Compensation Cafe

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are You A Copy Cat?

Picture the scene;  you've just completed a presentation to senior management, complete with analysis and recommendations for next year's compensation program.  Now you stand ready for the question and answer session.  Now is the time to defend your proposals.

With a carefully blank expression on his face your COO poses a single question . . . why so much?

Justification Or Excuse?

But you're prepared.   You've anticipated the question.   You know that properly answering the "why" question is your once-a-year opportunity to make your mark, show off your CCP designation and help direct the reward programs for your organization.

So chances are you won't respond with, "because that's what everyone else is doing."  Uttering that lame comment would suck the air right out of the room - and likely your career with it.   So you won't say that.  However,  just between us, would that actually be the truth of it?  Are your recommendations based on the unique status of your own organization's external competitiveness, internal equity, overriding Compensation strategy and financial affordability, or have you simply parroted what the Compensation surveys report that everyone else is supposedly doing?   Have you pushed the EASY button and followed the all-powerful "common practice?"

Beneath the simple question above your senior leadership is really asking whether your proposals set a course to  simply follow the pack, or do they lead toward solutions crafted for your organization's own needs?  Follow the crowd or strike out your own path?

Are your recommendations for the company's compensation programs a compilation of "everyone else is doing it" rationale, or are those proposals based on what you feel is necessary for your own organization - regardless of the "average?"

Are Decisions Being Made For You?

Is your view of presenting competitive programs a reaction to the behavior of others, or because certain tactics also make sense for you as well?

• Raising Salary Ranges: surveys will report the projected average increase in salary range midpoints for next year.  But how does that figure relate to the competitiveness of your own situation?  Do your ranges need a similar adjustment?  What would you recommend if you didn't have a survey whispering in your ear?

• The Average Spend: if survey sources report a projected average spend of 3.0% for next year, is that your recommendation as well?  And when responding to the why question, what else do you have to offer as justification?  Does the 3% make sense for you?  Can you afford it?

• Pay Decisions: is the survey source a reliable indicator you can point to as the prime reason for making individual or group pay decisions, or are external sources only one aspect of your analysis, one element of your reward program strategy?  If the market says $47,512 does that figure become your new competitive target?

So before you make that next reward presentation ask yourself whether your decisions and your recommendations are adding value to the organization.   Or was your analysis complete once the survey data suggested a common trend?  Once you saw the answer.

The easy way is to point at others, to argue the common sense of common action.  However that strategy bespeaks more of a Compensation Administrator than one who is charged with overseeing the proper design, competitiveness and effectiveness of the company's reward programs.

To be fair, sometimes what everyone else is doing is the right action for you.   I suppose that's why so many companies are doing it.  Then again, the reported "average" may be no more than an arithmetic exercise that is less a strong trend than rather a convenient manipulation of data points.  Who's to say?

So be careful before you sign on to tactics decided upon by other companies.  That nameless average of common practice is not responsible for your organization's compensation programs.  You are.  And you'd better have a better reason for your proposals than that's what the survey said.

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.  With over 30 years Rewards experience 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 pmarella

Is It Rocket Science Where You Work?

Company management is always asking, "what is the market value of our jobs?"   But just how precise does your market pricing analysis really have to be?  To what extra lengths will you go, or should you go, to increase the level of precision in your analysis, and would that effort prove worthwhile?   Does the appearance of a more precise figure bring meaningful results for you and for your management?

For example, would you consider that a market rate of $47,512 is an accurate reflection of current national trends for the subject job, or is that figure simply an arithmetic average that looks precise?  Would you fall on your sword over the accuracy of your analysis?

Regardless of need, how precise can you be?

The competitive “marketplace” is an imprecise animal, not often well defined and subject to numerous variations and interpretations.

• One survey doesn’t use the same companies as the next survey.

• The job matching spectrum swings from easy (benchmark) to difficult (unique jobs).

• Surveys provide different mixtures of industries and revenue (size).

• Weighted Average / Average / Median / 50^th Percentile formats are not always consistent, and they are not the same.

• International data is often a shadow of what is available in the U.S.

