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| Recent Articles & Speeches by Rita Avdiev
Your Future Career - Risk Management A New Employment Landscape - Changed global business conditions In Pursuit of the Bonus - Performance Incentives and Risk
Rising through the Ranks - Property and Construction professionals on the move Top Guns Top Pay - Remuneration and hierarchy in the property, investment and construction industry.
Your Future Career – Risk Managementby Rita Avdiev - Managing Director, Avdiev Group - Property Australia August 2008 Were you aspiring to become a fund manager five minutes ago? Has the wind been knocked out of your sails by the global capital markets turmoil? Are you facing an uncertain future at work as your bosses struggle to save the company? If you are young enough to accept change and resilient enough to take a step back to get ahead, re-training is the answer. Risk Management is the career of the future. Risk has become the keyword of the 21st Century and a pervasive factor in global events as well as daily lives. Risk has ramifications far beyond its direct impact especially in the aftermath of the sub prime mortgage crisis and the global credit squeeze. Risk can be any uncertainty about a future event that threatens a person, a company or its activities. Risk management has become a discipline for dealing with the possibility that an event will cause harm and provides strategies and techniques for recognizing and confronting any threat faced by any entity. It answers the questions – what can go wrong, what can we do to prevent the event and deal with its aftermath, how can we pay for the fallout? Risk control should be in place to limit the damage. Any decision made imposes a risk. However, there can be no progress without taking a risk. It is the fundamental basis of economic, personal and societal growth and change. Whether you float the dollar, invent the airplane or fly off in it to far away places, the risk taken has provided a reward to the risk taker. However, in the end, excessive risk does not provide excessive reward. You have to know when and where to stop. A shame the masters of the capital markets universe did not. Risk management has been promoted as the new, new thing - the management tool designed to minimise potential company failures of the future. Risk management institutes, whose past focus had been on shipping, transport and manufacturing, have recognised the risks inherent in other industries and professions, and broadened their activities to include non-physical risks in their coverage of risk potential and their repertoire of courses. Universities too have taken risk management much more seriously. The subject, once taught in engineering related degrees, if at all, now features in many undergraduate and post graduate degrees which lead to a career in which investment or other serious decisions are to be made by the graduate. Risk analysis has always been taught, especially in finance courses, the equations of risk and reward analysed and documented. The student has been taught about risk in the abstract, but not what to do when things go wrong. The growing and constantly changing investment industry developed sophisticated financial instruments supposed to mitigate investment risks such as changes in currency and commodity prices. Have these instruments saved them from the global turmoil? Should risk management courses be supplemented with the study of risk control, risk taking and individual and collective responsibility? Who is going to be first to design such a course based on the events and lessons of the last 12 months? Should there be a study of the influence of personality and character on the level of risk taking and the consequences? Can students be taught to develop a personal risk profile which they can apply in their future working lives, operate comfortably within those boundaries? This could help them choose between an endless variety of opportunities and deals on offer in the market, when the time comes again, without falling prey to the mad rush for profit which has recently brought the stockmarket to its knees. How well will this serve the executive of the future? Can risk taking behaviour be taught or tempered? The consequences of risky behaviour roll out daily in the media. The current spate of funds and trusts in trouble provides great entertainment for the masses. Who will survive, who will go under? The pinnacle of a career was perceived by a new graduate with any investment related degree, especially property, to become a fund manager. They were the ones in the news – amassing funds, making spectacular profits, being in charge, controlling and commanding others, earning heaps – what a dream! The aftermath is a nightmare. The rocket scientists of the capital markets have not lived up to their reputation. They turned into rock stars and crashed and burnt. The original rocket scientists were NASA’s scientific elite. They had education, knowledge and intellectual horsepower. They sought new horizons and achieved technological innovation, creating space travel which had been foreshadowed in science fiction novels. No one knew or cared how much they earned. It wasn’t much. The rock star fund managers had rock star remuneration to match. Where were the brains? Where were the risk controls and mitigation strategies? Were they just fashion jockeys, riding the markets, the heroes of the herd seeking popular solutions and earning heaps? While their performance was good, the generous salaries were well deserved. Now that funds are making negative returns, are they offering to take a pay cut or give the bonus back? But the rewards of risk should not be forgotten and taking risks should not be discouraged in the long term. In the short term, the capital markets disasters need mopping up. Property workouts are already under way. The media is gloating. The desirable skills of the future will be the ability to sift through the debris of the complex financial structures, separate the viable options from the hopeless and allow the good bits some breathing space to recover. Hurry, young graduate. Start that risk management study. Your future career is assured.
Lifestyle or cash? Go global. by Rita Avdiev - Managing Director, Avdiev Group - Property Australia August 2008 Footloose, fancy free, looking for the best job in the world? Sick of the local scene, tired of the parents asking when you are planning to settle down? The world awaits you. It’s time to travel and work, learn about new cultures, visit new places you learnt about at school, meet new people and get experience in new ways of working. Whether there is still a war for talent and how long it will last remains to be seen. In countries where employment rates are not falling, skilled, experienced professionals are still in short supply. Australians are highly regarded employees in the global context. They are well educated, adaptable, have a great work ethic and will try anything. In getting on with the job, they are not afraid to speak up if they can see a better way. In English speaking countries such as America and Britain where the culture is similar to ours, it has been easy to find work if you have been working at the capital markets end of the property industry. Australians have been leaders in developing a variety of derivative instruments, and now that a global debt crisis has arisen they can be expected to use their skills and imagination to unravel the complexities of products gone wrong and help deconstruct toxic assets suddenly sitting on balance sheets where they were never meant to be. Maybe you are a hedge fund trader with fresh eyes, who can weave magic in a new environment, able to predict the unpredictable, earning heaps of money for yourself as well as your employer. If you are a property professional with skills in analysis, asset management, sales or leasing, you have a good chance of finding an interesting and rewarding position somewhere in the global market. Can you sell ice to the Eskimos? Better still, can you sell units in the unpopular REITs to new investors? Answer yes, and the Brits will love you. Here is a chance to hone your sales skills in a challenging and gloomy business environment. This is bankable experience you will be proud to brag about. But the Anglo world is not the only place to go. Those Australians of ethnic backgrounds, whose parents introduced them to the culture of the old country without shoving it down their throats, may have acquired a strong interest in the heritage and language. With the opening up and economic resurgence of Eastern Europe, there are opportunities galore for living and working in the home of the ancestors and making a contribution. Are you an architect ready to hone your skills abroad? Want heritage? Go to Prague, Riga, Budapest, Vienna, Copenhagen. Are you a modernist? There’s lots to do. Zaha Hadid, now a world famous architect after many years of struggling for recognition, with an office in London, has just won the competition for a new museum of contemporary and media art in Vilnius, the capital of Lithuania. If that’s your heritage, you may have the language skills and design expertise to work on the project on the ground. Perhaps your qualifications and experience are in project management or construction, or in quantity surveying. A spectacular design reminiscent of a sleek spaceship on its landing pad, this will be a work of global fame. What a coup to put a job of this magnitude on your resume. The intellectual capital which can be acquired on such a project is invaluable. Hankering after a Spanish fling? Ole! Spain needs you. As one of the troubled economies in Europe, especially in the residential sector, you and your experience, energy and inventiveness may well be welcome in an old traditional culture as a breath of fresh air as well as your potential contribution. Barcelona, home of Antoni Gaudi and the Sagrada Familia cathedral, his 200 year project still in progress, offer great experience and lifestyle. As Western European conditions slowly decline, the emerging economies of Brazil, Russia, India and China offer limitless opportunities for Australian professionals. Sick of your property job? Want to do something different for a while? Teaching English or better still, basic investment theory to the young, upwardly mobile Chinese or Indians now living in rural areas but with plans for moving to the cities, could be an extremely rewarding experience. But work abroad is not only for the young. In cultures where grey hairs are venerated, mature professionals are always welcomed with open arms. Now, in a global crisis, the oldies, with their memories of previous disasters and how resulting problems were solved, are an invaluable source of information and remedy in countries where the credit crunch is worst. These are the old boys in the backrooms of the distressed REITs, beavering away at restructure strategies, while the young are out in front, selling promises to investors. A new market has opened up. Private equity around the world is looking for talent. Cashed up sovereign wealth funds are scouting for distressed assets. Countries with hundreds of billions of dollars in their coffers, such as Singapore, China, Kuwait, Norway and the biggest, the United Arab Emirates, are looking for competent professionals to help in their quest to acquire the best assets at below market prices. This is where previous experience comes into its own. What are the opportunities for growing rich while having fun? Every country has different pay structures and tax rates for locals and guest workers. A careful review of what you are signing up for pays dividends and avoids nasty surprises. And, of course, there is always Dubai! Tax free, double your money, work on exciting projects – that’s the upside. The summer temperatures of 45 degrees for 6 months of the year, a small expatriate community, an environment and culture which does which does not approve of Western lifestyles may eventually outweigh the excitement of the new and the mega dollars. Then it will be time to come home to nest. Your mum will be happy.
