Compensation Cafe

Out of Control?

Have we lost the ability to self-regulate?  It appears that the current culture built on expectations of instant gratification will lead to a new tragedy of the commons.  Compensation commitments may exceed capacity.

Michael Lewis (Beware of Greeks Bearing Bonds, Moneyball, Liar’s Poker) has done it again…. His newest article, California and Bust, captures the current economic crisis and identifies the next one forthcoming, now predicted to be at the U.S. municipal level.  His statements about what I call “the ratchet effect” at the bottom of page 4 are key.  At the top of page 6, he offers diagnoses and introduces prescriptions.  Pretty light on solutions, but both entertaining and very interesting.

When the engine that has reliably powered and enabled ever-increasing public sector reward expansions sputters and falters, decisions that were easy no-brainers in flush times may come back to haunt those who made them.  Long-term commitments (like progressionary promotions, labor contracts, automatic step-increases or municipal pay programs enshrined in city ordinances) made with the assumption of uninterrupted positive income gains in the future cannot be met when the new reality suffers from far less prosperity than anticipated.  Despite TV advertising slogans, political sound-bite phrases and recurrent movie themes to the contrary, bold dreams, confident hopes and optimistic projections are not self-fulfilling prophesies.  The Pollyannas who cut the employee-friendly deals of yesterday are frequently not around today to suffer the consequences of their short-sighted assumptions.

As a behavioral economist with much experience dealing with labor relations, payroll budgeting and organizational design at that municipal level, I can’t disagree with anything Michael Lewis said.  Bargaining groups will continue to push for higher compensation.  No union negotiator ever lost an election campaign to be on the bargaining committee because they were too tough on management.   But elected public servants are vulnerable to the kind of strong lobbying unions can bring to elections; they are likely to cave in rather than offer strong resistance to wage demands from powerful special interest groups.   Generous actions taken in the past to placate workers (organized or not) can become millstones around the necks of states, provinces, counties or cities confronted with declining tax revenues that are now proving insufficient to cover the expenses they have committed to incur.  Our Western system of adversarial process (head-butting) by which each side ignores what is best in the single-minded pursuit of partisan advantage, counting on the other side to respond accordingly (equally strident from the opposite narrow perspective) until they hash out a mutually agreeable synthesis compromise somewhere between the two extremes, doesn’t fare well when one side is able to effectively dominate the negotiation and dictate terms.  Unbalanced power permits reckless results.  The effect can be hidden for a while, when money keeps pouring in, but when the flow of cash slows or stops, it can have the same effect on a municipality as sudden drops in blood flow have on human hearts.

Rewards professionals should realize that the next decade may feature service level insolvency among states, counties and municipalities.  Imagine the problems when a city trims personnel and reduces activity.  Streets go without repairs.  Police patrols are cut back.  Fire houses are shut down.  Emergency services are less available.  Not to be an alarmist, but this is real, folks.  These things are not likely to happen.  They are guaranteed to occur unless unforeseen events intervene in ways no one can envision at present.  The law of unintended consequences will continue to punish those who ignore it and act upon unwarranted assumptions.

You know what they say about “assume!”

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: Comedy & Tragedy Part 2 by richardgardner69

Prepare for Compensation Meetings Like an NFL Broadcaster

Like many of you, I have football games playing on my TV during most autumn Sunday afternoons. Also, like most of you, I  pay a lot attention to the big plays, but little attention to the broadcast itself. This past Sunday, for perhaps the first time ever, I focused on the incredible preparedness of the professionals producing the television events. It got me to thinking. What if compensation professionals prepared themselves in the same way? Our meetings with Executive Management and Compensation Committees would be short, enjoyable and incredibly effective.  More importantly, our programs would evolve more quickly and represent our companies more completely.

Consider any NFL broadcast. The announcers have spent all week studying the players and game plans of each team. Research assistants have put together statistics with such specificity that they make my wife laugh almost every weekend. “That pass sets the record for most passes to a running back, under 5’7” during the third quarter of a game in the twelfth week of an NFL season.” Cameras are set-up to cover the play from nearly every angle. They know where family members are sitting and where they’re from.

