Organization Change in the New Year

Another year offers companies the chance to evaluate ways they will implement inevitable organizational changes. Logic Opera recommends that the design process for analyzing, proposing and implementing large scale organizational change is best conducted using two levels of team activity: a Design Team and a Steering Committee.

The process is based on the premise that deciding to make organizational changes is easy, but gaining employee engagement to change is not always the case. According to William Bridges, author of Managing Transitions: Making the Most of Change, change is occurring all the time, but transitions are usually longer in duration, take more time, and are not as simple as deciding to make a change.

Helping team members engage and feel ownership of "change" is a way for the organization to set up clear direction and define the curves in the road. The Design Team is implemented to accomplish these goals, and is composed of a cross-section of individuals from all different levels and areas within an organization. Members of the design team should be formal leaders (with a title that indicates leadership) and informal leaders (those viewed as influential people within the organization). The design team becomes the advocate for the change, making it easier for all to accept it.

The Steering Committee is in place, often as an external resource, to consult on the boundaries of what change is and how particular changes should be implemented, while giving the Design Team clear direction on input and design elements required to make the change work. The Steering Committee will also help identify who should be a part of the Design Team.

The joint work of the Steering Committee and the Design Team make organizational change less stressful and more successful. We encourage you to contact us to hear more on the growing success this approach is accomplishing.

Have questions about how IRS 409(a) impacts your compensation program?

As 2007 rapidly approaches, our clients are working to prepare for another full year of compensation challenges. Changing economic conditions, SEC regulations, and IRS guidelines continue to drive changes in how companies are rewarding their employees.

When planning for the new year, here are a few items we suggest you keep in mind:

Salary Increase Budgets
Competitive market data and our experience suggests that salary increase budgets will range from 3.5% to 4.0% in 2007. For most organizations, this budget is similar to, or slightly ahead of, their 2006 increases. Of course, planned increases do not always materialize, and we will see more data on this in the coming months.

New Disclosure Rules
The new proxy disclosure rules for public companies released by the SEC on July 26, 2006 become effective for proxy statements filed on or after December 15, 2006 for fiscal years ending on or after that date. The new rules, which govern disclosure of executive and non-employee director compensation, are significantly different than the rules that have been in place since 1992. The rules contain new or revised tables both to disclose executive compensation and to provide tabular and narrative disclosure of all compensation paid to or earned by a director. A "principles-based" Compensation Discussion and Analysis leads off the executive compensation disclosure. The CD&A is a narrative overview explaining the material elements of compensation for the company’s named executive officers. The new CD&A should explain not only "what" compensation was delivered but also the "why" and "how" behind executive compensation policies, practices and decisions. Preparation of executive compensation disclosure under the new rules is expected to be a time-intensive project - we recommend that companies begin preparing as soon as possible.

Deferred Comp Compliance
The IRS has extended until December 31, 2007 the deadline for amending nonqualified deferred compensation plans and arrangement to comply with the new rules under Internal Revenue Code 409A. Section 409A, which came into effect January 1, 2005, imposes restrictions on funding, distribution and elections for participants in a deferred compensation plan. Deferred compensation has been defined under the law to include other forms of compensation as well, including severance plans, change in control provisions, equity compensation (stock appreciation rights (SARs), restricted stock units, and discount stock options) and supplemental executive retirement plans. Failure to comply with Section 409A could result in significant tax penalties for executives participating in these plans.

Rules of Engagement – "Talents Wars"

All signs indicate 2007 will prove to be a difficult year for those responsible for acquiring and retaining top talent. While the reasons behind the talent shortage are well publicized, the remedies are difficult to identify and effectively address, thus the significant impact on an organization's planning process.

While we have experienced low employment and labor shortages in the past, there is a very different twist to what we are experiencing today. The sheer number of baby boom retirees is unprecedented and the impact of exiting historical and intellectual capital will take years to comprehend – but require certain attention and planning today. Additionally, the profile, operating style and expectations of new talent does not mirror previous generations. Traditionally, organizations have had the game advantage and protocols and expectations were set by the company. In today's market, the better candidates enter the arena with a growing role of equality in the process and operates accordingly.

For example, candidates are doing their own due diligence. They are well aware of the "time to fill" metric and what the implications of that number may mean. Much like real estate, days on the market are flags to potential buyers and the timeframe your position remains open sends a signal to the market. Candidates are also increasingly asking probing questions related to the business and the open position. Recruiters and hiring managers need to be able to position and articulate why the candidate should choose their organization over other possibilities. This is an important strategy to adopt as the perception of the company can be a deal breaker for candidates.

Today top employers will position themselves at or above market compensation and benefits and be flexible and open to adjusting their requirements when they see top talent walk through their door. Rather than a company exhausting their efforts in search of that ideal candidate they are engaging specialized recruiting firms to unearth talent that is currently with their competitors. Savvy employers will capitalize on their competition's inability to recognize and retain their top talent. Strategic Talent Partners arm clients with the expertise in recruiting and retention methods so they not only can effectively compete in the "talent wars", but more importantly, position themselves to win.