Many companies are making major decisions about their compensation programs without even running their plans by HR, says Attorney Lisa Van Fleet. You can’t let the financial people make those decisions, she adds.
Yesterday’s Advisor featured Van Fleet’s advice for dealing with deferred compensation changes. Today we’ll get her specific recommendations about compensation decisions, and take a look at a unique source for compensation data and guidance.
Van Fleet, a partner with the St. Louis office of the law firm Bryan Cave LLP, points to the use of company stock in a plan as an example of an area where there may be poor decision making. Putting company stock in a plan is always risky, says Van Fleet, but even more so in this environment. People have their 401(k) money (or other qualified plan money) in company stocks, and now they have concerns about investing in a stock that may have declined significantly in value recently.
It’s true with Employee Stock Ownership Plans, as well, she adds. "We’ve seen some company stocks in plans decline by 50 percent over a 3-month period recently," she says.
“When that happens, you have to be very careful about how you make payouts from the plan. When there are wild swings in the value of the stock, the payout you make to someone may be to the detriment of other participants,” she cautions.
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Decisions Are Urgent, but Take Your Time
Yes, the decisions are urgent, she says, but that doesn’t mean you make decisions without thought. As is often the case, the answer comes down to process and procedure—facts and circumstances, she says. “It’s hard, because there is no safe harbor rule, no sense of comfort. You need to have good processes, good procedures in the absence of anything definitive to hang your hat on.” You should seek out good legal guidance, she says.
Bottom line, says Van Fleet, although the economy may require some quick decisions with regard to staffing, benefits, or compensation, don’t be too quick to make them.
Making Decisions Without the Usual Vetting
“These are urgent issues, but I’m seeing people make decisions that are not being vetted as they otherwise would be—that is, run by lawyers, run by consultants, run by the people in HR,” she says. “Sometimes we’re seeing these decisions being made by people responsible for the budget, rather than HR.”
Normally, employers think about design changes in a measured, systematic way. But in the last 6 months, because of the compelling economic environment, some are not taking their time and considering the implications of their decisions, Van Fleet says.
“How you implement the changes is important,” she explains. “If you don’t think it through, you may end up without having saved any money at all. In fact, your decision may actually cost you more money, because you end up in noncompliance or being sued over it.”
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