Northern California (1069)

Sunday, 24 February 2008 19:00

Achieving understanding

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Friedrich Nietzsche said, “He who has a why to live can bear almost any how.”

And that’s why Scott Raskin, CEO of Mindjet Corp., spends a lot of time getting his employees to understand the ‘why’ of their jobs to help grow his company.

Mindjet, a software developer that helps users take a visual approach to project management, posted 2006 revenue of $33 million, up from $13 million in 2003. And Raskin says that helping his employees understand the big picture is essential to maintaining that kind of growth.

Smart Business spoke with Raskin about how to make communication equal understanding and why a leader needs to be a chameleon.

Q. How do you approach leadership?

Take an approach that’s right for the situation. It’s important for any CEO to be a chameleon from that perspective.

I try to operate from a transformational perspective. I believe in inspiring the team and giving them a shared vision of the future. Leadership is all about not having confidence but instilling confidence in those in the organization — which allows them to do things beyond what they think is possible.

I like to delegate responsibility wherever I can. I like to be in the back pushing the team forward. It’s really about giving people confidence to do the things they might not believe they’re capable of and driving them toward that shared vision.

Q. How do you inspire that confidence?

It comes down to what obviously is our No. 1: making sure they know what the vision is, where are we going, why is it important to get there. Make sure that’s constant and consistent and that they know what’s in it for them.

You’ve got to engage them in the part of the process of what it means to be successful, so that they’re part of the process of what needs to get done.

Make sure they’re part of the process and they’re using their creative ideas, they’re allowed to be heard and respected in the process, then encourage them to go out and take risks. I strongly believe in quick decision-making. I appreciate a culture where people do take risks, knowing that if they do, they’re not going to get beaten up for it.

Q. How do you create a culture where people are comfortable taking risks?

You have to walk the talk. It can be difficult, but it’s really important to give people the freedom and set the expectations that it’s OK to make a mistake. I’d rather make a mistake trying something than not try something at all.

What that means is if people take risks, there are always successes and failures. There can’t be a backlash. You have to make sure that somebody’s not getting lambasted for making a mistake or going out on a limb or taking a risk.

There needs to be encouragement to try new things, to be creative, to step outside the box — as long as it’s in line with where we’re headed.

I grew up on the sales side, and I used to say, ‘Salespeople tend to be lone rangers.’ You can go out and win something by yourself, but if you lose, you never want to lose by yourself. It’s OK to go out and take those risks and do what you need to do, but bring the organization along with you.

Q. How do you communicate your vision to employees?

One of the things every CEO hears in their organization is, ‘We need more communication.’

Especially in a high-growth environment, when things are really changing pretty rapidly.

The first phase many CEOs move into is this overcommunication mode where broadcasting all this information out to people is apparently communication. What that doesn’t take into consideration is that people are overloaded with it. So even though they want communication, what they are really asking for is a better understanding.

To accomplish that takes a little different effort and a lot more time on the CEO’s part.

We’ve been going through massive growth, we increased the employee base, we’ve opened up new offices, we’re working on new products, and there’s been a ton of communication about this. We had a social last night, and I was talking with two key folks in engineering. Sure, they’d seen the e-mails, they’d heard me talk at the big meetings, but they really didn’t understand.

I hadn’t spent the time personally to really know whether people were really understanding what was being communicated to them, and the management level below me didn’t either. Everybody was running so fast, and we were comfortable with, ‘We’re doing a great job communicating. Look at all the e-mails we’re sending.’

The need to help people understand had to come at a much smaller group level, almost an individual level. We established more of these small group interactive scenarios, and we’re really getting that feedback. So, communication and more of it is not the solution.

HOW TO REACH: Mindjet Corp., (415) 229-4200 or www.mindjet.com

Tuesday, 29 January 2008 19:00

Health and productivity

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Employers are reinventing their wellness programs into comprehensive health and productivity (H&P) programs for a very good reason — improved profits. A recent study conducted by Watson Wyatt Worldwide of 355 human resources and health benefits managers at U.S. organizations with at least 1,000 employees reveals that the companies with the most effective H&P programs acheived 20 percent more revenue per employee, 16.1 percent higher market value and 57 percent higher shareholder returns.

“Companies are embracing the progress that has been made in the health and productivity space,” says Caty Furco, office practice leader, Group and Health Care, for Watson Wyatt Worldwide, San Francisco. “Companies with effective H&P programs outperform other companies. Organizations that understand the linkage between effective programs and their company’s performance are ahead of the game. We are in an era that can have a positive impact on both business and employees, and that’s exciting.”

Smart Business spoke with Furco about what constitutes an effective H&P program.

What is the current thinking regarding H&P programs?

Global competition and pressure for greater efficiency are causing employers to seek new ways to help manage benefit costs and increase worker output Increasingly, companies are looking at the health of their workers as the new growth engine to stave off health care inflation and keep employees on the job and productive.

In addition to stronger revenue per employee, companies that have a strong H&P program were more effective at managing direct benefit costs. The philosophy behind the new H&P programs is that companies need to appeal to their entire range of employees in order to drive employee engagement toward improved health and productivity.

What drives employee engagement toward health and improved productivity?

A traditional siloed approach toward employee health and productivity is out; a holistic approach is in. What this means is that employee programs that support stress reduction, a healthy work environment, support for time off, management of chronic conditions, health education, on-the-job safety, health insurance and disability coverage are no longer viewed separately — they are combined and integrated into a single approach. Employees’ life experiences are not segmented, so benefits should be approached in a way that can provide the right services across the entire benefit and workplace continuum. A single access point makes it easier for employees to use the program. Creating incentives that inspire excitement and employee adoption rates are also part of the holistic approach. An integrated approach also gives the company a single data repository, so it can use the information to refine its offerings and construct effective employee incentive programs. A lack of actionable data was one of the barriers to H&P effectiveness as cited in our study, so a single data repository is a plus.

