Compensation Cafe

3 Reasons Why Bonuses Are Simply “Too Much”

In the last few weeks, I’ve read several articles on why the bonus culture has failed. Most of the articles centered on the two areas where I believe this failure is most prominent – banking and financial institutions and the corner office.

The articles served to highlight for me three ways in which the bonuses are simply “too much.”

1) Too much weight given to bonus vs. base pay

The word “bonus” has lost all meaning when people expect to receive them as part of their base compensation (a topic I’ve written about here before).

From the UK paper, The Guardian:

Banks say bonus pools have shrunk and payouts are being capped, but outside the glitzy world of investment banking, those used to drawing just an annual salary are increasingly baffled by a system of hefty incentivisation on top of already high pay. …

For Labour leader Ed Miliband, the bonus culture has been "corrosive" for Britain's economy and its society. He argues the meaning of the term "bonus" has been lost along the years.

"Exceptional rewards for exceptional performance means million-pound bonuses should not be handed out to people for just doing their job," he said in a speech on Friday.

In fact, he concluded, the system had failed. "It has enriched individual bankers, but weakened the banking sector as a whole by encouraging a form of risk which crossed the line into sheer recklessness," said Miliband. "For all the reform of the way bonuses are paid, they remain on a scale beyond the imagination of the vast majority of the population."

2) Too much of a gap between the total compensation for those at the top vs. those in the trenches

From a CEO compensation perspective in the US, Ed Frauenheim, editor-in-chief of Workforce Management magazine, suggests the “Business Buffett Rule”:

“For a company paying the federal minimum wage of $7.25 an hour (about $15,000 a year for a full-time worker), what if the total compensation for the CEO was capped at 100 times that? That means a CEO's annual income would be about $1.5 million. As pay goes, that's not peanuts. But it also is a far cry from packages that have ballooned for many execs into the tens and hundreds of millions of dollars.”

Frauenheim goes on to outline the benefits of such an approach, including boosting employee morale, better leader selection, and a long-term executive mindset instead of “working to the quarter.”

3) Too much complexity that only encourages negative repercussions

Back across the pond, the UK Sunday Times also addressed ideas for more appropriate CEO compensation featured ideas from Bruno Frey, a professor of behavioural science at Warwick Business School:

He wants companies to drop pay-for-performance schemes and their complicated criteria. Instead, at the end of each year boards should make a simple judgment on whether a bonus is deserved.

“Most businesses think people will work better if they are offered a bonus, which is why they create a direct link between wages and performance,” said Frey. “But often this is not the case at all, and sometimes the link can actually have negative consequences.”

At its worst it can mean that people take company-threatening risks to meet the criteria for a bonus. It also means that executives may focus too much on doing what is needed to meet their performance criteria at the expense of other tasks — even if these are more important.

Do you think bonuses have become “too much?” What alternative do you see as generating a more appropriate reward and recognition for work well done – at all levels of the organization?

 As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Is Viral Pay Contagious?

With a name like ‘viral pay,’ it’s bound to get attention.  But is it just a catchy name or is there more to it?

I was skeptical at first because having your bonus decided by your colleagues sounds a bit like ‘being judged by a jury of your peers,’ which as we all know is not always fun or fair.  But reading this article at Fast Company provided an opportunity to re-think my assumptions. 

Whatever your rewards policy du jour, human frailty threads through every aspect of management, team work and incentives.  If you leave rewards up to managers you run the risk of centralized human frailty in the form of favoritism, whereas if you open it up to the community you risk decentralized human frailty in the form of a popularity contest. 

Think about it: Who typically gets voted off the island, the least qualified person or the least likeable person?  I don’t want to generalize here but the last person standing tends to be a charismatic buffoon rather than a highly competent person with an offputting personality.

What it essentially comes down to is this: People vote for people they like to the extent that it doesn’t create a threat or disadvantage to themselves. 

Now let’s examine the possible impact of human frailty on viral pay.  On the positive side, allowing everyone to decide about rewards decreases the impact of manager bias and may increase the likelihood ‘silent heroes’ receiving recognition.  It also encourages teamwork and cooperation because personal rewards depend on garnering widespread good will. 

On the downside, while relationship building is very important, we don’t want it to take a back seat to actual work getting done.  There’s also a risk of employees trying to ‘game’ the system, for example by trading rewards.  Finally, people do have a perverse streak and may be reluctant to reward people they think are already too popular or successful. 

Getting back to the article, I liked IGN Entertainment’s approach to viral pay because it includes several checks and balances to rise above personal bias and encourage fair play:

• Rewards are anonymous, so there's no currying favor.
• Everyone has the same amount to allocate so it's harder to game.
• Some rewards are held back for manager discretion, so collective opinion is balanced by personal judgment.

Whether you buy into all this or not, viral pay is just one more step in the direction of a more collective approach to work and leadership.  As I recently wrote in Who Moved My Manager?, the modern workforce is 'global, virtual, fluid, contingent, self-managing, and project-oriented,' which impacts how people work together as well as how they are managed. 

