As COVID-19 cases continue to climb across the U.S., the Labor Department reported this morning that 963,000 more Americans filed new claims for state unemployment benefits last week. While not exactly good news, this is the first week since March where claims were reported below the one million mark for the week. Economists were expecting initial claims of 1.1 million and continuing claims of 15.8 million, based on median estimates. Economists note that it’s encouraging that claims for unemployment are going down because it means people keep returning to work.
While the sub-one million reading marks a milestone, there’s still plenty of work to do for the job market to get back to normal. Those collecting benefits for at least two weeks, known as continuing claims, totaled nearly 15.5 million, a decrease of 604,000 from a week ago but still well above pre-pandemic levels.
President Donald Trump last weekend authorized the payment of $300 a week in federal aid to unemployed Americans, smaller than the $600 benefit that expired in July – and limited by funds that could run out within two months. “It is certainly possible that we don’t come back, at least in certain sectors, in the same way as before,” said Mary Daly, president of the San Francisco Federal Reserve. That will mean a large number of workers are not able to go back to the same jobs they had before the pandemic.”
Dallas Federal Reserve president Robert Kaplan said that if Americans do not comply with public health orders to contain the virus, unemployment will stay at around nine percent until at least 2021. “If we don’t follow that, while people may feel freer, the economy will grow slower,” he said.
During the week, 49 states reported 10,723,396 individuals claiming pandemic unemployment assistance benefits and 49 states reported 1,224,443 individuals claiming pandemic emergency unemployment compensation benefits. The highest insured unemployment rates in the week were in Nevada (23.6), Hawaii (21.1), Puerto Rico (19.1), Louisiana (17.3), New York (16.5), California (16.0), Connecticut (15.3), Georgia (14.4), Massachusetts (14.3), and Rhode Island (12.7). The largest increase in initial claims for the week was in Rhode Island (+87), while the largest decreases were in California (-22,610), Virginia (-19,048), Texas (-14,095), Florida (-13,176), and New Jersey (-11,489).
Data from Homebase, a payroll scheduling and tracking company, showed a decline in employment last week. Figures from Kronos, a workforce management software company, showed a flattening in the number of shifts worked.
Last week, employment rose by 1.8 million in July as the U.S. unemployment rate fell to 10.2 percent. That’s down from a peak of 14.7 percent in April, but still far above the 3.5 percent rate in February before the coronavirus pandemic led to mass economic shutdowns across the country. “We believe the labor market reached an inflection point in July, starting what will likely be a slower phase of recovery,” said Nomura economist Lewis Alexander said in a note ahead of results. “Stronger-than-expected employment growth in May and June was likely due in part to faster and more widespread re-opening activity. However, that earlier re-opening activity likely contributed to the resurgence in Covid-19 activity across the country, resulting in what we expect will be slower employment growth in July.”
Top Search Consultants Weigh In
“There are still new hires being made, but many tend to be replacement hires for an existing opening,” said Anna McCormick Kelch, co-CEO of LPA Search Partners. “Our clients have told us they have talent needs — especially as it relates to technology and digital transformation — but it is difficult to bring in new people if you have furloughed a significant percentage of your employees…bad optics. There is a sense now that a window of opportunity has opened to bring in some necessary skills that will be essential as companies continue to pivot.”
“I believe that the economy is in rebound mode and that hiring will start to turn the corner in the fourth quarter,” said Alan Work, founder and president of Work&Partners. “Clearly the election will have an impact on things but traditional views of Democratic or Republican administrations and its resulting economies may not hold.”
The hallmark of many successful search firms is their structure: focusing in on one, specific industry or functional discipline can make them, in the eyes of that sector, the go-to expert. While it is challenging,
some search firms have been able to stay small while combining specialty practices where the focus
of their expertise is not diminished. Alan Work, president and founder of Work&Partners, has seemingly
found the secret recipe. A specialist across technology, management consulting, financial services and
various digital disciplines, he has created a unique brand in search. In the following article, Mr. Work
discusses his breadth of expertise and the strategy behind developing his firm over the past 14 years.
