Compensation Cafe

Is It the Person or the Position?

How much value is added by the individual holding that important management post?  Would those same output results occur no matter who was the incumbent?  Should any person who holds a position of substantial impact be automatically highly compensated?  How much of the “job worth” is truly attributable to the talents of the individual versus the normal outcomes anyone could generate from that place of power?  If someone is placed in a spot whose leverage has been created by the larger organization and its systems, why do we assume they deserve so much more pay than if they were an individual contributor with limited ability to affect the bottom line?  Is it the job or the person that creates value and how much comes from each?

These questions are integral to the compensation tradecraft yet are rarely discussed or even mentioned.

A recent article had an interesting take on the global compensation issues from bankers meeting in Switzerland.  Most felt that their generous remuneration was a matter of disinterest to their institutional investor shareholders, because it was a relatively tiny expense compared to the profits.  But a few noted that "it's the seat, not the individual," and found it offensive to see some callow young ignoramus earning millions merely because they had been placed at the head of a hedge fund which almost automatically generated billions in profits.  That comment brought back memories of my compensation childhood when Robert A. Smith preached the distinctions of organizational leverage versus human capital factors (KSAs) back in the early 1970's to his four young corporate comp/org analysts named Dave Thomsen, Gerry Stern, Larry Cook and Jim Brennan. 

He directed our reverse-engineering of virtually every job evaluation plan that existed at the time.  Taking the most statistically reliable elements of each, we then freshly designed and validated a customized point-factor plan universal enough to suffice for the Fortune 50 multinational conglomerate we served.  Besides the traditional personal features people bring to the job like education, experience and specific types of skills, we had an entirely distinct set of other categories we called “organizational factors.”   The personal human capital elements specific to the individual (KSAs) could be carried from job to job and proved to have significant but limited effect on market compensation.  The real money came from the leverage supplied by the organization for the application of the individual performer’s talents.

A skilled surgeon or product designer would have great value up to a certain point.  The personal value of an isolated worker would not continue to increase at the same rate (it showed an asymptotic relationship) as that of a less “skilled” but more “responsible” manager or executive given a higher degree of wider impact.  A great individual contributor only has one brain, two hands and so many hours to ply their trade.  The market value of personal KSAs flattened out fairly quickly.  On the other hand, even an indifferent manager, director or other executive operates as a conductor, coordinator or force multiplier who stirs those diverse KSAs together and applies them throughout the broader enterprise than the individual work unit.  The bureaucrat who applies the creative talents of otherwise isolated Nobel Prize winners will earn his or her value from that application leverage position rather than from their personal stand-alone talents.  Albert Einstein and Stephen Hawking would have had very limited values as ditch diggers but had tremendous values as teachers and publishers and innovators in the field of theoretical physics.  Many a brilliant genius has starved to death in this world due to failure to find an adequate platform from which their talents could be monetized.

There are things only the person can do.  And there are things only the organization can empower the position to do.   

This might be fundamental Compensation 301 to some readers, well known and fully documented in every textbook, but I don’t recall seeing it discussed much, if at all.  Please offer links or references that prove me wrong.  Supply even better elaboration on the topic.  I’d rather be wrong than right, on this point, because it is pivotal to a sophisticated comprehension of compensation tradecraft.

Whether the concept is new or old, just think about it.  It might help clarify some compensation valuation questions you face on a daily basis.

 E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

Image courtesy of shaneprigmore.blogspot.com

It's a Scandal! Manager Training Exposed! [Implementation Part 4]

This is Part 4 of a series on research that can help your company get better at implementation. Companies that are more effective at implementation -- of business strategy, pay for performance, change, communication -- deliver higher Total Shareholder Return. 

The source of real competitive advantage is the ability to implement practices that other organizations find difficult to implement.

 

In my recent posts we learned that the Most Admired Companies, as tracked by Hay Group and Fortune, act as if they are more committed to achieving their business results than other Fortune 500 companies. 

71% report they are effective at implementing their company's business strategies, compared to 47% of their peer group. In a related finding, 94% report that they have a clearly defined global approach to performance management, compared to 74% of their peers.

