.
 
My current work experience seems to be quite contradictory to what I am learning in business school.  However, I cannot say that even though most employees feel underappreciated and complain often, it still has not stopped the company from making huge profits.  My course work has validated my conclusions that this is actually not the best way to do business.  The old ways of use up workers and spitting them out have started to go by the wayside but there has not been a complete paradigm shift when it comes to the business of sales.
 
I am not sure if it is because the business models still see employees as easily replaceable and have yet to shift there thinking to the more modern belief that employees are your most valuable asset.  When I see amazing companies such as Google, Cisco and Intel running leaps and bounds ahead of other companies to see the benefits of a dynamic, fun, fair culture that is full of opportunities to learn and grow.
 
Google is a perfect example.  It is common knowledge that Google is one of the dream employers and satisfaction of employees there is off the charts.   The interesting point here is that Google offers a minimum of 100 hours a year of personal training and development opportunities.  (Cascio 2013)
There is something that is coined the “Training Paradox.”  The basic concept here is that the more you train, develop and educate your employees, the more happier, loyal and content they will be with their place in your company.  However, this also means you are providing the exact training and education that will make your top talent even more marketable to other companies.  The reality is that companies who are afraid to give their employees the best opportunities to grow and develop are shooting themselves in the foot. 
 
It is not much different than when someone tries to stifle the growth and development of their spouse.  If they are fearful they may lose their partner as they become self-fulfilled and growing individual they are hurting themselves and their partner.  And of course setting a class ceiling on the potential of their relationship.  Low self-esteem and low self-concepts can create havoc in a relationship and this can be used as an excellent analogy for large companies. 
 
The more companies stifle employees from developing and growing out of fear they will be more marketable to other companies is no different than the insecure husband who tries to keep the once stay at home mother from pursuing her dreams by going back to college.
 
Giving employees a challenging environment filled with opportunity to learn, grow and develop is the best way to keep top talent.  Many studies conclude that money is not always the main reason people leave their place of employment.  If people are challenged, treated fairly and given opportunities for growth they will be far more likely to produce more, work harder and be more loyal. 

References:
Cascio, W.F (2013) Managing Human Resources:  Productivity, Quality of Work Life, Profits (9th ED) Boston, MA: McGraw-Hill/Irwin

Thursday, December 12, 2013

Stock options as payment can lead to high risk behavior


In reading an a paper called "Making of a Daredevil CEO: Why Stock Options Lead to More Risk Taking"

A recent paper co-authored by Wharton finance professor Todd A. Gormley studied this issue by examining what steps CEOs took when hit with a sudden increase in business risk.

The research is laid out in a new paper, "CEO Compensation and Corporate Risk Taking: Evidence from a Natural Experiment," by Gormley, David Matsa, a professor at Northwestern University's Kellogg School of Management, and Todd Milbourn, a professor at Olin Business School at Washington University in St. Louis. "Options do have an effect on risk taking," Gormley says. "That is something that should be factored into compensation structure by boards of directors."

I was looking for further information to validate my points mentioned in my previous comment.  It is clear that managers are effected by the knowledge of being compensated with stock options.  It of course also is away to appraise their performance.  It can be an incentive to work, harder and smarter.  However, in a public traded company, millions of dollars can be made in stock options over a very short period of time.  It is great to think that everyone will work hard and ethically while adhering to the company mission statement but we can see from recent disasters on Wall Street that this is just not always true.  One of the major challenges, in my option, for public traded companies, is to tie incentive pay to long term company goals as well as short term objectives. 
So why not just assign options to managers that will expire in 5 years?  The options can rise and fall daily even if they are not due to expire for long periods of time.  However, it is less likely to see a serious move in long term call options or LEAPS until you move closer and closer to the expiration date.  Using long term options as motivating strategy will not work in the short term.  There will be not enough incentive to effect short term performance.  It may allow for more ethical and better long term decisions but the challenge then would be one of how to retain top talent.  There will always be someone ready to take away an under paid manager with outstanding credentials and their will always be companies willing to take the risk of having shorter term stock options be part of the compensations package. 
Also, the evaluation will typically be good if the short term earnings and growth are good for the company.  Deciphering between what is good for the short term of the manager and what is good for the company long term is a difficult issue.  If the company stock does not move or goes down it is likely the manager will get poor reviews, even if he was doing what was prudent for the long term.