Mr. Work launched Work&Partners in 2002, building on his then 20-plus years as a leader in the executive search business.
In focusing on the development of C-level teams, Mr. Work has filled roles at the level of managing director, partner, vice
president and president. His expertise spans a range of industries and includes deep knowledge of the management
consulting, technology consulting, financial services and telecommunications sectors. Prior to forming Work&Partners, Mr.
Work was a founding partner of Hechkoff/Work Executive Search, where he delivered executive search services for more than
12 years to clients such as KPMG, IMS Health and FannieMae. Mr. Work also established strong relationships with a national
client base during seven years as a senior recruiter for EDP World, New York.
Oftentimes when big companies grow bigger, they come to
dominate the landscape and plow under their smaller rivals.
But the executive search industry is witnessing something
quite different. These days, the big search firms' drive
for ever-greater profits actually seems to be feeding the
success of their boutique competitors.
I believe that big-firm growth is only making businesses like
mine more attractive to clients. In theory, the big firms may
be better known but, in my view, they cannot provide the
same customer care and flexibility that firms like mine and
our brethren boutiques, can deliver.
Mastering the Trade
Due to the fact that many of the larger firms, particularly
those that are publicly traded, have to satisfy the bottom
line or quarterly earnings, spending significant time with
one specific client is counter to the type of pressure they
are under to add to their volume. Because we are nimble
and require far fewer clients, to not only survive but also
succeed, we can spend the time necessary to get inside
and understand the culture from top to bottom.
The result is that we can do better work and clients seem to
positively acknowledge the partnership being formed. We
are not, therefore, viewed as a recruitment firm that is going
in for the quick score and moving on to its next assignment.
I think we are beginning to see more clients really taking
a harder look, and I think the lines of demarcation are
getting larger because, quite frankly, the larger firms are
expanding while we are remaining small and pure-play
Work&Partners provides recruitment services across
technology, management consulting, financial services,
and various digital disciplines. For a smaller search firm,
balancing such an array of specialized sectors and serving
them well can be a difficult trick to master. But we handle
it with aplomb and, today, we count among our clients
companies like Capgemini, Merrill Corp., LiquidHub, The
Omidyar Network and Clarity Solution Group.
Clearly we have been able to attract top quality clients
despite the fact that we are not a big name brand. I would
argue that because we are not large we are viewed by
today's clients, which are far more sophisticated than
in years before, as the choice to work more quickly and
efficiently. In short, without the red tape or bureaucracy that
is weighing down our larger rivals today.
Stick to Your Knitting
I do understand why the big firms have been expanding
their offerings in recent years and why their clients might
find their ancillary services beneficial. On the other hand,
I believe this trend simply makes firms like ours stand out
even more. Look at a firm like Korn Ferry, for example. They
recently acquired Hay Group for almost $500 million. But
they have been broadening their services for some time now
and they are looking more like traditional consulting firms
than traditional retained search firms. In some respects, I
think this is helpful to their clients because as a 'broader'
consulting firm they can service their clients from top to
bottom and side to side.
But, here, again, I think this has helped distinguish a firm
like ours that is not pushing into every business. If we
attempted to broaden out to include audit and assessment
or compensation consulting I think it would be a turn-off to
our clients. Instead, we are focused on just search and, for
those clients of larger search firms that still want just that,
it's helping firms like ours that are sticking to their knitting
so to speak.
As search firms begin to look more like consulting firms I
think consulting organizations might well start to look to
search firms as acquisition targets. It could happen. Years
ago, firms like A.T. Kearney were involved in search, and
with the industry broadening and the lines blurring I would
really not be too surprised to see consulting firms looking at
recruitment once again as a viable option.
Early in my career I had little desire to work in executive
search, though a number of firms expressed interest in me.
Instead, I became a sales executive in the garment industry
and did well. After about six years, just before I was to get
married, my then fiancée convinced me to talk to her best
friend's sister, who ran a search firm that specialized in
recruitment for technology companies.
