Pay for performance can be defined simply as, "a system of employee payment that links compensation to measures of work quality or goals." But each time an employee thinks about how and why they are paid, they are looking for more than a straightforward quid pro quo. Instead, employees are hoping to learn about a more promising way to get what they want out of work -- more skills, more money, new responsibilities and so on.
They want to know what HR is planning to do, so that they can decide if the plans will fulfill their own desires. Whether they're at their desk, or at the mall, our employees (like all human beings) are desperate to have their expectations met, which we often forget when we talk with them about compensation.
Why bring this up now? Because I want to encourage you to think carefully about CEO Pay Ratio communications, giving yourselves a lot of time to test ideas out. Employees will have easily predicted tendencies to have immediate, knee jerk reactions to CEO pay topics, even before you begin any explanation. Take the following examples to heart, they are just a small sample.
The CEO makes so much money that s/he has multiple houses, pools, house staff, vacations in Fiji -- and this income gets in the way of the company affording what I want out of work.
The median employee makes what I make. Is the company doing enough for our career opportunities? Shouldn't we be able to make more?
The median employee makes more than I do. I should know how to get to that average pay level, shouldn't I?
The median employee makes less than I make. I must be more important. Shouldn't I be offered more career opportunities than I have been?
Ignore these perceptions at your peril. This is an abbreviated list. You should make a complete list for your own employees, because their feelings will be real. And recognize that the detailed explanations that you will need to provide about the CEO Pay Ratio will only encourage these emotions to grow as you are sharing the required information.
Behavioral research indicates that we have, in general, two modes of thinking and acting. Mode #1 is immediate, emotional and involuntary (as you can identify in the question list above). This mode is inborn, since like any other animal, we have survived by constantly screening the environment for threats, ready to react. We must be able to respond in an involuntary way to what shows up in front of us. The most important thing to notice -- because HR often gets tripped up in our planning -- is these emotional responses are involuntary, and as a result take place outside of our consciousness.
Mode #2 is the rational aspect of our thinking. This is how HR tends to address a topic like the CEO Pay Ratio, to create an explanation that carefully and deliberately takes employees through the details and rationale. It's is our go-to mode in HR communications -- to laboriously explain. The thing is, we have misled ourselves about its effectiveness.
It is not an employee's go-to mode, and so HR is eternally frustrated by compensation communications because employees never really seem to "get it." Focused thinking cannot occur until we earn employees' attention by first addressing their emotions and desires (as described in the perception list work that I recommend). Even though this one's about the CEO, we in HR will need to help our employees address and resolve their own strong expectations. Only then, will we finally have their attention and -- don't kid yourself -- we'll need a plan for keeping their attention, too.
Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create the DIY guide to compensation leadership, Everything You Do (in Compensation) Is Communications @ https://gumroad.com/l/everythingiscommunication . Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, communications and leadership to topics like the CEO Pay Ratio, performance management and compensation implementation discussions at the Café. Margaret is a Board member of the Bay Area Compensation Association (BACA). Before founding re:Think Consulting, she was a Principal at Willis Towers Watson.