What constitutes an effective H&P program framework?

An effective H&P strategy goes beyond simply adding more programs; it integrates prevention (at home and work), manages health and provides incentives for behavioral change. Our survey identifies that the top three elements for an effective H&P framework include: employee engagement driven through the use of incentives and communication; appropriate programs, including the use of technology; and a way to measure and continuously improve the results.

A single technology intake from a user perspective makes it easy for employees to do everything from recording a sick day to signing up for an education program; on the back end, the technology tracks utilization, membership and ROI, and provides an integrated set of data analytics. Naturally, the one constant throughout the framework is communication. The more the program is communicated, the greater the results. H&P must become part of a company’s corporate culture and new reality of how business is run.

Will an H&P program be costly?

A best-in-class H&P program does not have to be expensive to be effective. It’s important for each program to uniquely reflect the culture of the organization and its employees. Monetary incentives as low as $50 for weight reduction or smoking cessation can often catch the attention of employees, and doing something as simple as waiving co-pays on drugs used to manage chronic illnesses may be enough to encourage employees to take those drugs consistently and manage their conditions. While we can look at the results and the H&P framework used by other companies and learn from them, the best design is one uniquely tailored to that organization, and it’s not necessary to keep up with leading-edge inventions to be successful.

How quickly can CEOs expect results after installing an H&P program?

A successful H&P program will produce results over time because you are changing employee behaviors. While deploying these concepts and programs won’t necessarily produce immediate results, the numbers in the survey should be incentive enough to begin and sustain the journey.

CATY FURCO is the office practice leader for Group and Health Care Practice of Watson Wyatt Worldwide for Northern California. Reach her at caty.furco@watsonwyatt.com or (415)733-4309.

Tuesday, 29 January 2008 19:00

Proactive planning

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Investing in real estate requires careful planning well before the transaction, cautions Douglas G. Schultz of Burr Pilger Mayer. “It is important to step back and look at the big picture. What do you want out of the investment?”

If certain aspects of accounting and tax planning aren’t addressed, they could become huge negatives: higher tax bills, less liability protection than you might have had, and higher estate taxes. “A little creativity can go a long way to minimize taxes and maximize value,” he says.

Smart Business asked Schultz about preparing for your biggest purchase.

What should be addressed before any real estate investment purchase?

It’s important, from a tax and liability protection perspective, to use the proper entity to hold your investment. Thorough consideration of your objectives will determine whether an LLC, limited partnership, or other flow-through entity should be selected.

Much has been written about subprime mortgages — we an expect lenders to revert to more traditional underwriting guidelines in 2008, but that shouldn’t prevent qualified investors and developers from moving forward.

Still, you must understand what the property’s cash flow requirements are and what they may entail. That could mean escalating interest rates, increases in operating costs, inflation, or an unexpected event that might disrupt the liability of that space — you must have reserves available.

To that end, financing alternatives must be reviewed to make sure any guarantees, equity sharing, and/or collateralization are reasonable and will be sustainable throughout the property’s holding period. Sale lease-backs, interest enhancement mortgages, and seller financing are alternative financing techniques to consider. Loans also present special reporting issues. The calculation of various ratios or investment returns is required for compliance or covenants.

Properly characterize your investment as a passive activity or an active business. Real estate losses by definition are generally considered passive, and the deduction of these losses is limited to passive income unless the owner is a real estate professional. By meeting certain requirements relating to percentage of time and number of hours spent in real estate activities, an individual may be able to convert passive activity losses to non-passive losses, which can offset income such as wages, dividends, and capital gains.

What needs to be considered when disposing of real estate?

Investors need an exit strategy. Do they plan to sell it after it has appreciated significantly, or exchange it for another property? If so, what kind of property makes sense: a tenancy-in-common investment interest, a single tenant triple net lease property, or a similar but more valuable property? If you sell, will you qualify for long-term capital gain rates, or will you be subject to ordinary income tax rates?

If you sell your property and replace it with a new one, a like-kind exchange can reduce taxes. For example, non-income-producing land can be exchanged for triple net leased property for improved cash flow. High-equity property can be exchanged for highly leveraged property for an increase in rate of return.

Any real estate investment must be considered in terms of your overall financial and estate plan. All options — family limited partnerships, charitable trusts, and intentionally defective irrevocable trusts (IDIT) — need to be weighed. Including these tools in an estate plan can achieve a reduction in estate tax, an increase in wealth transferred to your beneficiaries, and perhaps a significant contribution to charity.

What are some tax strategies?

In real estate, you want to acquire property that will appreciate substantially and can be held and liquidated with maximum cash flow and minimal taxes. Here are two ways to accomplish this: 1) Accelerate depreciation. When a client purchases a property such as a commercial office building, we often recommend a technique called cost segregation. Cost segregation studies provide immediate cash flow savings by accelerating deductions for depreciation, in turn reducing taxes. Certain components of the building that are personal, short-lived assets are segregated from the building’s structural components, typically depreciated over 39 years. Short-lived assets might include carpets, window treatments, cabinets, partitions, and landscaping. This opportunity can be applied to buildings acquired up to 15 years ago and provides immediate tax savings. 2) Take advantage of capital gain rates. Normally, an individual who subdivides land or develops land as condominiums and then sells the land would be taxed at high ordinary income tax rates. Long-term capital gain rates apply to a sale of a property that is a capital asset held more than one year. Inventory is not a capital asset. Investors can qualify for long-term capital gains, but developers cannot. Case law and the tax code can allow a gain, under certain circumstances, to be taxed at lower long-term capital gain rates on the property's appreciated value, even where some development has occurred.