Initially, I thought they might introduce me to IBM. But
instead, they offered me an opportunity to work with
them in executive search with a focus on the sales/sales
management side of the high-tech sector. I came on board
in the middle of a big economic downturn and survived
by the skin of my teeth. I naively thought that I would be
protected because of the personal relationship that existed.
I found out later that they had let go many relatives and
friends of the firm's leadership. On the serendipity side, I got
married, moved into a new place, and changed careers all
inside of six weeks, which, 30-plus years later, has proven to
have been a great decision.
A big part of my success comes down to taking advantage
of opportunities that present themselves. Getting involved
in recruiting for management consulting firms some 25
years ago, for example, was largely the result of a void in the
marketplace. The big search firms tended to struggle in that
space, based upon client feedback [and our subsequent
experiences and successes] and I felt that the mindset,
processes, and personalized service that a firm like ours brings
gave us an advantage in a very competitive environment.
Because of their size and approach, smaller search firms
with specialized experience can do very well in spite of the
big firms. I genuinely believe that some of the best one-onone
relationships exist in firms that are boutique in nature.
That's not to say that consultants at large firms don't care
about clients or hard work. But as the large firms keep
getting larger there has been a tendency to look at this
business in more of a commoditized way instead of what we
view as a one-on-one partnership.
At my firm, I dive in on any given assignment and my staff
and I put in the hours and effort to get it done properly.
I'm not handing it off to a junior consultant who might also
be working on a dozen other assignments. Unfortunately
today we are seeing too much of this practice. Large firms
have been quite adept at reeling in top business but, once
they have it in house it does not receive the same level
of professional service that was applied to securing the
assignment in the first place. The fortune aspect is that,
today, clients are far more sophisticated and understand
when the quality of an assignment has been adversely
affected. The result is that it's shining a new and positive
light on firms like ours because we do the work; plain and
simple. This means the quality is always top shelf.
Also, as a boutique firm, we can be more nimble, proactive,
and able to respond to evolving market directions. That's
partly a function of the firm's size but also because of its
hard-won knowledge of the industries we serve. All that
allows our firm to branch out into more than one sector and
to serve our clients in those areas well.
Our successes in healthcare, big data & analytics, and in
chief marketing officer functional searches certainly have
given us a hybrid look, but with a specialist tint. Not every
firm our size has narrow specializations. In fact, there are
dozens of firms that I would call 'semi-specialists.' They
work across maybe five to six sectors; they know the space
well, and maintain a focus on just those sectors without
adding or subtracting. It's worked well for us, but it's not an
uncommon combination for this industry.
Not long ago, as an example, we placed much of the senior
management team at IT systems integrator LiquidHub, from
its chief operating officer, to its digital practice leader, to its
corporate strategy officer. It was just one example of how a
small firm working as a partner to a
client can make a big difference in that company's success,
not to mention its own success.
Here Come the Millennials
Clearly, having a relationship like we have with a LiquidHub
puts us in a terrific position to add value and have a
tremendous impact on their business. We work very closely
with all of their leadership [CEO, COO, CFO, CHRO, VPs
and practice leaders] from beginning to end and also have
done SME/consulting type assignments for them around
growth strategies and the hiring experience. I believe
we are considered trusted advisors and we value that
This is where I think a firm structured like ours works
well with clients. Again, this is not a knock on the large
generalists, but when you know and understand your space
as well as we do, as is the case of other firms with a similar
make-up as ours, we can spend significant time on the
inside and are not pressured to have to go out and land 10
other assignments simultaneously.
Hiring in the technology field poses particular challenges for
client companies. Younger professionals are increasingly
winning jobs over older individuals who may have more
experience but lack knowledge and awareness of new and
Companies are really looking at a much broader scope of
candidate today versus in years past where they may have
considered only a very seasoned professional. In short, they
are keeping their options open. I also think that technology
companies are looking, to a greater extent, at best athletes
today versus those that may operate in narrow silos. There
are a great many talented professionals in this space and
the landscape is highly competitive. It makes our work more
interesting, for sure.
