Compensation Cafe

How to Reward Those Who Must Step Up During Tough Times: Thoughtfully!

During these times of upheaval, with hiring frozen and in the wake of layoffs, many employees are being asked (a nice way of putting it) to take on more.

The question becomes: Who and how to reward for this?

I've run across advice from several corners which advocates funneling as much of your rare/precious/discretionary salary increase budget as possible to raising the base pay of those who have accepted the greatest additional burden in these times.

While on the surface, this seems like a sound and fair approach, my advice is to proceed with thought and care. 

These days, and for the foreseeable future, it is likely that everybody's job will require going above and beyond, taking on additional work or stepping up to new levels of responsibility.  For this reason, we need to be careful about the precedent we set. Some of my clients who've been there and back would caution you against creating a culture where being asked to do more always sets up the expectation of a raise.

Having said that, however, I think we can all agree that there are situations where someone takes on more ... and situations where someone takes on MORE.  The trick is to establish clear, defensible criteria for distinguishing between the two.

For employees who are clearly doing MORE, where some kind of reward is probably appropriate, I would advise taking a closer look at the circumstances to determine whether MORE ...

• Is a temporary/short-term situation or likely a longer-term thing.  If the duration of the additional work is expected to be short-term, I think a (permanent) base salary increase is ill-advised.  Perhaps some kind of cash or non-cash recognition program would be the best fit to rewarding these employees.

• Involves more of the same level and type of responsibility or reflects a different and higher level role.  With the former, I would start by looking at whether your performance management/merit increase programs are positioned to provide an appropriate reward.  If not, perhaps cash or non-cash recognition is - again - worth exploring as an approach.  In the latter case, it sounds to me as though we should consider re-evaluating the position and treating it (and the employee holding it) in a manner consistent with our policy for job upgrades.

I'm not suggesting that these are the right answers or approaches.  My point is simply that rewarding those who step up should happen in a way that is commensurate with the circumstances, mindful of the precedent being set, and - ultimately - aligned with our longer-term compensation philosophy and policies.

What you begin today you will live with tomorrow. 

Ann Bares is the Editor of 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, enjoys reading in her spare time and is currently trying to decide whether to follow her daughter to China this summer.  Follow her on Twitter at @annbares.

  

The Secret to Effective Performance Management

Effective performance management is not the result of a well-written review form, or even an expensive software solution.  These are tools that can help, but they won’t magically make all of your managers experts at delivering performance feedback.  The key to successful performance management is training your managers to be good at it.

The ultimate purpose of performance management is to drive employee behaviors that contribute to positive business results.  This is why most companies are willing to invest time and money into the process, because they expect it to improve business results.  The best thing we can do to ensure that we’ll see a return on that investment is to provide recurrent and ongoing training that helps line managers to deliver effective performance conversations.

Here are some of the things that are important to include in performance management training:

1. Performance management does not equate to the formal review process.  Managing performance consists of regular and ongoing conversations about results.
2. People must understand what is expected of them in advance, or they can’t be held accountable for their results.
3. Performance reviews should never contain surprises since feedback is being provided along the way.
4. Performance is defined as results that advance the business, not effort or potential.
5. Scoring definitions must be clear to everyone in order to equitably score performance, and scores given must be justified by explicit results. 
6. Performance conversations and reviews should always contain specific examples of results or lack thereof.  Vague comments about performance don’t help anyone to improve.
7. Even if your company doesn’t have a formal 360 degree feedback program, seek out input from customers, peers, and others who interact with the employee.  Supervisors might not have a complete picture of this person’s output so getting feedback will help to properly evaluate results.  Make sure to honor the confidentiality of the source.
8. Provide opportunities for managers to practice providing feedback.  Provide performance examples and ask managers to write and/or deliver comments and scores for those examples.

This list is a good starting point for training, please use the comments section to list other items that will help to assure that your company gets the greatest return on its investment in performance management.

Darcy Dees works as the Compensation Manager for Rock Bottom Restaurants, Inc.,headquartered in Louisville, CO.  She has been working in Compensation for over 5 years now and recently attained her Certified Compensation Professional (CCP) designation.  She spends what little free time she has hiking and reading.