How do they pull this off? There are lots of contributing factors, but there is one implementation method that we all rely on -- managers. As we all know well, leaders may have great strategic ideas but managers are the people who actually make the strategy happen. They implement annual priorities through objective setting, communication, feedback and performance management.

How do we prepare managers? We sure send them through regular bouts of training, don't we? Towers Watson wanted to learn more about manager training in its 2011 - 2012 Change and Communication ROI Study. TW has spent 10 years comparing companies that are more effective at communications -- and as a result, delivering higher Total Shareholder Return -- to less effective communicators.

In this report we find out that more effective companies spend more time preparing managers to act in support of the company's Vision and Values than less effective companies do. No big surprise.

But, check out the bombshells here.


Bombshell #1-- Less effective companies spend almost as much time training managers on performance management as highly effective companies do. So, commitment to training is not a real differentiator. Pretty much all of us are busy getting managers to sit through the PowerPoint experience.

Bombshell #2 -- The differentiator is the effectiveness of the training. Less effective companies have barely one good word to say about their manager training, even though they are devoting a lot of attention to it. Time wasted, it seems.

The most effective companies have a relatively good level of confidence in the effectiveness of their manager training. It could be better, of course, but what training program couldn't be improved?

The point is that when you ask your managers to spend time finding out what you think is good for them, you should be very sure that you are using their time wisely. Garbage in is garbage out, and managers have a right to resent any waste of their time.

Design training so that you are targeting behavior change. e.g. writing better objectives, linking objectives to strategy, coaching employees on their role, etc. Give them training that is interactive and gives them a chance to practice and get feedback. Then measure your effectiveness in concrete ways like auditing objectives, rolling up objectives for exec review, and then adjust follow-up training/communications accordingly.

That's what the highly effective companies are doing. They have a strategy, not just a bunch of information to shovel at managers. Implementation -- of manager training, in this case -- is their acknowledged source of competitive advantage.

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin. Margaret is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University. Creative writing is one of her outside passions, along with Masters Swimming. 

Job Evaluators Deserve Respect

I'd like to say a kind word about the job evaluators out there.  You know who I mean; those unappreciated, oft-criticized and generally disrespected Human Resource analysts who have been given (because no one volunteers) the thankless task of deciding which jobs in your organization are more or less important than others.

These practitioners are often viewed by those on the receiving end as displaying the behavior of a smug know-it-all, a blind follower of the rules, and having a general attitude of superiority, all wrapped up in a God complex.  Unless they agree with you.

They don’t receive Christmas cards. 

Somebody Has To Do It

But job evaluation is a task that needs to be done.  It's critically important to the organization.  Somebody has to establish order amidst the organizational chaos, to sort out a viable stepping stone hierarchy of jobs, from minor to major - and by how much.  For most of us it's Human Resources who establishes and maintains this internal objectivity; the alternative (having managers decide on their own jobs) would be like having the fox in the chicken coop.

Practically all companies of any size and complexity have some sort of a rating system to establish relationships between jobs and to maintain the credibility of that valuation process.  Employees are trained in the application of that rating system / process, and as such are charged with its administration.

For their part Managers don’t like evaluators; the independent valuation process keeps them from doing whatever they feel like.  The system keeps order, while maintaining equity and fairness through objective application.  Many Managers though, have a "what have you done for me lately?" mentality.  When they approve of an evaluation result, there's silence - because the result was obvious.  When they don't agree with the result the evaluator is a blind idiot.  So all the evaluators hear from their audience, their clients, is criticism, anger and disrespect.

True enough, mistakes can happen, especially in an inherently subjective process, but in a worst case scenario how far off can an evaluator be?  One grade?  Usually there's an appeal process.  As it is, evaluators can only work on the basis of the information provided (what they’re told) before the evaluation.  With no skin in the game, without even knowing the names of the affected employees, they try to do what's fair, and that's to report (to make the decision) as objectively as possible on the internal value of a job. To remain as unbiased as possible.

But the art of evaluation remains the butt of jokes, the kicking boy of every complainant out there who doesn't like the score.

• You don’t know the job as well as I (manager, employee, department head, etc.)

The criticism is that the evaluator can't possibly understand, and therefore accurately rate a job they're only told about, or after reading a job description.  So the (biased) view of the job holder(s) should sway the evaluation.