Tips for Going Overseas
A New Employment Landscape by Rita Avdiev - Managing Director, Avdiev Group - Property Australia April 2008 The property industry is facing some new challenges in 2008. Following the euphoria of 2007, the return from the Christmas holiday break in Australia has brought strong signals and a realisation that global business conditions have changed and that Australia and its property industry may not escape the sub prime debt crisis in the US and its infection and major correction of global markets. In 2008 risk has been repriced. The new emphasis on risk avoidance, low risk strategies and activities will flow through the economy to business investment decisions, retail spending patterns and employment, Australia is a robust economy, closely linked into the exponential growth of China, India and other Asian neighbours, customers for our mining and other commodity exports. Our economy is also supported by the steady flow of mandated superannuation contributions providing investment capital for funds management activities, thus keeping the money moving through the various layers of investment consultants and other service providers who rely on assignments from above to stay in business. Although the typical allocation of funds to property has been between 10% and 15% of total funds invested, the sum total has been rising steadily as confidence in property investment and returns increased and salaries rose in line with the skills shortage in Australia. Now asset allocators advising superannuation funds are reviewing their strategies as they evaluate the risks inherent in each of the asset classes available for their portfolios of investments. Property is looking like an increasingly safe haven in contrast to the volatile share market. But can we continue coasting along believing that we will not be affected? The media headlines scream constant bad news about the predicted global downturn, the mood in the community is changing and employers are getting nervous. At times like these employment divides into good times jobs and bad times jobs. In good times, when the world looks rosy and has a keen investment appetite to ensure a handsome profit, financial engineering and innovation flourishes. Derivatives multiply and are snapped up by the next layer of profit takers, many new profit making investment products are created and developed. In bad times, when the world is running scared, every investor wants their investment to remain secure, become low risk or risk free, or if they have lent out money, they want it back – safe and sound! This may affect the property industry. For property related businesses, their place in the hierarchy of the markets will determine their future operations, level of business activity and ability to retain their staff. What is the company’s financial health? How much debt does the company carry? What is the main source of business? Has it undergone rapid expansion, taken on new substantial projects, hired a large number of staff and increased its overdraft? New hires may be under threat of redundancy, as in previous economic downturns the last one employed was the first one to go. The property industry is closely connected and interdependent between market sectors. At the top of our food chain, the investment houses receive allocations from superannuation funds, spend them on asset purchases or development, gear up on money from the financiers and employ a myriad of consultants, cascading fees and cashflow through all the levels below. Many fund management groups are stapled entities, having combined their business activities with their assets, many of them in Listed Property Trusts. With the fall in the share markets, their share values have also fallen, many in proportion to the risks perceived in their level of debt. After several interest rate rises the cost of borrowing money has increased substantially. The effect on the future plans of these organisations can be serious. All feasibility studies for proposed activity could be under review and re-calculation. Analysts will be busy – for the time being. Transactions will be put on hold – what does that mean for the capital transaction team? When business activity slows, employers look closely at their corporate and team structures. Cost centres and profit centres and their contribution to the company are weighed up. Can one fund manager look after more than one fund? How many portfolio managers do we need, and if the asset managers can rise to the task, do we need any at all? Should product development be put on hold while the company rides out the downturn? The slow down at the top of the food chain flows through to the levels below. Risk management jobs have gained importance and status. Risk managers are being respected, valued and appreciated, nowhere more than in property finance. Here is where the back room has finally come into its own. For some time now the money salesmen, aka relationship managers, have been the stars of the show. The credit department and technical advisers just got in the way of good deals and had to be pressured hard to let the deals go through. Now those relationship managers are still employed, but an increasing function of their role is to closely watch their current clients and their outstanding loans for any signs of trouble. The credit department is now in its element. After years of being brow beaten by the gun salesmen, they can at last say “I told you so.” Credit is difficult to get, the cost of funds is rising, the company may have bought some risky product to offset their lending. They are working hard to keep a balance between too much debt and not enough security for new deals that need to be made to keep money moving. Developers depend on the availability of credit to stay alive and fund their activities. The residential developers with land banks can offer them as security. But can their development feasibilities survive future interest rate rises and what does this mean for their current work and future plans? Commercial development depends on a strong balance sheet and a secure source of funds. How far has their risk profile risen? How many design schemes will be put on hold? Retail property is usually a safe haven in economic downturns. People have to eat and super markets are ensured of survival. Shoppers are nervous, discretionary spending may drop, so other retailers may not be secure. Shopping centre managers and their staff will not be under threat – they will be busy helping struggling retailers as well as reviewing and changing the retailer mix in their centres. This brings work to their fit out consultants, but if major redevelopment plans are put on hold, their design and engineering consultants and builders will have to tighten their belts. Demographic and strategy consultants in this sector could expect some increase in business as shopping centre owners review their catchment areas and devise ways of increasing their size and productivity. Any slow down in general business may affect staffing levels of corporations who no longer own property but are major tenants. Corporate real estate teams built up in good times could feel pressure as the need for work space shrinks. Real estate companies may not escape unscathed. Sales and leasing activity can slow, outsourced management services can be taken back in house by property owners. Their valuation divisions will be busy revaluing property for their clients - the nervous banks and the worried owners. Valuers will be keeping a close eye on their professional indemnity insurance, as previous bullish valuations in bad times have proved to be disasters and brought battles in court as well as on the front pages of the print media. But it is not all gloom and doom. Downturns are good for economies – they sort out the cowboys, the bad risky practices and the attitudes of employees enjoying the war for talent. Bad times are good for growing up fast. They put a sense of perspective on the relationship between the generations of workers and their previous experience and corporate memories, oh so useful in bad times. The pecking order gets restructured. No longer will a job applicant, full of self importance and entitlement, dare to suggest to a future boss that the job interview should take place in the applicant’s office, not the boss’, as his day has been totally rearranged! We may have a level playing field again.
