Mr. President and Department of Labor: Move Aside; Let Employees Work and Learn

Through a federal rule referred to as “Overtime Rule” and part of Title 29 regulations was issued on May 18th, 2016 by the Department of Labor (DOL), the Obama administration now mandates that unless they meet criteria for exemption, employees paid less than $47,476 ($22.825 per hour) are entitled to overtime pay when they work more than 40 hours per week. The rule change, which goes into effective on December 1, 2016, is intended to apply to executive, administrative and professional employees; it has exemptions for teachers, lawyers and other specific jobs and industries.

The new limit, which is detailed in a DOL summary and further described in a distributable document and a set of frequently asked questions (FAQ), is a 100.7 percent increase over the previous overtime trigger salary level of $23,660 ($11.375 per hour), set in 2004. According to the administration the new rule affects 4.23 million workers (which by the way at this writing references  “white college workers” rather than “white collar workers”) among an estimated 8.9 million overtime-eligible salaried employees in the U.S. According to the DOL, 17.5 percent of the newly eligible workers are over 55 years of age, 21.2 percent  from 45 to 54, 22.4 percent  from 35 to 44, 31.3 percent  from 25 to 34 and 7.4 percent  under the age of 25. The new rule also establishes an automatic update every three years to the maximum qualifying salary. The rule permits up to 10 percent of the salary to come from nondiscretionary bonuses, incentives and commissions or through an end-of-quarter catchup payment.

The new rule is part of a set of regulations that specify how the minimum wage and overtime pay protections of the Fair Labor Standards Act (FSLA) are to be administered. Originally intended to eliminate potential sweatshops that resulted from the great depression are part of protections for “white collar” workers. President Obama embraced this agenda when he signed his directive in 2014. But the president’s good intentions can have side effects – in this case, the increase could limit options entry-level workers, whether college graduates or those heading into a new career path, who might want to invest time learning beyond standard training to better their value to the organization. In fact, it even could limit those who work in human resources who seek to be able to spend extra time understanding this DOL legislation and its impact – they could find themselves in an overtime situation despite the fact that it is an opportunity to better their skills to the benefit of their organization. Spending more time to learn skills for a white collar position should not be prohibited but encouraged.

Let me make this more personal. I began my career 28 years ago by relocating to a major metropolitan area to take a technical operations position at a significantly low salary. I accepted the salaried position knowing that I would barely be able to maintain a living because the opportunity was more than worth it, enabling me to break into a company so I could establish the experience and skills not available anywhere else. I was not a college graduate, did not have specialized or advanced knowledge but was willing to apply myself – to use my place of work as a place of education to the benefit of both the organization and myself. Over a number of years I was a hard and dedicated worker, sacrificing a personal life to work 50 to 60 hours per week so that I could advance my job level and salary. Under this new rule the company could easily have been in violation of DOL regulations, and the employer probably would have required that employees not work more than 40 hours.

Three decades later, how much has changed for a broad range of private-sector white collar employees who might not have either a college education or skills in the industry they want to work in? They may well be trying to restart their career but now will not be able to spend time at work at or related to the job that could be construed as overtime. The new rule will force employers to establish new employee handbook guidelines and agreements that direct employees and maybe not just the non-exempt ones not to work more than 40 hours or be in violation of employment rules and subject to termination. And employees trying to show a commitment to advance their potential in a range of white collar positions may well find themselves facing the proposition of being dealt with as an hourly employee with what I would define as a transaction level relationship with the company.

The Department of Labor suggests that to accommodate the new regulations businesses of all sizes can raise salaries to maintain the overtime exemption, pay overtime beyond 40 hours, reorganize workloads, adjust schedules or spread work hours – or, of course, adjust wages. The last recommendation in practice means the employer, to compensate for extra time worked beyond a 40 hour work week, might well have to have a difficult conversation with its employee to induce him or her to accept a lower salary plus overtime pay. With no exemption for size or location of business, this new rule will mean that considerably more time will be spent, unproductively from the company’s point of view, renegotiate its employer-employee relationship.

