Following an internal review of its pay practices, Nike is raising wages for more than 7,000 of its employees worldwide, the New York Times reported on Monday, in order to equalize compensation among employees in the same roles:
Nike cast the pay changes as part of its effort to maintain a corporate culture “in which employees feel included and empowered,” according to an internal memo sent to staff on Monday. The New York Times reviewed a copy. The company, which is based in Beaverton, Ore., said the changes would affect about 10 percent of its 74,000 employees worldwide. … Nike also announced changes in how it will calculate employee bonuses, which were based on a combination of corporate, team and individual performance. They will now be determined mainly by the company’s results.
Nike reviews pay every year, the memo noted, but conducted what it called a “deeper analysis” this year as part of its investigation into alleged problems that were driving many women to quit. Addressing the discrepancies found in this audit will be expensive for Nike, but one thing most companies don’t realize about pay equity is that this cost of closing pay gaps increases each year, so it will never be cheaper for Nike (or any company) to correct this problem than it is today. Pay gaps don’t have a “one-and-done” solution, however, so it’s important for organizations to continue scrutinizing pay practices from year to year to spot the re-emergence of these gaps and take proactive steps to ensure that their pay practices remain equitable. (CEB Total Rewards Leadership Council members can read our entire landmark 2017 study on pay equity here.)
The change Nike is making to its bonus calculations is also notable, as it reflects the growing understanding of how variable compensation such as bonuses contributes to pay gaps. This “bonus gap” occurs when more men than women (or more white than non-white employees) are promoted to the high-level positions that make them eligible for bonuses, or when unconscious bias affects the performance judgments managers make in awarding them. The significance of the bonus gap was illustrated in the gender pay gap reports UK employers were required to publish earlier this year: Financial firms in particular found that their bonus gaps, in some cases amounting to over 60 percent, were bigger factors in their overall gender pay gaps than differences in base pay.
Whole Foods Under Amazon is a fascinating recent case study (conducted by Harvard Business School professors Dennis Campbell and Tatiana Sandino and co-written with James Barnett and Christine Snively) which considers the cultural challenges inherent in the acquisition the e-commerce giant agreed with the high-end supermarket chain last year. Historically, the two companies had very different approaches to business, the authors tell Michael Blanding at HBS Working Knowledge, with Amazon focused on driving costs down through data-driven supply chain efficiency and Whole Foods’ decentralized model, in contrast, allowing for a distinctive personal touch from store to store, which in turn justified a higher price point. In the case study, based on secondhand reports in the media of how the acquisition is working out, Campbell and Sandino speculate on how culture clash could be making the integration of these companies more challenging:
The question that Campbell and Sandino ask in their case is: Given the pressures Amazon was facing to turn around Whole Foods’ slide, should they have approached the acquisition differently? While there are no easy answers, Campbell says that part of the issue is realizing the limits of standardization, even for a company that has perfected data-driven management.
“It’s not totally clear that data will be a perfect substitute for human judgment,” he says. “That might work in a digital platform, where you have tons of data on customer history you can use to drive a recommendation engine, but in a store environment, there is a lot of learning that takes place from employees interacting with customers that can be very localized and specific.”
Whole Foods is still in its early days as an Amazon property, so it’s too soon to say with any certainty how prepared Amazon was for this culture conflict and how well they are handling it, especially without having an inside view of the acquisition. However, we do know from our research at CEB, now Gartner, that culture fit is a huge concern for CEOs when thinking about mergers and acquisitions and discussing the topic with investors. Our research shows that 20 percent of the time, when CEOs bring up culture on earnings calls, they are doing so in the context of M&A. CEOs leading through M&A are increasingly under pressure to provide details on how they are integrating two distinct cultures to satisfy investors’ concerns. (CEB Corporate Leadership Council Members can learn more in our Inside View on Discussing Corporate Culture with the Street.)
Since March, Nike has been conducting a massive overhaul of its company culture, executive leadership, and HR practices after a covert survey of female employees revealed widespread patterns of sexual harassment, discrimination, and hostile work environments for women. As the New York Times recently reported in a major story reviewing the upheaval, this toxic culture was driving talented women out the door. In recent months, several high-level male executives at Nike have left the company amid the scandal.
Some of these executives stand accused of engaging in sexist practices themselves; others do not, but have been faulted for failing to address employees’ concerns, creating the perception of an executive “boys’ club” in which male managers were protected from consequences for their misbehavior. Another key theme in the Times‘ report is the Nike women’s dissatisfaction with the response they received from HR.
Nike CEO Mark Parker has moved quickly to bring the situation under control and assure employees that the company is taking its culture problems seriously. At an all-company meeting last Thursday, Parker admitted that he and other executives had missed signs of the problems that have come to light recently, apologized to the affected employees, and promised a thorough investigation into their complaints, along with changes to the company’s training and compensation practices to make them more inclusive, particularly toward women.
While Parker and his executive team will be responsible for making these needed changes to Nike’s culture and practices, none of these changes would be possible without the women employees who took the initiative to bring the company’s problems to light. One important takeaway from this story, therefore, is the power and promise of employee-led D&I initiatives.