In Pursuit of the Bonus Performance Incentives and Risk
by Rita Avdiev - Managing Director, Avdiev Group - Property Australia March 2008 The concept of reward for effort is not new. In property, it had simple beginnings - a choice between two basic alternatives – salary only or salary plus commission, enjoyed by real estate agents, money lenders and stockbrokers. Bonuses depended on benevolence and goodwill and were paid at the discretion of the chief executive or division head. Now remuneration in the property industry has developed sophisticated and complex pay structures, with short term and long term incentives, targets to meet and beat, hurdles to jump and goals to achieve – an appropriate way of rewarding and motivating effort. Inherent in such remuneration schemes is the expectation and encouragement to take risks. The bigger, the better - to date huge risks have brought huge rewards. After a long, benign economic cycle during which the corporate memory of previous risk induced disasters has all but disappeared, few people under thirty five have personally experienced or know how to deal with doing business in bad times. What is again beginning to be recognised as a threat to employers, especially as the global credit crisis evolves, are the repercussions of the practice of recognition, praise and reward for risky and reckless behaviours which in the past have brought healthy profits to the company as well as stellar rewards for the rockstar performer. The consequences are now costing dearly in cash, credibility and investment redemptions. During the last property downturn, when business was hard to find, it was all hands on deck to keep the company alive. Those who still had jobs were encouraged to look for and bring in business, no matter what their status or remuneration basis in the company was. Business development became an essential part of every employee’s charter and job description, and the practice of reward for effort was back. Then came the introduction of compulsory superannuation in Australia and with it a steady flow of money to be invested. Funds management activities became a major force in property and profitable investment an essential outcome. Survey data from the Avdiev Property Industry Remuneration Report shows that performance incentives became an important component of pay packages as part of the increasing sophistication and growth of the capital markets and of the property industry – the funds management groups and their Listed Property Trusts. In 1996, 57% of respondents to the Avdiev Report described a performance oriented component in the remuneration of their staff. Over half of these companies made them available for all staff. By 1997, 73% had performance payments in place, to enhance both business results and personal incentives. The most common form of performance payment was by way of bonus, followed by commission payments. Profit share arrangements and incentive schemes related to company and business unit profitability and individual performance formed only 17% of reward payments. By 1998 the five most important remuneration issues facing the property industry were reported as performance payments, market benchmarks, remuneration packaging, pay related staff retention and share plans. Notably, 100% of all contributors in the Funds Management and Property Finance sectors already had a performance payment plan. In 2006, 93% of all responding companies had an incentive scheme, many of which had been reviewed and restructured during the previous two years. The most common change in the short term incentive component replaced a discretionary bonus system with a key performance indicator (KPI) related performance incentive scheme. Target and incentives thresholds were raised, and retention of part of the annual incentive for a year or more was introduced. Linking the overall company performance to long term incentives had also been addressed by a large number of companies. 2007 was the year of substantial remuneration rises in the property industry. In several sectors of the markets the pay rises as at June 2007 averaged 10% and ranged up to 15 to 20% at the top performer level. More complex reward schemes, introducing the practice of combining total fixed remuneration with short and long term incentives and giving a weighting to each component became prevalent. In some cases only 30% of the total was in the base, the rest was “at risk” -incentive related. But at whose risk? Does such an incentive weighted remuneration mix act as a retention tool for high level performers, or does it reward risk taking behaviours for which employers and other staff may later pay dearly? Bragging about the size of “the bonus” has long been a universal ego game at the top end of town. How does an employer price the risk of letting a star performer decide between the quantum of the deal and the quality of the transaction and its outcome? Are enough risk controls in place to rein in the cowboys or does the company turn a blind eye to the risky business as long as the profits keep rolling in? Is company profit and personal financial reward the only motivator in doing risky deals? Recent news of catastrophic share trading losses attribute the gamble not to the profit motive, but to a desire for peer group acceptance and recognition as a serious player – “one of the boys”. Who bears the brunt when it all goes pear shaped? When pay is heavily weighted to short and long term performance incentives, when company shares and options form a significant part of the total remuneration, a drop in the share price of the company hurts like hell, especially if the employee has built up a substantial shareholding over a number of years, accepting a deferred benefit regime, tying up rewards earned over a number of years. When the year of vesting coincides with a disastrous change of circumstances in the company’s fortunes, when the employees who did not take the risks which brought the organization undone are facing retrenchment, can the top guns be made to give their bonuses back?
Recruitment in the 21st Century You can't always find what you are looking for ... by Rita Avdiev, Managing Director, Avdiev Group for Property Council of Australia – April 2007 What a difference a decade makes. In 10 years the tables have turned – Australia has gone from a plentiful supply of eager candidates for employers to choose from to a war for talent. Fierce competition has developed to attract, retain and develop competent staff into valuable, productive and effective team members focused on the values, goals and, hopefully the bottom line of the employing company. There is also the generational change of the last 10 years. The baby boomers are still with us, even though they will start retiring in significant numbers in the next 10 years. They are holding on to their power, much to the chagrin of Generation X, impatiently waiting in the wings. Generation Y is growing up and will form the next large pool of talent for hire. They will be the new workforce coming through – the future of industry. A very different workforce, promising a very different future. In property, the changes in the sophistication and operation of the industry have intensified. The constant flow of superannuation money had thrust property into the capital markets. Good old solid property is now very liquid, traded on the stock market, up for grabs in the global markets. Property education has had to adapt to the changes, or lose market share to other educators offering better and more intensive post graduate training and entry to employment opportunities in the capital markets for their graduates. It is well and truly a candidate’s market now, if the candidate is the right age. Despite the shortage of available skills, many employers still don’t want to hire people over 50. Age stereotyping is deeply imbedded in our society. Ability is closely linked with age. The young are seen as faster, smarter, better educated and better able to cope with the demands and stresses of business, work and the competition for the customer. Generation Y has technology hard wired into their brains. They also have a number of personality traits which make them a risky hire and often a short term employee. Staying power has not been hard wired here. On the contrary, they are demanding, very ambitious and vote with their feet when things are not going their way. Recruitment techniques have had to be adapted to the changes. No longer does an employer run an ad in the paper, collect 50 applications, sift through and discard the majority, interview three and appoint the ideal candidate. Ideal candidates are in very short supply and print media is only one of the variety of venues available to post an employment opportunity. The electronic websites have made a serious effort to replace print as the job search mechanism of choice for candidates. The websites are proactive, emailing candidates with new job opportunities as they are listed. Then there are the recruiters. With no barriers to entry (NSW was the last to remove its requirements for employment agents to be licensed) the market is overcrowded. Large recruitment companies constantly spin-off solo or duo operators. There’s a new company entering the market every week. It’s easy. Anyone can register a business name and build a website, work from home if they choose, hiring a serviced office by the hour or the day for candidate interviews or client meetings. The newcomers charge low fees, cut sharp deals to attract clients, promise the earth and seldom deliver. They pepper the market with resumes of their unsuspecting candidates whom they’ve attracted rebulous promises of finding them big jobs with lucrative pay and great working conditions, hoping an employer might take the bait and respond. The recruitment industry churns its staff quickly. Apart from the bosses, the employee consultants are, in the main, young and inexperienced in work and life. They work not only to a budget, required to make a placement no matter what, but also to an ideal candidate definition which does not allow for lateral thinking, flexibility or any discretion from the norm. They cannot, or are not allowed to, grasp the concept of skills transfer which current tertiary education equips the better graduates for. Young candidates commonly complain that recruiters can’t see that just because they have not done it before they won’t be able to do it once they are in the job. The mature aged are tired of being interviewed by 23 year olds who do not understand what the candidates do now, let alone the relevance of their career progression in the past. Does the recruiter place a barrier between the employer and the employee? Many employers complain of the skills shortage and the lack of good candidates, while the ideal recruit for the succession plan has been rejected in the first cut, and not by the employer. What is the employer to do? Much of the current advice to hiring employers focuses on what candidates really want and how to convey it to them. A strong brand, a good reputation and a balance sheet which ensures survival in bear markets are all attractive to future employees. For many of the candidates, especially those moving between industry sectors, a high starting salary is less important than the opportunities for career development and progression. That progression, depending on the market sector, can include overseas secondment to other divisions of a global company. Candidates value high quality work, a good collaborative, non-toxic work environment, a senior mentor and the opportunity to maximise income as their skill base grows. Most of all, candidates expect to be rewarded for their achievements. Praise is a currency much undervalued by employers. A job well done should be applauded and noted by the boss and the team. The promotion of happiness at work is a growing trend. The theory that an employee’s engagement with their job and their level of productivity are closely linked can be clearly seen in companies where employees are valued, encouraged to innovate, praised for success and given opportunities to develop new and enhance existing skills. Property is a global activity. Property people have portable skill sets. Developments n Australia have made us early adopters of new and different ways of dealing with property and its income streams. We are leaders in the structuring and development of listed property trusts and other property products aimed at the capital markets. Our property graduates are a great export commodity. Australians have traveled the world, impressed their host countries and employers with their ability to work hard and willingness to tackle challenges. Global competition for Australian talent is growing, and it’s not only for the young. Many mature age property professionals have already headed off to Dubai, Abu Dhabi, and other rapidly growing areas. Years of experience, a diverse range of skills, including survival tactics honed during property downturns go with them. Old men with grey hair mean wisdom in Asia and the Middle East – they welcome this ready made pool of talent and pay them twice as much – tax free. Employers have at last realised that they must lift their game, their remuneration offers and response speed if they are to win a battle or two in the war for talent. They are turning to their own staff for help, giving financial incentives for successful introductions of friends and colleagues. Sign on bonuses, mentor programs, flexible work arrangements, well structured and generous short and long term incentives payments are on offer. That may not be enough. Choosing the right recruit from a shrinking pool of candidates is trickier. Do you bite the bullet and take the best available or do you wait for the right one to come along? If the latter, when will that be? Hiring the wrong recruit costs the employer money, time and stress. Is there a better way? How does one discover the left field applicant whose email and resume is languishing in the recruiters not successful folder, the one who does not quite match the key selection criteria, but has the cultural fit, shared values and succession plan potential every employer is hoping for?
