Why? If something is a best practice, then every other practice is inferior. But if everyone is doing the same best practice, it leads to conformity. Do you want to use the same practices as your competition? No --- you want to use practices that beat them.
Dilbert nails it in this cartoon.
While a handful of best practices might be applicable universally, what’s considered a best practice in one industry, company, country or corporate culture isn’t necessarily a best practice in another. If something works for a small mom and pop shop, it won't necessarily work for General Motors.
Let’s take a look at a commonly used best practice metric for business: revenues per employee. On the surface it seems to make sense to use this metric in comparing to other companies. The assumption is usually made that the higher the revenue per employee the better.
Not a good assumption. Why? Here are some business circumstances that affect the ratio:
1) Some industries just naturally have higher ratios than others
2) Start-ups typically have a lower ratio than mature companies
3) Labor intensive companies such as manufacturing have a lower ratio than non-manufacturing companies
4) Ratio is higher for companies that outsource a significant function or have high number of contract employees
5) Downsizing for financial reasons or because of automation leads to a higher ratio
Without understanding these underlying factors, comparisons can lead to some very faulty conclusions.
Is Compensation guilty of assumptions when adopting best practices? You bet. Even if comparisons are confined to companies in the same industry, it’s not safe. So is there really any way for Compensation to find companies that mirror the same business circumstances in order to adopt best compensation practices? Maybe so, but it seems like an exhaustive analytic effort for achieving a questionable outcome.
Actually the most important thing to focus on is what works for a company based on internal rather than external analysis. This means determining the “best fit” and alignment for each individual company given its unique needs, culture and business circumstances. By focusing internally, Compensation can create practices that are relevant and add value to a specific company.
My suggestion is to do the internal alignment analysis first. Then take each current plan, program, process, policy, etc. and examine it with this in mind.
1) Why does this practice exist? What is its purpose?
2) Who is it meant for? Does anybody use it?
3) Is it a help or a hindrance in moving the business forward?
4) Is it the simplest and most practical way to address an issue?
5) Does it align with company strategy, needs and culture?
Example of a mismatch: One company that was a strong proponent of pay for performance was embarrassed when it discovered that several of its business units rewarded employees for their length of service.
Compensation doesn’t have to completely ignore best practices. While they shouldn’t be blindly followed, they should at least be acknowledged and understood.
I view best practices the same way I do market surveys. The results are reviewed but they’re just one single data point to be considered in reaching a decision.
Following best practice is tempting because it seems to guarantee success. And it is a natural tendency and much safer for people to “go along with the pack”. Even senior executives fall into this trap.
For most CEOs, only one thing is worse than making a huge strategic mistake --- being the only person in the industry to make it. As Warren Buffett said: "Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press. “
Does Compensation in your company engage in “best practice” or “best fit”? Might be a good idea to check this out in the New Year.
What do you think?
Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career. Her true love is working with local national issues. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.