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Ethical Equalizer

One organization's top leader has devised a novel approach to treating, and paying, people more equitably -- thereby encouraging them to stay.

Wednesday, March 22, 2006
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As the chief executive of Resources for Human Development, a large, nonprofit social services agency headquartered in Philadelphia, Robert Fishman makes more than six times the roughly $30,000 that Norma Jackson, one of his employees, earns in her job as a residential adviser.

Of course, such pay disparities between top executives and lower-echelon employees are commonplace, both in the nonprofit world and in corporate America. In most cases, they're seen as commensurate with responsibilities. Fishman, for instance, oversees a social services agency that employs about 3,000 people, runs multiple locations in 10 different states and has an annual budget of $117 million. Nevertheless, he isn't happy with the disparities. So he's fine-tuning a novel experiment he created two years ago to close the gap -- a voluntary club for employees that he calls the One Percent Solution.

The idea is simple: Everyone at his agency is encouraged to contribute 1 percent of their salaries to a pool of money, which is redistributed automatically with every paycheck. However, only employees who earn less than a specified cutoff point, which is based on a formula using the incomes of all the participants, will receive a payout. And this payout exceeds their contributions.

By setting his club up this way, Fishman is attempting to achieve two goals. The first is to encourage his higher-paid employees to think more altruistically about their lower-paid counterparts. The second is to find a way to reward those lower-paid workers, who deserve additional compensation, which may not always be available from the agency's budget.

It's a concept he hopes will eventually catch on with other organizations, including large corporations that, traditionally, rely on merit raises, stock options or some other form of compensation to reward certain employees. As he sees it, the club is something that tells employees their employers care about them, which can boost morale and productivity.

Gwendolyn Wright, fiscal coordinator at RHD who contributes to the club and gets a return, can attest to the positive message it conveys. "It gives me a good feeling," says Wright. "Every little bit extra helps. I like to join any club or plan that offers savings. And I'm really impressed with this, because it's the first time I've ever heard of such a club in any organization."

Fishman, 75, says he'd been very interested for some time in experimenting with a form of compensation that emphasizes the equal worth of all employees and lessens the differences in compensation.

"Most corporations," he says, "depend on their line workers to produce the products that will make them successful. But these people are seen as replaceable cogs in a wheel. So we're trying to create a system of remuneration in which everyone is equitably rewarded. The disparity between the haves and have-nots is a major issue pulling our society apart. And we're a social-services agency tending to people's needs. So we're literally putting our money where our mouths are."

As an example, an employee earning $22,880 would contribute $228.80, or 1 percent, into the kitty. The employee would, in turn, receive a payout of $300.44, since the current cutoff point is $52,000, far above the average RHD salary of $30,000. However, the figures are actually based on six-month intervals, since the club is run in six-month stretches.

At first blush, the extra amount may not seem terribly significant or sizeable to some people. But to Norma Jackson, who works in an RHD mental-health home for women, every little bit helps. She says the additional money is a boost, and recognizes that "it's a gesture for those who are less fortunate and don't make as much."

The most recently completed club attracted 39 people, a participation level that disappointed Fishman. He's publicizing it more aggressively among employees. Yet he's encouraged by the kind of reaction he's heard from Jackson and others, and is optimistic the concept is not only viable, but can be applied elsewhere.

Is It Viable?

Is Fishman correct? Can such a club gain traction in other workplaces, including conventionally structured, publicly traded companies? And how might it square with existing forms of compensation that reward perceived value or specific performance, as opposed to emphasizing his brand of altruism?

Compensation experts are unsure about the extent to which the One Percent Club would play in corporate America. In general, they note, the trend in compensation is to emphasize a different form of equality -- doling out raises, bonuses or options to employees who meet some kind of target. The idea, of course, is to signal others to raise their output.

"There's no question that more companies are struggling today with differentiation in pay and how to redistribute the funds available to reward employees," says Jim Kochanski, a senior vice president at Sibson Consulting, a Raleigh, N.C.-based human resource consulting firm and a division of Segal Consulting. "How does a company treat the solid middle-level employee and still reward the highest performers?"

For example, Kochanski cites a hotel chain with high turnover among its housekeeping staff, traditionally the lowest-paid group of employees. To limit departures, he suggests the chain may find it worthwhile to increase housekeeping salaries, but he wouldn't recommend doing so by taking money away from other employees.