The hallmark of many successful search firms is their structure: focusing in on one, specific industry or functional discipline can make them, in the eyes of that sector, the go-to expert. While it is challenging, some search firms have been able to stay small while combining specialty practices where the focus of their expertise is not diminished.
Alan J. Work, president and founder of Work&Partners, has seemingly found the secret recipe. A specialist across technology, management consulting, financial services and various digital disciplines, he has created a unique brand in search. Clients ranging from Capgemini, Merrill Corp., LiquidHub, Deloitte and PayPal have created a solid and varied base of business for Alan and his team.
In the following interview, Alan discusses his breadth of expertise and the strategy behind developing his firm over the past 14 years.
Alan, you have worked in executive search for over 25 years. What was your career path into the industry?
You serve an interesting array of industries, from management consulting to healthcare. How did you decide to focus on that grouping of sectors; was it strategic and do you consider your firm a specialist or a hybrid generalist?
Great question. Our decision to enter the management consulting arena over 25 years ago was driven by the fact that there was a void in the marketplace. The big search firms tended to struggle in that space based upon client feedback [and our subsequent experiences and successes] and I felt that the mindset, processes and personalized service that a firm like ours brings gave us an advantage in a very competitive environment. And I think this is true throughout search. I genuinely believe that some of the best one-on-one relationships exist in firms that are boutique in nature. Thatâs not to say that consultants at large firms donât care about clients or work hard. But as the large firms keep getting larger there has been a tendency to look at this business in more of a commoditized way instead of what we view as a one-on-one partnership. Itâs so critically important that I conduct my own work. I am not handing it off to a junior consultant who might also be working on a dozen other assignments. Also, as a boutique firm, we can be very nimble, proactive and can respond to evolving market directions, both due to our size and knowledge of the sector we have been serving for so many years. As a result, our successes in healthcare, big data & analytics and in chief marketing officer functional searches certainly have given us a hybrid look, but with a specialist tint. Not every firm our size has narrow specializations. In fact, there are dozens of firms that I would term âsemi-specialists.â They work across maybe five to six sectors; they know the space well and maintain a focus on just those sectors without adding or subtracting. Itâs worked well for us, but itâs not an uncommon combination for this industry.
You recently placed much of the senior management team at LiquidHub, from its COO, to its digital practice leader to its corporate strategy officer. Describe the process when you work with a client like that and do you consider yourself more like a strategic talent acquisition partner than a recruiter?
We consider ourselves âpartnersâ in every endeavor we undertake with all our clients. Thatâs part and parcel of insuring mutual success throughout the relationship. Clearly, having a relationship like we have with a LiquidHub puts us in a terrific position to add value and have a tremendous impact on their business. We work very closely with all of their leadership [CEO, COO, CFO, CHRO, VPâs and practice leaders] from beginning to end and also have done SME/consulting type assignments for them around growth strategies and the hiring experience. I believe we are considered trusted advisors and we value that relationship tremendously. This is where I think a firm that is structured like ours works well with clients. Again, this is not a knock on the large generalists, but when you know and understand your space as well as we do, as is the case other firms with a similar make-up as ours, we can spend significant time on the inside and are not be pressured to have to go out and land 10 other assignments simultaneously. Thatâs partly the challenge of larger firms at times. Due to the fact that many of the larger firms, particularly those that are publicly traded, have to satisfy the bottom line or quarterly earnings, spending significant time with one specific client is counter to the type of pressure they are under to add to their volume. Because we are nimble and require far fewer clients, to not only survive but also succeed, we can spend the time necessary to get inside and understand the culture from top to bottom. The result is that we just do better work and the client really looks at us as a true partner, not a recruitment firm that is going in for the quick score and moving on to their next assignment. I think we are beginning to see more clients really taking a harder look and I think the lines of demarcation are getting larger because, quite frankly, the larger firms are expanding while we are remaining small and as pure-play search providers.