Wednesday, December 4, 2013

The Trust Gap Widening


It is not surprising to me that there is a growing trust gap between employees and management.  I also think this is becoming true state regarding corporate management and the public.  We hear all the chatter about fair pay and that "employees are our most important asset" but when you see management making up to 350 times the pay of the average worker, there is something definitely wrong. 
Of course we can say but that  the few billion dollars spread over a million employees may not make a great difference in the lives of those employed.  But what about it? Really?  What if an employee could make just $50 more per week?  Another $200 in the pocket of that family could mean the world to their children.  It could mean piano lessons, math tutoring, cheer leading, baseball, hockey, debate team, field trips and all types of things that would enrich the lives of our young people.  All things that could promote better citizenship and better lives for themselves and their future families. 

What does the extra $25 million do for the ultra rich who made $250 million already the year before?  Does it change their lives in truly meaningful ways?  More charter trips to the Bahamas, a new Porsche, a new 20,000 square foot mansion?  Is that really helping the future of our country and the lives of our working class Americans?  I think not.  I think the dream of Capitalism has been squashed by the quasi political corporate run government that has little to do with the people.  People are still believing in the American Dream but the likelihood of anyone become the executive at a fortune 500 company that has not gone to Harvard Business School or another Ivy League institution is very small indeed.  The corporations and politicians rule the world and make it harder and harder for the working class to even attempt to live the American Dream. 

The recent financial crisis gave the government the perfect opportunity to do something to level the playing field.  I am saying this with a bit of sarcasm of course, because most of the government has their own future at stake by maintaining the ultra high paying executives jobs that they wish to pursue upon losing an election.  It is completely true that not one politician spends his time doing what is good for the people.  At least not the majority of his time.  One of the first things I learned as an undergraduate in Political Science was that after being elected being re elected becomes the politicians most important mission.  It doesn't matter what people say or want after the fact or that the politician has promised certain things, they will move with the wind and daily gage where they stand in poles, therefore the agenda of the people who elected them is thrown out the window.  This was from World Politics 101 class way back when at the University of Michigan in Ann Arbor.  This concept has never left me and it has proven to be true for years.  I would have been far less likely to be so skeptical had it not been for this class.
 
I mention it because once again politicians had a chance to make a difference in the lives of Americans on a mass scale recently.  All the hype of the Dodd Frank bill really was just hype.  The bill has little if any teeth and has done little or nothing to address the causes of what has lead to the "trust gap" and to what caused the financial meltdown in the first place.  It really is somewhat comical to see that the "say on Pay" portion of the bill only brought about opposition to executive pay in 39 out of 2502 companies. (cascio 9ed the trust gap) 

It is clear that shareholders are not the ones that really care about the pay differences between employees and executives.  The a average employee is not a shareholder and likely makes far less money than most share holders and has a much smaller net worth.  Laws in the stock market are in place that actually discourage the average American to own stock or to even vote in yearly elections. 
Why could their not have been a law put into place that gave employees a right to have a say in the ever increasing pay gap between employee and executive?  Why could their not be a law that says companies owe a certain amount of profit back to the employees before they pay millions of dollars to the executives.  What has the CEO of Bank of America or JP Morgan Chase done to deserve millions upon millions of dollars in pay over the recent years?  I could argue that they have done just the opposite.  They did not protect shareholders or workers and created products that were bound to fail at some point in the future, but far enough into the future that it would be hard to tell where all the law breaking began. 

The trust gap will continue to widen until there are laws that are put in to place that hold executives accountable not only to shareholders but to employees as well.  The fact that there have been so few arrests after the recent financial crisis that caused the obliteration of trillions of dollars of wealth is a clear indicator in my opinion that the average citizen has no say in what is going on in the world of finance.  Until we can hold politicians and executives accountable for breaking or bending the laws, we will see the Trust Gap become far worse.