The DOL states it will not be difficult for employers to track workers’ hours as “employer already has systems and policies in place for dealing with overtime eligible employees so the rule isn’t introducing any new obligations for employers or requirement them to adopt new systems.” Well, the DOL does not realize that many organizations will not have had employees making less than the previous salary threshold but do now under the new level. Moreover, in many cases they were not paying attention to the exemptions because in a small and medium sized business the time required and cost of paying attention to every regulation is prohibitive. For employers, it now becomes a smart move to assess the use of software that employees use to track their hours daily so that managers and management have direct, centralized visibility to time worked. If your organization already uses workforce management software to track hourly workers, it might be able to be used for time worked by salaried employees. In addition, a new generation or human resources management systems (HRMS) have begun to add ability to track time worked by day and projects. Doing what the DOL appears to be recommending – leaving it to employees to track – is a recipe for disaster. Employers and managers should not leave any potential issues or violations in the hands of employees who may or may not track diligently every day. The government in this case has increased the cost of business by inserting the need for business to acquire and deploy software to support tracking hours.

Employers can also examine moving to the use of contingent workers, shifting the responsibility to a third party to deal with the compliance. These contingent labor organizations already have the processes and software to ensure compliance to regulations. A significant number of larger corporations already do this today to eliminate the burdens of hiring and maintaining a workforce. This is in addition to looking at using part-time employees who might work only 32 hours or less and do not fall into other regulatory requirements that increase the cost to a business.

The federal government should also have recognized the geographic diversity of businesses, with many located in areas where the cost of living is less than half what it might be in a metropolitan area. If you read the regulations, it is clear that some areas negotiated exceptions – American Samoa, for example, which has a lower standard test at 84 percent of the $47,476 salary. While exemptions on type of workers like outside sales, computer-related occupations, field of science and learning. Also, there’s a “learned professional exemption” where the “Customarily Acquired by a Prolonged Course of Specialized Instruction” could be the loophole for a large class of employees who can cite some level of related instruction or a degree that’s close enough to the content of their job.

The regulations provide a significant number of exemptions to the overtime rule in executive, administrative and professional areas that include some educators, those in law or medicine and outside sales, computer employees and highly compensated employees. Employers should make sure they are fully examining the available exemptions, even in situations where salaries are above the new threshold at $47,476. Interestingly, the legal and medicine fields are exempt from the salary tests for compliance; why did entry-level lawyers get an exemption? Or those that work to help take care of humans? I could be cynical and say they had great lobbyists. To me, one of the saddest parts of the legislation is where bona fide teachers are exempt where they actually should have salary increases. But the biggest question the regulations raise is why does the overtime rule not apply to these industries?

Should the salary range that triggers overtime have been increased? Yes. But this doubling of the salary level came with little notification to enables businesses to adjust through policies, processes and potential systems; now the regulations will go into effect on Dec. 1, 2016. The DOL did provide notification in July 2015 on the potential changes, so if you were keeping track of the details – which I can guarantee the majority of businesses weren’t doing – you know what’s coming. But since the government lacks any technological sophistication in business registration and notification, it’s not until now that business leaders including CEO, COO, CFO and head of human resources are learning of this and starting to take action. Of course those in larger corporations that have dedicated resources and retained labor lawyers are probably on top of the changes and implementing changes. Remember, though, that the number of small to medium-sized businesses far outnumber the larger ones that typically have more a $1billion in revenue and the DOL did just publish a specific guide to help these smaller-sized organizations.

The federally mandated minimum wage in the United States is $7.25 per hour. It should increase, and many states are already advancing it. In the face of these changes, businesses will have to make some difficult decisions on their ability to operate at current levels and determine the path forward to address increased payroll. Most organizations have budgets and this new regulation will have a direct impact on the budget in the calendar fourth quarter. Clearly, discussion involving at least the CFO and head of human resources will have to happen to develop a plan and determine a course of action. Organizations will need to review job levels and salaries as part of compensation planning to see if they should raise them to the federally mandated minimum to minimize the impact to any issues on the exemptions and requirement to track hours. Many HR organizations might also need to determine if their HRMS is effective at tracking hours worked and compensation processes as our latest human resources research found is one of the top uses of a HRMS and is one of the key factors motivating organizations to change technology providers. There will need to be updates to the employee handbook on overtime, communications to managers and inevitably new agreements or statements to salaried workers within this pay bracket.