• Evaluation is subjective; so is the result.  Why should I trust you?

Every job evaluation system is subjective.  Even the point factor formulae are simply a compilation of a series of scored subjective decisions.  The key here is the standard and consistent application of criteria, no matter which job is being evaluated.

• Job descriptions are the problem

The forms used for evaluation purposes are criticized as old, outdated, inaccurate, incomplete and generally not reflective of what is truly going on.  However, this complaint is usually heard after the result is reported.

• Squeaky wheels get greased; outside pressures negate objectivity and credibility

Because of the subjectivity element evaluators are perceived of as easily manipulated by pressure points; politics, favored sons, avoiding controversy, want to be liked, etc.

Who would want such a job?  I didn't.  As my own HR career progressed I passed off this no-win responsibility as soon as I could.  It was like being the medieval tax collector, reviled by all - just for doing your job.  So I've been there, know what it's like to be responsible for making those decisions and facing the wrath (never the thanks) of angry managers and employees.

So give the job evaluators a break and cut them some slack.  They're doing the job that you wouldn't want.  They mean well, and they're doing the best they can under trying conditions.  Instead of criticizing them, help them to better understand the job being evaluated.

And next time around, send them a Christmas card.

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 Winnifredxoxo

These Companies Actually Want Something to Happen [Implementation Pt. 3]

Companies that are more effective at implementation -- of business strategy, pay for performance, change, communication -- deliver higher Total Shareholder Return. This is Part 3 of a series on research that can help your company get better at implementation.

 

The World's Most Admired Companies act like they actually want something to happen. They take performance measures seriously.  Yep, that means they closely manage their objective setting process.

1. Most Admired Companies have a well-defined approach to performance  management.

As Hay Group's research indicates, 93% of the Most Admired Companies have a clearly defined global approach to performance management, compared to 74% of their peer group. That means almost all know the outcomes they want to achieve through performance management and  track whether they have achieved them.

Odds are, they define what a high quality objective looks like and can give functional examples. Senior management plays a visible role. Objectives are submitted on time. Measures are checked to ensure they will impact business results. Everyone talks the same language about performance management.

2. Their performance management approach involves linking performance planning with their strategy.

3. This may be the most powerful finding -- the Most Admired Companies use performance management to help employees understand HOW to balance short-term and long-term priorities.

Ah, the power of alignment. Most Admired Companies expect their business priorities to drive performance measures. Compared to their peers, they pay more attention to measures beyond the short-term delivery of growth and profitability. Operational excellence reiterates their long-term focus. Performance measures address the customer needs, so all employees can direct their efforts towards the customer. And they include measures that encourage focus on "Human Capital" issues like management skills, career development, performance management, and so on, so their leaders and managers know they are serious about it.

How do they help their managers prepare performance measures and conduct performance management? In my next post, we'll look at what Towers Watson's research tells us. Their topic is, "How Top Companies Create Clarity, Confidence and Community to Build Sustainable Performance."

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin. Margaret is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University. Creative writing is one of her outside passions, along with Masters Swimming -- she swam two miles yesterday!

Where in the World is Carmen San Diego’s Equity Compensation?

Some of you may remember the video game and game show “Where in the World is Carmen San Diego” (WITWICS.) It was very popular more than a decade ago. The goal of the game was to find the villain, Carmen San Diego, based solely on key facts about different locations around the world. The players had to know the specific country differences that made it possible to identify each unique location and capture the Carmen.

Compensation around the world is as unique in size, design and structure as were the clues to WITWICS. Unfortunately, when looking at most companies’ equity compensation design and awards, it is often impossible to distinguish which continent the participant is on, much less the specific country or region. Plans that don’t include regional differences can result in programs that aren’t effective anywhere.

As compensation professionals, we pride ourselves in the amount of survey data we use. We spend a lot of time and money obtaining and analyzing base pay and STI data that is specific to position and location. We work tirelessly to ensure that our compensation is competitive for those we want to hire, motivate and keep while still fitting within our compensation philosophy. Unfortunately, we often skip this process with equity compensation, especially when it comes to global awards.