Property and Construction Professionals on the move. by Rita Avdiev, Managing Director, Avdiev Group for NAWIC – February 2007 Are you ready for the next step in your career? This is the time of year when companies assess their staff needs for the next year, review their succession plans and restructure departments and teams. Property and construction is a dynamic industry which has experienced exponential growth and serious structural change since the introduction of compulsory superannuation in Australia. The inflow of money into property funds has created a shortage of investment grade property and the industry is creating new positions to facilitate the design, development and construction of new projects. Australian companies are looking for investment opportunities offshore and taking their people with them. Here are new career options to explore. There are now great opportunities for career development for people with ambition. It has become easier for property and construction graduates to move through the hierarchy of the industry from service provider roles such as architects, engineers, quantity surveyors or project managers, at the bottom of the food chain, to positions at the top, close to the capital markets where power resides, financial decisions are made and developments are conceived. You’ve got to be good to rise to the top. Remuneration in the property industry has become closely linked to the performance of the individual as well as the company. Performance incentives have grown strongly in property and construction since the early 1990s. Once paid to those whose jobs which had an entrenched tradition of reward on success, such a real estate sales, leasing and property finance, incentives are now widely available through the whole industry and becoming entrenched as the remuneration standard. New positions with new responsibilities attract new ways of remunerating the incumbents. In the property and land development sector, all employees in the companies which contribute to the Avdiev Property Industry Remuneration Report have an incentive component in their remuneration packages, with performance criteria closely linked to the expected results. Overall, 93% of the property and construction industry now pays an incentive to their teams. Those jobs which produce a greater than average return on investment are proving to be better paid. For example, property development is a traditional area where substantial profits can be made by a competent development manager, who is well worth paying a hefty incentive for. The reliance of the property industry on incentives has a major impact on the total remuneration paid from year to year. The base remuneration for a position with fixed responsibilities, which usually contains the salary, superannuation and other benefits such as a car, car allowance, a mobile and a laptop, is usually linked to CPI increases and moves steadily up from year to year. However, the incentives tied to the performance of the incumbents and often to the performance of their division or company can fluctuate significantly. Good years produce spectacular results. In bad years the base remuneration remains static or shows a modest increase, but a drop in the performance component drags the total down substantially. It is possible to achieve good remuneration growth by moving up through the ranks of a company over time. However, changing sectors and positions can produce the most rapid growth. Data sourced from the Avdiev Property Remuneration Report 2002 – 2006, using national averages, shows that a building graduate with 3 years experience in building, earning $44,000 in 2002, could have moved into a junior position in project management in the same year to earn $55,000. Having spent two years as a project manager with remuneration rises taking her to $94,000, she was offered a role as an assistant development manager in 2004, but at a drop in salary to $82,000. She took the risk and it has paid off. After two years she received a promotion and is now earning a total of $138,000 including incentive payments. Graduating as an architect after 5 years of study followed by 3 years of entry level work in an architects office, at $60,000 total package, including salary + super + other benefits, a remuneration level close to the bottom of the industry, our aspiring young woman takes a position in the design department of a large home building company and her remuneration rises to $80,000. Aiming for a career at the decision making end of the industry, she starts part time post graduate study. Meanwhile, she moves on to a design manager role in a development company, at $110,000 and, after graduating with a Graduate Diploma of Finance and Investment finds a job as a technical adviser in the risk management division of an investment bank. This pays $130,000 base package, plus a 15% bonus, seven years after graduation, in contrast with an architect who has remained in the arch profession, earning $85,000 as a senior architect. As the industry grows and changes, new career choices emerge. For those who are open to opportunities, have the courage to take a risk and the smarts to make it work, constant upskilling on the job and in postgraduate education will ensure progress through the property markets. With each step, the pay packet gets bigger, as well as the incentives. In good times the way up is easy and property remuneration packages remain closely linked to industry conditions as well as personal performance. The risk and reward equation is firmly entrenched. Come the inevitable downturn in our cyclic industry, the incentive components in the packages of executives may drop substantially or disappear completely and career progress may dry up for a while. Until then, happy career hopping. The industry is doing well, and so should you.
Remuneration and hierarchy in the property, investment and construction industry Speech to National Association of Women in Construction, March 2005 Who are the top guns and what are they worth? What they are worth and what they are paid diverge substantially. In the case of women, the difference is mainly caused by the perception of women and their skills and negotiation abilities. And then there is the perception as well as availability of suitable jobs for women. I’m sorry to say that women are not the top guns in the industry. Twenty years ago, when women began to rise through the ranks, it seemed that ten years later there would be a significant number of women in leadership roles. Wrong blokes have always dominated the top end of town and looks like they will for some time yet. While women are still bearing children, the situation will continue, but science advances, and there may be changes on the horizon. In the last twenty years the structure of the whole industry has undergone fundamental structural change. With the introduction of compulsory superannuation came the imperative to invest the money for positive returns. Funds management companies proliferated and continue to grow and spawn new boutiques. As the super money keeps on flooding in, new investment products are being created. The top end of the industry is moving ever closer to the capital markets. With very few exceptions, women are not. Again, it is all in the perception. Can you trust a woman to manage money? Women have to resign themselves to this gender prejudice and work around the perception. Taking the half full glass approach enables taking proactive steps to advance a career. The message to women is:
The old three tier structure of business applies to us as well. Our industry has: The Finders At the top is the funds management sector including property investment, property securities, syndication and all other forms of investment management. They are closely followed by the property developers. As the old saying goes the closer to the money, the closer to heaven. Next come... The Minders These include property finance, corporate real estate and shopping centre management. Bringing up the rear are The Grinders At the top of this set there is an interchangeable hierarchy, depending on who controls the contract. Building contractors often employ consultants for a design and construction contract. Project managers working on behalf of a client will manage and dictate to a builder. In fact, project managers are the top dog in the consultancy hierarchy. They are better paid than architects, town planners, urban designers and quantity surveyors. Real Estate Agents, once a well paid career for which tertiary qualifications were not a prerequisite are now a fading force. The funds have taken the top sales talent out of real estate and put them into their own capital transaction teams. The valuers in real estate firms have moved into analyst roles in the funds. Much outsourced work such as property facilities management is taken on by the agencies. The fees are low and the pay for the people is low. Property is a dynamic industry and people move from sector to sector during their careers. Where are you in your career? You may have been educated in: Architecture Career changes and moving up the foodchain in property brings financial rewards. Here are some career progressions you often find: Architecture to Project Management to Property Development And the moves are profitable. As an example, take a 23 year old architect earning $32,000 per annum, rising to $42,000 in three years. A move into project management at age 26 will bring $55,000 and rise to $70,000 in two years time. Then at 28 our example moves into Property Development at an average of $86,000. Two more years, aged 30, earning over $100,000. From now people move on and up, their responsibility is to make a profit for their company. But for women, the biological clock is ticking. Women have to make a choice that men don’t face. Maternity leave, retiring for a while, setting up a small business as a consultant. Whatever choice you make, never look back. Make it a success. Forever onwards! © Rita Avdiev, March 2005 Four generations of property There is no doubt that the Mature Generation, those born before 1945, the children of the global depression of the 1930s and the deprivation of the war, especially in Europe, came into their own in the post war era of prosperity in Australia. Australia in the 1950s and 1960s offered opportunities which the Matures of today, then in their early 20s, seized without fear, grew without too much bureaucratic and community interference and are now handing over to the next generation. The post war European migration (we had the White Australia policy then) produced some of our most prolific property developers, builders, architects and engineers. They came with nothing, these survivors of the war, the bombings and the holocaust, except a work ethic second to none and a burning desire to succeed and become part of the new land, new culture and new prosperity. Their foreign degrees often went unrecognized, but that did not stop them. They founded property investment, development, construction, transport, retail and manufacturing empires which many still control. The locals did well too. Those who returned from active service alive and with