A great example of this attention to detail was a recent game in which Carson Palmer, quarterback for the Oakland Raiders, threw an interception that was run back for a touchdown. Almost immediately, there were replays from three or four different angles. There was nothing surprising here, just expected levels of great work.  Then came the doozey. Within 30-45 seconds of the play the announcers started talking about Mr. Palmer’s tendency to throw interceptions that were returned for TDs. While they spoke, a series of at least eight prior interceptions from the full length of his 8 -year career, played on the screen.

This meant that someone had just prepared for this unique opportunity. Carson Palmer has played more than 128 games in the NFL.  He has thrown 2,560 passes. Of these, eight or nine were intercepted and returned by the other team. Someone on the broadcast team gathered these into a package that was immediately accessible. The director knew the package was there. The researchers knew how to call it up on demand. The announcers were fed some statistical information to support their innate knowledge. And, in less than a minute, everything came together on screen in compelling support of this specific tendency.

Imagine if you were this prepared every time someone asked you about your compensation plans. “Hey, what’s the rule on Change-In-Control for the 2007 Stock Option Plan and does that conflict with the COO’s employment agreement that he received when we was hired at that company we acquired in 2009?” What if you had an immediate (correct) answer every time someone asked, “Why do we have that feature?” or “How much cash and equity should we offer a Senior Software Programmer, in Chicago, IL?”

If we all prepared and stayed organized like NFL broadcast teams, much of the stress of our jobs would be gone. The stress of leaving a meeting with more things to do than when you walked in.  The stress of providing the wrong, or no, answer in an executive meeting. The stress of correcting administrative errors due to assuming we knew a rule, rather then knowing the rule exactly.

Of course, we’ll never get to a point where we simply have a team of specialists to help us get prepared. We do not work in an industry where there is always accurate statistical data, or in a world where our rules are applied exactly the same way every time.  But, we can, and should, consider making this our goal and begin working toward achieving it.  You never know when that one thing that has only happened a couple of times in the past will happen again, but you would likely be compensated and respected more if you had a ready solution when it came up again.

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 Known That” 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

Compensation: The Word May Not Mean What You Think it Means

What does “compensation” mean? Those of us who work as compensation professionals consider it a positive, professional  word that speaks to people getting paid for services, effort or performance. Like many words, compensation actually means something else entirely.

From the Collins World English Dictionary

1.     the act or process of making amends for something

2.     something given as reparation for loss, injury, etc; indemnity

3.     the automatic movements made by the body to maintain balance

4.     the attempt to conceal or offset one's shortcomings by the exaggerated exhibition of qualities regarded as desirable

5.     biology: abnormal growth and increase in size in one organ in response to the removal or inactivation of another

Take a minute and read those definitions again. None of them are uplifting and positive.  In fact, each and all of them make my job feel a little unseemly.

Our starting point is a significant hurdle. If people have studied for the SAT vocabulary section (if they even still have that), they are likely to have different definition than ours. We assume that because we mean well and work to create fair pay programs, that people will just adopt our definition. Before you believe our own hype, ask yourself if your “compensation” program ever falls into any of the above definitions.

A.   Are you paying people to make amends for something?  Are your employees being asked to do something so difficult or distasteful that you owe them some sort of monetary apology?

B.   Are you providing reparations? Is your work-life balance so out of whack that pay is actually a replacement for lost time with family or passions?

C.   Are your increases and reviews so automatic that they have become just a form of balancing and correction for unexpected movements?

D.   Is your company hiding shortcomings by distracting people with extra money? If you looked from the outside would your pay be seen as “too good to be true”?

E.   Has your pay (especially for executives) increased abnormally in size in response to the lack of something else? Could you be paying your executives more than you should simply because of a lack of data or a weak Board of Directors?

This is a case where our actions must be far louder than words. We should compensate our employees not to apologize, but to thank them. Our employees should understand that we place as much value on them being emotionally, mentally and physically healthy tomorrow as we do about them getting the job done. Our pay programs cannot be defined as automatic adjustments. We must put real thought and effort into making our own performance more like a dance move and less like that head jerk that happens when you start falling asleep while sitting in an airplane seat. We must address our issues with real solutions and understand that money works only if everything else works, not in spite of it. We need to pay based on the strength of our firms, not because of poor information or limited resolve.