Whatever course is selected, the big picture has to encompass you, your vision and goals, as well as those of your family and their future. <<

DOUGLAS G. SCHULTZ is a tax partner and head of the real estate industry group at Burr Pilger Mayer. Reach him at (415) 421-5757 or dschultz@bpmllp.com.

Wednesday, 26 December 2007 19:00

Making a dollar

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People in the technology industry talk about the “bubble,” and Michael Fields says he’s been through three of them in his 30 years in the enterprise software industry. During those years, he’s held executive positions at several large companies, and he is putting his experience to use as chairman and CEO of KANA Software Inc., which provides customer service solutions to companies.

By year-end 2006 — Fields’ first year-and-a-half as CEO of KANA Software — the company had turned a profit for the first time in its 11-year history, posting revenue of $54 million.

Smart Business spoke with Fields on why you should never grow at the cost of profitability and how to deal with dissenting opinions.

Q: How do you deal with the challenges of running a growing business?

I call it never forgetting that you have to earn a dollar. It’s trite but true. All too often, business, particularly small businesses, believes that growth has to come at cost of profitability — that it’s OK to be unprofitable.

Now, I’m not suggesting it does-n’t happen, and it’s happened to us, but the focus is how do we grow, but grow it being profitable?

When you do that, you continue to think about how to drive your business more logically rather than just believing that by growing revenues at any cost will lead to success.

That model works in some things, but for the most part, it doesn’t work.

That’s a mantra of ours. We’re going to grow, we’re going to dominate, but we’re going to make a dollar.

Q: How do you make decisions for your company?

Clearly, in a leadership role, you’ve got to make decisions. You have to be the one who finally decides on a particular strategy. But the acceptance of those strategies is dependent upon how open the process has been and how involved multiple levels in the organization and the customers have been.

People who have a passion for what they’re doing and who take an interest in the success of the company can take being told the direction the firm will follow. The project they’re involved in may not be going the direction they would like it to follow, but they can understand that and get behind it as long as they understand why those decisions were made.

Q: How do you get that buy-in?

I believe in that collaborative approach, but it has to be tied to making a decision. There are those who will collaborate looking for common ground, and they end up with the least common denominator. You have to be careful of that in collaboration.

You really have to focus on the vision and look for that collaboration to meet the vision. If it doesn’t, look to step it up. Because you don’t want to end up saying, ‘We all agree, and we’re only going to do a quarter of what we can because we want to make sure everybody’s on board.’

Q: How do you deal with dissenting opinions?

The first thing is having the facts. Give people the opportunity to present their case, but having the facts on why that decision is being done — that’s different than their opinion.

For some, they may look at their opinion and say, ‘This is an intractable situation for me.’

I’d much rather know at the beginning of a major decision for the company.

If someone says, ‘I just can’t get behind this,’ well, that’s the great thing about the economy in the United States — you can go do something else.

Because once the decision is made, you want everyone behind it. Even if they didn’t feel initially it was a direction they would have taken, at least they will understand the reasons why because they participated in the process of getting to where we are. Some may just say they can’t do it, and you’ve got to move on from that.

Q: How do you communicate your vision?

First, it starts with articulating one. Our vision is to dominate the customer service software and services market. That’s a bold vision; there are a lot of criteria involved. You have to start with reaching high, not impractically so. I’m not saying we’re going to dominate the database business because that’s been done.

Dominating the customer service software business — nobody has done that yet. It’s achievable by a company of our size and stature. Once you’ve articulated that vision, communication takes place because you involve everybody in the company toward that vision.

What are the things we all need to do? It’s management’s job to ensure that every individual in the company, whether or not they are writing the next version of our technology or selling a large account or answering the phone at the office, everybody understands how the value of what they’re doing is leading toward that vision.

HOW TO REACH: KANA Software Inc., (650) 614-8300 or www.kana.com

Sunday, 25 November 2007 19:00

Trends in compensation and benefits

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Chief executive officers no longer need to be educated on the importance of establishing global governance around compensation and benefits; the key issue now is how to design and implement an efficient global governance framework — this is where many organizations are struggling.

Watson Wyatt Worldwide conducted a recent survey of 101 multinational companies focusing on global retirement governance. It indicated that, while 78 percent recognized the importance of efficiently managing their worldwide pension plans, only 39 percent had taken the initiative by establishing a global governance committee.

“Obstacles to global governance abound,” says Frazer Russell, international practice leader with Watson Wyatt Worldwide. “Having a logical step-by-step process to implement a structured framework is the most successful way of getting your hands around all of the potential issues. A successful framework brings together data, tools, policies, roles and responsibilities and approval processes in an easy to understand manner that, crucially, does not impose a large amount of bureaucracy.”

Smart Business spoke with Frazer about how companies can go about designing and implementing a global governance framework around compensation and benefits.

What are the steps for developing a global governance framework?

  • Readiness assessment: The first step is to determine if your company has the infrastructure and the tools in place to support the implementation of a global governance framework. For example, if you don’t have the necessary resources (internal or external), access to good data, buy in from senior stakeholders or the capability and structure to effect changes globally, any plan you put in place is likely to fail in the execution stage.

  • Baseline assessment: It is key that the current status of your existing global governance framework is understood. This can involve gathering a complete inventory of benefits and compensation provision and policies, checking for compliance and competitiveness and analyzing the current operational and investment protocols.

  • Philosophy: Now that a clear idea of the starting point is known, it is simpler to develop a global compensation and benefits philosophy that defines the guiding principles shaping the subsequent objectives and strategy. The philosophy is developed based on your business vision, objectives and culture. Examples include: above-average compensation to attract top-performing employees and a desire to care for sick or injured workers, etc. A well-formulated HR strategy and, in turn, compensation and benefits strategy, supports your overall business strategy.