Employers should seek labor-related legal counsel to ensure they have assessed their workforce and the situation with respect to exemptions and have plans to mitigate risk. As the new regulation goes into effect some employees may find themselves with a salary increase for the holiday season, or they may find themselves being informed they are no longer able to work extra hours related to their job to improve their career or performance. Some may find their salary reduced to incorporate overtime or may be asked to go to an hourly rate.

While I would agree it is appropriate and necessary for the DOL to establish a salary framework that keeps employers from creating sweatshops and working their employees too extensively, this doubling of the salary level appears to me to be excessive. Employees are always free to decide that they should find a new place of employment, but in this instance the government has taken an action that will force businesses to expend time, resources and money to ensure they stay in compliance. This regulation will impact employers whether they decide to hire college graduates only part-time or as hourly employees at compliant levels or skip them entirely and look for workers with more experience. College graduates are not well prepared by universities or colleges in their degree related to a job opportunity they are applying for in the private sector will require significant training that is not offered by the employer. For those college graduates applying for a job position not related to their degree will need even more training and a larger desire to learn about the position that in both examples will not be possible after December 1st.

The DOL has published its overview of the Overtime rule which portrays the new rule in a positive light: It puts more money into the pockets of many middle class workers or gives them more free time, prevents a future erosion of overtime protections and ensures greater predictability, strengthens overtime protections for salaried workers already entitled to overtime and provides greater clarity and security for workers and employers, improves work-life balance, increases employment by spreading work, improves worker health and increases productivity. All of this may well prove to be true. But all of it could be driven by choices employees make when they take a position and determine the employer they want to work for, rather than constraining employees who want to focus on their career and work hard at their employer.

It is clear that President Obama and Department of Labor have no real understanding of the impact of this change and how it will alter the dynamic of employer-employee relations and impact the employee’s right to work hard, learn more about his or her profession on the job and thus have the opportunity to move up and advance his or her career. If the president and DOL think that employers are going to pay overtime to support an employee’s desire to further training beyond existing ones offered, they are really disconnected from the way business operates. The federal government has now tied the hands of employers and instead created overhead for the private sector. This action is eliminating opportunity at a time where any aging individual who needs to retrain to switch careers will not be able to do so unless employers increase their budget for the workforce. Of course, the money for this will have to come from steps such as increasing margins on products and services that which translate to increased prices that the public may or not choose to pay, reduced benefits to employees like health insurance coverage, increased time off, matching 401k and continuing educational reimbursement, or reducing operational expenses or growth through eliminating new positions and employees.

While the president and DOL view this updated regulation as protection of employees and an expression of the president’s commitment to fair compensation for hard work, in my opinion it is a move that could have the opposite effect. Disrupting the private sector and forcing business to reassess its workforces, salaries and overtime patterns at a time when the focus should be on growth and new hires is really a bad step. Not everyone wants to be forced only work 40 hours on salary and should not be constrained by a federal regulation that forces employers to prevent it from happening.

Mr. President and Department of Labor, after working in small, medium, large and very large business in the private sector from entry-level to executive positions, after having hired or been responsible for hiring hundreds of people, and after starting and leading a small business as CEO over the last 13 years, I have a little more experience on this matter than those who developed the position you and your departments have taken. This action will change the dynamics of the workplace for the worse and have stepped on the potential opportunities of millions of Americans, from college graduates to those who are being forced to transition from trades that are no longer able to provide jobs in this country due to globalization. The view that this new regulation communicates of employers, generalizing that we are not treating our employees properly with fair salaries and so the government needs to wield a stick that is these regulations is incorrect. If you ever want a dose of reality on business and the private sector, let me know; I am more than able to provide some opinion and perspective.


Mark Smith

CEO and Chief Research Officer

Can We Trust Salesforce for Business in the Cloud?