Compensation may not mean what you think it means, because your actions may not be reflecting your intent. Start by assessing your own definition of compensation versus the reality of what you are delivering to your staff. Once your words and actions are in sync, it will be far easier for employees see beyond their paycheck and get engaged in their jobs.

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 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

Either Put Me in Charge or Let Me Be a Lackey. I'm Fine with Either, But I Can't Do Both.

A friend recently updated their status with the title to this article. Ironically, I saw it just as I got off a call with a client who  was explaining that somehow she was expected to serve as both the strategic visionary and tactical processor for her company’s multi-national LTIP programs. The simple request in my friends status update seemed reasonable, well thought-out and familiar. As we traverse the crags of an uneven recovery, companies have found it difficult to create compensation plans that perform as expected. As budgets continue to be bound by uncertainty, companies have been unwilling, or unable, to hire tactical help. This leaves compensation departments in a quandary. When should we strategize and when should we make things happen?

For those of you who are feeling like your personality and activities are being split down the middle, I'd like to suggest a small exercise. Take 4 hours and block it off your calendar. (I know you don’t have 4 free hours, but trust me this may really help.) Let’s just pretend you blocked off 10:00am-2:00pm tomorrow.

• 10:00-10:30: Spend the first 30 minutes making a list of every strategic idea you would address if you were in charge of everything, but not responsible for doing any of the tasks. Rank based on compliance, urgency, cost and benefit.  Call this your “Strategy List”.
• 10:30-11:00: Focus the next 30 minutes making a list of every process you would improve if you didn’t have to worry about planning, administration or reporting tasks. Rank based on compliance, urgency, cost and benefit. Call this your “Tactics List”.
• 11:00-11:30: The next 30 minutes make list of all the tasks you would do if you were never interrupted by other things. Think about the minutiae and get granular. Rank based on compliance, urgency, cost and benefit. Call this your “Tasks List”.
• 11:30-12:00: Go through the Strategy, Tactics and Tasks lists and mark each item that ONLY someone with your skill set or better (not you) can get done. Then mark those that can be done by someone with a lesser skill set.
• 12:00-12:30:  Look at the remaining items. These are the things that you believe ONLY YOU can accomplish. Is this list realistic? Can anything be moved to one of the other lists? When this list is down to two or three items, you are set for a promotion.
• 12:30-2:00: Go have a nice lunch with a friend.  Celebrate that you just figured out how to put yourself in charge or be a lackey.

A very smart manager once told me “irreplaceable is unpromotable.” She made it clear that as long as I was the only one who could do certain things, I would remain the only one doing those things. Turns out, it’s basic logic. If you want to stop doing things on your list, you must first figure out a way for others to do them (or to make the items go away altogether.)

Look at your lists again. Which things do you really want to be doing? Of everything that’s left, can you train, hire, outsource, bring in consulting or temporary staff to get them done? If yes, put together a business case for exactly that. If no, keep working on your lists until the answer is yes. I have seen people change things in a week or two and I have seen cases where the changes were so large or numerous that it would take 6-12 months to get them done. I have never seen company where the changes were impossible.

The key is this: If you want to be in charge, the first step is figuring out how to be in charge. Regardless of whether you want to be a lackey or in charge, the first step is to define what those terms mean. The next step is to clearly communicate to those who can help make the change. This may be your boss, colleagues, or the staff working for you. The key is to show what’s in it for them (WIIFM). If they see the personal benefit, they may be inclined to help.  If you communicate things as a plea for help, you may get short-term traction, but nothing will really change.

So, put yourself in charge or make yourself the lackey, but only you can ensure that you’re not both.

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 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

Curiosity May Kill Cats, but It Saves Compensation Professionals

Do you ever wonder why you are reading this article? No one is paying you to read this. Your boss will probably never even know that you read it. Why take a few more minutes out of your busy day for something that only you truly value?  The answer is simple. You are a curious person. (Fair warning this is a “soft” article with no statistics or compensation rules)

We are always told that curiosity kills cats. The theory is that it gets cats into trouble that eventually cause their demise.  I would augue that it does the opposite for compensation professionals. Compensation is as much an art as it is a science. This means that even though there are great ways to do almost everything, there are very few absolute ways to do anything. It is curiosity that can make, or break, someone in our profession.