In other words, whether it sticks or not, viral pay is part of a larger trend rather than an isolated fad.  For more information and great insights, I recommend listening to Ann Bares and Stephanie Thomas' recent podast on viral pay.

Interestingly, no one seems to be suggesting that employees vote on executive bonuses. . .

Picture courtesy of kool-stuffs.blogspot.com.

Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

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. 

Is it Time to Change the Equity Compensation Paradigm?

Even with the explosion in performance-based equity, most equity compensation plans look very much like they did almost twenty years ago. Stock options, restricted stock unit and employee stock purchase plans would be familiar to a time-traveler from 1995. The biggest differences are in the size of the payouts and that many participants receive equity as an addition to base and bonus pay, instead of as a replacement for some of it. The similarities now and then are almost too numerous to list.

For the sake of a theme let’s talk about private companies.

Recently, many investors, executives and employees at privately owned companies have started thoughtfully questioning the reasons behind plan design and features, process and communication. These questions are less focused on traditional public company issues of skyrocketing CEO pay and governance issue and more aimed at how to create programs that fit the needs and patterns of the current economy as they relate to smaller companies.

Let’s start with vesting. Why does almost every plan offer 3 years vesting on full-value awards (restricted stock RSUs, Phantom Stock) and 4-5 years for appreciation-only awards (stock options, SARs, etc.)? There are two basic answers to this question.

1)     Legacy. When stock options plans were first solidified in the 1990s it was common for an exit event to occur in 4-5 years. Everyone followed the leader and an innovative idea became a dictum.
Restricted regained popularity after the Dotcom bust. The first few of these newer plans to make the headlines had three year vesting (AT&T, Microsoft). Once again an idea that had been focused on the needs of a moment became a kind of commandment.

2)     Practicality. Most companies find it hard to see more than three years into the future. Most compensation professionals see three years as being the minimum for “long-term” incentives. Conveniently these mesh well.

You’ll notice that I didn’t mention any scientific evidence behind typical vesting schedules. In most almost two decades working on these plans, I have not seen any convincing research that explained how nearly every company would benefit from nearly identical vesting norms.

More important than the initial questions about vesting tradition is the unspoken question: Why won’t longer or shorter vesting periods work? Vesting should exist to help the company meet specific goals and objectives. Awards with shorter, and much longer, timeframes do work for some companies. Why wouldn’t an eight-year schedule work if it matched the expected period for fruition of the company’s goals?  Why not two years for employees with shorter-term goals? The issues with vesting schedules are that most advisors are stuck in a rut, and most executives have been led to understand that equity is bound by legacy design considerations.

What about the type of instrument? Stock options have been the “go to” resource since the late 1980s. Unfortunately, they can be a bit like heroin. The initial grants are small and have an amazing impact. In order to repeat that feeling grants must get bigger and more expensive. Participants become more dependent on them and companies lose sight of some of the critical reasons they started using them in the first place. Once addicted, it becomes difficult to wean people off of stock options.

We have also heard a lot about the growth in restricted stock shares and units, but these vehicles are seldom used beyond founders in most start-ups. After the first few people, they tend get put on the back burner until the stock is publicly traded and the price is subject to the whims of the public market (consider them a form of methadone). Stock Purchase plans are difficult to do in private companies, but there are still valid reasons to consider them. We seldom hear much about the other forms of equity compensation, or the alternatives to traditional equity.

Even if we stick with the traditional big three, why haven’t these programs evolved with the changes in the markets, types of investors, company lifecycles and more? In 1990, when most of the current program designs were locked-down phones were still attached to a wall and there was no such thing as email. We live in a smart-phone world while using tools from a time when the Internet or calling someone from your car was still a concept bordering on science fiction. We can do better and I hope to spur a discussion here at the Compensation Café on what we can change to move these plans forward.

 What do you think needs to be fixed about equity compensation?

This article is the start of a discussion I hope will expand through this year and beyond. Look for future articles on this topic as we explore the possibilities of evolving compensation to meet the needs of the 21^st century.

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 at @Performensation and @SayOnPay

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!

Stubborn Is As Stubborn Does

I share my house with a brood of cats and it’s been that way for as long as I can remember.  I love them, but recognize that they are stubborn, stubborn, stubborn creatures, and at times it seems like they’re the ones who run the place.

Have you ever tried to change a cat’s food, or their litter box, or their water dish?  They don’t react well to the new and different, and when they don’t react well their loud and disdainful behavior can really disrupt your day. 

These felines are also creatures of habit, preferring a daily pattern of repeated behavior that in their view creates a safe and reassuring environment – where they feel the most comfortable.  Break that pattern and you get the look, or worse.  I can attest to the fact that dealing with the stubborn and habitual can be a real trial.

