Thursday, January 21, 2010

Superb Presentation on Employer Branding - Attracting Followers with your Employment Brand

Causality: Must watch presentation on Employer Branding. It provides detailed yet fascinating research on employee opinions and competencies and how companies need to reach out to their employees with better communication models at the workplace. How it is important to create an environment where an employee feels that what they are doing really makes a difference to the world. I am not talking about the UN here. The research here talks about Google and Unilever!!

Source: The original presentation can be downloaded at Slideshare (Probable (c) with Mark Ervin).

Have Time....Will Waste (Managers passion for wasting time at work!!)

I found a nice article detailing research that has been conducted into the time wasting strategies of employees at work, particularly managers. It is also backed by nice anecdotes, some of which really hit home. These surveys should really encourage debate amongst professionals on how to get hold of and solve this problem, since productivity issues are becoming increasingly important in the current world.

Posting the article in Full: Source - Rediff with (c) Business Standard
he Mumbai branch head of a navratna public sector company wanted to replace a 10-year-old wooden showcase with something that occupied lesser space.

He wanted to just dismantle the showcase, but stopped after his veteran secretary suggested that he should at least inform the administration department in Delhi. The branch head succeeded in disposing of the showcase last week - but almost eight months after he had initiated the process.

Listen to what happened in between. The administration head asked him to send a formal letter detailing the reasons for his inclination to get rid of the showcase. That is required, he was told, as none of his predecessors had any problem with it.

Two months after the sending the letter, the branch head was told that inspections by the local administration and accounts staff showed that the book value of the showcase was Rs 1,900, and that he should ask for quotations from at least three interested buyers and send them for approval.

The process of getting quotations took a long time, as the branch head found it difficult to get anybody interested in the rickety showcase. After much coaxing and cajoling, he managed three quotations from local furniture shops. The highest quotation was for Rs 700.

The documents were despatched to Delhi immediately and the branch head hoped his ordeal was over. But, it took the headquarters another two months to send him a letter informing him that the quotations were considered too low by an eight-member purchase/disposal committee and he should advertise in a local newspaper asking for fresh quotations, according to office rules.

The advertisements elicited four responses and, this time, the highest bid was for Rs 850. The branch head was told that the purchase/disposal committee was preoccupied with other work and he would have to wait for his turn. The approval came after three months.

In the meantime, the owner of the furniture shop who was the highest bidder lost interest in buying the stuff. The branch head says he paid the money himself and somehow convinced the gentleman to give him a receipt. The showcase was broken down by the office boys as there were no takers.

The branch head says he is unable to figure out why it took the eight members of the committee so long to decide on something that yielded the company just Rs 850. "The company spent much more on courier charges alone," says the young man.

The eight members of the purchase/disposal committee are certainly not alone in perfecting the art of wasting time at work. Late Sumantra Ghoshal used to often say that a whopping 90 per cent of managers waste their time by procrastinating, becoming emotionally detached, and distracting themselves with supposedly busy work.

Here are some examples of how many things "busy" people are doing that will never be missed. Some managers will just stare at just about anything so that people around them think that they are pondering something intense. Some will go a step ahead and schedule meetings just to tell juniors to "work smarter, not harder" and to "think out of the box" etc. Some managers will send emails and call up sales people to find out about things that would have got done anyway without their intervention.

Yet others will insist on a written report for just about everything. But on being given a written report, these managers would say that they don't have the time to wade through all that garbage and ask juniors to tell them about the matter in their own words briefly. If the subordinates come in with a verbal suggestion next time, these managers would choke them off in mid sentence with, "I can't even begin to think about it until you put it in writing."

In their delightful book, The Peter Principle, Laurence J Peter and Raymond Hull (people who have devoted many years to the study of incompetence) have talked about managers having Rigor Cartis, an abnormal interest in the construction of organisation and flow charts, and a stubborn insistence upon routing every scrap of business in strict accordance with the lines and arrows of the chart, no matter what delays or losses may result.

The Rigor Cartis patient will often display his charts prominently on the office walls, and may sometimes be seen, his work lying neglected, standing in worshipful contemplation of his icons.

These type of managers are always frantically busy, drawing up reports and flow charts and making appointments to confer with one another. Another vice-president of a company has been labouring for three years to write the company's history, which the top management hopes will remain incomplete when he retires.

The most popular form of wasting time at work is, of course, social networking. Walk into any large office, and you will most likely hear the telltale computer bleeps of chat programmes and online games, accompanied by furious mouse-clicking. Employees may seem busy, but many are wasting time on the Internet, or are "cyberslacking".

A study by Assocham last month has warned that employees waste a minimum one hour of office time every day accessing social networking sites for reasons other than work. Assocham's Social Development Foundation survey says companies effectively lose 12.5 per cent of total productivity each day.