We all must keep up with rules and regulations. This requires less curiosity than it does persistence. Sometimes new rules require us to change processes, communications or procedures, but we are seldom forced to change our compensation philosophy or basic structure. Curioisty is much bigger than compliance.

Curiosity is the key to evolution. It’s not just learning about your peers or industry trends. It is about digging in and figuring out how you can apply a mix of new knowledge and best practices to give your company, its shareholders and employees an edge. The need to know new things and explore different paths is what allows you and your company to stay ahead of the competition.

The best compensation departments aren’t checking to see if their programs are correct.  They explore new paths so they can be better. Many of us look to justify our past decisions.The very best look for why they aren’t making new decisions. Given a choice to act on what they already know and the potential for new information and improvement, they choose improvement. These are the companies who create the next “best thing.”  They are also the professionals who we find publicly celebrating, instead of defending, the results of their programs. 

So how is curiosity inspired? While it is against our professional nature, curiosity is seldom motivated by compensation. It is most often motivated by the personal and professional change it can bring. You and everyone on your staff want to know that your ideas count.It is easy to create this culture.

Provide an open environment where the following phrases are outlawed:

1)     We’ve never done it that way.

2)     That probably won’t work.

Replace those curiosity-killing statements with the following questions:

1)     How would you see that working for us?

2)     Can you do a test run and show me the impact?

Once you have an environment where curiosity is valued and recognized, your staff will instantly seem much smarter and more engaged. You will find yourself working amongst solution creators and game changers and your own work will improve as well. Curiosity is the single catalyst that costs nothing and inspires anything. It may not be ideal for felines, but it does wonders for compensation professionals.

Dan Walter is based in San Francisco, CA and is the President and CEO of Performensation an independent compensation consulting firm focused on the needs of companies not in the Fortune 1000. Dan’s unique perspective and expertise includes equity compensation, executive programs, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, helps create ShareComp, a virtual conference addressing equity compensation and founded Equity Compensation Experts a free networking group with more than 1,100 members. Dan is also in high demand as dynamic and humorous speaker. Connect with him on LinkedIn or follow him on Twitter @performensation.

How to Make Your Compensation Communications Great This Year!

WIIFM? That's the Twitter version of what many, many people think is the secret of effective compensation communications. I mean, they really think that all it takes is to answer the question, "What's in it for me?" As if what you need to visualize is that every employee has a 'tude, and they are standing there with their hands on the hips and their feet tapping.

It's not like I don't believe that everyone wants to know what they are getting and why. Thinking otherwise would be naive and wrong. (In fact, the people most likely to bring up WIIFM first are executives -- in reference to their own comp.) But employees are people who are so far from one dimensional. And if there is anything we've learned in the last three years, compensation communications aren't just about how many dollars there are for merit increases this year.

Doesn't WIIFM matter?Well, in my experience, the real message of WIIFM is that we in HR need to realize we are talking not to ourselves, but: 1) to people, 2) who don't really know what a midpoint means or the downside of Pay.com even if they tell you they do AND 3) who need to understand how their work influences not only the dollars they earn but also the company's dollars.

I can't tell you how many times I've worked with companies whose communications are written as if the main audience was the VP of HR. They barely scratch the surface of what's on people's minds.

What to do? What to do? Here's the way to make your compensation communications great. Write down every question that is on people's minds. And I don't mean your pals in HR. Go out and ask a few employees and managers. Then talk to the Department Heads and Division Heads who "get it."  Ask them, too. Make the list of questions as long and nitty gritty as possible. Include the ones employees really shouldn't be asking, but that keep popping up. 

Next, step back and think up all the questions they should be asking, but aren't. Add those to the list.

Only then -- after a few days of conversations -- will you have a complete list. The answers to that list define the content of your compensation communications, that is if you want your communications to be great. 

Should you communicate it all back in Q&A format? (I'm guessing a question that's on your mind. Wish you were here to ask!) Here's the thing. If you look across the kitchen table at that other person who eats oatmeal on chilly mornings, you'll be reminded that adults need to hear information more than once for it to stick. Think about both, how often, and in how many ways you need to say it, before all the Halloween decorations come down or the leaves get raked. 

What I mean is, you need to repeat yourself and you need to do it in various ways. If your employees receive the information at some point in Q&A format, that tends to be quite effective in my experience. But it shouldn't be your only communication medium or channel. 