What do you view as the biggest challenges facing technology companies today in terms of recruiting senior talent?
I think technology companies today have a number of challenges to contend with â but I think the most prominent issue is that our clients are really looking to younger professionals today versus those with more experience but who lack knowledge on what is new and cutting edge. Itâs evident to most that technology is changing today so quickly that one can barely keep up with it. Therefore, companies are really looking at a much broader scope of candidate today versus in years past where they may have considered only a very seasoned professional. In short, they are keeping their options open. I also think technology companies are looking, to a greater extent, at best athletes today versus those that may operate in more narrow silos. There are a great many talented professionals in this space and the landscape is highly competitive. It makes our work more interesting for sure.
You work extensively with management consulting companies. Are recruiting firms, which are diversifying into more consulting-type services, becoming more like those clients and do you think consulting firms will look to search firms as acquisition targets?
To answer your first question, yes, I do. Look at a firm like Korn Ferry, for example. They recently acquired Hay Group for almost $500 million. But they have been broadening their services for some time now and, to your point, they are looking more like traditional consulting firms than traditional retained search firms. In some respects, I think this is helpful to their clients because, as a âbroaderâ consulting firm they can service their clients from top to bottom and side to side. Here, again, I think this has helped distinguish a firm like ours that is not pushing into every business. If we attempted to broaden out to include audit and assessment or compensation consulting I think it would be a turn off to our clients. Instead, we are focused on just search and, for those clients of larger search firms that still want just that, itâs helping firms like ours that are sticking to their knitting so to speak. As far as consulting firms looking at this industry as a viable option, it could happen. Years ago, firms like A.T. Kearney were involved in search and, with the industry broadening and the lines blurring, I would really not be too surprised to see consulting firms looking at recruitment once again as a viable option.
Contributed by Christopher W. Hunt, Publisher, Hunt Scanlon Media and Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media
New York, NY August 14, 2007 -- Business Section
"Executives had criminal pasts"
by Allan Drury
Minutes after being sentenced to five years in federal prison for leaking insider information from Taro Pharmaceuticals Industries Ltd. in Hawthorne, Zvi Rosenthal sat in the Brooklyn courtroom with his head in his hands, unable for the moment to watch his son, Amir Rosenthal, face the judge for his role in the scheme.
But the trauma of being punished for fraudulent behavior was not a new feeling for the elder Rosenthal, 62. Records show he was sentenced in 2000 to three years of probation and fined $20,000 for making false claims about his work at Isratex, a Brooklyn company the government said provided the military with defective uniforms.
Rosenthal, sentenced in July, is one of two former Westchester executives shown in recent months to have pulled off an unlikely and dubious feat. In an era when technology puts criminal records at the fingertips of any computer user, Rosenthal and Kevin Cassidy, the former chief executive at Valhalla-based Optionable Inc., held executive-level jobs, even though both had felony fraud convictions.
Other factors also make Cassidy's story remarkable. He had been imprisoned for two crimes before serving two stints as Optionable's chief executive, from March 2001 to March 2004 and from September 2005 until May. His second hiring took place long after scandals at companies such as Enron Corp. and WorldCom Inc., experts on executive hiring say, prompted corporate boards to place candidates for executive jobs under the most intense of scrutiny.
"That's unbelievable," Jeff Heath, the president of The Landstone Group, an executive search firm in New York City, said of Cassidy's hiring.
When Cassidy was hired the second time, the company's stock had just become available to the public, putting Optionable under the watch of regulators and public shareholders.
Optionable, an energy trading company, hired Cassidy, even though the information on his crimes was available to anyone on the Web sites of the U.S. Bureau of Prisons and the federal court system. Also, a LexisNexis search by The Journal News after Cassidy resigned turned up news stories written about his 1993 arrest in Florida on charges of credit card fraud and money laundering, a case that eventually resulted in a 30-month sentence. He also was sentenced in 1993 by a judge in White Plains to serve six months for tax evasion.