Since taking up the position of CEO at General Motors in 2014, Mary Barra has undertaken to transform the culture of the storied American automaker. As the automotive industry and other legacy manufacturers find themselves increasingly in competition with big tech companies for talent—in Detroit’s case, a product of the race to market self-driving cars—they have had to expand their talent attraction strategies outside their traditional blue-collar comfort zone and reach out to candidates with very different expectations and values, as well as more diverse backgrounds.
Barra’s approach to culture change at GM has focused in part on simplifying rules and policies that might strike this new generation of talent as arbitrary and overly bureaucratic, such as the dress code, which she shrunk from a detailed section in the employee handbook to just two words: “Dress appropriately.” Barra told the story at the Wharton People Analytics Conference in Philadelphia last month, from which Quartz’s Leah Fessler passes it along:
After replacing GM’s 10-page dress code treatise with a two-word appeal, Barra received a scathing email from a senior-level director. “He said, ‘You need to put out a better dress policy, this is not enough.’ So I called him—and of course that shook him a little bit. And I asked him to help me understand why the policy was inept.” The director explained that occasionally, some people on his team had to deal with government officials on short notice, and had to be dressed appropriately for that.
Since taking control of the company in 2014, Microsoft CEO Satya Nadella has been on a mission to transform its culture from one of fierce internal competition to the collaborative ideal of “One Microsoft.” Nadella’s tenure has seen an increase in the number of “boomerang” employees returning to Microsoft after stints at other companies, Seattle Times business reporter Rachel Lerman observes—over 2,200 in total:
During the few years before Nadella stepped into the role, about 12 percent of the company’s new hires in the U.S. each year had previous job stints at the company. But that number ticked up to 16 percent, or 621 boomerangs, between July 2014 and July 2015, starting a few months after Nadella took over as CEO.
These returning employees, who remember how Microsoft operated a decade ago, are particularly attuned to the change in the company’s dynamic, which in many cases, was part of the reason they decided to return:
When [Dean] Lester, an engineering director, left the company at the end of 2009, he was craving some time off and new challenges, but he was also feeling frustrated with the way Microsoft teams were being run — they were so focused on rapid project launches that people were burning out. That was changing, the chorus of former co-workers told him. He should take another look. …
As part of Uber CEO Dara Khosrowshahi’s efforts to turn around his embattled company’s public image and organizational culture after a series of scandals last year, Bo Young Lee will join the ride-sharing startup as its first chief diversity and inclusion officer in March, Johana Bhuiyan reports at Recode:
Lee’s hire — the third executive appointment under newly minted CEO Dara Khosrowshahi following chief legal officer Tony West and chief operating officer Barney Harford — is an important one for the company as it attempts to refurbish its image and address the many issues first brought to light by Susan Fowler’s essay in February 2017. … Lee, who was the global diversity and inclusion officer at financial services firm Marsh, will not be reporting directly to Khosrowshahi and Harford; she will report to Uber’s chief human resources officer, Liane Hornsey, for the time being.
An independent investigation conducted last year by former US Attorney General Eric Holder had recommended that Uber promote its current global head of diversity, Bernard Coleman, to the role of chief diversity officer, reporting directly to the CEO and COO. The company may change up Lee’s place in the chain of command later, Bhuiyan adds:
The National Association of Corporate Directors’ 2017-2018 Public Company Governance Survey, which came out this week, identifies several issues that directors say are matters of concern for them, as well as what they are not getting enough information about from management and want to spend more time discussing in board meetings. Among these issues are cybersecurity threats, which only 37 percent of respondents said they felt confident that their company was prepared to defend against; and business strategy, with 71 percent saying their boards needed to improve their understanding of and contribution to management’s strategic decisions.
The third item on the list is corporate culture, which directors say they are hearing plenty about from upper management, but are not getting enough insight into what culture actually looks like further down the org chart, as Vincent Ryan notes at CFO:
Eighty-seven percent of directors said they had a good understanding of their companies’ tone at the top, but only 35% of directors said they had a good understanding of “the mood in the middle,” and just 18% of them indicated they had a good grasp of the health of the culture at lower levels of the organization.
While directors generally were confident that management could “sustain a healthy corporate culture during a period of performance challenges,” 92% of directors said they relied totally on reporting from the CEO about the health of organizational culture. According to the survey, it was rare for a director to get a direct take on corporate culture from functions such as internal audit (39%), compliance and ethics (30% ), and enterprise risk management (20%)[.]
These takeaways are largely consistent with our own latest research at CEB, now Gartner. One reason why boards are talking more about culture because shareholders are: our Investor Talent Monitor (which CEB Corporate Leadership Council members can check out here) shows that questions about talent topics, including company culture, are coming up more often on CEO calls with investors. Another reason why culture is on boards’ radar is that so many recent scandals have revolved around allegations of toxic company cultures: Boards today need a better view of culture because its impact on the bottom line has never been more apparent.