Meanwhile, the market itself is a moving target, never static, always changing, and the use of aging factors to bring it up-to-date will add a degree of guesswork.   For icing on the cake many practitioners round their analysis to the nearest Currency 100, in order to emphasize the "pulse" of the marketplace.  A minor distortion, I'll admit, but exactitude is often an illusion anyway.

Each of us, in our respective roles, needs to ask of ourselves, what degree of precision is necessary?  Not what is attainable, but what is necessary to achieve our goals.  Is it sufficient to report the pulse, or does your organization require a digital thermometer that slices whatever data is available to a much finer degree?

When survey data is not robust (limited participation and scant industry and / or revenue segments) the extra effort expended in the search for precision can result in short cuts, assumptions and questionable (stretch) job matches - all to deliver a data capture anomaly that has only the appearance of exactitude.

Remember that the average of two survey sources doesn't necessarily indicate a market trend, but only an arithmetic average - in effect, a splitting of the difference between two credible, or incredible figures.  That's not a sign of anything.

A useful rule of thumb to consider is that any incumbent figure within +5% to -5% of a reported “market rate” is close enough to be considered as "on target."   There are some who think that figure should be 10%, but to my thinking that leaves too wide a range for a so-called “going rate.”

Caution:  lots of analysis – paralysis jockeys out there advocate increasingly precise techniques to zero in on what they call your true market rate.  Toward that end several vendors have built a business model around encouraging organizations to slice and dice available information, trying to define and refine exactly what a “market” is, what jobs are exact matches and after a fashion how their singular survey source is the answer to your needs.

Part of that marketing strategy is to use custom designed evaluation techniques and their proprietary job matching system.  Such a strategy effectively marries the organization to the vendor, as one cannot easily co-mingle proprietary language and techniques with methodologies used by other survey sources.  Apples and oranges.

The hunt for precision can deliver less perceived value

Sometimes the pressure to report ever more refined analysis might actually result with the opposite effect; weakened credibility as the figures face challenges.

• When too few companies are reporting data.

• When having to stretch survey descriptions to match unique job content.

• When dealing with locations having volatile inflation spikes.

• When management doesn't need to "dot the I and cross the T."

At the end of the day, what does the client or your company management desire from your view of the competitive marketplace?  Chances are they simply want an understanding of approximately what the job is worth.   To gain a "ballpark" figure that could be used in planning, in recruiting, in assessing their reward programs.  You won't have to report $47,512 to paint that picture.

On the other hand a simplistic sore thumb analysis is not an effective solution either, but instead let me suggest that a balance of time, effort and cost be used when conducting market analysis.  The key question is, what level of precision is really necessary?  What level will deliver credible results?

Do you really need such analytic exactitude to make a business decision?

I think you don’t, no matter what the over-analyzers suggest.  But then again, it may be rocket science in your organization.

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.  With over 30 years Rewards experience 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 cliff1066

2002-2012 Salary Increase Changes

Ten years ago, the lockstep movement of salary increase budgets ceased and the course of payroll increases split into two separate paths.  Small firms cut increases; big organizations did not.  The effects still haunt us.  Here is an insert from the January 2002 ERI Update report:

Now, in 2011, as the compensation planners consult their tea leaves, study the stars and gaze into crystal balls to predict the future, we would be well advised to remember what happened to salary increases exactly a decade ago.  In the Fall of 2001, salary increase budgets bifurcated.  They split into two different tracks.  Plans set at year-end 2001 for calendar year 2002 were drastically revised at a lot of companies.  But the changes were variable, concentrated among the smaller employers of America.  The large organizations blinked but continued with their pre-set and tentatively approved salary increase plans.

Nevertheless, the news of the day at the time trumpeted the panic of small companies as 2002 began.  As the year proceeded, more and more firms reacted a decade ago by trimming or even completely cancelling budgeted pay increases, feeding an increasing spiral of negative expectations that encouraged owners to hoard their payroll increase dollars even more tightly.  At the end of 2002, cash-rich companies showered top management and owners with large rewards while rank and file employees received smaller incremental raises, if any.

Those changes from a decade ago still flow through the salary increase percentages reported in surveys.  It continues to affect the policies adopted by top management committees.  The generous pay practices of large employers were hidden behind surveys that reported simple averages rather than weighted averages or medians.  That problem still remains, so be careful to compare your enterprise to comparably sized peer firms that follow pretty much the same absolute pay practices that you do.