Investors in Taro and Optionable may never know how Cassidy got hired twice as chief executive or how Rosenthal remained in his job, even though both had felony convictions on their records, since neither Optionable nor Taro has commented. Officials at neither company returned phone calls seeking comment for this article.
But Heath said he suspects that Optionable did not conduct routine background checks on Cassidy before hiring him. Smaller companies sometimes are not as vigilant about checking candidates' backgrounds, he said.
"The problem we've got is that talent is getting tighter and tighter, and companies are getting more desperate to hire people and they may make mistakes," he said. "They may close their eyes for a minute and say, 'We've got the guy we want and forget about doing the due diligence to check him.' "
The company never disclosed Cassidy's convictions in a filing with the U.S. Securities and Exchange Commission, a fact that supports Heath's belief that the company was not aware of his record. While no law requires public companies to disclose such information, they are supposed to disclose information that investors would consider "material" when considering whether to buy or sell the shares.
It's less clear that Taro would have been obligated to disclose any information it may have had on Rosenthal's past, since he was not as close to the top of his company's hierarchy.
Rosenthal started working for Taro in 1994 and was promoted to vice president of materials management and logistics in 1997, years before his first conviction.
Heath said most companies do not routinely conduct continuing checks on the records of their existing executives.
Rosenthal's position as vice president gave him access to information on Taro's earnings, drug approvals and other matters before the public. He leaked that information to Amir Rosenthal, 29, who tipped two brothers and three others, a scheme the SEC said netted $3.7 million.
Executive search experts agreed companies stepped up their reviews of candidates for top jobs once the corporate scandals burst into public view, starting with Enron in late 2001.
Along with searching criminal histories, investigators that companies hire search out candidates' driving records from state motor vehicle departments - the thinking being that a person who's chronically reckless behind the wheel may not be responsible when it comes to handling millions of dollars or dealing with employees and customers.
They also want to know about a job candidate's financial standing. A person with crushing personal debts may also not be the best person to run the finances of a company or division. Even worse, that person may be tempted to embezzle.
But some companies are also suspicious of a person with tremendous personal wealth because they believe that person may be unmotivated to work.
"They want you to owe money, but not a lot of money," said Alan Work, who runs Work & Partners LLC, a White Plains search firm.
Drug tests and physical exams are also routine requirements before a candidate gets a key to the executive suite, Work said.
Work called the Rosenthal and Cassidy cases surprising but said he knows of others who managed to get or hold jobs with questionable histories.
"It still happens," he said. "Surprised? You're always surprised when a guy has two convictions, but some people self-promote pretty well sometimes.
New York, NY, September 20, 2003 -- Business Section
"Grasso pay flap puts corporate boards on the spot"
by Allan Drury & Abigail Klingbeil
Public outrage over New York Stock Exchange Chairman Richard Grasso's sky-high payout will force corporate boards to scrutinize executives performance more closely before setting their pay, say those who study corporate conduct.
Board members will want to make sure they can justify the money they pay their executives unlike NYSE directors who had no ready answers as to why their agreement with Grasso awarded him a $140 million retirement package.
"I think any chairman of a compensation committee and or any member is now looking at this and boning up on what their CEO makes and preparing themselves to explain it." said Thomas Wamberg, the head of North Barrington, Ill - based Clark Consulting, which advises companies on executive compensation. "They're going back to school."
Publicly traded companies will also share with investors information about how much their executives make in salary, bonus and stock awards, Wamberg said.
"This next proxy season, you'll see things that used to take four paragraphs to explain will take eight or 10 paragraphs," he said.
It's all part of Corporate America's campaign to win back trust in the wake of Grasso's forced resignation Thursday from the institution where he worked virtually all of his adult life. The Grasso affair comes after fraud at Enron Corp., WorldCom Inc. and numerous smaller companies cost investors billions of dollars.