Use your built-in resources well. Employees need context for the compensation information. Context typically comes from leadership, along with the announcement of this year's practices. Employees need someone to talk things over with. That inevitably means managers. So there are your two primary communication channels -- those who you prep with the communications talking points built from your Q&A research. Give them Qs&As for handouts. Reinforce the handouts with Q&A updates on your Intranet. Check to see if there are any new questions and answer those.

Writer's block? Looking for a way to jump start your question list? Check in on Ann Bares' Friday post on executive's, manager's, and employee's questions about incentive plans. "Reviewing Your Incentive Plans: A Three-Tiered Conversation," is a great place to start. Then grab a cup of tea, get out of your office, start listening and take notes!

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 communication to the dialog at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret 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.

What Does Your Gut Instinct Say About Compensation 2011?

"Our work on flawed decisions suggests that leaders cannot prevent gut instinct from influencing their judgments. What they can do is identify situations where it is likely to be biased and then strengthen the decision process to reduce the resulting risk."

It's almost time to begin thinking about Compensation 2011. If not today, then soon. Since many of us are feeling a bit wrung out wondering where the next great idea is going to come from, I thought that I would share this cautionary info I just unearthed from the McKinsey Quarterly, based on research discussed by a Nobel laureate and psychologist and reported by Andrew Campbell and Jo Whitehead. 

Since it's from McKinsey, the data is solid and the insights impressive. Since it's from McKinsey, the research is meant for executives. But the rest of us have proven to be human beings, too, and I really think it will come in handy as you try to figure out, once again, how to make silk purses out of teeny weeny compensation budgets.

Here's the overall premise: " . . . the latest findings in decision neuroscience suggest that our judgments are initiated by the unconscious weighing of emotional tags [aka gut feelings based on our earlier experiences] associated with our memories rather than by the conscious weighing of rational pros and cons."

If our reasoning is that precarious--insisting on what we are used to as we dissect the data in front of us--should we give up on gut feelings and insist on being purely rational? 

The truth seems to be that we can't, even if we are "numbers people". Gut instincts influence the way we frame a situation, the options we choose to analyze, the people we want to talk it over with, and so on. In fact, gut instincts are a big part of what make us human, and often what keep us safe (think about your driving reaction when you stray over a solid yellow line).

The alternative is to test yourself to protect your decisions against the limitations of your biases (e.g. "The call center is never satisfied with the incentives we develop." "The scientists will insist on 75th %ile; they always do.") Here's what they suggest:

1.The familiarity test: Are you bringing the most appropriate instincts to the decision?  Or are you misleading yourself? Do you really have sufficient experience -- of the right kind -- to make judgments about the main uncertainties in this decision? (Remember the guy who had run horse shows and thought he could handle FEMA?) 

Suggestion: When the time comes, consider the decisions that seem to be forming up and then list why they could fail. Identify what you don't know now that could cause them to fail. Then do something about it! Get enough insight to feel confident you've reduced the risks associated with your decisions.

2. The feedback test: Have you gotten reliable feedback on past situations that are creating the context for your current one? For example, if the last wobbly bonus "solution" was introduced by a Plant Manager who insists on working with "yes" men, the answer is likely no.

Suggestion: Get as close to the truth as you can, even if it involves inviting a third party in to play the middleman (for example, inviting candid comments from the "yes" men). Look for insights, not just information. Otherwise, you can count on solutions that are influenced simply by, "the way we've always done it."

3. The measure emotions test: How did you react the last time? Do your memories bring up a (negative) passion from past situations that can unbalance your current judgment?

Suggestion: For example, recognize that you have a "thing" about salespeople, engineers, graphic designers, insurance agents, whoever have challenged your judgment in the past, and be attentive for biased decisions about their compensation opportunities. Or, recognize that you have a "thing" about [fill in the blank -- SARs, force distributions, profiting sharing, or whatever] from your earlier employer, but plan to consider their pros and cons.

4. The independence test: As in, who me? What do you mean the salary for the Director of Compensation and Benefits is too high?  Fess up to yourself about the amount of skin that you have in the game when it comes to this decision -- popularity, friendship, attention from above, career opportunities, you name it. Make sure you intentionally address this type of bias.

