Compensation Cafe

Friday Special at the Cafe

Every Friday, we make it our business to find an especially interesting compensation/reward oriented blog post from the past week from somewhere outside the Cafe, and highlight it here.  This week we point you to a post by Paul Hebert, author of Incentive Intelligence, who challenges us to take a hard look at our service anniversary award programs. 

Paul's post includes a link to a column he wrote on this topic for Incentive Magazine:  I think some of the points he makes there are particularly relevant:

Service anniversary programs were designed to reward longevity at a company with increasing award values as the employee's "time in the saddle" increased. At five years, you get a clock. At 10 years, you get a much, much better clock. And at 25 years you get a much smaller, but more valuable clock—the gold watch. (Heck, even the IRS recognizes service anniversary programs and gives a tax break for them. But I've never real keen on things that the IRS endorses, as they don't scream innovation in my book.)

Service anniversary programs were designed in a different time and for a different audience. Boomers and their predecessors were happy when things didn't change. But Millennials are different. They were raised in a hyper-connected world where multi-tasking was a norm. They have seen changes in technology that far outstrip anything that came before. They have watched their parents, who stayed with companies under the guise of loyalty, get laid off and deal with unemployment. In the mind of a Millennial, change is SOP—standard operating procedure. Gen Y believes that staying in one place is the same as going backward. And, therefore, rewarding a Millennial for not changing is an insult.

We shouldn't measure time: We should measure change.

As Paul says, rewarding employees for time is wrong; we need to reward them for growth - particularly in the fast-changing landscape that our organizations must now compete in.

Click over and read the rest of the post.  And if you are not already subscribed to Incentive Intelligence, get that done as well. 

Have a great weekend!

Employees Really Want Performance Management to Work

At a recent meeting of the Bay Area Compensation Association (BACA), Lisa O’Driscoll and Yana Plotkin wove an impressive collection of  Watson Wyatt's research into valuable insights on “Rewards and Retention in Turbulent Times." There was an avalanche of great thinking in there, but one small thing really stuck out for me. It’s from Watson Wyatt’s 2007/2008 Strategic Rewards study.

Low performing employees find an unsatisfactory rating with suggestions for improvement more satisfying than a satisfactory rating with no coaching.

On the face of it, this might be considered counterintuitive. Why would someone be more satisfied with a lower rating (and less money)? Most managers and HR practitioners, for that matter, would be surprised, if not a bit shocked at first. To me, this one small finding illustrates the real, measurable impact that our work on pay for performance can have. 

As I said in an earlier blog post, every paycheck sends a message to employees that they hear loud and clear. As an employee, the paycheck stays in the (metaphorical) envelope, with no clear, satisfying link to my performance unless my manager talks with me about it.  When my manager does take the time to help me, the recognition is worth more to me than money.

By the way, their research also shows that lack of job definition is the leading cause of work-related stress. Base pay and stress are the two major reasons why your top performers leave in this job market. You’ve probably seen it happen.

Not planning to improve base pay any time soon? You can still improve communications, job definition and performance management.  When managers and employees talk about problems and find solutions together, employees are more satisfied even if the message is difficult. When employees are more satisfied, they are more engaged and the company’s objectives get accomplished. Too often, we take this formula for granted. Especially in times like these, when managers are consumed with their own work worries. 

Let’s listen more closely to employees from now on. They really want our performance management programs to work. 

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.

The Excuses You May NOT Use to Defend Gender Pay Disparities

A recent and important pay equity case, Drum V Leeson Electric Corp., sounds a cautionary note to employers and appears to signal pretty definitively that there are some excuses that will not stand in defending gender pay differences.

Specifically, employers may not rely on superior negotiating skills - or the market - as a rationale for pay disparities between men and women doing the same job. 

From the Littler Blog:

This case provides a cautionary tale to employers as they set salaries for new and existing employees. When engaging in the hiring and salary negotiation process, employers must be mindful of the salary history of those employees who hold or have held the same job. It is not enough that one employee is a better negotiator than another. Employers must be able to point to skills, experience, or other factors not related to gender that justify a salary differential. An employer that wants to hire a similarly qualified employee for a position at a higher rate of pay than his or her predecessor or than current employees in the same position, may need to make retrospective and prospective salary adjustments for other employees.

At the same time, certain market-driven differences may be acceptable in specific situations. To be acceptable, however, an employer needs to rely on more than a broad "the market made me do it" defense. It must instead look to distinctions between the candidates (other than gender) to justify the market impact. Those could include greater years of experience, more job knowledge, adeptness in a particular skill needed by the employer and other similar factors. The market also can be used to differentiate one position from another, but if the positions are the same, the market defense is less useful, if useful at all.

Consider yourselves - and your managers - warned.

(Hat tip to Daniel Schwartz of the Connecticut Employers Law Blog for the tweet on this case and link!)

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.

Surveys - Huh What are they good for?

The chorus of War by Edwin Starr, is now rolling through my head, and probably yours.

War-huh

What is it good for?

Absolutely nothing

Some managers want to replace the word ”war” with “survey data.”  Many believe they know the market better, or rely on any number of “tools” from the Internet —I’ve had managers tell me “I called my friend” at another company. Sorry, but that just doesn’t work. 

Survey data that has been properly cleaned is useful.  What my first mentor taught me was GIGO (Garbage In is Garbage Out).  I’ve worked on both sides of the survey process and know how hard the survey providers work to provide good, clean, reliable data.  It is not the dart- throwing adventure too many managers believe is employed.  

I’ll admit it.  When a staff member comes to me with their favorite professional membership magazine or their print-offs from Salary.com in hand, I say, “I’m sorry, we don’t use self-reported data or non-industry related aggregated data.  We use data from reliable survey providers whose data we have paid for and surveys in which we participated.  The data contained in these surveys have been vetted, validated, cleaned (or what ever verbiage you choose).  This data, along with the compensation philosophy, ensure we remain competitive, to Becky Regan’s point in her 7 keys  post at the Cafe.  

There are potential pitfalls as Darcy Dees said in her post Who Completes Your Surveys? at the Cafe,  “What if the survey isn’t completed accurately due to a lack of experience? ”  There are several other what-ifs I can think of, and I agree with Darcy. Completing surveys is a great learning experience, but it needs to be monitored by the more experienced.  We all need to be diligent when reporting compensation data (be it salary, equity, benefits, etc.) to ensure it isn’t  — as my mentor said — GIGO.  

But to discount all survey data as useless or easily tampered with is like saying Benjamin Franklin was just a statesman.  Key, kite, lightening, anyone?

Can survey data be used to attain certain purposes?  Yes.  Do I promote bastardizing the data or the process?  Absolutely not.  

If using three matches at certain percentages for one job makes sense, based on an accurate description of the position, then it’s OK in that case to do it.  Would I report this position on a survey?  No. It doesn’t meet the minimum requirements for matching percentage.  

Sometimes those advocating not using the survey data simply don’t like the numbers the market is reflecting.  They believe the market is too low because a candidate turned down an offer, regardless of the fact that the candidate said they declined for other reasons. Sometimes the belief that the data is too low when a current  staff member takes a new job even when pay wasn’t sited as the determining factor in the decision to leave.  Sometimes, it’s  nothing more than personal bias about the value of a certain type of job, “that job’s not worth that much....”  Just because you don’t like or agree with the numbers doesn’t mean they’re wrong or not useful.  

The better job we do in educating those making pay decisions on the process, the better  the decisions are that will impact the staff and the company.  

Surveys - huh

What are they good for?

They help us through the economics, the supply and demand for skills and contributions  for positions in all industries, globally, and the value placed on them.  In short: they help us be competitive.  

 

Terri Albee, CCP, is managing partner of HR Ops Team LLC, which provides scalable and affordable human resources services, ensuring human resources structures are in legal compliance, streamlined for funding or exit events, or just optimized for day-to-day operations.  Terri has planned and managed HR operations in a variety of industry verticals from start-up organizations to the Fortune 500, domestically and globally.  Her experience encompasses design, implementation, compliance and management of compensation, benefit and equity plans at all levels.

Creative Commons photo - Dart Board - Backlite by POD

Are You Prepared for Increased IRS Audits?