Beyond Boomers: The Future of Executive Pay

Last week, Business Week posted a blog by Matthew Boyle focusing on how CEOs of tomorrow will be paid.  In preparation for writing the blog, he questioned Don Delves, founder of The Delves Group, a Chicago consulting group that specializes in executive compensation.  Mr. Delves began the interview by setting the stage in describing the future environmental landscape for CEO compensation:

• A less volatile stock market, and not a "raging bull" market
• Very high inflation and interest rates
• The gradual replacement of boomers with the next generation
• Greater focus on risk related to rewards
• More talented, influential entitled boards
• Continued rapid ascendancy of China, India, Russia and other countries

My additions to his list:

• Greater governmental oversight and control of executive pay in private sector
• Continued emphasis on transparency
• Shift to achievement of long-term versus short-term goals

Mr. Delves believes that the next generation of CEOs will have different values and motivations from  us boomers.  They'll be more egalitarian, flexible, tech-savvy, cooperative and comfortable with change.  Their focus will be on on paying for innovation, entrepreneurship and people development.

But with Boards of Directors still flush with boomer members, conflict regarding how to reward and pay executives will initially emerge due to the difference in values between the generations, then diminish over time as boomers retire from these boards. Boomers are more analytical, and believe in paying for achievement of results and innovation based upon measurable benchmarks.

The future bodes fewer stock options, and instead more restricted and performance-based shares according to Mr. Delves. He believes that CEOs will be evaluated more on sustainability, return on capital and balance sheet soundness than on growth and profitability.  And he envisions potentially higher pay levels for expat CEOs working in emerging countries than what will be paid within the continental United States.

The impact of inflation on pay over the next few years will mirror the 80's in this country.  For those of us who lived through it, who can forget the 12-15% merit increases associated with that decade? While stock option awards may diminish, base pay, deferred compensation, and long-term rewards will emerge into the forefront of executive pay.

Sound future executive pay design will need to incorporate more factors than ever before to succeed.  They include transparency, inflationary pressures, a long-term performance focus, fiduciary responsibility, ethics, social responsibility, and governmental oversight. 

Sounds like a fun challenge for us as compensation professionals! 

Becky Regan is the founder and President of Regan HR, Inc., a human resources consulting firm specializing in compensation consulting for California employers and purveyor of online HR products. A former Corporate Human Resources Director (10,000+ employees) with more than 25 years of HR work experience in many industries, her team works with private, public and non-profit clients.  Becky is passionate about designing HR programs and compensation plans that build organizations.

Lower Hiring Salaries for Experienced Workers?

Are you an experienced person looking for work?  Do you think you’re going to get paid less now than you did before you were unemployed?

It depends.

Despite “these troubling economic times” (anyone else tired of hearing that?) it’s pretty much business as usual.  If the job you’re considering is basically the same as the one you left, you’ll probably find the salary is similar to what you were paid in your previous position. 

You may even find a higher salary is being offered.  How is this possible?   Some companies will use a portion of the savings from the salaries of positions that were eliminated, (e.g. less experienced/lower on the totem pole/lower paid or non-performer salaries) when hiring to secure the right people for the positions they consider critical to their success. 

You can expect to be offered lower pay, however, if you’re changing careers or are taking a position with less responsibility than you had in your previous position. But you already knew that, right? 

But be prepared: there are companies who will, during economic times like these, pay a new hire with all the appropriate skills/experience/education to be paid at market below the market rate, even if their compensation philosophy is to pay at market. 

Now, a message for those of you managing the pay programs.  If your company is considering paying below market, here are some things you might want to keep in mind:

• be in legal compliance with all appropriate regulations
• have a valid justifiable reason to pay below market
• be consistent (don’t hire X below and Y at or above market, if they’re being hired for the same position with equivalent skills/experience/education)
• ensure the position/new hire isn’t kept at a sub-market level for an unreasonable amount of time
• have a game plan for when these salaries will be moved to market
• have the budget for these increases approved prior to hiring

In the end, it’s hard to say whether paying below market is right or wrong -- there are  reasons that qualify for right and reasons that qualify for wrong. The important thing is to understand the situation as either employer or employee and ensure you’re working against a plan either way.

Please use the comment section to let us know your thoughts. 

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Friday Special at the Cafe

Every Friday, we select an especially good compensation/reward blog post from the past week, from somewhere outside the Cafe, and highlight it here.

With this week's Friday special, we give a nod to Cafe friend Kris Dunn at the HR Capitalist for his thought provoking post What's the Lifetime Value of an Email/LinkedIn/Twitter Contact? 

As Kris tells us, it turns out that researchers from IBM and MIT have recently looked at exactly that question.  From Read Write Web:

"In a recent study conducted by IBM, researchers from IBM and MIT found that the average email contact was "worth" $948 in revenue. This is believed to be the first time a specific monetary value has ever been assigned to social network contact. To arrive at that number, the researchers dove into the address books and emails of 1600 IBM consultants (identities withheld, of course) and compared the communication patterns with the consultants' performance in terms of billable hours, projects participated in, and revenue generated.