Here's McKinsey's recommendation to execs: "If a situation fails even on one of these four tests, we need to strengthen the decision process to reduce the risk of a bad outcome. There are usually three ways of doing this -- stronger governance, additional experience and data, or more dialogue and challenge."

Sounds like great advice to me. In fact, the most impressive leaders I have worked with already have this down pat. How about the rest of us? Test yourself -- in fact, hold yourself accountable -- as you organize for decision making about Compensation 2011. If you can't pass all four tests, invite help, discussion or data to help strengthen the value of your gut instinct.

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 communication to the dialogue at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret 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.

Ripped from the Headlines: Breaking News on Pay Transparency

We’ve been talking about transparency pros and cons at the Compensation Café over the last week or so. Today’s a great day for another chat, with so much in the news about pay and benefits.  Here’s what I’ve ripped from the headlines this morning:

• The New York Times took another shot at pay transparency today.  Eric Dash tells us that few executives fled the companies where the pay master set post-bailout limits, in spite of the unwelcome “meddling” of Kenneth Feinberg, special master for executive compensation for the companies who received bailout money.  85% of the affected executives were still with their companies even though their compensation is down nearly 77% from 2008. This year, more than 70% of their (approved) compensation is expected to be given in the form of stock instead of cash.

The facts are in, through transparency enforced by a legal requirement.  But do the numbers tell us why these executives are still engaged in their company’s future? What the new packages mean to them in terms of recognition for their performance? 

We need far more insight to learn from this unusual executive compensation case study, but boy would it be valuable to know how these executives feel and why.

• President Obama signed the landmark healthcare overhaul bill today. Immediately after yesterday’s vote, there were content pages all over the Web that explain how the bill will affect you, your family, your business, your employees, your taxes and so on. If we take a minute or two and be patient, each one of us can determine what the bill will mean for us.

We’ve been getting descriptions of potential plan provisions in the media for months and months. Did any of us really understand what was going on? Were all of us frustrated? Yet within 24 hours, the mess was turned into cogent bullet point lists. To me, this is a great example of how transparency (if it only relies on facts) can actually be amazingly confusing. While clarity (understanding how decisions and information influence us) is a far more useful goal. With our new bullet point lists in our back pockets, we can think more calmly about this “landmark” in our life, and make some balanced decisions.

• Buck Consultant’s tells us that 2010 bonus payments will be similar to 2009, which is a bit surprising considering the continuing financial challenges. There has been a lot of speculation in HR discussions recently about a trend toward variable pay, with more employee compensation shifted into incentives. Buck Consultant’s make the same guess. But is it really, truly what’s going on? And wouldn’t it be more useful to have that insight, too, so we can understand what is influencing these pay decisions?

As Becky discussed last week, the public is eager for more insight into compensation practices in the public and private sectors. But I believe experience shows that transparency is only part of the challenge and we overlook this at our peril.  As I illustrated in my last post, if you offer facts without context, you may actually cause confusion and frustration even though you are trying very hard to build trust. Today’s headlines illustrate that we can learn so much more -- and be better prepared to make up our mind -- if we look behind the numbers and answer just a few more questions.

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 communication to the dialogue at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret 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.

I Know What You Mean about My Compensation

I think the difference between transparency and clarity is fascinating . . . and powerful . . . and frustrating.

Let's say my company just updated the salary structure and my manager has given me a salary statement.  It shows that my current salary is $65,000. The midpoint for my new salary range is $60,000. The minimum is $51,000 and the maximum is $69,000.

The company has told me the details of my salary range. In fact, I can see the entire salary structure on the Intranet. They have met their commitment to be transparent about salaries. The facts are out there for me to see.

So why do I feel itchy, vaguely dissatisfied? My salary hasn't been cut. Now I know how high it can go, too. But I've got a bunch of ideas forming, worries really.

What makes my salary competitive? Did HR use good data? Do the other employees with my title have the same salary range? Am I making more than the new guy?

In an online financial dictionary, transparency is defined as, "the full, accurate and timely disclosure of information." The everyday definition involves shining a light to make things visible.

But once I see facts, I have to figure out what to make of them. It's like doing the taxes. I may have a bunch of receipts with numbers, but if I don't know how to sort them, judge their use, understand how and why they apply to me, all those receipts are facts that just confuse me. And then I get frustrated.

That's why clarity is a more useful goal when it comes to talking with employees about compensation. (Clarity’s definition is literal -- to make things clear.) When it comes to employee compensation, I think we achieve clarity when employees understand how our decisions influence (and define) their pay opportunities. Decisions about business goals, culture, competitiveness, data, internal equity and so on.

To me, clarity involves explaining the choices that went into employees’ compensation opportunities. Employees who don't understand our process and our reasons, won’t know what to make of their current salary and feel (needlessly) frustrated.

Transparency is a hot topic right now. I agree that it’s important to shine a bright light on factors that affect a business and its employees. But if you want to achieve understanding and trust by sharing compensation information, experience tells me that clarity delivers.

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 communication to the dialogue at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret 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.

What Can We Learn About Rewards From a Company With No Rewards?

I came across a funny short video the other day of a nihilistic machine that turns itself off as soon as you switch it on.  One man's stubborn determination to defeat the machine reminded me that people want to feel in control, although it’s easy to forget this when it comes to employee motivation and rewards.  

Designing rewards to motivate employees is a complex and multi-faceted task.  Rewarding individual performance may motivate people to work harder or in a particular way but also tends to encourage competition rather than cooperation.  Some companies try to offset this risk by rewarding team performance, which can work well but can also lead to frustration unless all team members pull their weight.  Rewarding based on company performance makes good financial sense but unless clear and attainable goals are defined it’s difficult for employees to see the link between their own performance and business outcomes. 

I’m over-simplifying in order to make the point that paying for performance in a way that makes people work toward a common goal, share information and help each other be successful is harder than it sounds. 

Despite challenges, many companies with a strong pay for performance culture have achieved impressive business results.  Moreover, companies are becoming increasingly creative and open minded when it comes to rewards.  For example, see 2010 Salary Increase Plans Dip; Employers Look to Non-Salary Rewards by Ann Bares.  The primary motivation seems to be a reluctance to spend on base salaries rather than a grassroots movement toward a more holistic talent management strategy but let’s not split hairs. 

So, we’re definitely getting there but there’s still uncharted territory when it comes to rewards and motivation.  And interestingly, one company that seems to have the inside scoop on motivation isn’t a company at all but a non-profit organization that doesn’t even pay people: Wikipedia.

Wikipedia has managed to capture the collective imagination of subject matter experts all over the world without using monetary rewards of any kind.  They have achieved this by embracing a modern business philosophy that allows contributors to be self-selected and largely self-directed as long as they work on a common platform toward a common goal.   Their reward is the unfolding of that shared goal and the satisfaction that comes with creating something worthwhile. 

Wait a minute.  Self-selected?  Self-directed?  But… we can’t just let people do whatever they want or they’ll… do whatever they want! 

Which is why Wikipedia strikes a balance between creative freedom and clear rules of engagement.   Self-appointed content approvers ensure that these rules are followed and non-compliant content is removed.  And as a final check, Wikipedia users can report violations.  It’s the ultimate example of collaboration with the broadest possible reach and least possible bureaucracy, where ‘suppliers’ and ‘consumers’ collaborate from different locations.  Perfect?  No, but pretty darn good.

Since the primary goal of rewarding performance is to motivate people, it is remarkable that Wikipedia has managed to harness the creative energy of 85,000 active contributors all over the world without paying them.  They do this by tapping into the desire most people have to contribute, to share, to be acknowledged, to be part of something. 

I’m all for rewarding business success and I’m not suggesting that salaried employees would embrace self-direction in lieu of cash.  But it may be time to broaden our definition of rewards to include more chicken soup for the soul, such as acknowledgement of expertise, opportunities to teach others, increased autonomy and non-traditional career paths.

Or… we could just keep flipping that switch.

*Picture courtesy of The Most Useless Machine EVER! on YouTube.

Laura Schroeder is the Product Manager for Compensation Solutions at Workday, headquartered in Pleasanton, CA.  She has more than twelve years of experience designing, developing, implementing and evangelizing Human Capital Management (HCM) solutions in the US, Asia and Europe.   Her articles and interviews on HCM topics have been published in national and European trade journals.  She currently lives in Munich, Germany and enjoys reading, writing and spending time with friends and family.