  • Objectives: The objectives are the specific goals of the global governance framework linking your overarching philosophy to the strategy.

  • Strategy: This is essentially the roadmap that defines who will be responsible to deliver the plans and programs globally. Having clearly defined, assigned and communicated roles and responsibilities is vital to implementation success and the ability to achieve ongoing compliance.

  • Ongoing governance: During implementation you will have assigned roles and responsibilities for each facet of the ongoing governance cycle including: annual planning, oversight, financing, accounting, plan design, administration, communication and investment, etc. This needs to be monitored and reviewed in a planned manner.

What role should CEOs play in implementing a global compensation and benefits governance framework?

Executive sponsorship of the initiative is vital to achieving success as is a clear communication structure. We recommend adding the framework’s roles and responsibilities into each individual’s performance plan to make certain that both implementation and compliance is a priority and that expectations are clear. Last, CEOs should establish a global benefits committee and work through that group to keep track of implementation progress and ongoing compliance.

Which human capital programs make the most sense to manage globally?

One issue to consider is which compensation and benefits elements should form part of the framework. Watson Wyatt produced another survey, jointly with World at Work. From the results we can see that not all components of compensation are candidates for centralized management. Base pay, for example, can be driven at the local country, regional or global level — either way, local market conditions must be closely considered. On the other hand, more than 90 percent of the companies we surveyed govern executive compensation globally, and nearly 75 percent do the same with long-term incentives.

Most of the companies surveyed require approval from global management for new equity plans, expatriate policies and for bonus plans. These are rewards that are either linked to the performance of the organization overall or are global in nature, so global consistency makes sense.

In recent years there has been an increase in global management of benefits and perquisites too. Retirement plans are governed globally for around half the companies.

There is no single solution among companies or even within industries. One thing is clear, however: the optimal balance will shift as a multinational company expands and moves into and out of local markets.

FRAZER RUSSELL is an international practice leader with Watson Wyatt Worldwide. Reach him at (415) 733-4354 or Frazer.Russell@watsonwyatt.com.

Tuesday, 27 November 2007 19:00

Clearing the static

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Right before starting graduate school, Eric Grosse set off with a good friend on the trip of a lifetime. They started in Buenos Aires, and through a combination of cars, trucks, trains and hitchhiking, ended up in Cartagena, Columbia. He then made his way to Bogota and flew to Miami, where he bought a motorcycle and drove up the coast to business school.

“It was an amazing experience that you can only do when you’re young,” says Grosse, who would go on to co-found Hotwire Inc., an Internet travel site. “Six weeks from Buenos Aires to Cambridge, Mass. It was great.”

Little did he know at the time that the experience in getting from Point A to Point B by whatever means necessary would help him later in his business.

Started during the dot-com boom, Hotwire was rolling along, but then Sept. 11 happened.

It was around 6 in the morning when the phone shrilled in the early morning stillness with a message alerting Grosse of the horrific events that had happened in New York City and just outside of Washington, D.C., that September morning.

Travel came to a halt. No one was flying anywhere, and struggling airlines were making cutbacks and flirting with bankruptcy.

“That put us in a crisis mode that we hadn’t had to do before, so we really had to essentially create at Hotwire an emergency task force to quickly identify how this is going to impact our customers, how is this going to impact our strategy, how is this going to impact our growth plans, and how is this going to change?” Grosse says.

Grosse quickly saw the effects the attacks had on his industry. “When you’re in the business of selling empty seats as we are, you see a 20 percent reduction in domestic capacity amongst the air carriers, that’s a massive change that took place very quickly that was obviously very sudden and precipitated by that awful day,” Grosse says. “What that meant was we had to be really nimble very early in our life to get serious about developing other lines of business in addition to air.”

Despite the circumstances facing the company, Grosse wasn’t one to sit around and let things fall apart. Much like his early trip through South America, he started figuring out how he was going to get from Point A to Point B.

“We’re very focused on action,” he says. “We didn’t want to sit and let the external events dictate to us what we should do. We wanted to get in the driver’s seat and respond in a proactive way that was going to allow us to succeed.”

Creating a strategy

When Grosse was a kid, he liked to play Risk. “I thought that was the neatest game,” Grosse says. “It was about strategy. It was about matching wits with other people. As a boy, there was something exciting and sort of militaristic and Napoleonic about it all.

“It very much leant to a vivid imagination, which I had as a kid. Even though it was just a stupid map with a bunch of plastic pieces on it, it was somehow more than that.”

Risk rewards players who are opportunistic and execute a carefully laid out strategy. Maximize your forces where the opponent is weak, and you’ll win the game.

After Sept. 11, the map Grosse was looking at was suddenly real. The pieces in the game now weren’t plastic, they were people, with lives of their own and families. Every decision he made could lead to victory — or to ruin.

Like the generals of old, he called together his most trusted advisers to formulate a plan to get Hotwire through the crisis.

“I know very few people that can take the mountaintop approach to strategy where they go off by themselves and sit on a stoop next to some llama in Asia and come back and say, ‘Here’s how I’m going to reinvent the world,’” Grosse says.

“Strategy is based on having real insight into your market. The only way you get real insight into your market is to just be an outstanding listener.”

By listening to the people around him, his suppliers and his customers, Grosse determined that to get to Point B, Hotwire was going to have to diversify its offerings. It could not rely on hitching its cart to the now faltering airline industry. Instead, it was going to have to get into booking hotel rooms and car rentals to offset the airline losses.

Effective listening — the kind that can provide insight into getting out of a major jam — means giving the other person your undivided attention.