According to a story released by HR Morning, the IRS is planning on increasing business audits in order to provide more practice for its auditors.  According to the news release the four areas of focus for these audits will be:

• Worker classification
• Fringe benefits
• Nonfilers
• Officers’/Directors’ Compensation

Any of that sound familiar?  Most of those areas fall under the Compensation umbrella, and many of these can be contentious items where compliance is an ongoing difficulty.  Now might be the ideal time to work with our Finance and Tax departments to perform internal audits of our programs to make sure that all of our programs are compliant with taxation regulations.  Many of us have had to make changes to our compensation programs recently because they weren’t all designed to encompass the declining performance associated with the country’s economic recession.  It might be prudent to ensure that all our programs are correctly taxed.

Much of the recent legislation passed impacts our Compensation world, and this new focus for the audits also impacts our world.  It’s more important than ever that we have airtight and well thought out programs.

Darcy Deesworks as the Compens ation 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.

7 Keys to Designing a Sales Comp Plan That Delivers

As we approach the end of the first half of 2009, we've seen the first glimmer of hope for a rebounding economy.  As the economy begins to recover, sales people who produce real financial results will continue to be highly coveted by manufacturers and service providers in every conceivable industry.  It's time to reassess your sales compensation plan, particularly in consideration of the downward shift in actual pay rates over the past year to verify your company's competitive pay position.

As competition for top sales people intensifies, companies share the following concerns about their ability to attract and retain a high quality sales staff:

• Ability to attract and retain top tier sales people is always the #1issue
• Know what your competition is paying for different levels of sales people and sales management
• Drive sales staff behaviors to achieve organizational goals for promoting products and driving revenue

In creating a sales compensation program that consists of base plus incentive pay, the following tips are critical to use in developing a sound sales incentive program.

1).  Define your company's compensation philosophy.  Create a statement for your company that reflects your senior management/CEO's philosophy about how the company wants to reward and retain its employees.  Ask your execs these questions to develop your company's compensation philosophy:

• Do you want to pay employees at market, below market or above market rates in base pay only, or use both base/incentive payouts for comparable jobs?
• Are you creating a "pay for performance" environment where your company will reward higher performance ratings with significant dollars?
• Discuss and describe desired competencies for different jobs/job groups.  What does success look like once it's been achieved?  How can you model that behavior to build it into your compensation philosophy?  How will those competencies be measured?

2).  Market price your sales jobs.  Use updated job descriptions to perform a market pricing study based upon job content.  Select current year published salary surveys in your industry, SIC code and/or geographic location to source data from 4-6 salary surveys.  Get survey recommendations in advance from your VP of Sales to ensure his buy-in for the survey's results.  Use updated salary survey data to compare against your actual pay rates and update your company's sales incentive plan.

3).  Define your desired behavioral and financial goals for your sales incentive plan.  Work with your VP of Sales to define desired behaviors, financial outcomes and customer service qualifiers for each job in your sales division.  Create custom plans for each employee with individualized goals and weightings for target and above target payouts.

4).  Work closely with your CFO to cost out the proposed plan.  Your incentive plan should be self funded through increased sales and revenues if properly designed.  Have your CFO map out different potential scenarios to cost out the plan during its first year in existence.

5).  Write plan documents that include a summary plan overview including:

• Your company's compensation philosophy
• The incentive plan's goals (revenue, quality, new customer acquisition, old customer retention, etc.)
• Definitions and exceptions
• Payments
• Eligibility
• Company's right to amend plan

Then write individual plans to accompany the overview which map out the plan structure, each employee's individual goals, and potential payouts.  Have each employee sign off on both summary plan documents and their individualized plan agreements.

6).  Pilot the proposed incentive plan to key sales staff before rolling it out to the entire department.  Select one or two of your highest level performers and ask them to critique the plan.  Modify the incentive plan when appropriate based upon their feedback.  This strategy also builds support and excitement for the new plan with other staff when it's time to implement.

7).  Review and modify the plan quarterly.  Like companies, incentive plans are dynamic. Sales incentive plans need to be updated and changed often depending on shifting factors including environmental considerations, addition of new products, customer retention strategies, new business lines, etc. 

Designing and implementing sales incentive plans is a strategic and tactical exercise that can generate significant additional revenue for your company.  As our economy begins to emerge from this serious recession, savvy comp people will have updated their sales incentive plans to verify their company's ability to attract and retain high quality sales people.  Use these tips to update or build your company's sales incentive plan now so you're ahead of the curve as the economy rebounds!

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.

Photo courtesy of dream sister @flickr.