In the business world there are many companies run by a leadership who possess similar inflexible behavior, an aversion to breaks in pattern.  Those who like things just the way they are.  Whoever coined the phrase “if it ain’t broke, don’t fix it” was probably a charter member in that "blinders on, head in the sand" leadership cadre who likes things just the way they are.

While it’s a truism that yesterday's strategy and operating principles are rarely a recipe for future success, how often do you see managers hang on to what used to work - until the signs of failure become so visible and so painful that it can no longer be accepted?

Comfort

These folks with their heads in the sand are not necessarily bad managers, or even poor business leaders.  What they are is comfortable, and when we’re comfortable we feel safe, relaxed in our surroundings, familiar with what needs to get done and a bit over confident about our control of our business environment.

When we feel comfortable and confident we prefer to repeat those same actions that brought us to our present state of mental ease.  In other words, we don’t like to rock the boat, we don’t like “change for the sake of change,” and we’re skeptical of new and unproven techniques.  We get stubborn and dig in our heels.

It’s worked before, it brought us success.  Let’s leave it alone.

However, when someone or some event breaks that comfort level (new competition, weakened economy, technological advances, etc.), the first thing we experience is anger that our warm cocoon could be shattered by new business realities.  Soon enough though, that anger will convert to a sense of fear, whether we admit it or not.  More likely we’ll act out in an aggressive fashion that disguises the panic we feel.

Fear

People can be fearful of change, especially leaders.  Because they don't know the new rules, because there are risks when implementing new strategies, and those who stick their head above the crowd can get it chopped off.  We’ve all seen that happen.

When you must get yourself up and out of your comfort zone it’s a natural reaction to feel defensive and unsure about what you should do next.  Leadership may not have the competencies or the experience to adapt to new business challenges.  It’s not difficult to lead when things are going well.  But when the going gets rough, when the pressure is on to change course, to implement new strategies, not so much.

I’m not sure about what to do; everything has changed.

Pushed out from their safe environment management can find itself unsure, defensive and unsettled about the correct way forward.  And until matters settle down again they can be difficult for practitioners to work with.

You can help them 

You may consider managers stuck in the past as living dinosaurs, but have a care because these beasts have teeth.  They don’t like this uncomfortable new world, and they tend to shoot the messengers.  To offer assistance to a leadership challenged by the unfamiliar, practitioners need to step up and provide steady, confident and reliable advice.

• Acknowledge the past: Yes, previous strategies have worked well and brought the company success and financial strength, reputation and a strong foundation for the future.  A pat on the shoulders for management.

• Focus on the why: Whenever advocating change, focus your message, your research, your examples and your entire business case on why your recommendations lead to solutions.  Keep your eye on the goal, not that you’re changing patterns of behavior.

• Dangle the carrot: Always point toward the business and personal success that would be the result of your recommendations.  Besides showing the achievement of business success, emphasize that the deciding leadership will gain credit for managing the organization through these difficult times.  Stroking the ego doesn’t hurt here.

The next time someone comes to you with an idea to build a better mousetrap, listen to them.  Keep your eyes, your mind and your options open.  Instead of being afraid of change embrace the opportunities presented.  It can make for a better tomorrow, and you’ll shake the tag of “stubborn.”

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 Jo Bowling

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

Should We Define Superior Performance?

I think most of us agree on the importance of setting performance goals and clearly communicating performance expectations to employees.  Without this, you're left with something like management by mental telepathy.

But here's a question that has dogged me for some time:  Should managers, as part of the setting of performance expectations, give employees information on what they must do in order for their performance to be considered "superior"?  What it would look like to "far exceed expectations"?  Or is it better, even necessary, that we fall back to the Justice Potter Stewart position - that excellence is hard to define but we'll know it when we see it?

I hear more arguments against than in favor of pre-defining superior performance.  That it would give too much - even too specific - direction to workers.  That it boxes employees in and limits the possibilities of what they might accomplish.  In a world as fast-moving and uncertain as ours, these are compelling points.  Yet I'm left with the nagging sense that we're letting ourselves off the hook too easily here.

And here's another angle to consider.  In my admittedly unscientific observations, I am left with the impression that compensation professionals favor predefining superior performance and that leadership/OD/learning professionals typically fall on the side of leaving superior performance undefined. 

Are these sweeping generalizations on target?  If they are - why would it be so?  Is it that we who practice in the rewards field feel tend to be too black and white, too linear in our perspectives and preferences?  Or, like me, have too many of us had conversations with motivated employees who want very much to do what it takes to excel (and to earn the rewards associated with excellence), but who are frustrated by a boss who refuses to provide concrete suggestions - or even hints - of what they can do to better their contribution to the organization's success.  For an employees in these shoes, the response of "I can't tell you but I'll know it when I see it" can feel like a big fat cop-out. 

Is it?

Where do you come down on this question?  I'd love to hear the thoughts of those both in and outside of the compensation field.

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares.

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