Arriving at the Houston headquarters of the global oil company at the specified early morning hour, I was a little concerned. This happened years ago, during one of the periodic energy booms in North America. I was feeling somewhat mystified and a bit anxious because my new client was extremely vague about my assignment. They only told me that I should plan to give a casual briefing on an unspecified pay subject to some management group.
Turns out I was scheduled to be the kickoff speaker for the compensation portion of their quarterly meeting for General Managers. “What’s the issue?” I asked. My hosts, the HR Director and the Compensation Manager, simply handed me a few pages of official policy bumf without comment. I read in silence for a few minutes. When I looked up with raised eyebrows, they carefully stared at the walls, out windows, at their fingers, down at their feet… they looked everywhere except at me. The silence stretched. “Oh, it’s THAT, is it?” I scowled.
With embarassed satisfaction, they rushed me into the conference room and flung me into the claws of a surly assemblage of powerful GMs who promptly issued a barrage of commands to endorse “cost of living” as a key component of their salary system. With the adrenaline rush that comes as battle commences, I proceed to run through all the standard responses to their arguments.
- Whose “cost of living” do you want to match? The government publishes many versions.
- Each family has a different expense budget. Whose cost should rule?
- No, cost of labor and cost of living are different. One is what you pay people. The other is what they spend.
- Companies expect to pay a competitive salary for the job. The employee’s family lifestyle reflects personal choices outside the employer’s control.
- Paying according to spending means the more I spend, the more I should earn. Should we subsidize wild and crazy expenses?
- If “cost of living” has ANY impact on pay, it already shows up in the competitive salary survey results. Adding a COL factor on top of competitive market rates would be a reduntant double-snapshot.
- Isn’t it just simpler to pay the market rate instead of basing salary on an index of changes in a standardized marketbasket of goods and services that covers everyone and fits no one?
A few special rebuttals applied here, too.
- As a world energy center, Houston pays highly competitive wages and salaries, but its living costs are quite low for a city of its size. Should salaries be reduced per the lower living costs here?
- Should pay drop below market-competitive levels for people who live in less expensive areas?
- Would raises follow when someone moves from a trailer to a mansion?
It was long ago, so I’m sure I’ve forgotten a lot. But one thing I will remember forever.
Amid the tumultuous shouts and occasionally thoughtful exchanges, my hosts stood in the back of the meeting room, where no one but me could see them. The audience was facing forward and only I was looking over the crowd to the rear where they beamed in pleasure. Their grins stretched from ear to ear and they pumped their fists at me in joy. Bunch of cowards? Naw, they were canny petrochemical HR/compensation professionals who understood how to apply resources. The hired gun did his job.
Once hard cash has been invested in the advice of an outside expert from elsewhere carring their ubiquitous briefcase, organizations frequently finally take the very steps long recommended by their experienced inside employees. Brennan’s Law on Consulting #2 says: Although an idea from an employee may be rejected, the same idea from a paid outside consultant will be accepted. The unfortunate implication of that reality is shown by Consulting Law #3: When management concludes that someone from the outside is always smarter than an employee, they are saying that, "no one with any brains could be expected to work here."
Hope you don’t recognize that situation... unless you are the consultant.
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. 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.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.
Creative Commons image "MIB" by KellyB