Compensation Cafe

Pay for Supervisors

The well-established principle that supervisors should praise in public but criticize in private can derail a compensation system.  An article caught my eye recently on how slackers pull down the group because the crew rarely sees the corrective discipline privately applied.  It illustrates that what keeps people productive is effective communication of the appropriate feedback that drives behavior.  That made sense, but the recommended solution sucked.

Two thoughts came to mind:  (1) just as compensation is communication, isn’t communication also compensation? and (2) why are supervisors paid if not to keep the entire staff productive?  This article will focus on the second question, because the first deserves a complete post of its own.

If a boss follows the accepted rules and keeps corrective interventions private and confidential, that apparent silence bespeaks indifference to the workgroup who do not see any improvement steps, remedial actions, reprimands, punishments or open displays of negative consequences to the slacker.  One consultant prescribes intervention by the peer workers with the offender.  Rather than getting pissed off and demotivated yourself, he suggests, you should take ownership of the issue (because you are most affected by it and therefore more responsible than the boss!) and handle it yourself.  If the boss doesn’t act, some claim the peer co-workers should step up and chivvy the culprit.

Whose responsibility is it, to maintain a productive workforce?  Nowadays, it is true, bosses may supervise remotely, having little proximate physical contact with the team and therefore frequently unaware of slackers who goof off.  Even if out of sight, however, bosses are paid and supposedly trained to handle exactly these issues.  It is their monkey. 

Should co-workers be expected to cover for the supervisor, taking up the slack created by ineffective management to “supervise from below”?  I think not.  While social pressure from peers can be wonderfully effective, most workgroups are not elite teams of highly self-actualized experts who require little guidance.  An immediate supervisor is usually PAID to manage the performance of subordinates.  The boss may be called lead person, crew chief, foreman or forewoman, supervisor, manager, director, VP… or any title under the sun, but this role of people-monitor is the sole reason they receive a supervisory title and get higher income.  Leaders don’t neglect the well-being of their followers, because that is a repudiation of their pay grade. 

Remember that supervisors frequently have a more difficult task than mere managers.  Many people get the fancy title of manager (higher rank, pay, status, etc.) while remaining a sole individual performer, handling a project personally or administering a functional area.  Supervisors oversee people.  Managers may have no subordinates reporting directly to them, but all supervisors are responsible for the output of workers who report directly to them.  Handling people is actually a far more complex challenge than dealing with materials, administering plans, generating ideas and doing things that do not require exercising authority over people.  Instead of doing things yourself, the supervisor is supposed to delegate tasks and leverage the application of talent through others.  That is often much harder than handling issues personally as an individual contributor.

Since supervisors are already rewarded for filling that role of monitor and guide, they should be charged with the duty of fulfilling that responsibility.  It seems wrong, improper and unfair to expect underlings to enforce discipline and to maintain the productive work environment when a supervisor is neglecting their duty.  Any boss incapable or unwilling to perform that authoritative human interaction role should be demoted to a coordinator position where they can deal with data and things and not face supervisory challenges. 

Or am I wrong, again?

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 cafepress.com

The Stuff of Legends!

I've been getting to know a few new clients recently. They've been introducing me to their culture and I've been helping them learn a bit from their demographics.  In writing a report for one client yesterday, I was repeating back to them a factoid they gave me. It went something like, "70% to 80% of new employees make it through the first year and tend to stay." I stopped typing.

It is exciting, but is it true? Do they have the data for it?

Every company has legends. Stories that they use to define the company as a hero. You have them in your company. You have them in HR. The thing is that, like all legends, things have been polished up a bit to build in drama. Or they may have been true once but over time the story has become more reassuring than accurate.

Or one day a few people wished upon a star.

Some legends are powerfully tied to the company's sense of self and should be negotiated carefully. Odds are Marissa Mayer thought she was tackling a legend when she limited telecommuting at Yahoo! She still thinks it was the right thing for the business.

Let legends automatically guide our decisions and over time our decisions will become dusty. This can be bad for the business, our employees and, frankly, our careers.

If people at your place of business toss around legends, especially if they involve a belief that things are just so, it's a good idea to check them out. ("We target the 75%ile" is a good one, if your market index is hovering around .6. Another is, "We pay for performance" when most employees are surprised by their performance ratings or the size of their incentives.)

Anybody out there have favorite legends to share?