“It’s really that ability that makes people talk more,” Grosse says. “Ultimately, listening is not just listening and getting information, but it’s also the ability to get information out of people that they wouldn’t necessarily have given or won’t give to other people. People respond naturally to people that really care about them and people that really give them undivided attention.

“Listening is an active skill, whereas, oftentimes, it’s perceived as something that is passive, where you’re just sitting back and listening to someone droning on and on. Listening, when it’s done really well, is not a sit-back-in-your-chair kind of act. It’s a lean forward and put your elbows on the table and really hear what the person has to say.”

Next you have to take the information you hear and interpret it by relating it to your situation to choose the best routes to pursue.

“Typically, people fall off the rails in one of two ways,” he says. “One is they actually were good at it, but they’re just not anymore and don’t know it yet. That gets back to really listening and understanding that business isn’t static — it’s dynamic and there’s always new entrants and new ways of doing things, and you may be the king of the hill today or you may have been king of the hill five years ago, but you’re not today, and you have to wake up and smell the coffee.

“The second one is, I think people tend to focus on the obvious things of what makes people successful in a particular industry, even if that’s not necessarily who they are. I think a business has to be true to itself and leaders have to be true to themselves about what makes them really different.”

Communicating

Hotwire now had its new destination — it would diversify into other travel bookings. But that was just the start to transforming the company.

“In some respects, identifying the strategy is 10 percent of the job, and 90 percent of the job is making sure it’s clearly understood and having excellent processes to get the job done,” Grosse says. “That’s what ends up making you win or lose.

“Job No. 1 is to make the message really simple. It’s really easy to fall into the trap of complexity because most of us work in complicated businesses and complicated industries, and it’s very easy to fall into the nomenclature of the industry or tons of acronyms and three-letter words. To boil that down to something that’s simple and understandable is by far the most important thing.”

Once the message is created, use as many venues as possible to communicate it to people. E-mail, company meetings, department meetings and face-to-face meetings all work. Also walk around the halls and talk to people to see if they understand what’s going on and to just generally connect with them. Doing this creates an open environment, and people will trust you more.

At the same time it can’t be just you doing the communicating, so you have to make sure your broader management team takes communication seriously, as well.

“Part of it is meeting with them frequently and walking the walk and setting the tone,” Grosse says. “Part of it is being very clear in terms of expectations around making sure it’s in their goals and what you want them to accomplish more formally. And part of it is just making sure you have the right people in place to do that well.”

He says it’s also important to touch base with your key people on a one-on-one basis.

“Make sure you reach out and be there for them as well as communicate the important issues to them, at the very least, on a weekly basis,” Grosse says.

Keeping the team cohesive through communication is crucial to making sure the organization adjusts as the changes occur.

“Things change for us all the time,” Grosse says. “There’s a lot going on — it’s very competitive, so as a result, you want to make sure you’re on top of things because as good as you may be doing in the current week, you can’t assume that’s going to continue into the weeks and months ahead.”

Motivating and empowering

Grosse was 19 when his father passed away, and he says that is one of the biggest challenges he’s ever faced. But he didn’t overcome it alone.

“Overcoming that was looking at the positives of what I had with a wonderful person and having an amazing family and set of friends to get me over the hard parts. In a situation like that, when you have big challenges, it’s really hard to be an island. You’ve got to have people that can help and be there for you.”

Getting through any crisis, whether it’s personal or business, means reaching out for support. When Hotwire was facing dark times, Grosse had to be there for his people.

“Keeping the team focused and motivated during a very dark time tested the management team in a way we hadn’t been tested before,” Grosse says.

“This is one trait that’s underrated in business: You have to have a lot of energy around what you’re doing — when I say a lot of energy, a lot of energy as a leader and also a lot of energy as an organization.”

To tap into those energy pockets, Grosse had to find the most exciting points for people.

“Business is about people. ... It’s getting people to do more things than they thought they could do on their own,” he says. “It’s a very personal thing. ... Whether you’re selling travel or selling your millionth widget, there’s a lot of satisfaction about selling that millionth widget. You’re getting people excited about goals, and the people they’re doing it with is something that’s very powerful.”

Grosse says to rally people around goals because clarity and strategy create excitement. He also says that once you give people goals, you have to be hands-off about how they get there. Giving them the authority to make their own decisions makes them feel empowered and gets them excited. It’s also critical to help them make the best decisions possible.

“One thing that makes people comfortable and confident making decisions is doing it when they have a lot of relevant information available,” he says.

Grosse gave his people the data they need to be their own worst critic. When they can see the numbers for themselves, they can be proactive.

“That’s an important distinction to not just having a decentralized approach toward risk-taking and decisions but also to give those teams the data they need to make sure they’re going to be right most of the time,” Grosse says. “When they’re not right, they can correct it and course-correct themselves versus having to nag them about it.”

Sometimes people will still make the wrong decisions and not correct them in time, and Grosse says that failure is OK, as well.

“We’re not expecting everybody to hit the ball out of the park every time they step up to the plate,” Grosse says. “If there’s that type of ethic across the company, nobody’s going to try to do anything. At the same time, you want to make sure it’s OK to fail — as long as you learn from it and as long as that becomes part of that insight and memory bank, and you listen to your failure, and you become that much better of a hitter the next time you come up to the plate.”

Grosse and his people are indeed becoming better. While forging through the aftermath of the Sept. 11 attacks wasn’t easy, a lot of what he loves most about Hotwire came from the strategy resulting from that day.

“If we didn’t change, we wouldn’t be nearly as successful as we are today,” he says. “If we stuck to the guns of what started this business, we’d be in big trouble. I have every confidence that we’d still be around, but we wouldn’t be as relevant as we are today without embracing change.”

While Hotwire doesn’t disclose revenue numbers, Grosse says Hotwire today makes up a “significant portion” of Expedia’s $1.3 billion in other bookings, and the hotel and car bookings it focused on during the initial change are now two of its most profitable businesses instead of simply nice add-on products.

