Talent Partners

An Open Letter to U.S. Governors and Mayors

Hey elected Leaders,

We need some help!

In our book, Talent Force, we call for the development of Free Talent Zones.  We have seen successes from local to global Free Enterprise Zones created with subsidies to attract businesses in order to put local talent to work.  But what about the development of Free Talent Zones, where the catalyst for business development starts with the support of people as the foundation for business development.

We see it this way.  Here in the

U.S.

we have at least two great natural resources that can be drawn upon.  We have land and we have people.  We have lots of land where businesses and new towns can be developed.  We also have people.  Lots of good people who are looking for the American dream….to be a little better than the last generation.  They just need the help to get there.

Here’s the question.  How hard is this to do?

Governor Richardson of

New Mexico

, Governor Bayh of

Indiana

, Governor Perry of

Texas

and every other Governor in the

United States

, here is what you can do.

Pick a rural location in your state.  One where there is not much going on and one where you today do not see much hope of things getting better (no growth in population, no growth in tax base, not much good going to happen without some help).

Now, pick an industry that represents your state.  You each have one.  It’s the one where you have campaigned to make sure that it doesn’t leave or die.

Now go to your legislators and present the concept of developing Free Talent Zones for this industry and these locations.

Tell the legislators that you want to immediately pass simple legislation that does these things:

-Any company within the designated state industry who will commit to establish an operation within the designated location with a commitment of employing 100 or more employees in this location and staying in operation there for greater than 10 years with 100 or more employees,  will have the opportunity to employ as many people as they can up to 1000 eligible employees at any given time,  who will then in turn be eligible for a 50% reduction in state income taxes for the first 5 years of their employment.  They get this if they currently live in the designated Free Talent Zone or if they move into the Free Talent Zone to become employed or transferred there by the Company.  Further, all dollars, up to an amount of 25% of the employee’s gross annual pay that the Company spends on Training or Development of this employee will be reimbursed dollar for dollar by the State.

- or pick a rural location - build technology and business support infrastructure and work to attract highly skilled talent in a specific industry where telcommuting is possible. Say for instance a small town in

Montana

has designs to become the location for top engineering talent with security clearance...tough talent to attract and hire. The community gets subsidies to build great schools, the technology infrastructure and provides a 'community' that some in business prefer over city living. Build an airstrip large enough to handle transport jets and boom - you have a Free Talent Zone - or the new - friendlier company town. We would not be surprised to see Raytheon or Boeing actually work with the state and local government to sponsor a town. We think it well happen.

That’s it.

Go get that passed and then go market it and hop out of the way!

Here is what will happen.  Companies will bring customer support centers to these locations, they will bring network operations to these locations, they will bring research and development centers to these locations, they will bring training facilities to these locations.  And over time when there becomes critical mass of like industry talent and experience, new companies (with their headquarters) will spring up in these locations.

The best companies will even add more incentives for people to move to these locations.

People will build homes in these locations because they can afford to do so.  They will build up savings accounts in these locations and they will feed and fuel the local economy.

And guess what, your state will be the preeminent state for the industry that was designated to be supported.

It’s a simple idea isn’t it?  Why wouldn’t it work?

And, it all starts with Talent first!

Tie CEO compensation to Talent!

A few weeks ago new SEC head, Chris Cox, detailed more ideas on how to get CEO pay under control.

We read all of the new thoughts and we don’t have much hope that it will change anything.  For those of us who have worked with public boards and have been responsible for recommending CEO pay to a Compensation Committee, the real problem is there is no standard for surveying and comparing CEO pay and no standards for the measurement of results that would warrant that comparison and truly make the pay transparent.  Seems every year it gets harder and Compensation Committees are now looking to external consultants to make it clearer for them.  But the more you look in the pool, the muddier it looks unfortunately.  There needs to be a better way to make credible comparisons that will hold up to public shareholder scrutiny. 

What the SEC should do is develop a few standards and a public reporting mechanism that they monitor and report out on a regular basis and then let peer and public pressure take over.  To do that, what needs to occur is:

First, the SEC should classify companies into business categories/segments.  They can use whatever template they want to get there.  Business Week classifies companies each Quarter into Industry segments and then makes comparisons of quarterly results.  Fortune does the same.  Not all companies like where they are classified, but they only end up in one segment.  The SEC should do the same and come up with the “official” classifications.  What this does is solidifies the peer set of CEOs so that companies and the public understand how to make real and valid comparisons.  It’s not right for a company or the public to compare an entertainment CEO to a public utility CEO.  They both might be CEOs but the experience set and the talent base available for those positions are night and day (although occasionally a utility CEO fashions himself an entertainment CEO – ala Vivendi, but we know how that story ended).

Second, the SEC should determine a set definition of business and market results to compare the company’s performance to against CEO pay.  There are the usual ones that are easy to get to: Revenue growth, Net Income growth, return on invested capital, earnings per share, cash flow, shareholder return, etc. Once these measures are defined then the SEC can come with their own index of CEO pay against these results.  That index becomes the barometer of how well the CEO is doing and can now be credibly compared against their peers.  The index could also be looked at in both short and long term, like a mutual find report, 1-year, 3-year, 10-year performance.

Thirdly, once both the comparative set is established with both the concrete industry segments and performance reporting, then the SEC has to nail down what is CEO pay and what is not.  This they are working on now and getting close.  It’s easier than they make it.  All they have to do is get rid of the concept of deferred compensation and unvested equity and then you have it done.  Just look annually, or at any point in time at all compensation (any receipt of value, goods or services that the CEO receives) as immediately in constructible receipt and add it up.  Unvested equity just gets valued against the fully vested value on that day against the closing price of the stock.  If a CEO has $5MM of vested value and $10MM of unvested value on that day, then is pay is reported as $15MM of equity pay.  Sure, the argument can be made that she or he might never see that if the stock price goes down (guess they shouldn’t should they?) or that the unvested value is for retention (yep, that’s what it is there for).  All of that noise goes away once everyone is looking at the numbers in the same way.  Then it is what it is and compensation committees will have to decide if they are, against the comparators doing the right thing.

Fourth, the Compensation Committee should report and have to enter into the SEC database, the figures for the CEO twice a year and everyone has to do it, regardless of when their fiscal cycle is, on January 1 and July 1.  This way, again, all public companies are treated the same and shareholders can easily see the results in an open and fair way.  Those companies that miss the deadline will be called out and fined by the SEC (their stock price hit would be just as bad if not worse if they didn’t report for some reason).  And Compensation Committees would be held responsible for signing off on the data as being right with associated penalties if it isn’t…just like the Audit Committee must do every quarter.

Lastly, we call for, in the book Talent Force, for one of the new defined and quantified comparative measures to be against the retention of Talent Capital.  While this can be much more complex and in-depth, in simplest measure, CEO pay should be tied to the retention and turnover of Section 16b Public Executive Officers (these are the executives who have material influence and information about the Company).  It’s a simple measure…% of retention of these executives over a 1-year, 3-year, and 10-year period.  The reason this is important is that the message of retaining Talent starts at the top.  If the Board doesn’t care, then the CEO probably won’t either.  If the CEO doesn’t care, for sure no one else will.  Start measuring this as part of CEO pay and watch the change within the Company. 

Why this is important as a part of CEO pay is that Talent Capital (Human Capital) is the last intangible asset within corporations today.  Some would say it is the only assets within a company that can actually appreciate vs. depreciate.  Regardless, we know it is important and it does not get enough public attention from shareholders or analysts until it is too late.  The asset needs to be measured and opened up. It should be tied to CEO pay.  It should be transparent for all to see.  In Talent Force, we detail a simple chart that companies can use and that we think the SEC should pay attention to. 

Maybe someday they will!