Margaret O'Hanlon is founder and Principal of re:Think Consulting. She'll join Ann Bares and Dan Walter of the Compensation Cafe to speak the unspoken -- Everything You Do (in Compensation) Is Communication -- in an upcoming book. Margaret brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, she was a Principal with Towers Watson. Margaret is Deputy Director 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, Bloomington. Creative writing is one of her outside passions, along with Masters Swimming.

Numbers That Lie

Hard numbers can turn out to be really soft and squishy upon closer examination.  Perhaps that is why predictive foresight is rarely fully accurate, even when based on the Best Available Data.  (Note the nifty acronym, proving that even an optimal decision is still doomed to be a BAD decision.)

Reliance on data¹ does increase the certainty people feel when making their mistakes.  Numbers are therefore fondly embraced by most compensation people, because numeric data seem to confirm the accuracy of measurements.  But those very numbers can cause us to stumble because they promise a degree of precision that can be quite misleading, if not downright false. 

Last year, the initial Apple effect greatly skewed exec comp survey results (see The Apple Effect note at the bottom here).  Some frowned at the $376,000,000 in stock options granted to the new Apple CEO Tim Cook (which temporarily ballooned in value to over $600 million shortly thereafter) but little attention was given to his subsequent 99% pay cut this year… perhaps because it’s all RELATIVE.  Funny, how a relative increase gets headline attention but a relative decrease is ignored.  Surveys that did not make allowances for massive swings in isolated observations like that would leave their followers spinning in confusion.

Maybe it all depends on whether you want to find what is normal (the median), discover the most popular (the mode) or simply compute the average.  Those arcane terms are really important in compensation work, because each has a different precise meaning. 

When Bill Gates enters a Starbucks, the average customer in the shop becomes a millionaire.   Averages are directly impacted by outliers, while medians are the middle figure no matter how high the high or how low the low observation.  Conventional society tends to favor AVERAGES even though they are more problematic in statistical terms.  There are all sorts of fancy tricks statisticians use to manipulate the figures they process into “hard numbers.”  They include winsorizing, trimming, hot decking (where a missing value is replaced by a similar but different observation) and others .  Excuse me, but some of those gimmicks strike me as flat-out falsehoods; yet they are enshrined in statistical lore and thus may be applied without your knowing.

Likewise, anyone who finesses you with a claim that pay falls in a bell-shaped curve is yanking your chain (or pulling your thumb) in a big way. Wages are never symmetrical nor do salaries have a normal distribution.  That means some of the standard statistical techniques just don’t fit the world of total rewards where the observations are living, breathing human beings.  Whenever the science of number-crunching is invoked, the art of judgment must be added to assure its proper application.

These are just a few of the common compensation conundrums of lying numbers.  What are your favorites?

¹Mark Twain - There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact. 

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.

Creative Commons image "Bell Curve" by hardeep singh

One Size Does Not Fit All

"If you find a good solution and you become attached to it, the solution may become your next problem." ----- Robert Anthony

I had an "aha" moment recently and then very quickly became embarrassed for what should  have been obvious in the first place.

“One size does not fit all”.  My “aha” was realizing that this doesn’t apply just to HR/compensation --- but everyone in business --- even (drumroll) CEOs!  

JC Penney, the department store chain, recently fired Ron Johnson their CEO of 18 months.   He came from Apple where he created the retail operation that was a smashing success. 

Many people believe his firing was due to poor execution of a strategy that hadn’t been fully thought out.  Some of his innovations were radical, like ending discount sales in a department store known for its markdowns. Perhaps the biggest reason outsiders give for his failure is that he did not listen to customers.

Let’s look a little deeper.  How could such a wildly successful executive from Apple fail so abysmally at JCP?  He obviously had exhibited both great strategy AND great execution at Apple.  Why would his ability to think strategically and execute flawlessly fail him at JCP?

The simple answer:  “One size does not fit all”.

He took a page from Steve Job's playbook:  “Customers don’t know what they want until you show it to them.”  That sounds arrogant but for Apple it made sense.  Let's look deeper still: “If you ask customers what they want, they will tell you, ‘Better, faster, and cheaper’—that is, better sameness, not revolutionary change. They can describe their desires only in terms of what they are already using."   But big wins happen when you go beyond better sameness.

Ron’s mantra at JCP was --- guess what:  “Customers don’t know what they want”.  Like Jobs he wanted to go with revolutionary change --- not sameness.   But JCP’s products are commodities ---- not revolutionary tech products.  Apple’s business model doesn’t work at JCP.