I have been meaning to write about Salesforce since its Dreamforce 2015 conference. Salesforce provides a platform, tools and applications for business and IT who claims to be the ‘no software’ company which as you will read is exactly what happened on May 10th. Heck, Salesforce is making a lot of advances on its platform, its applications and even with Analytics and the Internet of Things. These changes are at the center of what at our analyst firm calls digital business innovation. Much of what it’s doing is very good, but now I am questioning whether the company’s foundation of business processes and technology platform has reached a point at which it can’t grow any further without impacting its own customers’ operations and success. That may be a harsh statement, but I think my reasoning will become clear as you read this perspective.Salesforce No Software

This is not my usual focus, but it comes from a customer-centric perspective since we have been a customer of Salesforce since 2012. You’ll find this is different from most of my analyst perspectives, which take the approach of a technology insider; after all, as an industry analyst in 2011 I was the top-rated enterprise software analyst (if you don’t mind a little self-promotion). In this case, however, I won’t go into the research and best practices that show what Salesforce needs to do to be an effective provider of CRM and other business tools that help companies succeed in serving their customers and delivering the best possible overall experience.

The stimulus for this piece was something that caught the whole industry’s attention: the all-day #NA14 outage on May 10, 2016. What is #NA14? Organizations that rent Salesforce applications that are housed and served from the #NA14 cluster of servers (one of 37 clusters around North America) know what it is. On that date it experienced what I believe was the largest-scale outage in Salesforce’s history and maybe ever in the industry based on number of companies and users. While other clusters also had some shorter outages at the same data centers, it was #NA14 that went out for the entire day. So impactful that the humor of having a t-shirt that those affected can purchase.

Survived #NA14You might say, it was just one day, so what is the big deal? Well, thousands of companies that have hundreds or thousands of users each were abruptly denied access to their applications for marketing, sales, customer service, messaging and to analytics and any custom applications and all their interactions with prospects and customers. This means everything was down, and for businesses that operate on Salesforce’s platform – like ours does – across marketing, sales, customer service, operations, customer engagement and even accounting, this was a major inconvenience. Much of the #NA14 fiasco has been documented and reported by Information Week and eWeek. As well as the outage, customers lost five hours of data (according to their Salesforce Trust website) and I can imagine at least millions of dollars in worker productivity and potential new sales. The customer interactions that could not occur had a direct impact on the customer experience that companies were trying to deliver, and you can bet those customers were not happy.

Making it even worse, Salesforce did not substantively communicate to customers and users while all business using Salesforce was at a complete standstill. The company did nothing to relieve the internal confusion and panicky communications within organizations that wanted to know what was going on.

Why this lack of communication? After a little investigation I found that the customer information Salesforce needed to communicate with its customers resides on the same servers that were offline and so was inaccessible to the Salesforce account and customer service teams! This means that Salesforce does not have a centralized customer information store that is a replica or master of the data stored on its server clusters around the world. How is this possible for a company of its size and reputation? A lack of investment in process and infrastructure that has led to a brittle foundation for its cloud computing empire must be at the root of the situation. Any organization that depends on customer relationships should have its customer information available even when key software is not operational and should know how to communicate to its customers across any channel, voice, text or email. My colleague Richard Snow outlined this in his guidance for 2016, and Salesforce should heed his advice and apply what he has written about the innovations it provides to its customers to its own business.  When I look at the information Salesforce has about our organization, I see that it does not have fields to tell them how they should communicate urgent notifications and by what channel. Would it be most useful to call, text or email? Here are some serious places for improvement.

Salesforce eventually got past its consistently uninformative responses on Twitter to check its site. CEO Marc Benioff personally replied to some people’s tweets like mine with this: “I am sorry for our service disruption on NA14, please email me at so we can call you @parkerharris.” It revealed that the company does not link Twitter handles to customers and store centrally. The Twitter mob launched a flood of obnoxious, sometimes hilarious memes on the situation, like pictured here, and very quickly it became too late for Salesforce to recover. I did email and tried to follow up with Marc but got no response, so that gesture on his part was worse than nothing. I got basic responses to direct messages on Twitter but nothing that improved my confidence or trust in Salesforce’s ability to resolve the situation.NA14 Squirrel

Something that was not mentioned at all during this service disruption and data loss is that Salesforce uses Oracle’s database technology under its platform. Salesforce stated on its Trust website, “The service disruption was caused by a database failure on the NA14 instance, which introduced a file integrity issue in the NA14 database.” Salesforce was careful not to mention Oracle in any communications, though it noted during the crisis communications that it was a database failure. It is known that Salesforce has built its own abstraction layer as part of its platform, along with its own query interface; maybe that is the root cause of the integrity issues that eventually led to the five hours of data loss. If Salesforce was not able to shift successfully to backup data centers, let alone ensure against a power failure to a data center itself, we wonder whether its data centers are configured properly for fail over and disaster recovery. As a side point it is well known that placing data centers in major metropolitan areas like Chicago and Washington, D.C., is not a best practice; Google, Facebook and others have selected locations in Oregon that are remote and geographically stable and have lower energy costs and less risk of failure for power or human mistakes.