This has been a consistent issue since the explosion of global equity plans more than 15 years ago. An engineer in County X, in State Y in the United States makes $90,000, plus a potential bonus of 20%. The company also offers 2,500 stock option shares. The same company pays a similar level engineer in another country base pay of $32,000, plus a potential bonus of 20%. Inexplicably this engineer also gets 2,500 stock options shares.  People have explained this by claiming that there is “too little data” or consistency allows for “easier movement” if the engineer in question has to be moved to a US location. The reality is that, for nearly every company, this is just bad policy.

I admit it. Variable compensation is hard. Global equity is even harder. It’s variable compensation to the fourth power!

1^st  You have the variable nature of equity itself. (Different instruments, available shares and more.)

2^nd Then you have the variability of the current stock price.

3^rd Add to that the variability of currency exchange rates.

4^th Add the volatile changes in unpredictable future stock prices.

Global equity also requires an understanding of constantly changing securities laws, income and tax provisions, expatriate considerations and other factors. Many companies look at the swirl of data and regulations, throw their hands up and beg for mercy.  A minority put a team of people on the project and work to create a perfect solution. The first approach works occasionally and randomly. The second approach works more frequently, but provides no guarantees.

Just like the competitors in the game WITWICS, the best way to determine how to find the right solution for each area is to focus on those factors that make each location unique. Some locations have already broadly adopted, and have a basic understanding of, equity compensation. These locations often have accessible survey data that is used by your international competitors to determine grant sizes. Other locations still see equity as a novelty. Small amounts may work as an avenue to begin their education. Still other areas do not value equity much at all. No matter what your philosophy is, a better strategy may be to offer a different form of compensation. Lastly, people in some regions are simply not paid enough for equity compensation to work well at all. If you decide to give people a nominal grant of 2% of their annual pay and your stock is trading at $200, you may have problems with someone who makes less than $20,000. Imagine giving that person 2 shares that vest over 4 years. Even the best communication can’t make sense of that!

Craft the plan to meet your people’s needs and locations. Don’t force your people to meet the needs of a tidy little plan and philosophy just to make your own life easier. Remember that every location is as unique as the one where your office is located. Every group of people have a set of desires and drivers as targeted as those sitting in the building around you. If you structure your plan to meet your locations you may find that it works as you had hoped. Otherwise expect surprises (and not the pleasant type.)

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Who Owns HR?

There are problems with communications about employee performance that become most evident when pay is involved.  This seems to be the most common theme in the articles posted on the Compensation Cafe in 2012.  Fingers are pointed in all directions, but the blame seems to be most properly shared widely.

People want to be well compensated: being told that they are performing well is both part of their emotional compensation and a sign that their financial remuneration will continue to climb.  It also contributes to unit morale and creates a more pleasant situation for the supervisor, who is rewarded for giving high ratings and punished for communicating negatives.  By the way, some managers and VPs only control things or functions rather than people, so they don't meet my definition of "supervisor," which calls for very unique sets of knowledge, skills and abilities (KSAs).  The reality that those KSAs are rarely taught to supervisors and managers, and even less often safely practiced and positively reinforced, only complicates the situation.

Something tells me that everyone wants to be told they are great.  Even consultants prefer to be praised rather than be criticized.  It is simple human nature.  Nevertheless, the encouraging words that create mutual pleasure among employees and their supervisors sometimes are not true.  The gaps between what was said and what is done become most painfully obvious when compensation is involved.  If the reward does not meet expectations, if the pay increase seems paltry or if the reinforcement is considered substandard, unhappiness results at all levels. 

 Whose problem is this?  HR says that supervisors should level with their subordinates.  Managers confronted with grumbling workers respond that this is HR’s fault. 

• Pay systems should be more liberal
• Compensation rules should be better defined
• More training should be delivered to supervisors
• Human resources specialists should create foolproof language for reviews
• Manager should be given practice in the art of letting the employee down gently

At the very same time, of course, the supervisors and even the managers and executives with merely one direct report who oversee sections or functions continue to maintain their claim that their vital role as people-managers make their jobs more valuable.  Most executives are convinced that their exalted ranks and impressive titles endorse their expertise as performance management experts.  But when issues arise, they belong to the department called “Human Resources” or maybe the compensation section.  All positive credit accrues to the line manager but all defects are the fault of the folks with a title that includes HR, compensation or “personnel” … only a few remain still alive with the IR or LR title.