Remember that budgeted increase rates are relative metrics that can mask true absolute realities.  If you pay 10% above the average and plan increases that are less than “normal,” you will still lead the competition next year; only, your lead position will drop to maybe a relative 8% lead.  Remain confident that, regardless of what anyone else does, your salary increase budget will be proper if it is right for you.

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.

Equity Compensation Data for Start-ups and Other Private Companies

During the month of November I’m going to focus on my equity compensation roots. With both the IPO and M&A markets once again starting to gain attention, we can start by discussing a recent survey on equity compensation at private companies.

The National Center for Employee Ownership, (www.nceo.org) just released their 2011 Private Company Equity Compensation Survey. This survey is unique because it focuses exclusively on data from more than 200 privately held companies. Given the focus of the compensation industry on market data, this unique data set gives us a rare glimpse into companies that provide very little in the way of public disclosure.

The participant companies were fairly well dispersed in multiple industries. 42% were from biotech, software and other technology sectors; 16% were professional services firms; 12% in manufacturing and the remaining 30% spread among a variety of industries. More than 80% of the responding companies have been in business more than five years.

Given the direct impact that exit strategy has on equity compensation design, it is interesting to note that only 10% of companies expect to go public, while 56% are planning on being sold to another firm. A surprising 27% currently have no exit strategy. 47% of firms have VC investors, 29% have family investors and 25% have Angel funding.

More than three-quarters (77%) of these companies give all of their C-level officers some form of equity compensation. 56% of respondents give equity to at least some hourly/technical employees. While these numbers show a broad application of equity, the amounts awarded tell a slightly different story. 56% of equity is awarded to C-level officers, while only 4% goes to hourly/non-supervisory employees.

The mix of equity instruments used is also telling. 66% of companies use stock options for some or all of their participants. 29% use restricted stock shares. Just 10% use one or more of phantom stock, stock appreciation rights (SARs) and restricted stock units (RSUs.) Non-founders held a mean of 15%, while founders owned a mean of 38% of the outstanding equity at responding companies.

So, what does this all mean?

First, accounting practices seem to be driving equity design more than management concerns about creating new shareholders. Restricted stock has a fixed accounting expense and avoids the need for 409A valuation. Stock options require 409A valuation, but have a fixed, predictable expense. Phantom Stock and SARs usually pay out in cash and result in a need for both a 409A valuation and regular adjustments to the compensation expense on a company’s books. While the accounting issues are important, plan design should first focus on the big-picture goals of the company. Many companies can benefit from the addition of synthetic equity to their programs.

Second, private companies are not being impacted by the current push for performance-based equity seen at public companies. This is likely due to the generally unpredictable nature of both company valuations and predictions on future performance. While many management teams would like to have more robust and defined performance hurdles, plans have not yet caught up with aspirations. Between 75% and 90% of public companies in the US now use performance criteria for some or all of executive equity awards. The number of private companies in this survey using performance equity did not even register in the final data.

Third, more than a quarter of companies have put equity plans in place with no clear idea of how those plans will have value to the participants.  With 27% responding that they currently have no exit strategy, it is likely that most of these firms have not been able to clearly communicate a realistic potential value, or event horizon, to their employees. Without this communication these companies lose much of the value of equity as both a motivation and retention tool.

Finally, companies are not simply using equity as a spark to obtain the holy grail of an IPO. In fact, only one out of ten companies considers an IPO in their future. Equity has become a fairly ubiquitous compensation tool that is being used regardless of the potential future of the company. Participants and employers see a value in equity even when they cannot express how that value will be obtained. It is important that companies continue to communicate the processes, potentials and values of equity awards as they evolve. As I have said in the past, in the absence of information, people will use their imagination.

The survey is available from the NCEO for $150 to members and $250 to non-members. NCEO introductory memberships are available for $90.

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

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

Try This One at Home!

Imagine this. Increasing pay satisfaction without increasing pay. And just for fun, try it with one of the toughest crowds -- hospital workers.

Can't be done, you say? It has been done, in one of the most august American healthcare institutions.

Attention must be paid. We have a lot to learn.

The Mayo Clinic conducted their biennial engagement survey in 1999 to find that 17% or so of their employees reported being satisfied with their pay. Slim pickins, even for a measure that is typically no higher than 30% or so in most organizations.