a medal or two got help to resettle and to study. A whole generation of consulting firms in the industry was founded by them. Many of these firms are or will soon be celebrating their 50th anniversaries. Many of them have undergone substantial transformation, unrecognizable now from their tiny and humble beginnings, their founders names lost in a host of takeovers, amalgamations and rebrandings. The services on offer have grown in scope and complexity and changed in response to the industry's demands. But then 50 years ago, life was good and the living was easy. There was work for all, housing was affordable. There was time enough to work, play and procreate. And they did. Their children, the next generation, the Baby Boomers, born between 1945 and 1962, reaped the rewards of this prosperity. There is no doubt they had it all. The rock music, the rise and rise of liberal attitudes, the freely available tertiary education, work for all, the ability and money to travel and above all - the pill. Its influence was instant and global. The baby boom was over. A carefree existence was born. Until then, this huge new mass of population needed hospitals to be born in, schools and universities for their education, housing for their families. New subdivisions of quarter acre blocks with triple fronted, hipped roof villas in the middle marched over the hills and dales of suburbia. Canny landowners made pots of money in the process. The elite stayed close to town and built fake Georgian, or fashionable modern ugliness. The masses preferred the brick vanillas and a new profession of building designers was born. Architects were not welcome in the outer suburbs. The Baby Boomers still remain a powerful force in the industry. But their power is on the wane. The oldest turn 60 next year. They're being encouraged to stay at work for longer, but until ageist attitudes change, this will not be easy. Give the next generation a go. Born 1963 to 1980, they are now known as Generation X. The oldest were not old enough to enjoy the swinging 60s, turned into teenagers in the 70s and grew up just in time to get the new tertiary qualifications being developed for the property industry. And not before time. The old property guard had valuer diplomas, the real estate agents had licenses. It was easy to make a pile on a simple deal. How much intellectual challenge is there on the back on an envelope? Generation X came out of university and hit the ground running while times were good. When the boom ended in 1990, the graduates of the next five years had a very tough time. No sector of the industry was employing graduates. They took labouring jobs, went overseas in search of post graduate work in their new professions or left the industry for other careers. Those who stayed were well rewarded. By the mid 1990s property was on the move again, and a metamorphosis was taking place. At the pointy end, property was moving into the capital markets and taking Generation X with it. The older end of this generation forms the bulk of the fund managers, the analysts, the structurers and mezzanine players. This generation also bears the brunt of the 24/7 demands of current working life. The oldest Xers, with partners, young children, mortgages and future private school and HECS fees are facing burnout and considering the alternatives. Making a lifestyle decision has entered the vocabulary of Generation X. When high powered executives, who are also the parents of young children decide that life is too short to spend on a plane or in front of a screen, the industry is seeing an emerging pattern of resistance and choices. Putting the child to bed on a Sunday night and not seeing the child awake until the following Saturday morning concentrates the mind on other options. Having made enough to pay off the house, invested enough to produce a steady if not exorbitant income stream, the parents can well choose lifestyle over career, and spend time with the family they never see. For how long? Not long! Enough time for a respite from the constant pressure and recovery from the stress. We're social animals. It's good to get out, but better to get back in. Lifestyle and workstyle choices are also populating the new boutique funds. Sick of corporate politics and unwieldy and slow decision making processes, having seen too many good deals slip away to more nimble operators, the Generation X executives are taking matters into their own hands, teaming up with colleagues of similar age and temperament and setting up in business. So far, they're looking good. But so is the economy. What will happen when the downturn comes? They'll be back - and then? What if the older generations stay in work well beyond the old retirement age? Will there be enough work for all? Generation Y is knocking on the door. This is the wired generation, born sitting at a computer keyboard, eyes glued to the screen and a mobile in their ear. They are coming in droves, well educated, smart, fast, ambitious and with every investment industry and capital markets related job in their sights. The oldest are 24 today. Look out Boomers, look out X, have you worked out yet how this generation functions? They need constant stimulation and many, when left to their own devices, cannot call on their initiative or imagination to proceed. Give them a task and they're brilliant. Leave them alone and they flounder. The oldies still have an edge. What does this mean for the future of the industry? Will these bright young things be able to develop the patience, focus and long-term perspective needed to continue our industry's success as a phenomenal contributor to our economy? Once they push their elders out the door in 20 or 30 years time will they be able to retain control or will it be left to Generation Z to make the most significant impression on property in the first half of the 21st Century? © Rita Avdiev, June 2004 Shifting jobs can bring about substantial pay increases. Are you ready for your remuneration review? This is the time of year when companies prepare to conduct performance reviews among their employees and apply the results to their remuneration negotiations and performance criteria for the next 12 months. Property is a dynamic industry which has experienced exponential growth and serious structural change since the introduction of compulsory superannuation in Australia. The inflow of money into funds has created the need to develop new investment products forcing the industry into continuing sophistication. A proliferation of derivatives is coming on the market and new positions are being created to service the new products. Producing a profit for the investor spins off into a reward for the profit makers and their employees. Remuneration in the property industry has become closely linked to the performance of the individual as well as the company. Performance incentives have grown strongly in the property industry since the early 1990s. Once paid to those jobs which had an entrenched tradition of reward on success, such a real estate sales, leasing and property finance, incentives are now widely available through the whole property industry and becoming entrenched as the remuneration standard. New positions with new responsibilities attract new ways of remunerating the incumbents. In the property securities area, a sector of the industry which did not exist 15 years ago, all employees in the companies which contribute to the Avdiev Property Remuneration Report have an incentive component in their remuneration packages, with performance criteria closely linked to the expected results. Overall, 85% of the property industry pays an incentive to their teams. It is the new jobs in the new activity sectors of the industry which are proving to be the better paid, as well as those which produce a greater than average return on investment. For example, property development, is a traditional area where substantial profits can be made by a competent development manager. Worth paying a hefty incentive for. The reliance of the property industry on incentives has a major impact on the total remuneration paid from year to year. The base remuneration for a position with fixed responsibilities, which usually contains the salary, superannuation and other benefits such as a car, car allowance, a mobile and a laptop, is usually linked to CPI increases and moves steadily up from year to year. However, the incentives tied to the performance of the incumbents and often to the performance of their division or company can fluctuate significantly. Good years produce spectacular results. In bad years the base remuneration remains static or shows a modest increase, but a drop in the performance component drags the total down substantially. It is possible to achieve good remuneration growth by moving up through the ranks of a company over time. However, changing sectors and positions produces the most rapid growth. Data sourced from the Avdiev Property Remuneration Reports 2000-2004, using national averages, shows that in five years a senior valuer with a property degree and more than five years experience working in a real estate agency, earning a total of $92,000 in 2000, could have moved into a position as an analyst in the funds management sector in the same year to earn $101,000. Having been promoted to an asset manager 2 years later, to earn $145,000, our lucky former valuer moves into a role as a manager of a small property fund in 2003 and becomes capable of earning an average of $216,000 of which 15% is an incentive, but could have been greater, up to 50% of the base. A colleague who graduated with a similar property degree went into real estate sales, quickly grew bored with the lack of intellectual stimulus in the job and in 2000 took a slight drop in pay from $63,000 to $61,000 and joined a major fund manager as an analyst. By 2002 our colleague was in a senior analyst role at a total remuneration of $111,000 and when a capital transactions team was formed in the group in 2003, jumped at the chance to go back into a sales role at $133,000. Agents turned development managers have seen similar growth from a sales role in real estate in 2000 at $65,000 to a junior development manager in the same year on a package of $75,000 moved to the next level in 2001 to earn $122,000, earned $154,000 in the same position in 2003 and being promoted in 2004 to a senior role capable of earning $200,000. The inclusion of incentives has ensured that property remuneration packages remain closely linked to industry conditions as well as personal performance. The risk and reward equation is firmly entrenched. Come the inevitable downturn in our cyclic industry, the incentive components in the packages of the executives may drop substantially or disappear completely. Until then, happy negotiating. The industry is doing well, and so should you. © Rita Avdiev, May 2004