The recession and stock market slide already have prompted many large companies to trim the salaries, bonuses and stock options they provide their chieftains. General Electric Co. announced the same day that Grasso quit that it would tie chief executive Jeffrey Immelt's compensation to five-year performance targets.
General Electric knows the spotlight on an executive's pay and perks can burn. Papers filed in former GE boss John F. Welch's divorce revealed Welch had a $9 million a year pension, access to a Manhattan apartment valued at $80,000 a month, food, wine and pricey tickets to sporting events.
Welch agreed to begin paying GE up to 2.5 million a year for the benefits.
Though the NYSE is a privately held business, it is much different than the public companies Immelt and other well-paid executives run. As a regulator, the NYSE has an obligation to police corporate behavior and protect investors' interests. The NYSE is the world's largest stock market. It has 2,800 listed companies with a combined market capitalization of $14.9 trillion.
Unlike public companies, which must file detailed reports with the U.S. Securities and Exchange Commission, the NYSE had not been required to disclose compensation. Grasso's package became public knowledge only after SEC Chairman William Donaldson demanded the information.
But any distinctions between the NYSE and public companies are likely to be lost on an investor community battered by losses and shaken by the scandals.
Diane Lerner, a senior compensation consultant at the Manhattan office of consulting firm Watson Wyatt Worldwide, says Grasso's departure will remind companies that full disclosure is critical to keeping investors and other constituents content.
"It's yet another scandal," says Lerner, who typically meets with 10 to 12 compensation
committees a year . "I think all of these do cause people to look back at what they're doing, but this one I think has less broad relevance."
Since Grasso was in charge of a company that makes guidelines and rules for publicly traded companies, the exchange's lack of disclosure and Grasso's giant payout seemed particularly egregious. Lerner says.
All agree that serving on a compensation committee - which is usually made up of directors just became more of a high-pressure job.
Brian Foley, managing director of the executive compensation consulting firm Brian Foley & Co. Inc. says it appears that some NYSE board members - who had approved Grasso's compensation package - did not realize how much money the exchange's top executive was making.
"l believe one of the impacts this controversy is going to have is it will underscore the need for not only compensation committees but boards as a whole to better understand how much is being paid, how it is being paid, when it is being paid and why it is being paid," said Foley, whose company is based in White Plains.
Foley says Grasso's pay package reflects problematic design, decision-making and disclosure. And while Grasso walked the gangplank, Foley says the board had a major role in this controversy.
He says the Grasso situation will serve to remind other quasi-public institutions such as Freddie Mac, Amtrak and United Way, that they should be as accountable as public companies are supposed to be.
"You would think this board would be among the most qualified and have access to the best advisers." Foley says. "This just underscores the kind of a problem that can arise anywhere when you don't pay attention to the details."
Ironically, the NYSE is one of the entities that led the charge for executive compensation reform in the wake of the corporate scandals in the past few years.
In June, the SEC approved rules adopted by NYSE and the Nasdaq Stock Market that require shareholders to approve stock compensation plans, including stock options.
NYSE also has a proposal that would require each listed company to write a charter outlining the roles and responsibilities of it's compensation committee. SEC spokesman John Heine says that proposal is still pending.
Alan Work, the president of Work & Partners Executive Search LLC in White Plains, agreed the Grasso controversy will make board members take a closer look at what they pay the folks in the executive suites.
Many companies have already become more conservative in setting executive pay than they were in the 1990s when the economy and stock market were booming, said Alan Work, president of Work & Partners Executive Search LLC in White Plains.
That austerity sometimes clashes with a candidate's demands, especially when the candidate stands to forfeit accrued benefits by switching jobs.
He said a candidate he has recruited for a job at a consulting firm will lose stock options and other deferred compensation by leaving his current job. The candidate wants Work's client to make up the loss, Work said.
"I think my client's going to walk away," Work said.
