Compensation Cafe

On the Upsides & Downsides of Proactive Pay Audits

With the Department of Labor's We Can Help campaign actively reaching out to employees with information on how to file a wage/hour complaint and the Paycheck Fairness Act poised for consideration in the Senate, it is becoming less and less prudent to turn a blind eye to either wage and hour problems or potential pay discrimination.

And yet, I have encountered more than one employment attorney who has advised their clients (who, in some cases, are also my clients) to be cautious about proactively auditing or assessing their pay practices because of the risk associated with what might be found and the attention inadvertently directed to potentially problematic areas.  Although I understand and appreciate the risk factor, I find this mindset troubling.

That's why I really appreciate attorney Jon Hyman's (of the Ohio Employer's Law Blog) post on the matter: Wage and Hour audits are not without their risks (but are still necessary).  In it, Jon shares a story which illustrates the downside of wage and hour audits, but emphasizes that the benefits of being proactive still ultimately outweigh the risks.

From Jon's post:

In Wlotkowski et al. v. Michigan Bell Telephone Co., a federal judge conditionally certified a class of workers who claim they are owed overtime as a result of being misclassified as “exempt”. The class is comprised of employees who are currently classified as “non-exempt.” They are suing to recover unpaid overtime for the time during which their employer had previously allegedly misclassified them as exempt. Because their job duties didn’t change when their pay classification changed, they questioned why they had been working for years without being paid overtime.

Employers may read this case and decide that they are better off burying their heads in the sand and ignoring wage and hour violations. This is a bad idea. Here’s what happens. A terminated employee goes to see a lawyer about a wrongful discharge lawsuit. The lawyer then asks this question: “Tell me about how you were paid.” The next thing you know, you are defending a class action and spending hundreds of thousands, if not millions, of dollars in legal fees, back wages, and potential liquidated damages and the plaintiffs’ attorneys’ fees. A wage and hour audit conducted by an experienced attorney can help stop this scenario from ever happening.

And it is our collective unwillingness (whether encouraged by legal counsel or not) to proactively address pay issues that brings greater enforcement activity and newer, more restrictive laws to our doorsteps.  Not worth it in the long run.

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 and enjoys reading in her spare time.  Follow her on Twitter at @annbares.

Image: Creative Commons Photo "Courtroom" by srqpix

What Are We Trying to Accomplish?

I’ve quoted from Lewis Carroll’s Alice’s Adventures in Wonderland before in a post, but I’m going to use it again because it happens to be one of my very favorites in regards to developing variable compensation plans.
“Would you tell me, please, which way I ought to walk from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where,” said Alice.
“Then it doesn’t matter which way you walk,” said the Cat.

Of course there’s also the much more simplified:  “Begin with the end in mind.”  But I like the more whimsical nature of Alice’s exchange with the Cheshire Cat.  The reason I keep reminding myself of this is because I enjoy analysis, and creating charts and tables to show how a program will work.  So I want to jump right into that, but keeping this dialogue in mind helps me to remember to slow down and start in the right place by asking:  What are we trying to accomplish?

When a company is looking at creating a variable pay plan it’s generally to support a specific business objective.  Sometimes it’s really clear what that objective is, other times you have to dig and ask questions over several conversations to understand exactly what needs to be achieved.  It’s also important to understand the desired path and outcome.  Perhaps a company is looking to build relationships with customers in order to generate repeat business and more revenue.  That requires a different variable pay plan than a company looking to be the first to market with a new product in order to increase revenue.

Companies also need to determine what they can provide to their employees that will make this outcome more likely.  Cash is usually what comes to mind first, and cash definitely has its place.  There are times though when that might not be the best motivator.  Most people enjoy learning and increasing their knowledge base.  In developing new products, sometimes the opportunity to try something new without fear of failure may be enough.  Other times employees will be more willing to go above and beyond for the financial reward.  Another important consideration is whether a short-term reward would provide the best outcome, or if a longer reward horizon is more appropriate. 

The budget is another matter that must be understood before suggesting a plan.  It’s imperative to understand how much money is available, and how soon it’s available.  We also need to determine if the goals we’re trying to accomplish can be achieved by individual contributors, or if they will require a team effort.  Once these types of questions have been addressed, then, and only then, should we begin our analysis and creating our fancy charts.  After all, you have to know where you want to get to before you can decide which way to walk!