Nearly 82 per cent of workers have a Facebook account and the average worker uses it for 30-40 minutes a day which adds up to a lost week each year. Also, 77 per cent of workers who have an Orkut account use it during work hours. And 83 per cent see nothing wrong in surfing during the office hours. Four in every 10 workers built their entire Orkut, Facebook profiles during work. The survey says most organisations do not monitor and manage these sites as closely as email.

However, this problem is not restricted to India alone. Managers of the world seem to be united in their passion for wasting time in office.

Time-wasting at work was spoofed in the 1999 cult film Office Space, while The Office, a British TV comedy that now has a US version, has shown characters playing a computer war game as part of what they described as a team-building exercise.

Consider this: Americans do work hard at surfing the Internet and catching up on gossip, according to studies done by and America Online. The average worker admits to frittering away 2.09 hours per 8-hour workday, not including lunch and scheduled break-time. As a matter of practice, companies assume a certain amount of wasted time when determining employee pay.

The average yearly American salary is $39,795 per year, or $19.13 per hour. If the average worker wastes 1.15 hours more than employers suspect, per 8-hour work day, that adds up to $5,720 per year, per worker in wasted salary dollars. So with the American workforce 132 million (non-farm) employees-strong, the total in lost salary dollars adds up to $759 billion per year, the studies have shown.

No such detailed study has been done in India. But the money companies lose due to time wasting by employees would surely not be insignificant.

Author: Shyamal Majumdar

Friday, May 01, 2009

Long Term Incentive and the Black Box of Employee Stock options

Compensation of employees can broadly be divided into 3 buckets – Base Salary (fixed cash component of the salary including basic, HRA etc), Short term Incentive (aka Bonus, Variable pay, Performance driven pay), Long term Incentive (Restricted Stock/Restricted Stock Units, Stock Options). Total Rewards approach includes other elements like Benefits (Healthcare, Retirement etc) and Career development opportunities as a part of the total offering. Total Rewards is a big topic and merits separate discussion. In this article we shall focus more on Long Term Incentive (LTI) and specifically understand more about Employee Stock options. Long Term Incentive is more popular for compensating and rewarding Middle & Senior Management and Top Executives because their performance has a more direct impact on stockholder value creation. Infact, as a rule of thumb, more senior one grows in the organization, more will be the proportion of LTI in Total compensation package. The proportion of various elements also varies according to geography and culture besides the company philosophy towards compensation. As a general observation, for top executives of the company, LTI might be as high as 30%-40% of total compensation while for a middle manager, it might be around 12-15% of total compensation.

Stock Awards can be in the form of Restricted Stock or Restricted Stock Units depending on local regulations and company policy. There is a minor difference between Restricted Stock and Restricted Stock units. While grant of Restricted Stock means that the receiver holds actual stock of the company with a vesting period and restrictions applying for that vesting period (hence the name Restricted Stock), grant of Restricted Stock Units means a grant of promise by the company to award Stock at the end of vesting period. The receiver of units does not actually hold stock during the vesting period and hence may not receive any dividend and may not have any voting rights arising out of ownership in the company (depending upon the actual company plan). Taxation of LTI varies from country to country and is out of scope of this article.

Employee Stock Options are considered to be riskier than regular restricted stock/stock units. They give the receiver a right to buy stock of the company at a predetermined price (called grant or strike or exercise price) during a fixed time window. Employee Stock options are essentially ‘Call' options. 'Call' options have an upside potential linked to increase in stock price as against 'Put' options which have upside potential linked to fall in stock price. The aim of compensation is to incentivize managers to work in interests of stockholders hence the grant of 'Call' options. Usually Employee Stock options have a life of 10 years from the date of issue and can be exercised during this life once they are vested. Both Stock Award and Stock options can have cliff vesting (when entire grant vests after the specified vesting period) or graded vesting( when the grant vests in equal annual installments over vesting period). The Options can be tradable or non tradable. Usually the Employee Stock options are non tradable with some exceptions (Google and Novartis are 2 companies I know which grant Tradable Options). If stock price is lower than exercise price, options are said to be under water and if they are non tradable, they are worthless for the holder of options (even if vested). On the other hand Tradable options can be sold to a market maker (who perceives that share price might go up in future during lifetime of options) once they are vested. Hence tradable options might fetch some money to the holder despite being underwater. Tradable options are said to have intrinsic value ( difference between stock price and exercise price if positive, otherwise zero) as well as time value as against non tradable options which only have intrinsic value

There are various models that can be applied for valuation of options with the prominent ones being Trinomial model and Black Scholes model. There are various factors that impact the value of options. These are –
1) Grant/Strike/Exercise Price
2) Actual Stock Price
3) Option Life
4) Estimated future volatility of stock
5) Riskless Interest Rate
6) Dividend Yield Ratio

We shall not go into the mathematics of Black Scholes model but try to understand the impact of all these factors on value of Employee Stock options.
1) Grant/Strike/Exercise Price – As obvious, lower is the grant price, more will be the value of options

2) Actual Stock Price – Value of options increases with increase in exercise price. However, as mentioned earlier, in case of non tradable options, the value of options remains zero unless the stock price is more than exercise price.

3) Option Life – Option life is directly proportional to value of options. This derives from the fact that options give one flexibility to buy stock later in the lifetime of options. Holder of options can park the money in Riskless Instruments (such as Treasury bonds) during the life of options and earn interest on that. More is the life of options, more is the time available to defer buying the actual stock, greater is the opportunity to earn interest from riskless investments and hence more valuable options are.

4) Estimated future volatility of Stocks – Options of more volatile shares are more valuable. Let us try to understand this. High estimated future volatility means high probability of stock price moving up or down from current level. Higher Stock Price in future creates more value for Option holder (which is virtually unlimited as it will keep increasing with increase in share price). On the other hand, if share price falls lower (to any level below or equal to exercise price), the value of options will still be zero. Employee Stock options have unlimited upward potential but limited downside (worst case – options are not utilized so zero value). Hence more volatility makes options more valueable.

5) Riskless Interest Rates – Value of Employee Stock options increases with increase in Riskless Interest Rates. As mentioned in ‘Option Life’, higher Riskless interest rates present greater opportunity to earn by holding options instead of actual stock hence the value of options goes up with riskless interest rates.

6) Dividend Yield Ratio – It means dividend granted to Stock holders as a proportion of Stock Price. This can also be seen as ROI of Stock. The value of options goes down with higher Dividend yield ratio. Increase in dividend yield ratio over say last year can mean 2 things – either dividend (numerator) has increased or Stock price (denominator) has decreased. Stock Price decrease will anyway pull the value of options down (see point 2 above). The option holder does not receive any dividend as against a Stock holder who does receive dividend. Therefore, by holding options instead of Stock, the holder is suffering a loss of dividends. Hence more is the dividend yield ratio, lesser is the value of options.

Some companies do offer a choice to its employees between choosing options or stock or a combination of both as LTI. Though understanding the Restricted Stock grant is straightforward, generally option valuation is a Black box for employees as well as HR (left mostly to Compensation). Educating employees about high risk involved with options and how they are valued can help employees make an informed choice about their LTI composition depending on individual appetite for risk. In addition, having a better understanding of how value of options is modeled can significantly lessen employee resentment if they see the value of their options going down. If understood and deployed properly (performance based shares, performance based vesting, performance based multipliers etc), LTI can be very effective tool in achieving its purpose of resolving principal agent conflict.

Thursday, April 16, 2009

On the Chopping Block

A picture i found on the web while surfing - which shows clearly what happens to our salaries during recession time...
They get chopped off :-) !

Monday, February 02, 2009

Debate:: Have put this up for discussion

“Does what we do really have any impact on an organization? Can organizations still treat people like shit and make money?”

This is specially true in light of the present crisis, where we see layoffs, job losses and pay cuts become the order of the day. Are organizations still investing on people? When jobs dry up, where do people go? And, after organizations are done with the blood bath, and the economy recovers, where do organizations stand?

Friday, January 23, 2009

...Then the CEO went blogging!

continuing with the theme, companies are opening up more and more to web 2.0. A corporate blog is an amazing way to brand your workplace. There's nothing more magnetic than an open workplace, where employees are allowed to air their views.
It is the equivalent of Mass Media in a free nation.

Approaches a company can take towards the branding space includes;
  1. Corporate journalists airing views and opinions of the employees on critical processes within the company. Yes it is an exercise with loud political overtones, but an amazing process for a young company to gather ideas and imbibe responsibility. Membership to the blog can be part of the induction process. Coupled with a "Best Suggestion" drive, this could serve as quick bouncing boards for ideas. Employee surveys are soon becoming passe.
  2. CEO blogs to communicate strategic growth plans to the hundreds of employees. This removes the weekly email from his communication strategy. Ideally to project the employer brand to the outside world, this should be open to all. Why wait for the quarterly announcments to the press? Continuity!
  3. Department blogs announcing plans to all employees.
In India, companies have been slower to adopt to Web 2.0. It's high time someone took the lead. The Learned Man lists some of the leading corporates who have risen to the challenge.

Wednesday, December 31, 2008

You know Gates!!!

Web 2.0 is turning the world on its head.

Five years back, my mom would accuse me of wasting time on the computer. Today, it's a different story. She just cant seem to get the perfect profile picture on

"What would Merlyammai think? Who took this lousy snap?"