Do you see where we are heading?  This is a mess.  It’s not a new one and it won’t go away just because we each point fingers at each other. 

Whose monkey is this?  Who will take the initiative to take the blame?  It sure doesn’t seem that it will be the ones so quick to take the credit.  Please share your ideas for mutual win-win solutions to this consistent problem.

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

Image courtesy of referenceforbusiness.com

Implementation: Are you the 71%?

71% of the "World's Most Admired Companies" report that they are very effective at the implementation of their business strategy.  Only 47% of the less exalted companies can claim the same accomplishment.

What does that mean to compensation and rewards? It probably means that more than half of the companies outside of the Fortune 500 often do not meet their business goals. It certainly means that they don't execute very well. Whether there is a correlation with their revenue - and their ability to fund salaries, bonuses and benefits - is another topic.

But really? Pay for performance? How can we seriously say we are pulling it off if we can't even get the company pointed in the right direction?

Look at the commitment that the Most Admired Companies have made to communicating the strategy and more importantly to our work, making sure that managers and employees understand their role in it.

from "Rewards-Program Effectiveness: What Makes the World's Most Admired Companies Great",World at Work Journal, First Quarter, 2009

Yes, research has indicated that employees are more engaged when they know how their work is connected to the business strategy. But let's look at something even more fundamental.

Can we truthfully claim our compensation programs are pay for performance when we spend more time on the numbers than we do on helping employees achieve the right business results?

I'm not saying it's easy. But I do think it's our job. So more on implementation, including communications, in my future posts.

And in the meantime, take these findings to heart. For many companies, this is only the first month of strategy implementation. What will you do throughout the year to continue to educate managers and employees about their role?

The information will help them take their objectives far more seriously -- oops, what I meant to say is that managers and employees will be more engaged!

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin. Margaret is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University. Creative writing is one of her outside passions, along with Masters Swimming.

Don’t Tell Me I’m Great If I’m Not!

I have both friends and clients who have been struck by an unfortunate dilemma. I have a couple of friends who have been told one thing for months, and perhaps years, only to find out that the truth they knew wasn’t the “real” truth. I have clients who need to realign pay for people who have been told they were top performers when, in fact, they are less than adequate. In both cases it seems more like senior managers were trying to be nice, rather than sneaky.

Why have confrontation when you can have everyone like you? It’s easier to be nice to everyone. Many managers have made this their approach to leading their staff. Rather than point out flaws, they point out only the positives. Rather than prepare their staff for bumpy water in the future, they keep things on the bright side right up to the moment the boat hits the dangerous rapids. The discussion of a potential demotion, cut in pay or job-ending decision never seems to make it onto the agenda.

Employees want to be led, and generally want the truth. I also think managers generally want to tell the truth, but seldom have the skills to do so delicately. While these managers do a disservice to employees by not laying out a realistic path, those of us in the compensation community do even worse by not providing them with the tools, words and examples that will allow them to discuss both the good and bad.

We can’t expect great employees who have been promoted to be great managers to be able to talk about pay issues with any amount of expertise. We also can’t expect that they will always do this task well, even if they have been trained. We need to make it clear what needs to be said to underperformers and check back to make sure it has been communicated.

This is not about avoiding lawsuits or angry ex-employees. This is about not being jerks in the eyes of those we need to keep working hard. Once the trust on performance has eroded in a single example, you risk the chance of other employees questioning their value to the company. Rebuilding trust is far more difficult than maintaining it. Like a swimming pool, it is far easier to keep it full than it is to fill it up.

So look at what you've asked managers to communicate. Then ask yourself if you have provided them the skillset to do so with a complete level of truth. It is not only our job to make sure that pay is properly designed and set, it is also our responsibility to ensure that the discussions around pay reflect the sometimes harsh reality of underperformance.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Implementation: Action that Must Follow Ideas If You Actually Want Something to Happen

Each year we step back to adjust to an updated business strategy that addresses new challenges. We plan alignment of objectives, behaviors and performance with that strategy. And then we try for effective implementation of the strategy so we can achieve the planned-for results . . . results that fund financial success and compensation.

This is the virtuous cycle in which you invest your hard work and the company's money.