During the crisis, individuals at several levels of management in the support and services team tried to salvage the situation, but since Salesforce could not provide real updates online about service restoration, companies were left with their employees who depend on Salesforce sitting around, and many turned to Twitter for laughter. Two days’ later customers received a formal apology letter from Keith Block, Salesforce’s vice chairman, president and COO, that stated that a power distribution failure in a data center forced the company to switch to a backup data center, but there was also a database failure that created file integrity issues that led to the disruption. The letter apologized for the poor quality of service and encouraged companies like ours to contact him or our account team or even file a support ticket, which showed some humility. But it did not mention the lost five hours of data that was acknowledged on its Trust website, so you would have to do your own investigation to determine whether you had data being entered during that time. And no reference in the email or direction communications to customers that “#NA14 instance continues to operate in a degraded state that can impact the reliability from a performance and scalability perspective, or that they are planning a four-hour shutdown on Sunday, May 15th to attempt to do what they have stated as “bring the NA14 instance back to full functionality”. I guess that customer communication on the operations of its applications and software is still not a priority for Salesforce and making customers go and check the website is what they believe is a great customer experience.

What would you do to make up for a #NA14 situation if this was your company? I probably would offer incentives for future services or even apology incentives in the form of gift cards for every user – something to show you care about the customer experience beyond an apology letter that does nothing to help individuals who are on performance plans for quotas to customer engagement interactions. And the email was followed up by another email inviting customers of #NA14 to a special executive team conference call to probably further apologize on the situation. If I was any customer of Salesforce, I would want to be listening to this phone call and communications from executives to determine what might happen to them. Let’s hope that the time since the #NA14 crash has placed a level of seriousness and reconciliation with Salesforce executives.

All of this comes back to the overall customer experience in subscribing to software from Salesforce. Salesforce has become difficult to work with for businesses, especially small and midsize ones. Our own business made three changes to our subscription over the last 9 months to upgrade and purchase more licenses – changes that it should be simple and straightforward to make. But if you have experienced the Salesforce Checkout, you know it is anything but pleasant to review quotes, contracts, orders, statements and invoices, and the billing and payment system is even worse. You cannot pay for your subscribed changes by credit card and ACH like you can with any other software as a service on the Internet from, say, Microsoft, Adobe or even SAP or the range of services that a business pays for in healthcare, insurance, contractors and online banking. Salesforce asks you to mail a check because it is more expensive for it to provide online payment. Really? This is the most inefficient way to conduct commerce and make payments. When we refused to pay by check, Salesforce collections generated a new invoice with ACH/Wire information that a customer can manually use; but I refused to waste my company time and I called collections who took my credit card number over the phone. The company at this point doesn’t have an online payment system managed by the customer as is standard in the industry.

Even worse, communications to customers come from what is called the collections department, which is an insulting word, as if you were a deadbeat; why not call this team Customer Payment? My experience in three incidents suggests this team needs training in effective customer communications to maintain a quality customer experience. Salesforce’s customer engagement approach for requesting and paying for software is ludicrous, and it comes from a company that markets itself as providing a “customer success platform empowering companies to connect with their customers in a whole new way” – that’s in the About Salesforce statement in its press releases and website, and it could not be further from the truth when it comes to the experience it actually provides to customers. All of this could be fixed by using subscription and recurring revenue software from Salesforce’s partners and ensure the focus is on the subscriber experience like its partner Zuora provides today, and as Richard Snow has pointed out.