Networking is the new 'in' thing. Get to know your family, your colleagues or some weird filipino who claims to have been your classmate in the 1st grade.

I happened to chance upon this video on how its affects the world of employer branding and recruitment.

I guess the message is clear for the rest of us. Network. Get the word
around. Web 2.0 has just created a parallel universe. Some of us have
missed the bus. There is a lot of catching up to do.

Monday, December 08, 2008

Financial Crisis - Don't Worry, Greed will Prevail

Note: I had posted this article on only my personal Blog since this was an HR only dashboard but i feel this topic transcends all domains, hence i am posting the blog here also. All comments are welcome.

Global financial meltdown - Three words that in all likelihood conjures up the most frightening monster the world has known. This monster is taking away all the things that we cherish, directly or indirectly. First there is a pay freeze, then there is a pay cut and if that was not enough there goes our job. With that goes our 'discretionary' spending capacity, our willingness to buy things that makes our miserable lives slightly bearable, our self esteem. The factories close down, industries vanish and social unrest begins. In the midst of all this, nations along with their policy makers are left scratching their heads. Question: Our goose is cooked...right?.....Wrong!!!

I have a simple solution to this. Forget about it...Dont worry, cause this is not going to last long.

I am sane enough to believe that these so called experts who are telling you that the financial world - thus in every sense the real economy - has come to an end are lying or to put it more subtly, not telling you the whole truth. Being a layman, i will try to tell exactly why i believe that this crisis is infact going to turn around very quickly.

Let me start with simple process flow. I go to work everyday and earn a salary every month. Some part of this salary goes to buy necessary and other products, some goes into savings like Cash, equity (shares, bonds, MF's), Commodities etc, mostly to a bank. Now the place where i am working makes a product and sells it to the consumer to generate revenue and hopefully profits. Again this money is split into buying important raw materials etc, paying bonuses; dividends and saving it in a bank. The bank gets this money and pays interest to the consumer or the corporate who has deposited the money. If my company is doing well, it takes a lon from the bank and carries out expansion plans - increase manpower, get more machines, etc - and from its increased profit pays off the debt. Since the bank needs to make money too, it charges an interest higher than what it has paid for the money and this becomes the profit (after overheads). This way the cycle keeps moving.

Now for some economics. Demand and Supply. Classical theory of economics states that if the demand goes up - the supply remaining constant - prices go up too. This is true for Oil, most precious metals, etc. For other goods, if the prices are higher, then the consumer might shift to substitutes so organizations in an effort to make more profit do not increase the prices. Instead, they increase their capacity to produce goods at almost the same rate as the demand moves up. This creates new expansion plans, new jobs, and hence again the above mentioned cycle continues.

Now to make the explanation clearer lets figure some connections:
If the companies/ individuals do not earn money they have less to saveIf the banks get less money, they give out less money and hence make less moneyIf there is less money for people to spend, they either buy cheaper substitutes or not buy at allIf the consumer does not buy, the companies do not make money and expansions go for a tossIf expansions do not happen/ new companies do not come up, the industry slows downIf the industry slows down, the governments have less taxes to collect and lesser budgetsIf budgets are lesser, social spending decreasesIf social spending decreases, the unrest begins

Now the impact for the stakeholders:
Since banks are making losses/ 'not enough' profit, shareholders get angry; CEO has to goSince other organizations are making losses/ 'not enough' profit, shareholders get angry; CEO has to go. Above corollary is that shareholders are also losing money. Since countries are not making money and hence people are suffering, governments will lose their votebanksInfact due to the extreme lowering of oil prices, terrorists are also not going to have much money since their masters purse strings might just be running on emptyand hence due to all the above except one....the individual loses
Hopefully, you get my drift. This is just not going to happen. Rich individuals/ corporations/ governments can take the fallout for sometime but sooner or later they will realise that there is just no other way to come out of this but to make profits.

Also since the world today is extremely connected (take the example of terrorists - US does not buy oil due to recession and terrorists have lesser money for spreading hate) and mind you this is an extremely delicate connection, making profits is not easy unless the entire global machinery is greased. This grease comes from banking organizations and consumers who will spend the money thay they generate. And banks will spend once they are aware that if they dont, they are the ones who lose the most. They own the money and they need to pay the interest.

I can tell you this and much more in complicated jargon but it all boils down to this. Yes, for a short time (my bet is 6-12 months) things are going to be nasty. But this is just a blip. This can never be the great depression part 2 since the economies are not isolated and global linkages will play its own hand. We have probably seen the worst and things will - hopefully - seem better very very soon. It was greed that got us here and it will be Greed that will get us out of here...

Ritesh Sharan