As we all know, HR plays a critical role as facilitator of alignment and educator of effective implementation. Many of you are in the midst of the objective setting process right now, where you are responsible for training and facilitating the cascade of objectives within your organization.

Objectives that employees should be developing to link with corporate performance. Otherwise, their work will have only a glancingly positive impact on financial and operational results -- or could misguidedly create obstacles that have negative impact on those results.

There is no doubt that your employees' ability to adapt to each new strategy impacts the success of your company. Look at this result from the World's Most Admired Company research conducted by the Hay Group in partnership with Fortune Magazine. It makes it clear that "Most Admired Companies" do a far better job of implementing their strategies (and achieve significantly higher Total Shareholder Returns).  

And their HR organizations do a better job of implementation, too. Implementation of new programs and existing programs like compensation that can truly play a role in the business strategy when employees see strong linkages and understand how they can impact success. 

Over my next few blog postings, I'm going to cover what effective implementation means, how it can help you and what you can think about doing differently. I thought it would be a great time of year for this discussion since you'll be turning new ideas into plans over the next few months.

Turning great intentions into business results is really where the rubber meets the road. Great ideas become actual business opportunities only when people understand clearly and then are willing and able to do the tough work of changing to a new focus and new practices.

I'll be talking about communications and I'll be talking about change management, too. After all, compensation is a form of change management. Every paycheck sends the message that we expect employees to assess a changing environment and profit from changing opportunities.

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin. Margaret is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University. Creative writing is one of her outside passions, along with Masters Swimming.

Executive Compensation and the Great Wizard of Oz

Executive compensation holds as much mystery and magic as the Great Wizard of the Emerald City.  Of course, if the curtain were to be pulled back, the real magic would be found in how a lack of information, combined with fear and imagination, have colored the pay of all executives with the same brush. Remember that when Dorothy and Toto met the wizard he was just as unhappy and scared as they were.

I find it amusing and frustrating that there is so much misinformation about executive compensation. Let’s state the givens: Yes, there are many CEOs who make more money than most people can comprehend. Yes, executive compensation is a complex arena with many assumptions and estimates being made at any given point. Yes, companies spend a lot of time and effort on disclosure. So why am I frustrated?

Everyone discussing executive compensation has some type of an agenda. Companies don’t want to upset their shareholders or fight with the media. Journalists want a story that stands out among the noise of the day. Shareholder advisory firms want to show their knowledge and ability to shift practices. Consultants want to defend their past practices or point out their superiority when compared to pay at non-clients. Survey data providers want information that can be easily understand and digested. Politicians want to look good to their constituents without upsetting their contributors.

Each perspective leads to a different approach to the positives and negatives of executive compensation. Companies tend to paint things grey and play it safe. The media tends to hyperbolize and point out the outliers. ISS and Glass Lewis point out new issues to remain relevant and gain new clients. Consultants point out their successes and explain their failures as “beyond their control,” or “not their fault.” Survey data is defended as holistic even when it is often made up of a tiny fraction of representative companies. Politicians focus on the obvious problems and talk about them like they represent the majority of pay practices (but, they seldom act in the same way.)

All of this posturing has turned the topic of executive compensation into a kind of omnipresent wizard with terrifying powers and a capricious temper. It’s spoken about in hushed terms or artificially confident booming voices. The curtain is never really pulled back, since everyone already “knows” what’s behind it.

Imagine if the wizard had simply invited Dorothy behind the curtain the moment she arrived. Consider what his life would have been like had he rejected the mysticism of his new role from the day he arrived in Oz. Of course, he wouldn’t have had the power over people that mutual fear and misunderstanding granted him. Perhaps he wouldn’t have also had a lonely misunderstood existence that made him miserable.

When preparing this year’s proxy disclosure, say on pay voting and overall communications regarding executive compensation, consider pulling back the curtain on your pay. If you give people the truth only the crazy will find a way to dispute it. If you give people the whole picture you will lose the power of mystery but, in return, gain the power of understanding.

(Dear Readers: Yes, I know that I have used the Wizard of Oz twice in recent posts. No, I don’t know why, since I have not seen the movie in several years. Who knew it was created to inspire compensation articles?)

 Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay