The NASPP Blog

I think it’s safe to generalize that in many companies, the level of compensation decision making made by the rank and file is limited, if they are involved at all. Those of us in stock compensation are used to grant approval processes involving managers, executives and board committees, and this has been a long-standing practice. A handful of companies, however, are taking a different approach to granting stock options, one that allocates decision making to the core of the organization.

Peer to Peer Grants

A recent article in the Wall Street Journal profiled companies who are taking new approaches to making determinations in employee compensation. These companies are creating internal programs that allow a broad base of employees to allocate stock options and/or cash to their peers who they feel deserve to be rewarded. The idea behind this concept is that the rank and file often have the most insight into how their peers perform. There are various shapes and flavors to how companies have approached this type of program. One company allocated 1,200 stock options to each of its employees with the idea that each employee would distribute their options to colleagues. Employees had control over who received the stock options – it could be a single allocation to one colleague, or divided among multiple targeted colleagues. There were a few ground rules, including that workers couldn’t reward themselves or company founders (who already presumably have significant grants or shares). It seems the companies are also keeping the details of these decisions confidential, releasing only general statistics and end results to participants. Employees will know they were rewarded, by not by whom.

Other varieties to these programs include internal virtual markets comprised of cash or stock options, where workers can allocate or transfer funds. Some companies have allocated imaginary dollars or shares that employees can use to recognize their colleagues. These programs may not be exchanging actual shares or cash, but management is able to see results, which may reveal some interesting perceptions coming out of the main street of the organization.

Pros and Cons

Supporters of these programs suggest that peer influence over compensation will inspire more accountability and ensure everyone contributes. Management may also gain better visibility into which employees seem to be the best performers, casting a spotlight on stars that may have otherwise flown under the radar. Skeptics warn that too much peer say in pay decisions may create resentment and fuel hard feelings for those who receive little or no rewards. Could it become a popularity contest? Those who have implemented these programs appear to remain firmly in support of them, but caution that this may not be the right approach for every company. As one business professor put it: “You need management that is comfortable giving up some say, and let’s face it, human nature isn’t all programmed that way.”

What do you think? I’d love to capture your reaction in the poll below.

-Jennifer