2011 results for the pay satisfaction item at the Mayo Clinic? 82%

How did they do it? As World at Work puts it, "Mayo Clinic’s success had little to do with changes to the compensation program itself but a stronger focus on communication, collaboration, transparency, market competitiveness, and predictability."

I'd suggest that their stronger focus on communication is what made the collaboration, etc. possible. As Karmen Reid, the Director of Compensation at Mayo Clinic who worked this magic, points out, "We always pay the same way . . ." The difference? A new philosophy of openness about all things pay.

Those of you who regularly read the Compensation Cafe know that we find "transparency" to have mixed results unless it is coupled with clarity. The Mayo Clinic's work seems to acknowledge that. What Karmen seems to mean by transparency is more of an intentional collaboration with supervisors and employees. They hide nothing from managers but they don't stop there. Data is paired with insight. Intentions are explained and discussed.

I think she and her colleagues came up with especially elegant solutions. Instead of deciding, they listen. Instead of explaining the "way we do things around here," they collaborate. Instead of "training" supervisors, they give them a briefing and let them brainstorm how they would handle topics with their employees . . . then offer coaching if it is needed. 

How do you make everyone responsible for engagement? Hand over the reins, demonstrate your trust, then act as navigator. The deep sighs of relief from supervisors come from increased job satisfaction -- and lead to higher engagement research scores.

Want to hear the entire story from the Mayo Clinic? Check out the WorldatWork Workspan TV interview with Karmen Reid embedded below, that covers a lot more details. 

Then try this one at home!

Thanks to Ann Bares for pointing out the video to me -- she knew how much I'd like to share it with you.

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.

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

Compensation Becomes Critical When Budgets Are Tight

Assuring that your compensation levels are both accurate and appropriate becomes far more important in bad times than in good times.  When business is booming, when employers are rich and when budgets are fat, money is no object.  In times of prosperity, when key contributors complain about pay, you give them more money and worry about justifications and internal equity later.  When the economy is shaky, when employers are struggling and when payroll budgets are tightly limited (even reduced more often than expanded), it is a very different situation.  During difficult business times when funds are limited and you have openly demonstrated a bias against exceeding permitted financial limits, a lot more justification will be required to deviate from the pre-established compensation plan. 
 
Whether it is raw talent or payroll money, scarcity of a valued item enhances its economic value.  That works both for you and against you.  Your best employee is more important than ever before, because the company depends heavily on their continued high level of productivity and there are few if any possible replacements for them.  Top management may recognize this reality but will still hesitate before authorizing an exception to their pay policies because payroll discipline has been emphasized in a highly visible manner.  Once the freedom to grant discretionary remuneration awards has been restricted, it is no longer easy to persuade top management to authorize an exception.  Winning approval for an extraordinary merit increase, a special bonus or a competitive adjustment will be much more difficult than before.  Strong cogent arguments must be prepared to offer the best chance of a positive outcome when many managers are competing for scarce payroll dollars.

More proof than usual may be demanded to win agreement when you need to do something special.  The merit of the individual’s performance results must be indisputable.  The scope of the work must be substantial.  The downside risk of inaction must be real and so significant that possible loss of those services will be totally unacceptable.  It must be more costly to lose the contributor than the price to buy continued retention and engagement.  The proposed remedy should not place undue stress on existing internal equity relationships.  Finally, you must have good reasons documented for reference.

Mind you, the optimal compensation element may be something besides cash, such as recognition or career enhancement features, but the same justification challenges may still apply.

Finding surveys to back up your recommendations will also be tougher today.  With fewer and fewer independent survey suppliers these days, it is more vital than ever to choose well for your traditional best practice three sources for any important job pricing decision.  Check the provenance, reliability statistics and dependability of the pay surveyor, to confirm that what you buy will meet court acceptance standards.  Management committees and boards of directors are likely to reject cocktail party gossip or unconfirmed internet postings.  Then decide what information sources give you the best value.  Some very expensive but pretty garbage can be discovered, so check quality first before comparing the cost.  There is no good price for bad information.

The quality of compensation work becomes most important when dollars are in shortest supply.  Or have you found otherwise?

 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.

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