The God Complex

There are some organizations out there where Human Resources and the Compensation Department maintain control over exactly how much is offered to a candidate for employment.  HR uses a company-specific formula to decide the exact amount that can be offered to a candidate.  Front line managers are not able to override those decisions.  Appeals are judged by the original decision-makers.

“You’re authorized to pay $14.25/hr, but you can't offer $14.50.”

In these instances a company’s employment procedure mandates that someone in Human Resources (usually a compensation analyst) assesses the value of a candidate’s background via a formula, a matrix or even a dartboard (tongue-in-cheek) to determine the amount of money that the line manager would be authorized to offer.

This assessment counts periods of time from the resume that the candidate has demonstrated certain skills or acquired particular experiences.  These “scores” are inserted into a formula or other decision-making process that in turn spits out “the rate.”  Qualitative assessment of such skills and experiences may not be a factor, but if so is not made by the hiring manager.

It’s also likely that salaried candidates are handled in a similar fashion, as would be promotions.

The rationale

What’s the reasoning behind such strict control of pay decisions?  In most cases a tight leash on managers was established due to a lack of trust between the senior leadership and those who manage the employees on a day-to-day basis.  It’s the leadership view that:

• Managers can’t be trusted to spend the company’s money effectively or efficiently

• Managers tend to make emotional vs. business decisions, therefore increasing company costs

• Tight budget control is necessary to ensure that inappropriate decisions don’t overplay available funds.

Over time, such a restrictive environment will have negative repercussions - for the manager, the candidates and ultimately for the business itself.

• Managers aren’t allowed to manage pay for their employees.  They do what they’re told.  This is where the finger pointing starts.

• Decisions about the worth of a candidate are made by “bean counters,” outsiders, and not those better able to assess the impact of a candidate’s background and experience.

• Internal equity can become distorted as policy over principle restricts managers from taking corrective action to balance pay between employee experience / performance levels.

• Managers aren’t allowed to develop professionally when missing a key element of their responsibilities.  The next generation of leaders is not being prepared.

• Managers lose faith in Human Resources.  HR becomes an adversary.

Is this a good practice?

Those who set the pay rates for the line managers run the risk of developing a “God Complex,” where the finality of their decisions is taken for granted.  Managers have little option but to comply, even at the risk of creating additional difficulties with their staff.  Over time such control can be abused (“absolute power corrupts absolutely”) by those following by rote policies, formulae or simply what they believe is appropriate pay.

Line managers are left struggling to cope with these decisions, to explain inadequate offers to candidates, to suffer through internal equity distortions that leave their staff vulnerable to external poaching, or simply to have their better employees start looking elsewhere.

Allowing managers to manage, to let them have more flexibility in the pay decision process, can be a win-win for everyone.

• Managers: greater opportunity to manage their staff and the company reward programs.  Greater opportunity to grow and develop as leaders.

• Human Resources: allow practitioners to focus on key issues, not the minutiae of everyday decision-making.  Such flexibility would increase HR credibility as advisors, not gatekeepers.

Give line managers parameters to work within (i.e., no offers above midpoint or below salary range minimum, no more than an “X” percent gain for the candidate from their last employer, no sign-on awards without approvals, etc.).  That would provide a degree of standardization without stifling creativity or the organization’s ability to attract the right caliber of employees.

Being forced to gain approval for every offer, for depending on HR to decide what the offer should be, diminishes the credibility of the manager in everyone’s eyes.

That's never a good thing.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats.

Creative Commons image courtesy of angelofsweetbitter2009

Comments

[Chris Dobyns]

The God Complex - Hmm, apparently I've worked in organizations where there were a number of stakeholders who felt they lived on Mount Olympus. Or where someone felt a "formuala" could tell you down the nearest $.25 what someone was worth. Chuck's proposed win-win is well, a winner. It gives both HR or the hiring manager some parameters within which to "flex". Oftentimes the simpler solution is just for HR and the hiring manager to discuss the issue further. Oh?

[E. James (Jim) Brennan]

Best systems I ever worked under (and/or implemented) followed Chuck's guidelines.

The steps were as follow: Offer pre-approved parameters within which supervisors (not every "manager" supervises a subordinate) are free to exercise their discretionary powers. Assure that every people-manager gets consistent basic training in the rules, procedures and protocols. Permit limited standardized exceptions with an additional approval level. Offer consultation opportunities for special cases and outliers. Resolve those promptly, sensibly and consistently. Have an appeal process with impasses subject to higher top management approval.

Supervisors get trained to sensibly manage their homeground. HR gets to train, advise and recommend, without getting thrown under the bus for political reasons. (You always lose when there are unnecessary power struggles where you pay compensation cop with THEIR budget money.) Top executives get to make their Big Important Decisions. Everyone wins.

[John A Bushfield]

Chuck - I need to share an experience that directly relates to your post. Back in the mid 90's I was the chief HR guy for an ISP based in Atlanta. There was no HR before me, so I had to set the stage. I chose to use the company value system as the platform, which, among other values, emphasized managerial autonomy and accountability. The company had traditionally provided annual salary actions that conformed to a salary budget controlled by the CFO. I suggested that we 'decentralize' salary actions by taking the agreed to annual percentage increase, translate that into dollars, and give each manager a budget that he/she could use, completely at their discretion, to reward their employees. There were no guidelines; each manager could determine how best to distribute the allocated salary dollars among their direct reports.

The CFO thought I was nuts, and was convinced that without lots of controls we were going to spend the company out of existence. He fought it vehemently, but the CEO liked it and we went ahead with the plan. Guess what? Managers loved it, employees were appropriately rewarded, and at the end of the year most managers under-spent their budgets. A huge success!

[Chip Stalter]

One other reason why Compensation needs to be involved is compression issues with exsisting team members. I had a manager want to offer $2 more per hour than someone he had in his own department. A 9 year emaployee who has been getting good appraisals, at that!

So while we will work to ensure the company does not lose good talent, we need to make sure the talent we have is protected as well.

[david k waltz]

Chuck,

I have not run across exactly what you described, but there can be subtler forms of tyranny, such as percentile targets. If you need to hit 50%, then salary becomes a zero sum game, which is not conducive to fostering a team attitude.

Great name for a blog, by the way :)

[S. Ostermeyer]

Having recently gone through several external audits on pay, how does one ensure decisions are not based on emotion and are backed up by documented differentiations? There must be a control for adverse impact / pay discrimination? Government agencies are very narrowly defining pay differences, driving towards more formula driven pay decisions.

[Chuck Csizmar]

We've had some good comments on this posting, for which I thanks everyone who has taken the time to write. Several comments (here and elsewhere) have asked my opinion regarding "company-specific formulas." Fueled with a cup of coffee, here goes.

I believe that being a manager requires a degree of balanced emotion for proper decision-making. Otherwise you can close your eyes, ignore the unique elements of individuals and simply point to the policy manual. A clerk can do that. Managers should consider what an employee has contributed (or can contribute, in the case of candidates), regardless of what the resume says. Sometimes that's a gut feel, and hurrah for that!

As readers can detect from my writings, I am not a fan of dependence upon government agency bureaucratic, formula-driven decisions, be it regarding pay or anything else. Those who follow that rote tend to ignore the human element for the safety of the policy, the rule, the numbers.

That's not what management should be about, in my humble opinion.