“At the end of the day, you can kind of boil it down to three things,” Grosse says. “First, have absolute crystal clarity into your market and what you can do that’s different in the market. Then second, have a real North Star, so how can you identify and communicate your strategy in an exceptionally simple way so it is just as easy to understand your strategy as it is to look up in the sky and see the star. Then lastly, is the whole idea of having an environment of energy and empowerment and direction to get that in place so as a team you can’t be stopped.”

HOW TO REACH: Hotwire Inc., (415) 343-8400 or www.hotwire.com

Friday, 26 October 2007 20:00

Nonqualified retirement plans

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The dust is just settling after the first proxy season following the implementation of the SEC’s disclosure rules around executive compensation. The new policies demand greater candor and disclosure about executive earnings and compensation plans. If meeting the spirit and intent behind the SEC requirements wasn’t enough, now public companies must contend with meeting the final rules of IRS Section 409(A), and the Pension Protection Act, both of which take effect Jan. 1, 2008.

With the final regulations in place, companies need to revise their deferred compensation plans, including nonqualified retirement plans, before the deadline.

“Section 409(A) applies to every non-qualified retirement plan,” says Pete Neuwirth, senior consultant with the Retirement Practice at Watson Wyatt Worldwide. “All aspects of the plans are coming under review, including plan design, funding and administration.”

Smart Business spoke with Neuwirth about how CEOs can prepare for the upcoming changes in deferred compensation and nonqualified retirement plans required as a result of all the new rules.

How do the new proxy disclosure rules come into the picture when discussing the Section 409(A) requirements for nonqualified retirement plans?

The proxy filings represented the first time that we’ve seen many of these executive compensation numbers laid out in public. At Watson Wyatt, we conducted a survey of 690 proxy statements, specifically looking at the compensation that was associated with nonqualified retirement plans. In general, the pension portion of the executive compensation was equal to base pay and averaged about 10 percent of the total compensation the executive received, which also included performance-based compensation and bonuses. For some CEOs, however, the nonqualified retirement program represented a much larger component of compensation. One important component of the proxy statements is to explain the link between performance and pay for executives. This is difficult to do for a nonqualified retirement plan. Because the proxy statements must include the present value of any accumulated benefits, including deferred compensation, it brings forward the issue of explaining how performance is tied to deferred compensation and nonqualified pension plans. The proxy also requires a discussion of the rationale for adopting the retirement plan in the first place, something that most companies are not able to readily do.

What design changes to nonqualified pensions plans do you recommend to meet the new requirements?

First of all, one size does not fit all. It’s not necessarily the answer to eliminate all of your deferred compensation plans, including your nonqualified pension plans, to comply with the new rules. For example, the nonqualified plan may have been put in place for retention purposes or to augment succession planning goals by helping your company attract midcareer employees, so you still want to derive the benefits while complying with 409(A). You should think about the type of nonqualified retirement plan that will best meet your objectives and, in particular, review how your non-qualified plan dovetails with your qualified plan. You may, for example, find opportunities to achieve your goals through the qualified plan, i.e. QSERP. You may want to consider lowering your Supplemental Executive Retirement Plan formula and using total compensation in your benefit formulas as opposed to base pay only to better tie the plan to performance. Rather than throwing your SERP out the window, carefully consider the reasons for the plan and, where possible, tie the value of the plan back to performance. Doing this helps companies meet both the 409(A) and the SEC disclosure requirements.

How does 409(A) impact funding requirements?

While, historically, there’s been no formal way to fund nonqualified plans, executives want some type of security for their retirement funds. That security has generally been achieved by funding nonqualified plans through a ‘rabbi’ trust or allowing executives early access to their benefits through in-service distributions with a small reduction, or ‘haircut,’ applied. (The name comes from the first IRS private letter ruling approving such a trust, obtained by a synagogue on behalf of a rabbi.)

Unfortunately, 409(A) sharply curtails your ability to get at funds even if a haircut is applied. Rabbi trusts, however, are still viable. While securing against a ‘change of heart,’ rabbi trust assets are still accessible by creditors in the event of bankruptcy. Also, because earnings on trust assets are subject to income tax, many companies place the trust assets backing executive’s deferred compensation into Corporate Owned Life Insurance (COLI). This funding strategy provides positive tax consequences and security for the executive, but results in increased frictional costs and a lack of liquidity.

How does 409(A) change plan administration?

Certainly 409(A) has complicated plan administration considerably. In the past, the administration of nonqualified pension plans has tracked closely with requirements for 401(k) plans. You may want to consider outsourcing the plan administration since the complexity of 409(A) will require someone on the staff to be very attentive to the requirements and, given the number of people covered by the plans, it may not make financial sense to keep administration in house.

PETE NEUWIRTH is a senior consultant in the Retirement Practice for Watson Wyatt Worldwide. Reach him at (713) 733-4139 or peter.neuwirth@watsonwyatt.com.

Friday, 26 October 2007 20:00

Pampered pets

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When hiring, FETCH! Pet Care Inc.’s founder and CEO Paul Mann isn’t just looking for people who love pets — he’s looking for entrepreneurs. Mann wants employees with entrepreneurial skills to run the company’s 100-plus franchises, and after he finds them, he just stays out of their way. That formula has worked at the 1,500-employee, professional pet sitting and dog walking services company, as sales increased 243 percent from 2005 to 2006, and the company is on track to shatter that mark in 2007, posting 241 percent sales growth in the first half of 2007.

Smart Business spoke with Mann about how a brand is like a promise and how empowering employees has helped his business grow.

Q: How do you communicate your vision to employees?

Simplicity is No. 1. It’s got to be clear, not complex. You’ve got to grab on to the key, salient points you want people to know.

It needs to be consistent every time you ook at FETCH! — because a vision is the creation of a brand. A brand is something you can rely on, over and over again. You know it’s going to have the same taste, feel, level of service, wherever you go. It’s very important to stick to the vision and not vary it too much.

I will share our five- and 10-year plan with the person who does the filing for us because I want them to know where we’re going as a business. I want them to get excited about the future of the business.

Q: How do you develop your brand?

The vision and brand equal a promise of what you can expect. That’s what I have to sell to our staff, to our clients, to the marketplace. The key is that you have to have a realistic vision that’s achievable.

That doesn’t mean it can’t be a crazy vision. We have some crazy numbers, and we’re actually achieving them and beating them. But I needed to articulate how to get there.

Basically, I needed to give them a road-map of how they could achieve this.

So the vision needs to be realistic, and it needs to be achievable. If you don’t achieve it, your vision goes away. Your brand will not stand strong if you don’t deliver on your product or service. You lose your reputation.

Q: How do you get buy-in from employees on your vision?

The key is to understand that the roadmap is always changing. We set the end point; we want to go from A to Z — that doesn’t change. What changes is everywhere in between. The buy-in comes from explaining Z very clearly, the end vision. Then, employees can understand how they can contribute.

It’s not my job to sell anybody. My sales-people don’t sell franchises. They are not supposed to sell a franchise because the franchisees also have to convince us that they’re right for this, as well. Then we get the right people — entrepreneurs who really grab the vision.

That way, there is no selling, just communicating the vision. It’s those people who embrace it who then have something to contribute.

I can tell very quickly if someone is excited or if they aren’t. They’ll come to me with ideas, or they don’t.

Q: How do you empower employees?

If someone is hired for a job and they are just told what to do, they’re not going to get excited. They’re worker bees; they’re just following somebody’s orders. If they are empowered to be part of the team and contribute, they’re going to rise to the challenge.

My management style is similar to parenting, in a way. I have a 2-year-old and a 14-year-old, and I don’t tell them what to do. I watch what they’re doing and give suggestions if they need them.

Rather than watch over their shoulders and telling them, ‘Do this, do that,’ I let them unfold on their own as people and see what they can create. I’ll only step in if they’re on the wrong track.

It’s the same thing with my staff. They know their job; I let them do what they do best. I’m merely there to supervise and make sure they don’t go off on the wrong track or do something potentially damaging to them or us. People love that level of independence because then they are entrepreneurial in our business.

Q: How do you create that empowerment?

That’s something a lot of businesses miss. They could have a bunch of empowered entrepreneurs, but instead, people get the life sucked out of them because they’re given these impossible tasks and deadlines, and they’re not given the tools to achieve them to a level at which everybody’s going to be satisfied.

Give them a clear direction of what you want to achieve — not what you want them to do, what you want them to achieve. The second thing is give them the tools to do it, like software systems or a good computer.

Don’t skimp because that’s only going to frustrate them and limit their abilities to produce.

HOW TO REACH: FETCH! Pet Care Inc., (866) 338-2463 or www.fetchpetcare.com

Tuesday, 25 September 2007 20:00

Stephanie DiMarco

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Stephanie DiMarco doesn’t want to hear how great Advent Software Inc. is doing. Sure, as founder and CEO, she likes to know about the wins at the investment management solutions organization, but she doesn’t want to celebrate the good stuff at the cost of omitting the bad. That’s why, when she travels, she keeps a list of customers with her, so if she gets extra time, she can squeeze in a meeting to get feedback on how the company is doing. That desire to get to the heart of anything that isn’t working at Advent is the driving force behind the company’s boom to a record $184 million in revenue in 2006 and is the philosophy that DiMarco constantly drives home to her 850 employees. Smart Business spoke with DiMarco about why you should put problems under the spotlight and how important it is to challenge your employees.

Don’t hide the bad news. There’s nothing like adversity to get you motivated. We had some problems to fix in 2003, but it was a very energizing time because I think that people felt for a couple of years we ignored our problems, and there was enough good news that you could hide behind.

So there was a sense of relief that we were going to be very bold about the issues that we had and correcting them. It was extremely energizing for people, and we also learned from that experience that it’s OK to put the problems under the spotlight because they only fester if you try to ignore them.

Keep your employees challenged; keep your employees. If great people are challenged and excited about what they are doing, they’ll stick around. Financial compensation is one component of why people stay at a job, but in lots of cases, it’s the smallest component — as long as you’re competitive and fair and people feel well compensated.

Being excited about what you do is more important to most people, and having that shared vision of where the company is going is really critical to keeping people for the long term.

Clear up the fog for your staff. We try to be very clear about what our objectives are on a quarterly basis, an annual basis and on a three-year plan. We communicate the vision for the year, and then on a quarterly basis, we update those.

I just sent out a mid-year update to the whole company describing where we are, and the opportunity and the challenges for the year, so there is no mystery about what our goals are and how we are tracking toward those goals.

Clarity is a lot better than fog, and most people are a lot more successful when they understand the objective, so they’re not just taking an order, they have a holistic picture of what we’re tying to accomplish. They’re much more motivated when they see the bigger goal we’re working toward instead of just seeing it as an individual task.

It’s very important that it’s a shared vision, and I think it’s kind of a myth that leaders create visions and push them downhill. I know that’s certainly not the case in our company; we develop a mission, and if you develop it properly, where you have the buy-in from all your constituents, then it’s really about the clarity of communication so that everyone understands it.

Keep an honest workplace. You really have to have a leadership style that is very open and honest and fair because smart people have other options, and they aren’t going to be interested in working someplace where they don’t feel like it’s an honest place.