Here’s an example of someone who wasn’t effective at Apple.   John Sculley took his commodity business model at PepsiCo with him to Apple.  As the new CEO he tried to change Apple from a “techie” company to one similar to PepsiCo ---- buttoned-down, slick and marketing oriented. 

In the end he failed because he began producing mass market machines to compete with IBM and was opposed to licensing Macintosh software. Apple is not in the commodity business like PepsiCo. Its products are about revolutionary change. 

The point to all of this is that CEOs/top management take what has worked for them at Company A and then go to another company, another industry, another culture and try to replicate what was a smashing success at Company A.  And they fail.

Of course we already know this applies to HR and compensation.  Like we haven’t heard it enough?!

I tried to take a team bonus plan for manufacturing assembly lines (line A, B, C, etc.) to another company and it failed.  In the first company it created a healthy competition where assembly lines competed with each other, had fun and celebrated winning.   In the second company it led to divisive competition where teams laughed at each other's failures, took shortcuts in their work leading to defective parts and scrapped material.   Not so successful.  Different culture.

Morale of the story:  Think about what you need to create.  Is it a revolutionary design for a compensation plan that will satisfy a need the company doesn’t even know it has?   Or is an upgraded  “sameness” plan what is really needed?

Put this someplace where you will see it daily. "If you find a good solution and become attached to it, the solution may become your next problem."

P.S.  Aren’t you glad that compensation people like us aren’t the only ones that forget “one size does not fit all”?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and SeagateTechnology. 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. 

Image courtesy:  http://money.cnn.com

I Don't Remember That!

Have you ever found yourself in a situation where someone (usually your boss or a higher-up) makes an announcement or a decision using draft or preliminary figures that you had given them some time ago?  Only today  the correct figures are different from the draft.  Then when you ask why the "old" numbers were used, the finger points back at you? 

Awkward, isn't it?

Suddenly you're on the defensive and your credibility challenged because of an earlier estimate or cautionary advice that perhaps you didn't want to give out in the first place.

You want to scream at the offending party, "don't you remember that I told you that the figures weren't final?"  That your analysis was incomplete at the time, that further checking was required, or that you gave your best estimate based only on preliminary data?

But you are the author of those figures, no matter how wrong they are today.  So why are they still in play?

Selective memory

It often turns out that all that was remembered by the fellow with the frown on his face was that particular damning figure, and all the buzz of qualifier terms and conditions that preceded and followed it have been forgotten.  To your chagrin you may now be viewed as someone who either; 1) gave incorrect information, or 2) subsequently changed your mind without telling anyone.

Unfortunately, you can't say what you're thinking.  That wouldn't be a good career move.  The only card you have to play reads "damage control."  Roll out those qualifiers again.

Earlier in my career, when I was responsible for job evaluation, I would steadfastly refuse to offer a preliminary evaluation, having been burnt by the same scenario as above.  I found that, if the managers liked what they heard, that's all that they would hear.  Because if, lord forbid the final analysis differed from the preliminary estimate you'd be hauled up before the Inquisition to explain why you changed your mind.

"I already told the employee," is a phrase I've heard more than once - before I learned to keep my mouth shut.

So be careful when you give a number to management before you're confident enough to defend it.  For their own purposes they'll grab what you give and lock it down with their fixated, but flawed memory, while at the same time forgetting any qualifier terms or cautions you might have provided.

It's human nature to remember what you want to hear, or what you can accept.  So that preliminary figure you surrounded with qualifiers?  Chances are management was OK with the number, or at least could deal with it, and so off they ran to integrate your analysis into their plans.

"I don't remember you saying that"

In their forgetfulness they might even grow irritated with you, for all the plans they made with "draft" or "preliminary" data (shame on them).  These folks suddenly act like you changed your mind, or gave them wrong information.  All your previous explanations and qualifier comments are lost.

Management memories can be quite selective.

What can you do about it?

This is a situation where your options are limited, because; a) you're likely dealing with your boss or higher, and any critique of their behavior needs be carried out very carefully, and b) when you're asked for a number you generally have to give one.  Begging off is usually not an option.

So remember a tactic once described to me by a Training colleague:  you have to tell them, then tell them again, then remind them of what you told them.  So if caught up in a "give me a number" quandry, you need to emphasize whatever qualifiers might later modify the figure(s) being discussed.  Then you have to repeat your concerns again before closing.

Finally, put the worrisome figures in writing, nicely wrapped together with whatever concerns you have about its validity.  Cover yourself.

Will it work?  Will it save you from another awkward moment? 