Another nagging issue stands as the largest impediment for companies that try to gain access to the latest innovations from Salesforce. I mean its new user experience, Salesforce Lightning. It was announced to customers in 2014 and begun to be released in 2015, but it is still not widely used. I have learned that thousands of companies have yet to migrate to Lightning as organizations have determined it is not ready for prime time in large and small deployments. Our experience has been that it is slow and not responsive to quick changes in the layout of information you are viewing and for getting to previous functionality requires switching to the classic interface. Plus not all of the entire suite of functionality from Salesforce has been upgraded to support this user experience, including the Console, Contracts,, Forecasts, Orders and even Getting Started. Yes, that’s right: Salesforce is struggling to get its own new user experience software up and running on all of its own applications, but it insists that it will be pretty much complete by the end of 2016. While this would be a good first step, Salesforce also has yet to make Lightning compatible with Windows Touch, which is now the standard method for the tens of millions of professionals who got a new notebook in the last year to scroll up and down, engage with the application and gesture through information. Today if you try to touch your way through Salesforce, it just does not work like it was turned off or not enabled. My inquiry on the situation to Salesforce found that my assessment was indeed true.

As an analyst firm that covers business applications that relate to the customer experience, from marketing, sales, service and operations all the way to finance, we conclude that Salesforce is not adhering to best practices. Any organization that cannot get access to its customer information to communicate to them in the midst of a crisis because it does not have a centralized customer database is set up to fail. It is a fact that systems will fail, and an organization should be prepared to have centralized backup of all of its customer information. When it comes to communications, an organization should not rely on a condescending top-down approach that some believe is a superhero type effort but be sensitive to how it communicates with customers and be honest in the information within the communication. Salesforce should be sensitive to other communications it is sending out during sensitive times like #NA14. For example, on the day of the #NA14 crash, Salesforce cloud services sent me an email message saying that “simple configuration changes improve business outcomes.” On the following day an email from invited me to explore how to best utilize my subscription, and this message had been assembled by copying and pasting text with different fonts and sizes of type. How embarrassing. All of which says to me that spinning out communications designed to learn more about me and get me to spend more with Salesforce is more important than my experience with the situation on hand. I had to reach out to our account executive to inquire about the #NA14 crash, but the rep was not able to offer any enlightenment beyond checking the site. In addition we’ve received no communication from the analyst relations group who should be proactively in dialogue with those that recommend and research their company; sadly, that’s not surprising, as getting information or updates on Salesforce is nearly impossible unless you go and find it yourself at Dreamforce.

Salesforce TowerSalesforce is investing massively in new real estate for its office towers around the world, and the largest of all is the new headquarters in San Francisco. Being the tallest and reaching into the clouds is a heavily marketed message. I hope that Salesforce is not falling victim to what my colleague Robert Kugel calls the headquarters effect. Unfortunately the reality of a cloud infrastructure is that it still operates on Planet Earth, and Salesforce needs to pay significant attention to that. I have pointed out issues in Salesforce’s cloud computing approach – in its processes, technology and people – that make it more difficult to work with from my viewpoint than hundreds of other technology providers. To provide customer relationship management (CRM), which is the stock ticker (NYSE:CRM) of Salesforce, how the processes are instrumented and people are empowered and enabled to communicate is more important than the technology itself.

I hope Salesforce will assess its people, processes, information and technology to ensure it can deliver the great customer experience that it espouses as the main value in working with it. From our point of view, as Robert Kugel has written on Salesforce and midsize company opportunity, it is clear that depending too much on one provider may not be the best recipe for success. Even Salesforce is rumored to be shifting away from its own cloud computing environment for its Internet of Things (IoT) and will operate on Amazon Web Services (AWS). Our organization is reassessing whether Salesforce is the right provider to support our marketing, sales, service, operations and customer management for the future. In addition, over the coming months we as analysts will assess Salesforce’s advances in marketing, sales, service, analytics and platform and write about them to help you make your own decisions on whether to reassess or invest with Salesforce for your future in the cloud. It is a serious question whether this company can be trusted to effectively support the business success of its users and customers and whether it can rebuild confidence that it can respond to the critical situations that happen to any technology provider.

Is Salesforce able to communicate with and engage customers for the best possible experience? Can Salesforce listen to its customers and improve their product as I have pointed out? Will it improve its business communications to its customers? Time will tell what Salesforce does and how it will recover from #NA14 and prepare itself for the future and how it communicates its plans to mitigate the risk of similar failures in the future.


Mark Smith

CEO and Chief Research Officer