Darcy Dees, CCP works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO.  She has worked with RBR for nearly 10 years helping to develop many of the compensation and performance management programs the company uses today.  She spends what little free time she has hiking and reading.
The opinions expressed here are the personal opinions of Darcy Dees. Content published here is not monitored or approved by Rock Bottom Restaurants, Inc. before it is posted and does not necessarily represent the views and opinions of Rock Bottom Restaurants, Inc.

Image:  Creative Commons Photo "Two Paths" by vxla

When Competitive Pay Isn't Enough

You’ve seen your company’s want ads and heard the pitch from your recruiters; you offer competitive wages to qualified candidates.  That’s got to be a strong hook for attracting talent, right?

Big deal.

Pay structures are updated based on market trends, so the opportunities offered employees support your retention and motivation strategies, right?

Not enough.

Most employees presume their company is already meeting (or aspiring to meet) the goal of competitive pay.  Companies routinely advertise the practice (“we offer competitive wages”) and candidates in return expect this of potential employers.  But what happens when your goal of offering competitive pay is finally achieved?  Are employees grateful?  Can companies rest in their efforts to attract, motivate and retain.

I’m afraid not.

What doesn’t happen when you offer competitive pay is that your recruitment problems do not magically disappear, your employees won’t be satisfied and your compensation programs have achieved little more than being average – and isn’t that a “C” grade in school?  Is that where you want to be?  As far as aspirations go, it’s only middle-of-the-road.

If your company does pay “the going rate”, that means that approx. 50% of the companies out there are paying more than you.  That’s what average gets you, with half doing more and half doing less.  Is that what your company aspires to achieve?

No one leaves your company for less money – so all you’ll hear from your employees is about how so-and-so is making more somewhere else.  And as employees only hear what supports their own notions –they won’t pay attention to the broader rewards package, just the points that confirm their opinion that your company isn’t paying enough.

The only way to avoid this scenario is being the premier paying company in your market / industry – and can you afford that cost?

Lest we forget, it’s important to differentiate between having a salary structure (grades, salary ranges and midpoints) that provides competitive rate “opportunity” and actually paying employees at those rates.  Some describe this as whether the company is “walking the talk”.  I recall a client proud of the fact that their salary ranges were continually adjusted to mirror market rates, but was later embarrassed to discover that actual pay practices fell well below their midpoints.

For their part, employees relate to what they are being paid, not the midpoint of a salary range or other such declared “opportunity”.  To them the company’s “competitiveness” is more illusion than fact; especially if they’re experienced and have been with you for awhile.  Thus the company needs to keep its focus on actual pay vs. opportunity pay.

Why don’t employers pay the “going rate”?  Typically it is not a strategy, but a series of practices that evolved over time.

• Some candidates will accept a lower rate than should normally be paid for their knowledge and experience, and managers tend to view this as a cost savings.  Though it is more like putting a skeleton into the closet and hoping it doesn’t jump out at you down the road.  One day these employees will change their minds.

• Once you’ve started down the slippery slope of paying some employees below market rates the practice is soon compounded by internal equity.  Managers don’t want to pay similarly qualified new people more than existing employees, so the new hires are offered below market pay.

•   Pay-for-performance systems have a hard time keeping up with the increased marketability of employees.  A minimally qualified employee hired at the minimum rate will gain knowledge and experience (and thus marketability) faster than a company’s annual merit system can recognize.  This is compounded when you have to hire a qualified worker and discover that the market requires you to pay more than what you’re paying your more experienced employees.

So, what’s the answer?  Management won’t agree to become the premier payer in your area, so you should consider instilling flexibility into your pay practices.  Consider targeting key jobs (highly skilled, difficult to replace, etc.) and make sure those jobholders are well paid for the market.

Other positions less skilled and more easily replaceable could continue with your “competitive opportunity” strategy.  This approach is akin to ring-fencing key talent, protecting them against poaching while recognizing / rewarding those with the most potential impact on your business.

Bottom line?  Be careful when you claim how your company provides competitive wages.  You may not be correct, but if so – big deal.

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. 

Image: Creative Commons photo by tao_zhyn

Balancing Act

In the aftermath of the recession, most companies are struggling to answer the same question: How can we keep costs down while improving employee engagement and performance?

According to a recent Hay Group report The Changing Face of Reward, organizations in the top 25% when it comes to engagement have revenue growth 2.5 times higher than organizations in the bottom 25%.  And companies with highly engaged workers that actually enable people to perform with tools, information, investment, etc., demonstrate up to 4.5 times higher revenue growth.  In other words, how companies make trade offs between engagement, performance and costs impacts how they perform.