Life isn't fair, is it?  So no, even this strategy will fail from time to time.  But at least you'll have positioned yourself to present an effective response.

Just remember to be polite about it.

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 Leeks

Real-Life Experiment in Pay Transparency

Would you trust your co-workers with setting your job responsibilities? Would you let them decide whether to promote or demote you? How about determining your compensation? 

That's exactly what's going to happen on Fox's newest reality TV series, Toxic Office: Does Someone Have To Go?

According to a press release from Fox, the premise is simple: 

Frustrated bosses will hand over the reins of their companies to the employees, offering their respective staffs a chance to make changes in the workplace - even if it means letting co-workers go. 

In one of the previews, employees are gathered in a conference room watching a PowerPoint presentation detailing each employee, right down to salary:

The network says that the show empowers employees to solve their own problems. Reality TV issues aside, could such a setup in real life solve problems? Or would it create more problems? 

We talk a lot about creating transparent pay, but can it ever be a good idea to have complete disclosure, publishing every employee's salary company-wide?  

My concern is that emotion would come into play. Cliques, jealousy, and conflict are a fact of life in the workplace. Decisions might be made in response to a "can you believe he makes that much?" reaction, rather than considering the full picture.

There are numerous factors affecting compensation other than job title and seniority. Differing salary histories in previous employment, negotiations, and salary expectations play a role, as do market conditions, the importance of the position to the company, and individual performance. Could the typical employee get past the initial emotional response and make an objective decision based on a rational assessment of the full picture?

There may be a role for employee input for some types of compensation. For example, IGN Entertainment created a profit-sharing system where employees awarded each other "tokens". The more tokens an employee receives from his co-workers, the larger percentage of the profit she receives (Ann Bares provides the details at Compensation Force). But could this system work for base pay as well as it does for incentive pay?  

We'll have to tune in and see how all of this plays out, but my guess is that going beyond transparency and disclosing salaries to co-workers is likely to create more problems - the kind of table-flipping, name-calling drama that we've come to expect from reality tv - than it solves. 

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert quantitative analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics Inc., the host of The Proactive Employer radio show, and author of the upcoming book Compensating Your Employees Fairly: A Guide to Internal Pay Equity. Follow her on Twitter at @proactivemployr. 

Three Pay Patterns

Three pay patterns seem to exist in North America today.  

As the economy has struggled, some firms continue with business as usual attitudes, ignoring outside market changes while continuing their traditional practice of steady pay increases.  Others shut down tight, freeze salaries and cut payrolls.  Still others take a middle position, moderating their raises and responding in a temperate and intermediate manner.   They each may report increase rates of 5%, 0% and 2.5%, respectively, in pay increase surveys.  Don’t forget that point, because how those numbers are handled is important.

Divided practices and inconsistent behaviors are real.  Only last year, a Harris poll reported tremendous differences in pay increase practices.  At the same time that a significant block (almost half) is standing still, we also see other employers frantically searching for new methods to retain critical workers.   Variations like that create terrible problems for total rewards professionals who give recommendations and make decisions according to survey results.   When enterprises do not grant pay increases, they frequently do not respond to pay increase surveys or at best supply a “none” answer to the question.  Such answers (if even noted) can skew the results.  Some survey firms report “no increase” populations, while others simply compute the average or median increase rate of those who GAVE increases and ignore the silent non-responders.

In this 21st Century, few salary surveyors still ask the ancient question about the interval (“how long since the last increase?”) involved.  It is relevant, because a 4% increase granted after four years of frozen pay is not really the same as a 2% increase given every year or a 3% increase budget allowed in alternate years.  Besides that, the question of what’s going on at employers whose practices are not reflected in the survey observation sample always remains unanswered and can be extremely problematic.

From a statistical standpoint, a random sample of a significant population sample should yield reliable results; but pay surveys today very seldom meet that standard.  Surveys of major highly profitable employers with secure income streams will not produce the same answers offered by small struggling enterprises operating in deeply troubled areas.  Total reward professionals are confronted with the same challenge that faced the blind men trying to describe an elephant.

Everyone has a different perception.  Each is right, from their perspective.  But that is not the answer your top management wants to hear.  They frequently demand a clarity that simply does not exist.

In the end, total reward professionals will be challenged to temper increase survey findings and predictions of changes with explanations of the underlying meaning of the metrics.  Absolute numbers should rule rather than the relative velocity of change comparisons.  What it takes to attract, engage and retain your scarce-skilled critical performer is far more vital than the percentage rate by which some group moved from its previous position.  Stick to real verifiable realistic absolute numbers displaying present reality rather than vague relative comparisons from past history, in order to enhance your opportunities to both survive and thrive.