The real risks and rewards behind performance incentives. Performance incentives have become a hotly debated media topic as well as a regular component of executive remuneration packages. This is a recent development, now affecting all of the property industry, not just the brokers and financiers. Once upon a time, a fair day's work brought a fair day's pay. If you did a better job than your colleagues, and the boss took note, a reward was given at the end of the year, more often than not at Christmas time. A bonus at the Chief's discretion, its size unrelated to any set criteria, was a signal that the company appreciated your efforts and your tenure was assured. When the economy turned down and companies saw losses on the horizon, the concept of rewarding those employees who were the cashflow generators and profit producers took hold. Reward for effort became the norm, not the exception. The risk and reward equation was now an important factor in the remuneration packages of competent professionals. Companies had to set the remuneration of their executives at a level which contained the appropriate reward for effort. They also had to ensure that the implications of risk and reward in the levels of remuneration incentives negotiated at the beginning of a contract, a project, a determined time span or to a set of key performance criteria, were clearly understood, agreed to and signed off on by all relevant parties. Many a remuneration agreement has ended up in litigation, with the disputed amount dwarfed by the legal fees paid by both sides. Remuneration packages now can contain several components - a base remuneration package, which relates to the agreed duties and responsibilities of the position; an incentive based on individual effort where this can be measured; and a bonus for being part of a profitable company if it is company policy to pay such a bonus. Typically, there are three parts. The "coming to work and doing the job" component - the base remuneration package, containing salary, superannuation, other benefits such as a car, school fees, travel, education, etc, measured as a total cost to the company. The "individual effort" component - a bonus or incentive directly related to the individual's effort and based on a percentage of the base salary or base package, with agreed performance benchmarks or based on a percentage of project profitability, sales income or fee income as appropriate. It is essential to agree upon the formula at the outset of any given period or project. It is even more essential to honour this agreement at the end. The third part relates to the profitability of the company. This is the "company is doing well" component - a share of the overall profitability of the company. Usually, the company sets aside a certain amount of money, be it a lump sum or a percentage of profit, to be divided between its employees. This can be done by a formula agreed with the employees or on an ad hoc basis, as decided by the chief executive and / or chairman. Many companies also allow employees to buy their product at wholesale prices, without counting this as a part of their total remuneration. Incentive payments in the property industry have increased substantially. Research conducted in 2004 for the Avdiev Property Remuneration Report shows that 84% of companies contributing information to the Report have an incentive scheme in place, up from 75% in 1997. Even the most conservatively remunerated market sectors are catching up. Short term incentives are the most prevalent. The most popular incentive payment reported is the bonus payment and performance payments are the next most frequently used incentive payments. The percentage of annual package achievable varies considerably. Share plans, limited to certain types of companies, are also available. Profit sharing arrangements can be negotiated. Sales commissions are also an option. Some companies reported giving all staff fees for introducing projects. Other incentives available to staff are assistance to buy shares; discounts on the purchase of the company product; loan plan, and share options. There are also the long term incentives such as share options vesting in the future. A debate has now begun about the contribution of individual performance related incentive payments to the profitability of a company and whether the concept of incentives is a valid one. Incentives have been the mainstay of inducements offered to top performers employed by others to join a company. Golden handshakes, golden handcuffs, golden parachutes all have their place in the pantheon of remuneration offers in the repertoire of the headhunter. But what does an individual incentive do? Can it set employees against each other, determined to perform not as a team, but as a lone operator, out to beat the rest, without regard to the long term strategy of the company or the effect of a solo effort on the team work which could have delivered a better result? But promises reneged on is one of the contentious issues in the incentive debate. Consider these totally fictitious scenarios. A family company hired a Chief Executive to introduce a corporate framework into an organization which was growing rapidly, chewing up profits and descending into chaos. Having negotiated a deal depending on the restoration of order and profitability over a two year period, the new CEO took a pay cut to join, with the proviso that he would take a substantial portion of the company profit achieved. At the end of the two years, the accountants did the sums and the family shareholders were horrified at how much they had to give away. Another dispute, another courtcase, another payout. The CEO left, the systems crumbled - the family mice were fighting each other again. It won't be long now - the administrators are waiting in the wings. A development company signed a profit sharing agreement with a long standing employee who brought in a development opportunity of some magnitude to the company. She nursed it, rehearsed it, got it through the plethora of authorities and their roadblocks. It finally got built and at the opening ceremony she finally called in the agreement. Guess what? No dice! She walked, straight into the arms of lawyer who took the company to the cleaners on her behalf. What a juicy text book case - breach of contract, discrimination, you name it, it's in there. They settled out of court. She invested the money. She won't be back. She'll be doing it for herself. Did the litigants deserve to win? The issue of entitlement as well as the size of the pay out is the crux of the matter here. It's only money! It could be worse - the Pied Piper of Hamelin got rid of the rats before he took the children away when the parents did not pay. Do your sums before you make the promises. © Rita Avdiev, May 2004 Succession Planning and Generational Change Rock and Roll turns 50 this year. The baby boomers are aging. They are the largest generation in the history of mankind who have had the energy, drive and education to change the clothes, consumption patterns and culture of our society. Resistance was useless. There were so many of them - there still are. But for a significant proportion retirement is on the horizon. For every organisation with baby boomers in its senior ranks the succession issue has assumed crucial importance in its strategic plan. Apart from passing the baton to the next leader, there is also the often sidelined issue of knowledge transfer. Knowledge and experience that reside in the senior management and professional employees of a company are a substantial proportion of its intellectual property and capital. The company brand has assumed immense value as a corporate asset, but what is backing that asset? What value can be placed on its corporate history, its memory and its knowledge? What value the ability of the company to carry out an effective transfer of its knowledge from one generation to the next? Having hired 35 year olds with energy and drive to replace current mid 50s chiefs, the company expects the successors to hit the ground running, keep the business on track, foster its future and manage its people efficiently and effectively. The clichés keep coming. No room for mistakes here. But look at the timelines. The 35 year old of 2004 was 20 in 1989 and still at university, turned 23 in 1992 and, as a new graduate, was lucky to have that first job. They missed the roller coaster ride of the boom and bust years of the 1980s and early 90s and the experience that came with the ride. They had no role in the precipitous and often ruthless decision making process to rescue or stabilize the company in trouble. Where is the experience to help them when the next downturn comes? How can they acquire the knowledge that will help decide what not to do in times of crisis? Knowledge transfer is so easy to imagine, and often difficult and sometimes impossible to achieve. But the importance of knowledge transfer is not to be underestimated. It is essential for the continuity of the Company's quality of service and its continual development. It provides the opportunity for the younger generation in the company not only to grow within their current roles, but also to use the knowledge as a springboard for new ideas and directions. Who are the players in this engaging drama? Firstly, the Chief Executives and Senior Partners must encourage and allow the transition period during which the knowledge is passed on. It seems like a good idea in concept, but look at the bottom line. For every company, time is money, nowhere more keenly counted than in professional services firms where billable hours rule supreme. Time spent in knowledge transfer mode cannot be billed to a client, but must be absorbed by the company. A major stumbling block. So is the potential loss of the employee - fully trained, they're worth a lot to the competition - a better offer and off they go. Secondly, the senior managers, close to retirement, in whom the knowledge resides, may be unwilling to pass on their experience and expertise to the next generation. It's dog eat dog in many companies - having passed on what they know the seniors will no longer be valuable or useful. They'll be off to the scrap heap. They don't want to let go. What's worse, some of them, despite their best intentions, may not be able to pass on what they know. They just can't let go. Teaching is an art, and without a clearly defined process to follow, many seniors, especially those used to working alone, without a team to manage and develop, could easily fail. These loners have a hard time of it. Knowledge and experience cannot be transmitted by osmosis - the juniors working alongside, eager to absorb the wisdom will question, distract, disrupt and annoy. The loners run for the clamshell. What knowledge transfer? There there's the next generation. They want it all and they want it now. Impatient to get on with it, endowed with six-second attention spans, they must get used to taking time to receive the information and reflect on what it means. Above all, they must have a strong interest in the senior's specialisation and a genuine desire to learn at a pace which suits both parties, not just them. Can they picture themselves as a sponge, catching and storing a few drops of information at a time, rather than a siphon - suck it up and run with it? Long hours of working together can produce a spectacular result or deep frustration and subsequent failure. Full marks to those who persist. This scenario extends beyond the company. The vital fourth ingredient in generational change are the clients. Their willingness to accept the concept of continuity of relationships and service, even if the service provider changes, is essential. Their encouragement of the next generation is critical in this whole process. What is the point of making all this effort if it is not understood and appreciated by those at whom it is aimed? Old relationships, forged over many years are also hard to let go. Inter-generational suspicion can run deep and undermine the best laid plans for a smooth client transfer. But let's assume success. The clients are cool, the CEO supportive, the seniors have worked with and taught the young. So now the young guns, the driven and action oriented successors, having absorbed the professional knowledge, are ready to rock and roll. They know it all. But has anyone imparted to them the ability and nous to differentiate between circumstances - when to make a quick decision and when to sit in quiet reflection? Time spent in serious thought could avert or minimize the effect of the unforeseen event which comes out of the left field and often leaves a trail of destruction in its wake. No amount of knowledge can substitute for the judgement required in decision making which can have a beneficial, or catastrophic effect on the company, its people and its future. Where do you get it and how long does it take? © Rita Avdiev, March 2004 The rewriting of corporate history In another century, another world, corporate history was preserved, enshrined, revered and recited. The bible of the corporation, it was a true account of the founding, the rise, the struggles with feral competitors, a near-demise of the company and its subsequent glorious rescue by the next generation of corporate heroes - the successors triumphant. Bound in leather, clad in glory, it stood proudly on the shelf of the chief executive. Excerpts were read at annual general meetings, novices were inducted into the company with relevant pithy quotes from this weighty tome of corporate wisdom. Where is corporate history now and what is its importance? How much of it has been rewritten to shift the blame from those who made unwise, expedient, often fraudulent, usually disastrous decisions to those who bore the brunt of the company's business malaise? How much corporate memory has been lost with those many redundancies of the late 1980s and early 1990s, who paid with their jobs for the company's mistakes? History can be re-written, but can the memory of what really happened be erased? A favourite corporate bad times game has been the distancing of the company from the past. Forget the past - it's all about the present and the future - illusion over reality. Tweak the brand, reposition the image, move it into the 21st century - forget the way we were. A look at Australia's recent past offers a powerful lesson. At the end of the 1980s, financial institutions were lending money for property investment and business expansion as though there was no tomorrow. Who gave their salesforce of 25 year olds their instructions and lending targets? Who made the decisions which took the banks and mortgage lenders to the brink? Were they young firebrands, consumed with their infallibility and the presumption of good times which would never end? Was it the chiefs at the top of the money lending pyramid, whose income and reputation depended on the quantity of lending by the young turks? In the "recession we had to have" who survived the subsequent debacle and the good bank / bad bank separation? Apart from the young salesforce, in the interests of showing the media and the community that the corporate stables were being well and truly cleansed, many long term bank managers were dismissed. These were the trusted advisers of small and medium size businesses who continued to lend money to long time customers whose income had dropped as interest rates rose sharply. The consequent escalation of business debts and breaches of overdraft limits made them an undesirable blot on the lending portfolio. The steely eyed successors of the warm and friendly bank managers took no prisoners and pushed many customers close to or indeed into bankruptcy. Who remembers? What lessons have been learnt? The recent health checks on the nation's banks and their exposure to the residential property bubble shows that the corporate regulators have been reading their history. By the first year of the 21st century, the world economy looked stable and business confidence was high. Companies were in expansion mode, taking over their rivals and submerging old brands. By the next year, in a time of consolidation, among the many mergers and acquisitions, it was unusual for a company division to split away and establish a new identity. So much negative comment floated about when the former Andersen Consulting broke away from the long established Arthur Andersen in early 2001, renamed itself Accenture and set about creating a new entity, with a brand new brand and a brand new image. What a daggy name to pick, was the consensus. They were set to lose so much good will, their name and their brand recognition. A year or so later the Enron, WorldCom (aka WorldCon - the media had a field day) and Aurthur Andersen connections were exposed. Close your eyes and visualize that prolific email of year end 2002, the Christmas greeting snowstorm of shredded paper from the windows up high in a skyscraper, to the tune of "let it snow". What a graphic illustration of destroying evidence in an attempt to rewrite corporate history. The efforts of Accenture to distance themselves and create a new identity looked in hindsight like excellent business sense. What did they know and should they have told? And what of the tech stock bubble? Built to last companies with boring non-tech core businesses became instantly old fashioned - the startups were flavour of the month. The Dutch tulip mania of the 17th century, The Australian Poseidon Mining boom and bust of the 1960s and many other examples of stock market bubbles were forgotten in the rush to buy the new glamour. Dinner table conversations revolved around the latest new listing, who had been lucky enough to buy some and by how much the stock had subsequently risen. Where are they now, these ephemeral companies with negative cash flow? Their assumptions and promises defied business gravity and took their investors money with them into oblivion. Are whistle blowers by default the true defenders of corporate history? To date they have been the only ones who know the truth and are prepared to tell their chiefs, for the well being and survival of the company. Those who were ignored, reviled and forced to resign have gone further to expose the company to the regulators. A pithy American wall plaque says it all. "In every business there is always someone who knows exactly what is going on. That person should be fired". That person is the survivor. The one who remembers how it was before, how the past has been rewritten, redefined. All that has been swept under the carpet, all that has been changed to portray the mistakes of the past in a positive light. Could that person be the chief executive's true friend? Given the average tenure of five years for the Australian CEO, a wise new comer would be well served to seek out the survivor as well as the truth. If the survivor has the courage to advise the chief, and if the CEO is not prepared to heed the advice and protect the dobber, the outcome could well be a new black mark on the corporate history book. The truth is not often palatable and killing the messenger has been a favourite pastime of new CEOs. We don't like dobbers here. © Rita Avdiev, February 2004 Risk is the keyword of the 21st Century. Risk has become a pervasive factor in global events as well as daily lives. In the aftermath of September 11, Bali, countless other global terrorist events and now Jakarta, the popular concept of risk has swept out of its original insurance context - the Venetian traders of the 15th century laying off risk among each other, Lloyds of London, insurers to the spice trade, comfort givers in the wake of floods and earthquakes. The importance and level of risk is now an integral part of any decision made and its potential unintended consequences. Risk has ramifications far beyond physical property damage. The definition of Risk Management cannot be confined to property issues such as security, fire protection, energy loss and maintenance. Risk can be any uncertainty about a future event that threatens a person, a company or its activities. Risk management has become a discipline for dealing with the possibility that an event will cause harm and provides strategies and techniques for recognizing and confronting any threat faced by any entity. It answers the questions - what can go wrong, what can we do to prevent the event and deal with its aftermath, how can we pay for the fallout? Risk control should be in place to limit the damage. Any decision made imposes a risk. However, there can be no progress without taking a risk. It is the fundamental basis of economic, personal and societal growth and change. Whether you float the dollar, invent the airplane or fly off in it to far away places, the risk taken has provided a reward to the risk taker. Risk management is being promoted as the new, new thing - the management tool designed to minimize potential company failures of the future. Risk management institutes, whose past focus has been on shipping, transport and manufacturing, are now recognizing the risks inherent in other industries and professions, and broadening their activities to include non-physical risks in their coverage of risk potential and their repertoire of courses. Universities too have taken risk management much more seriously. The subject, once taught in engineering related degrees, if at all, now features to some extent in almost every undergraduate and post graduate degree which leads to a career in which investment or other serious decisions are to be made by the graduate. Risk analysis has always been taught, especially in finance courses, the equations of risk and reward analysed and documented. The student has been taught about risk in the abstract, but not what to do when things go wrong. Now, in step with the growing and constantly changing investment industry, which is developing sophisticated financial instruments to mitigate investment risks such as changes in currency and commodity prices, risk management teaching is being more specifically applied. There is even a Property Risk Management subject taught at post graduate level by one the universities. Should these courses not be supplemented with the study of risk control, risk taking and individual and collective responsibility? Should there be a study of the influence of personality and character on the level of risk taking and the consequences? Can students be taught to develop a personal risk profile which they can apply in their future working lives, operate comfortably within those boundaries? This may help them choose between an endless variety of opportunities and deals on offer in the market, without