In addition to determining the value of an email contact, the researchers also found that those who had strong email ties with a manager enjoyed greater financial success than those who kept themselves more distant. In fact, those with strong links to a manager produced an average of $588 of revenue per month over the norm. (So maybe you should start emailing the boss more?)

Another value tied to greater financial success was network reach. A more diverse circle of correspondents - specifically, the number of people reachable in three steps - was also tied to higher performance."

Heady stuff, yes?  Particularly for those of us in the business of developing and managing rewards, as Kris points out with a few of the questions he poses:

1.  What's the best way to encourage the development of deep networks across your employee-base?  Can incentives play a part, or are those empty dollars spent?

2.  Can you embed network development as a performance management component moving forward, confident that it brings value to the individual employee (good for their career regardless of where they work) as well as to your company?

What say you, Cafe readers?  Is there a role for incentives ... or performance management programs to play in encouraging this value creation ala social network?  What dangers lurk in the woods waiting to ambush such efforts? 

How would you advise your organization to proceed?

Hit us in the comments with your thoughts.  And have a great weekend!

The Value of Total Rewards Statements

Does your company publish total rewards statements?  They have become more and more common over the years.  They allow companies a chance to tout all of the benefits programs they provide that many employees may not even be aware of.  They provide the opportunity to show your employees how much you actually spend on them, as well as a vehicle to explain the more intangible but still important benefits you offer.  But they are certainly a large investment of time and can be a significant investment of money.  So why do companies bother?

Studies have shown that engaged and satisfied employees help to create a more successful business.  Both the Hay Group and Towers Perrin have conducted studies that show a strong correlation between employee satisfaction and their understanding of their rewards programs.  They found that the companies with stronger business results did a better job of making their employees aware of their rewards programs.    

They found in their studies that high-performing organizations did a better job in the following areas:

• Communicating the purpose and intent of total rewards programs
• Frequently communicating the value of total rewards
• Engaging line managers in the reward communication process
• Evaluating the success of reward programs

Employees understand how much they earn in cash.  What they frequently don’t understand is the value of the various benefits plans offered.  Total rewards statements are an excellent vehicle to show your employees the full amount you pay on their behalf.  Our company also issues a simplified total rewards statement when we extend a position offer to help the potential new employee compare offers and understand how strong our rewards/benefits programs really are.  These statements are an investment, but it’s one that can really pay off.

Here is a list of a few additional benefits your company can experience with the publication of total rewards statements:

• Increase the perceived value of total rewards
• Assist in motivation and retention (and attraction/recruiting)
• Provide a relevant tool to communicate your company culture and values
• Make employees aware of the full array of programs you provide

What's with Competencies? How to Avoid Getting Lost (and Learn from a Legend)

In my last post, I suggested that HR take a look at job competencies again, so we can help employees make the most of the business climate.  Given the challenges that most jobs are encountering, this is a great context for savvy employees to learn and grow. 

I received a couple of comments on the pros and cons of competencies, so I thought I’d take another shot at the topic.  Just some thoughts this time on their value and purpose, a couple of case studies, with a bit of text book thrown in.

Have you driven on the highway recently?
Have you noticed how behaviors matter? 

Remember your mother’s warning that table manners will come in handy when you grow up (and join the CEO for a lunch meeting)? 

Most companies have “a way we do things around here.”  In other words, this is the way that we expect people to act.  As it turns out, those behaviors actually differentiate companies from each other and can contribute to their success or downfall.

Many companies understand that competencies help drive their business future, and design them to close the gap between where they are and where they need to be.  In other words, sometimes “the way we do things around here” has to change.  This is hard stuff, a big change, messy and requiring lots of HR planning and attention.  On the other hand, it’s a great example of HR as a business partner.

Here’s where a legendary company comes in
In the comments on my earlier post, I gave the example of how a division of Toyota redesigned their reward system when they began to lose market share.  Consumers still loved Toyotas for reliability and overall excellence, but they were beginning to be seduced by flashier doodads that other companies were marketing. 

Toyota chose a competency based system to illustrate what they meant by creativity, and to build those expectations into everyone’s job.  They felt the message had not been as loud before, but that the behaviors described by the competencies are what distinguished their product from others.

Then there was the case of the bicoastal competencies
In another case, I worked on a merger of two financial companies that had very different cultures.   One was known for excellent record keeping and financial knowledge, the other had developed a strong customer service brand but in a single product.   One was in the South; the other was in the Bay Area.   Yikes.

A competency-based reward system was introduced to illustrate the business needs of the new company, which had a very different business strategy than either of the original players.  In this case, HR expected the lifespan of the new reward system to be the period of transition.  Once the company was on its feet, another approach was probably going to be more useful.

It’s easy to get lost
Most companies do not rely solely on competencies to describe employee performance expectations.  Instead, competencies supplement objectives or other results-based measures.  And many have had mixed results with their competency applications. 

If your company is still muddling through or is giving up, there are a couple of quick things to consider.  Are your competencies designed to help employees differentiate your business from your competitors?  If so, is the stretch that’s built into them clear to employees and managers?  If those competencies represent a magnitude of change in “the way we do things around here," do you really reward people for demonstrating the changes?  Are you helping them understand the purpose of the changes?

There are lots of other areas of confusion associated with competencies, but I thought I’d start at the beginning.   What do your company’s competencies actually mean?

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.
 

 

AIG Bonuses

I tried to resist, but alas, to no avail.  The AIG bonus “debacle,” as so many are terming it, reeled me in.

As many of my compensation colleagues have mentioned, it’s hard to comment since we don’t know what the plan says.  Only those who designed, are recipients of or are part of the bailout program with access to the plan actually know what it says, how it worked or -- perhaps most importantly -- how it was supposed to work. 

My first thought?  Empathy for the comp practitioner.  I hope they tried to develop a plan contingent on truly measurable metrics that were something the participants should be financially motivated to accomplish. A key element: I hope they had what “fail safes” in place that they could in case the company didn’t meet it’s financial targets or was teetering on the edge of bankruptcy or failure, and, that in the end, the fail-safes  weren’t overruled.  That often happens so current management won’t be perceived as the bad guy.  I was out with some friends last week, all HR types, and the subject of AIG came up.  One of my friends doubted my sentiment when I mentioned my empathy, since the fail-safes are all-too-often overridden. 

For what it’s worth, it happens. 

If you were employed by AIG, would you want those who retain the intellectual property (the core knowledge of the company) or your best performers to run to the nearest competitor, through a rapidly swinging door, almost ensuring the failure and loss of more jobs, yours included?  I doubt it. 

If you were tapped on the shoulder to help a company through a transition (merger, acquisition, bankruptcy, receivership, failure, etc.), I imagine you’d want some financial incentive to stay, because in the end, there’s a good chance you won’t have a job. 

However, in this economy, giving retention bonuses to those that are not critical to the company is absurd. I’ve heard of receptionists getting bonuses. I certainly agree that when a company is doing well, employees at all levels should be rewarded. However, when the bonuses are coming at the expense of an ever-growing federal budget deficit, that’s simply taking advantage of the situation.

Do I think we should legislate or tax away these types of bonuses?  No.  Were mistakes made in the case of AIG?  It certainly looks that way.  Should some of the recipients feel guilty?  Absolutely. 

History is 20/20, hopefully we’ll all learn from this and not repeat it. 

Terri Albee is a seasoned independent consultant whose practice has a primary focus on total compensation.  She has worked in a variety of industry verticals from start-up/entrepreneurial organizations to the Fortune 500, with both domestic and global responsibility.  Her experience encompasses design and implementation of total reward plans at all levels, from the Board of Directors on down.  She earned her B.S. in Business Economics from Regis University.

Federal Pay for Performance Under Assault

The last few weeks have seen a direct offensive launched against pay for performance efforts underway across federal government agencies.  Much of the initial attention was aimed at the Pentagon's National Security Personnel System (NSPS), a pay for performance system launched in 2006 which now covers more than 200,000 of its civilian employees.  Now, a group of eight chairmen and subcommittee chairmen have sent a letter to White House budget chief Peter Orszag asking for a government-wide halt in the expansion of merit pay.

From the letter:

The Government Accountability Office found that employees do not trust these systems to compensate them fairly.

(This could very well be the case, especially if the employees surveyed have historically been accustomed to an approach whereby fairness = treating everyone the same.)

... Proponents of pay-for-performance have argued that such systems are necessary to compete with the private sector for talent.

(Is this true?  I would find it more likely that these proponents argue their necessity in order to compete with the private sector for results.)

We note that the 1990 Federal Employees Pay Comparability Act provided personnel flexibilities to compete with the market while retaining the fairness and transparency of the merit based civil service system.  A well-designed performance management system can recognize and reward high performance without a linkage to compensation.