 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.

Wikipedia Commons image "Fingerpost at Drem"

How You Can Transform Performance Management

If you work for a company that focuses on "what we want to become" then I've got some research findings for you. Instead of overdoing it with lots of details, I thought I'd just skip to a practical application of one area of the research findings. I'm covering insights that you can use to upgrade and update your performance management practices.

There is a world of exciting insights in "Global Talent 2021: How the new geography of talent will transform human resource strategies." It is a completely practical and fascinating report. Executed by Oxford Economics, it was produced in collaboration with an impressive list of heavy hitters: Towers Watson, AIG, American Express, British American Tobacco, the Center for Effective Organizations at the University of Southern California, Cummins, Coca-Cola, Edison International and the Organization of American States. You may want to check out the rest of the findings (highly encouraged) or wait until my next blog post for some more coverage of the study.

Imagine this. Instead of prodding employees to struggle through "what do we do next," you can use  these findings to apply performance management to the future. 

Here are the four skill areas that will be in most demand over the next five to ten years. Notice, not job titles or professions -- skill areas. Areas that are most likely applicable across your business and jobs. Areas that can be addressed now via MBOs, development plans and internal communications -- through your guidance -- to advance your company's capabilities as well as address your employees' desires for career development.

1. Digital skills. Here they are talking about an employee's ability to solve problems via digital applications rather than specific jobs. There is a exploding array of applications that make possible digital expression of work or collaborative processes. Much of this work entails marketing literacy. Anything else? Employee experience in ecommerce is an obvious example of a future need; so is addressing internal efficiencies digitally and overcoming inefficient legacy infrastructure.
2. Agile thinking. Most of us in HR understand that the future will bring increasing complexity and some "paradoxical" leaps (instead of iterative change). Do our employees have these expections too? Are they prepared to deal with them without extreme emotional upheaval? In the near future, the acceptance of this level of turmoil will be demonstrated in work practices that prepare for not only the preferred, but also additional scenarios. This flexible mindset, and these work practices, can be introduced to a business (and HR) with great immediate value.
3. Interpersonal and communication skills. HR is ahead of the curve in understanding the need for co-creative, collaborative, team-focused competencies. But few of us have gotten our companies to move very far ahead on the fundamental for innovation -- employees with such a deep understanding of the business and its strategy that they can adeptly align with them as they make any decision.
4. Global operating skills. Here's what the near future has in store. ' . . . according to Jeff Immelt, Chairman and CEO of GE, firms will increasingly move from "glocalization," where home market products and services are tailored to the tastes of overseas customers, to reverse innovation, under which innovation is led from emerging markets and then brought back home to mature markets.' Each company is at a different notch on this continuum, but I think it would be really helpful to employees if they could see this strategic shift more clearly. Use the performance management process to talk over this evolution together in the larger terms, instead of describing changes as one-at-a-time updates to individual products and clients.

Margaret O'Hanlon is founder and Principal of re:Think Consulting. She'll join Ann Bares and Dan Walter of the Compensation Cafe to speak the unspoken -- Everything You Do (in Compensation) Is Communication -- in an upcoming book. Margaret brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, she was a Principal with Towers Watson. Margaret is Deputy Director 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, Bloomington. Creative writing is one of her outside passions, along with Masters Swimming.

When Am I Going To Get Mine?

Over the past several years most companies impacted by the recessionary economy have dealt with the crisis by cutting back on employee reward programs, what with frozen salaries, minimal pay rises, shrunken incentives and even the elimination or reduction of 401(k) matching funds and other benefit provisions.  And of course there have been the layoffs.  So many layoffs.  Even today companies seem resistant to hiring new employees, to expanding their business with additional headcount.  Unemployment levels seem stuck on high.

But it's not all gloom and doom.   With several sectors of the economy starting to show sputtering signs of life we've seen some elements of the shrunken workforce actually begin to push back from the period when they felt like replaceable commodities.  When they felt that they were lucky to have a job.  Some of those survivors are now asking when their employers would be reinstating the monies lost through those recessionary restrictions and cutbacks.  Their view is that if an employee's salary was frozen or if pay increases had been restricted in recent years, when the company begins to regain its financial strength management should acknowledge and recompense payback for the loss of income.  To put a figure on it, that might mean an additional 6% - 7% pay rise in 2013 to simply play catch up – and perhaps more.