"The Robin Hood approach has a downside -- you run the risk of losing top talent," he says. "This club, however, is transferring funds on a voluntary basis, which is unique. It's hard to know if it'll catch on. Usually, when we see guilt, it's expressed in the form of a chief executive giving up a bonus or pay increase. This is very different, that's for sure."

Indeed, financially troubled industries, such as airlines or autos, are places where top executives have been known to absorb pay cuts, in part, to convey a message to employees that, "We're all in this together."

Financial troubles or no, the compensation given chief executives continues to outpace the average American worker. In 2003, chief executives in the U.S. earned 185 times the average worker, according to the Economic Policy Institute, a Washington-based think tank. That's up from a ratio of 126 in 1992.

"In situations where a company faces adversity, the CEO ought to be taking bigger pay cuts than the rank-and-file worker," says Ravin Jesuthasan, a Chicago-based managing principal at the Towers Perrin consulting firm, who heads the rewards-and-performance management practice. "Having senior managers lead by example is always a positive."

Attracting Talent

By looking for ways to increase salaries, a company may also address potential talent shortages. Experts point to forecasts showing about 22 million new jobs will be created during the next decade, but only 17 million people will enter the workforce. At the same time, the American workforce will age. The findings suggest there will be fewer young people available to fill needed slots across regions and industries over the next decade and beyond.

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By 2014, the percentage of American workers between the ages of 25 and 54 will shrink to 65.2 percent from 69.3 percent in 2004, according to the Bureau of Labor Statistics. Conversely, the percentage of older working Americans -- those who are 55 years old and up--will climb to 21.2 percent from 15.6 percent during the same period.

As a result, companies of all types and sizes will be vying for certain workers, suggesting to some compensation experts that a vehicle such as Fishman's One Percent Club may be a useful retention tool down the road.

By looking for ways to increase salaries, a company may also address any talent shortages it may have or may be expecting, Jesuthasan adds. Already, the pot of money doled out to employees is often distributed in such a way that any crucial vacancies in the workforce are addressed. As Jesuthasan sees it, this is a necessity if companies are to remain competitive.

Corporations, big and small, may be forced -- at least, some of the time -- to pay closer attention to what motivates and satisfies employees, one expert says.

"As we move to what's no longer the one-size-fits-all company, it's going to be more important for businesses to survey their employees to understand their preferences," says Diane Piktialis, who is director of work/life services in the Boston office of Ceridian, the human-resources consulting firm.

According to her research, scheduling flexibility and time is becoming just as valuable to employees as money, especially to baby boomers with added family responsibilities. Companies that are focused on rewarding employees, and keeping them motivated, may benefit by co-opting Fishman's idea, she says.

"Imagine a variation on the club's theme" she says. "Maybe in return for contributing 1 percent of your salary, you would get additional time off, which an employee may want or need to care for a child or an elderly parent. As an example, at Ceridian, if we contribute to a particular charity, the United Way, we get an extra day off during the following year."

A Charitable Act

One participant in Fishman's club agrees that the emphasis on charity is a good way to view the project. For that reason, argues Theodore Sharp, an RHD supervisor and case manager at the company's headquarters, the club could work in a more conventional corporate setting, but he also admits it would probably take a hard sell that emphasizes the purpose and the benefits -- to individuals and the enterprise.

"I don't know how it might translate in the corporate world, because I do know that many of those people make good money and so the need to increase salaries may not be as great," says Sharp. "But we have club members who make only $7 or $8 an hour, and raises are few and far between."

"In my case, I don't get anything back. I'm not making a king's ransom, either. But I am making more than the average person in my organization. So why not give something back to those who will benefit? I know where the money's going. It's a form of giving back. And that's why I would recommend it to all types of companies. It motivates people."

Another RHD employee, Stan Shubilla, an associate director in Fishman's office, says if projections about shortages and an aging workforce are correct, a club such as Fishman's could also help solve retention problems. As Shubilla sees it, keeping employees is already a burning issue throughout corporate America, at least for those companies that are in growing industries. Any tool that makes it possible to hold onto more employees, especially those who are knowledgeable about the company and are motivated to stay put--is worth considering.

"Whatever I get back," says Norma Jackson, "I'm grateful to have. It makes me feel good about my employer. It's a really wonderful idea."

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