falling prey to the irrational exuberance which has recently brought the stockmarket to its knees. How well will this serve the executive of the future? Can risk taking behaviour be taught or tempered, or is this an innate quality, part of the portfolio of attributes of the alpha male? Investment management has long been the domain of the alpha male. Styled as the corporate warrior, the fearless leader, the risk taker, the surfer of the wave of success. This character is defined by a number of attributes familiar to us all. We all know at least one - a dominant man, a natural leader, others listen and are interested in what he has to say, can win a fight against anyone, feels self actualised and complete. It is surprising to find the same character traits on the web - in the correct answers to a self test for chimpanzees. Furthermore, a study of gorilla behaviours compares closely to the corporate style we have come to take for granted - climbing the corporate ladder is conducive to chest beating, glowering, shouting and tyrannizing subordinates with sheer physical presence. Does a prior career in rugby help the cause in the corporate jungle? Battles for supremacy roll out daily in the media. The current spate of funds and trusts in play pits the alpha males against each other and provides great entertainment for the masses. Who will take the next risky step, who will be defeated? The pinnacle of a career as perceived by a new graduate with any investment related degree, especially property, is to become a fund manager. They are the ones in the news - amassing funds, making spectacular profits, being in charge, controlling and commanding others, earning heaps - what a dream! The last decade has seen a change in the popular description of fund managers. Once referred to as rocket scientists, they were the alpha males in their intellectual pack. Now they are the hot news in the media, written up as the rock star fund managers. Does this new analogy point to a shift in their intellectual prowess and style? The rocket scientists were NASA's scientific elite. They had education, knowledge and intellectual horsepower. They sought new horizons and achieved technological innovation, creating space travel which had been foreshadowed in science fiction novels. No one knew or cared how much they earned. It wasn't much. Now we have rock star fund managers with rock star remuneration to match. Where are the brains? Where are the risk controls and mitigation strategies? Are they just fashion jockeys, riding the markets, the heroes of the herd seeking popular solutions and earning heaps? While their performance is good, the generous salaries are well deserved. But when funds are making negative returns, they are not offering to take a cut or give it back. But the rewards of risk should not be forgotten and taking risks should not be discouraged. If only the alpha male could be taught to moderate the behaviour which leads so many into excessive risk and subsequent failure. If not, whom can we turn to, whom can we trust? Bring on the alpha female - they can't do any worse! © Rita Avdiev, November 2003
Demographics have always dictated trends in housing development in Australia. The post war baby boom created a variety of subsets in society whose housing needs the development community has tried to fulfill. The first home buyer in the brick vanilla on the quarter acre block in the suburban sprawl, the upwardly mobile aspiring classes in the middle ring, the young trendies in high and medium density housing, have been catered for with more or less success. We are now moving into a new phase - baby boomers are approaching retirement. Many have made the decision to down shift, leave the family home and move to the coast. The next 40 years in development are going to be critical as baby boomers move through to the end of life. Their retirement is co-inciding with the fall of and continuing malaise in the stockmarket, and diminishing or negative returns on their superannuation investments. At the top of the socio-economic scale, life still looks good, especially for those with memories long enough to recognize the economic cycles and making appropriate decisions to move their money between asset classes. At the bottom, the future looks grim. No private income, reliance on the pension. Aged care and housing has been a difficult sector neglected by authorities and society - till now. For the developer, a new market has opened up, which brings with it opportunities and challenges galore. As in all new markets there is segmentation which provides a variety of investment and development potential and risk. It is tempting to target the well off retirees, it is easy to create resort style developments with hospitality style services and managers, health care facilities and progressively increasing onsite medical services. The real challenge is the battlers who, in old age are left with little savings, an inadequate pension and worse health than their richer counterparts. What are the risks and rewards of targeting the needs of this group, which may be subsidised by government grants, and satisfying them while making a profit? It’s hard for aged care providers moving into a development which has been designed to a budget without exploring the difference between the short and long term needs of the residents. A better solution is for the developer to joint venture with the future managers to work out the problems, how to cater for residents in the same facility as they go through the various stages of aging. Then at development application stage, when the planning battles start, the developer and the manager can present a united front and remind the neighbours that sooner or later, they may well need this facility too. © Rita Avdiev, February 2003
What a spectacular exit! The fund manager collected $33 million and Australia is outraged. Whatever that sum comprises, part bonuses, part termination, it is beyond comprehension for the average Australian. How dare a man like him rake in that kind of dough? However, from another perspective, this sum may be just reward for many years of hard work, attracting and managing funds and building wealth for the investors. With hindsight, this mind-boggling sum could have been paid progressively and thus remained below the radar of the media and tall poppy watchdogs. There is a lesson here for a company starting up or a new executive joining to make a difference and a contribution. Current legislation requires companies seeking a listing on the Australian Stock Exchange to provide an independent assessment of the proposed remuneration of the executives in charge, attesting to its fairness and conformance with market practice. Whatever remuneration is proposed will have a reward for effort component, be it in company shares, option or cash. It will be linked to the executive’s performance in building and growing the company, its profitability and returns to investors. With stellar out performance this could soon exceed what the shareholders, who invested in the start up and gambled on getting a good return on their funds, regard as a decent remuneration for the CEO. Greed and envy go hand in hand when the dollars roll in - to someone else! Short memories rule - who remembers agreeing to reward such success at a time when no-one was certain that any success was possible? Avoiding the potential rage and regret of having given too much away should be built into every remuneration agreement based on rewarding performance. Staging the payment of rewards at regular intervals instead of at the end of a long period of service could solve the problem of the lump sum shock. The new CEO, jumping on the treadmill of growing a profitable business, should negotiate to progressively collect the rewards which are so rightly deserved and could be so bitterly resented. © Rita Avdiev, February 2003
From the basic shelter of the humble home, to the palazzos of the princes, from office space, warehouse, hospitals and schools, property has always accommodated the daily needs of the people it serves. Property is investment - safe as houses! When skyscrapers replaced church spires as the tallest thing in town, property turned into monument. Every city in the world has a distinct skyline, with one building as that city’s landmark, not always the tallest - see Sydney’s Opera House and Bilbao’s Guggenheim Museum. They have all survived our love-hate relationships with things new and different. The biggest, the tallest, the newest, the draw card and focal point, they begin as architecture and quickly become the cultural symbol of that city. Now that the World Trade Center is gone, New York is mourning its loss. Conceived in the 1960s, built in the 1970s, the twin towers were slow to gain acceptance, but once they did, New York embraced them passionately. Symbols of capitalism, landmarks from every vantage point they were the focal point of New York. The view from below was awesome, spectacular from the top - Manhattan laid out in all its high rise glory. Now New York is in mourning. The loss of the World Trade Center goes hand in hand with America’s loss of its sense of security and peace. At Ground Zero, the grief of the visiting crowd is palpable, but unfocused. Apart from the symbolic cross of steel, a relic of the frame of the towers, there are boards of firemen’s badges, the canvas sheets on a fence where people write messages, all tentative and insignificant gestures at remembrance, acceptance and healing. There is no focus for the grief, no monument, to commemorate the towers and the lives lost. There is a poignant gap in the skyline of New York. Photos of before and after proliferate. Street vendors sell quick paperback pastiches of the day of destruction, bookstores sell commemorative hardback volumes. The locals and the tourists can’t get enough. New York needs a new monument to take the place of the towers in the hearts of its people. Is Ground Zero the right site? © Rita Avdiev, September 2002
Who's afraid of the global push? Published in Property Australia, August 2001 It also has a profound effect on our work, on the family, men and women in their gender and workforce roles and the availability and diversity of new careers. Can Australia fight against becoming a branch office economy, against the odds of the distance from the rest of the economic power houses of the 21st Century - the US and Europe - and the time zone difference? Will its political and economic stability, as well as its talent pool of multicultural, multi-lingual, well educated, harmonious and technology savvy people save it from that fate? How will it use those people? Is there an awareness that it is possible to build a better, smarter workforce with high level mental capacity, the will to work, the ability and inclination to take risks and make decisions which will defend Australia from the intellectual wars of the future? Is there a guarantee that, having built this workforce, it will be rewarded with allegiance and loyalty? This is the age of "The Global Me" 1, the cosmopolitan, a hybrid and itinerant person, citizen of the world, soldier of fortune, mercenary extraordinaire. Prepared to ac |