Ain’t gonna happen.

That ship has sailed.  As each fiscal year closes your company tallies up the figures, reports the results upward and to the Wall Street financial analysts and then they move on to the new year.  Case closed.  The recessionary years are in the past.  There is no going back.

Unfair?  Do you think that employees are owed those “lost” dollars?  Consider the question as a business problem.  The company cannot afford being burdened with additional fixed and recurring costs just as their operations are struggling to regain its competitive strength.  While they will likely strive to reward employee performance in a competitive fashion, as long as it’s affordable given their financial posture, they will not revise their rewards program to pay for historical entitlement vs. current performance, or on the basis of whether or not they’re doing well in a particular time period.

Ain’t gonna happen.

Picture the scene in the Boardroom when the question comes up – if it even does - of returning to employees those increases that were not granted during the dark times.  How much would that cost, and how big a dent in future plans would be caused by the additional fixed expenses?  Management will consider that the tight fiscal measures put in place for Human Resources, as well as other functional areas, were necessary to get the company through a rough patch.  To keep even more employees from being laid off.  Now that better times are slowly returning it makes business sense to begin reducing those restrictions going forward or otherwise trying to return to normal operations.

The use of bonuses and merit increases will return to more normal levels this year, as will company matches for 401(k) contributions and other temporarily suspended activities. But they will not be made retroactive.  Companies need to look forward, not backward.

To add incremental, unbudgeted funds to reinstate missed salary increases from prior years is not going to happen, as management has its hands full bringing itself back to a healthy financial posture and preparing for the future.  Supplemental “make-up” compensation, especially in the form of fixed costs, is not viewed as a financially sound strategy.

So in case you're thinking of asking, have a care that you might already know the answer.  Your company has moved on, hopefully toward better times for everyone involved.

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 Ano Lobb

ESPPs are a Dessert Topping and a Floor Wax

Employee Stock Purchase Plans (ESPPs) get a bad rap although they should be lauded in wonderment. The proof is in the number of different areas that claim full, or no, responsibility for these underutilized instruments. ESPPs are much like the old Saturday Night Live “commercial” for Shimmer (“It’s a Dessert Topping AND a Floor Wax”). Unlike Shimmer, the mythical SNL product, ESPPs are actually delicious, effective and available on your compensation store shelves today. If your company does not have an ESPP, or has not optimized the current plan, you should consider reading on.

ESPPs are a compensation tool and a benefit plan. They are a communication tool and a way to build ownership. They work well when managed by payroll, human resources or a dedicated stock administrator. Depending on the intent, design, communication and company stock price, they can also serve a myriad of purposes. How many compensation programs require employees to pay the company? How many benefit programs can directly align employee focus with the goals of shareholders? How many incentive programs allow participants to directly choose their level of engagement? How many equity compensation instruments have been expressly created for broad-based use?

I recently had someone tell me that they couldn’t see the purpose of committing $75 per paycheck to company sponsored health insurance, because there was no guarantee he would use it. While this same person may also not enroll in an ESPP, showing them the specific upside to their investment does not require them to imagine something bad happening to them. In fact, an investment in a generous ESPP and its subsequent returns may actually help cover the annual cost of their insurance. I first heard of this particular communication approach from a benefit professional who also managed their company’s ESPP. I have also heard a wide range of other creative reasons to join an ESPP from professionals managing these programs from other departments.

As a compensation tool, ESPPs are counterintuitive. The argument goes like this. Dear Employee: We pay you. You pay us some back. We use that money to make the company better. Later, we buy stock with your money and some of our money (the discount). You then make money by selling your stock, or by hanging on to it. (Note: You may also lose some or all of your money.) Let’s face it, it’s that last piece that makes these plans truly unique and causes some pause from both the company and employees.

I won’t go into a detailed risk analysis of ESPPs at this point, but when designed correctly the risk is fairly low and the reward is high enough to be compelling. The most recent plan design survey from the National Association of Stock Plan Professionals shows that plans with a 15% discount have an average of 41% participation. There are a wide range of potential features and limits you can craft for these plans. You can build a program than meets several, or only a couple, of key specific needs.

While we are giving 3% merit increases, we are also cutting other forms of equity compensation and competing in an aggressive talent market. We should all consider the potential of ESPPs. They are a dessert topping, a floor wax, a room deodorizer and powerful plant food. There are not many tools like this at our disposal. Does your company have an ESPP?  If not, why not?

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”, “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.” 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 at @Performensation and @SayOnPay.