He said another of his recent clients, a private wealth management firm in New York, had to agree to give a candidate a generous signing bonus and let other benefits vest after three years instead of five years to lure the individual. By leaving his old job at JP Morgan Chase & Co. the candidate forfeited about $350,000 in short-term and long-term compensation and insisted that Work's client make it worthwhile for him to make the switch. Work said.
But not all observers are convinced Grasso's downfall will be the catalyst to fundamental reforms. "I think top executive pay has gotten way out of wack, but I'm impressed by the capacity of boards to be insular and not see things the rest of the world does." said Allen Cohen, a distinguished professor of leadership at Babson College in Babson Park, Mass.
Cohen said it is unlikely the Grasso controversy will reign in excessive executive pay. Board members selling an executive's compensation usually check to see what executives holding similar jobs in comparable companies earn, he said. Then they strive to set their executive's salary higher than the average, he said.
Directors also tend to be reluctant to question a chief executive's pay because the chief executive has a lot of say over who serves on the board. Cohen said.
"Board members are often dependent on the top people keeping them on the board and being on a board is still very cushy." he said. "You get a lot of money for showing up for four or five meetings a year.
"There are also a lot of networking opportunities you have when you're on a board, and no one wants to get thrown off by standing up to the CEO." he added
Chief executives often propose their own pay packages to a board of directors, he said Cohen said he does not have much faith in some of the reforms companies have made.
Many companies have boasted that they have more "outside" directors - or directors without strong ties to the executive team.
But Cohen said he believes no director is truly independent.
"You still have to get nominated." he said. "You still get interviewed by the top people at the company. The person who nominates you has to be someone who knows you."
Though directors have to be elected by shareholders, most of time the shareholders have little choice, he said. In most elections, the number of people seeking election matches the number of seats that are open.
Only a small percentage of shareholders are able to attend the annual meeting at which directors are elected and the shareholders usually know relatively little about the candidates, he said. It's not like a political election in which candidates take public positions and engage in face-to-face debate.
But Jorge Pinto, director of the Center for Global Finance at Pace University in New York said he believes the Grasso controversy will reverberate through boardrooms.
"I think this last one was so loud and was so costly for Mr. Grasso and the New York Stock Exchange board that it will make other boards aware that compensation should reflect shareholder interests. There's no doubt that every board member, especially those on compensation committees will have to be very careful."
Vernon Hayden, president of Hayden Financial Group LLC in Westport, Conn., and a Westchester resident, said he expects boards to do more homework before deciding on executives' pay. Performance will count more. Professional and personal relationships will count less.
"They'll be reviewing them a lot more closely rather than just saying "You're my buddy. Here's a handout."
But he said he believes the increased diligence will be only temporary.
EXECUTIVE HOPEFULS UNDER A MICROSCOPE
"Stricter background checks now in order in wake of scandals"
by Allan Drury
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The corporate scandals that have rocked the confidence of investors and forced the hand of the regulators the past two years have also had another effect: They've made Alan Work's job harder.
Work, president of Work&Partners Executive Search LLC in White Plains, said his corporate clients demand more scrutiny of candidates for high-level jobs than they did before revelations of fraud at companies such as Enron Corp. and WorldCom Inc.
"I think in this day and age, with what's gone out there, everybody is a bit more on edge," said Work, who was the founding partner of New York City-based Hechkoff/Work Executive Search Inc. before forming Work&Partners this year.
Even before the scandals, companies and the search firms they hired usually checked on candidates' education credentials and work history. But now companies probe deeper to see if a candidate has a criminal record, poor credit, a history of driving violations or other foibles that could raise questions about their responsibility.
Work said companies hiring for lofty jobs such as chief executive, chief financial officer or vice president also demand more aggressive research into candidates' references.
Nobody in Work's business wants the notoriety of recommending the next Kenneth Lay or Sam Waksal to run a company.
"When we present someone to a client, my name is on the door," Work said. "Our reputation is on the line every single minute."
Companies are paying for the extra due diligence. Work said the extra checks can cost up to $2,500.
"But when you're talking about a half million or million dollar position, that's really not a lot of money." he said.