People want to feel like they are in control of their destiny. Part of that is having access to the CEO and being able to give the CEO your opinion. And I’ll listen to it, so they feel like they can impact the objectives of the company. I don’t think anybody likes feeling like there is a hidden agenda or they don’t have access to the top, so an open door is a big part of knocking out that mentality.

We typically do a lot of rounds of interviews when we hire people, so they have a lot of access to people around the company, so that gives them the opportunity to get that feedback directly from their managers but also from people who will be their peers. And I think that new recruits really appreciate that because they get a pretty candid view of the company, and the open-door policy is something that people do indicate to new recruits. And it’s much better coming from a peer than my saying, ‘Hey, this is a great place; we’re really open.’ It has a lot more credibility coming from them.

Now, I can’t make them say that, but it’s true of our culture, so it does kind of permeate.

Recruit right and hire right. The most important thing that any manager does is recruiting because the quality of the company is directly related to the quality of the people. So it’s very important that you never compromise, and when you’re operating in a competitive environment, where the best talent is scarce, it’s easy to compromise.

But my mantra is never compromise, even if we have to work twice as hard to get the right candidate, I’d rather wait it out than hire the wrong or lesser person.

Find things that stir up your passion. Being passionate about what you do is the key to success. So certainly for a CEO, who has a big job, that’s really, really important.

It goes back to enjoying what you do, and I find our business really satisfying and rewarding. And when I talk to a customer that is really happy with us, that’s energizing for me.

Or when I talk to a customer who was one of our early customers, and they’ve been with us for a number of years, and they weren’t so happy with our situation, that’s also energizing because I’m very motivated to make sure this long-term customer gets turned around. Knowing that you can turn a situation like that around and make them happy again is really energizing, and you have to find things like that to keep you going.

HOW TO REACH: Advent Software Inc., (800) 685-7688 or www.advent.com

Sunday, 26 August 2007 20:00

Gliding into retirement

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Target date retirement funds emerged on the scene as investment vehicles about 10 years ago. Widely popular among 401(k) plan participants, the plans are designed to make retirement investing easier for those who lack the time or the expertise to manage their own retirement fund investments.

The plans are designed to provide a “plug and play” scenario for investors who begin by initially selecting their projected retirement date and then continually fund the account over the course of their career. The plan relies on a glide path investment strategy, which gradually rebalances the portfolio comprised of cash, bonds and stocks toward a more conservative investment allocation as the time for retirement nears. Despite the fund’s low maintenance philosophy, each target date fund has a different allocation model, and plan participants still need coaching and communication from plan sponsors to avoid making mistakes when investing, says Michael Ford, senior investment consultant with Watson Wyatt Investment Consulting, a subsidiary of Watson Wyatt Worldwide.

“As we study 401(k) participant behavior, aside from not saving enough for retirement, participants often fail to take enough risk, or they take too much risk with their fund choices,” says Ford. “In the case of target date retirement funds, a frequent participant mistake results from altering the asset allocation model by investing in more than one fund. All of these mistakes may cause 401(k) participants to be financially unprepared for retirement.”

Smart Business spoke with Ford about how CEOs can help employees invest wisely in target date retirement funds.

What is the most common investment mistake made by employees when investing in target date retirement funds?

The funds are designed to be all-inclusive investments. Frequently, plan participants become accustomed to spreading their investments among many different investment vehicles, like mutual funds, so naturally they are inclined to do the same thing with target date retirement funds. However, in this case, investing across multiple funds alters the glide path investment strategy, which, in turn, might cause plan participants to miss their financial retirement goals. It’s really not designed to be a mix-and-match investment concept.

How do retirement date funds fit into a plan sponsor’s full suite of investment options for employees?

It’s important to recognize that one size does not fit all when it comes to assisting employees with retirement planning. Each employee has a different risk tolerance, financial circumstance and level of investment savvy. We advocate structuring investment options into three tiers, with each tier appealing to different segments of the employee population.

  • Tier one — Target Date Retirement Funds: this tier is designed for participants who don't want to make asset allocation decisions and would rather have someone else do it for them.

  • Tier two — Core Options: this tier is designed for participants who want to make their own asset allocation decisions from a set list of investment options.

  • Tier three — Brokerage Window: designed for the small percentage of sophisticated investors who want maximum choice in their investments.

How can CEOs and plan sponsors help employees manage their retirement funds more effectively?

Communication and consultation with employees is absolutely vital. Plan sponsors should provide tools to participants that help them assess their risk tolerance and investment knowledge. If they are a tier one investor, it is important to communicate that this is a stand-alone investment option, not to be mixed with assets from the other tiers.

Plan sponsors should communicate with participants initially upon enrollment and then at least every six months about the nature of target date retirement funds and the investment strategy behind them. At Watson Wyatt, we recommend varying the communication method from print materials to in-person meetings to accommodate the needs of a diverse employee base.

What is the role of the plan sponsor’s record keeper in safeguarding employees?

Plan sponsors should coordinate safeguarding efforts with their record keeper to prevent tier one participants from mixing their allocations among other tier one funds or crossing their investments into the other tiers. Some record keepers are able to put safeguards in place that will not allow participants to mix asset allocations, so keep this in mind as you establish your selection criteria for record keepers.

With more and more employees taking on the responsibility of financially securing their own retirement, employers need to assist them by providing tools and the proper oversight of plan record keepers. Used properly, target date retirement funds can provide a majority of plan participants with a highly effective investment solution to help them save for their retirement

MICHAEL FORD is a senior investment consultant for Watson Wyatt Investment Consulting, a subsidiary of Watson Wyatt Worldwide. He is a seasoned professional with 23 years of extensive and diverse experience in the investment field. Reach him at (818) 623-4500 or michael.ford@watsonwyatt.com.