(Really?  Recognize and reward?  Huh.)

A recent Wall Street Journal article, "Forget About Merit", sees the move as part of pressing forward with a union agenda.  The article notes that the Pentagon's system has been a primary target of federal employee unions since roll-out, with a nine-union coalition going (ultimately unsuccessfully) to court in 2007 on charges that the plan illegally limited collective bargaining.

From the Journal article:

According to figures released by the Pentagon in February, almost all of the employees in the merit system got raises or bonuses in 2009, with the average total reward of 8.35%. That dwarfs the 2.9% to 4.8% hike that most of the federal government's General Schedule employees got for the same time period. Unions prefer a return to a universal General Schedule system, which compensates employees based on time served. This expands the union's power base but also explains why they call them bureaucrats.

Now I will be among the first to concede that merit pay is tough to do well.  Anyone who tells you different is selling something you ought not to buy.  Even private sector firms with long experience in trying to align pay and performance struggle to do it effectively.  But just because something is hard doesn't mean it's not worth doing.  Most businesses pursue pay for performance not because it's easy but because of a belief that it's the right thing to do.  That it sets the right tone and direction, and creates the right culture.  That it is important enough to pursue it not with a likelihood of readily "nailing it", but in the spirit of continuous learning and improvement.

Which is one of the reasons I find the current crusade to stop the progress of Federal merit pay so disappointing; the loss of that critical institutional experience and momentum gained with these programs would be significant, and would require any future initiatives to take a long climb back up the learning curve in order to recapture this progress.

Ann Bares is the Editor of Compensation Café,  Author of Compensation Forceand 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, enjoys reading in her spare time and is currently trying to decide whether to follow her daughter to China this summer.  Follow her on Twitter at @annbares.

Does Executive Compensation Have a Limit?

The seemingly inexorable rise in executive compensation continues nearly unabated after a minor drop off earlier in the decade. We’ll see another dip soon, but sure as the sun rises in the east, executive pay will find a way to soar again.

A good illustration of this can be seen via a great graphical and descriptive overview of executive comp over recent decades called “The Unstoppable March of Executive Pay.” (a NY Times account may be required to view it this link – or click on the chart below to seen an enlarged version pop-up).

  

So the question we (or at least for us here at the Compensation Cafe) must ask is this: is all the attention being paid today to the phenomenal rise in executive compensation (especially at the CEO level) going to continue unabated, or will the “say on pay” movement, possible intervention by Congress, shareholders or public outcry going to finally have an impact?

Only a fool (or a pundit, like me) would pretend to know the answer to that question, but one thing is certain: the heat is turning up in the kitchen where these plans are developed, mostly in secret (to outsiders, like shareholders - the owners of the company!).  Repeated attempts to rein in corporate governance and executive compensation (Sarbanes-Oxley, Section 123R requirements for stock expensing, increased SEC-required executive comp disclosure requirements, etc.) have failed to make much of dent in the ongoing rise in  executive compensation.

Today’s environment may be somewhat different though.  Excessive corporate risk-taking, along with many corporations taking a blind eye to outrage that is building (special thanks to Wall Street, some banks, and AIG!), matched with a recession for the ages, may finally do the trick to rein in some of the excesses. 

One of my executive compensation clients called me up the other day to talk about their annual exec comp review, and even before I had a chance to ask about their plans, the CEO told me they were freezing the base pay of their top three executives for 2009 at 2008 levels. That’s a first!

A recent post on the Compensation Force blog put out by our fellow Compensation Cafe blogger Ann Bares, reported on a recent Watson Wyatt study that showed 55% of reporting companies were freezing executive pay for 2009. That’s a startling statistic by any recent standard.

Of course, there’s nothing like a good old-fashioned major recession to add a little perspective to the ever-increasing executive compensation budget. Interestingly, executives complain regularly about rising health care costs (and it’s a huge issue), but its funny that I never hear them complaining rising executive compensation costs.

Doug Sayed is founder and principal at Applied HR Strategies, Inc.a compensation consulting firm based in the Seattle Area.  Doug is a Certified Compensation Professional (CCP) with over 20 years of HR and compensation experience.  He earned a Master’s Degree in Human Resource Management from The Ohio State University.  He is an instructor for WorldatWork, and lead author of the upcoming “hands-on” compensation resource the StrategicPay^TM Series, Base Pay Toolkit, slated for publication in the second quarter of 2009.