It’s a balancing act.   Of course, compensation planning is always a balancing act but the wire just got thinner.  What are some of the factors that must be weighed against each other to find an optimal strategy?

• Cost v. Value – This is an obvious one but what to do about it is less obvious.  The problem is that during the recession most of the costs that could be cut were already cut so cost containment is a dead end strategically if that’s all you’ve got.  The challenge going forward is not cost containment but value creation, which is harder, especially on a tight budget.  To create value, companies must invest in engaging and enabling their workforce and the challenge will be figuring out how to do so with maximum return.

• Short-Term v. Long-Term – It’s always important to justify investments with rigorous financial analysis but I thought the folks at The Hay Group put it well when they said, ‘…this emphasis on financial goals and metrics is at odds with what we know Fortune’s Most Admired Companies do.  While peer companies apply performance metrics to executives that are focused on operational excellence, profits or revenue, the most admired go further by adding measures around long-term thinking, teamwork, building human capital and customer loyalty.’

• Variable v. Base – Companies plan to rely more heavily on variable compensation than base pay increases for the foreseeable future in order to keep fixed costs down and have a flexible lever to shape business outcomes.  Although there's a lot to be said for 'thinking Pink', it's harder to justify paying people to show up than it used to be.  Mind you, that doesn't eliminate the risks that come with variable pay, including loss of creativity, increased likelihood of unethical behavior and myopic focus on areas of the business that offer a personal reward.  A balanced compensation strategy must address these risks.

• At Will Employment v. Loyalty – Most companies have agreed in principle that it isn’t economically viable to carry low performers.  In fact, the new trend is, ‘What have you done for me lately?’ when it comes to both employment and rewards and employees are under more pressure than ever to prove themselves on a daily basis.  The flip side of that perspective is that employers can’t expect much loyalty from employees in return.  The takeaway here is that taking that ‘at will’ thing too far can erode employee trust and morale, which are key components of engagement.  Striving to be a fair, compassionate employer makes sense ethically and financially.

• High v. Solid Performance – Research shows that top performers have more positive impact on the bottom line than average and low performers so many experts have concluded that high performers should get most of the rewards.  Fair enough.  And yet, it is also important to engage and enable consistently solid performers since they tend to be the largest demographic of the company, which means the more you can shift their performance upward the better your company will perform overall.   If you’re a compensation specialist, you probably have at least the bare outlines of a plan in place for identifying and rewarding top performers in 2010.  What's the plan for solid performers?

• Individual v. Team – One potential risk of rewarding individual performance is that team performance is discouraged, to the extent that John believes helping Jane be successful will mean less reward for him.  So companies that want to encourage teamwork need to find the right balance between rewarding teamwork and individual performance.

• What You Reward v. What You Don’t Reward – While formulating your compensation strategy it’s useful to note down what you are rewarding next to what you are NOT rewarding in order to make sure nothing critical got left out.  Nothing too fancy is required here, you can do it on a napkin if you need to – the point is to approach each problem from two sides instead of just one.   For example, let’s say your hotline staff has a KBO to increase resolution volume by 12%.   Might this goal create any undesired results?   It always pays to take a second look from a new angle to make sure you didn’t overlook anything important.

There are other items we could add to this list (cash v. non-cash rewards, centralization v. agility, global v. local, innovation v. efficiency, etc.) but you get the idea.

There’s no right answer.  There are only tensions and tradeoffs and the best we can do is weigh potential outcomes and decide where to draw the line. 

So, take a deep breath and find your balance.

Picture courtesy of Bob Elsdale Photography.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has more than twelve years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and is currently pursuing a certificate in Strategic Human Resources Practices at Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing and spending time with friends and family.

How Is a Midpoint Like a Tuba?

It's like those picture puzzles that you used to do in the Doctor's waiting room. Two pictures of a big, old oak tree in a yard. A familiar scene, and both pictures look identical. You could turn the page, but if you pay attention and really scan the one on the right, the first thing you'll notice is a tuba in one of the higher branches of the tree. What's that doing there?

Over the last few weeks at Compensation Cafe, we've been encouraging you to notice the tuba in the tree -- in other words, look beyond your assumptions about how compensation works to see what's actually there these days. Ann Bares talked about a blog post by Peter Bregman called, "Don't Let Your Expecations Fool You". I wrote about Stephen Jay Gould's quote that "The most erroneous stories are those we think we know best."

So one long, dark night, this got me thinking about the fundamentals that we stake our compensation practices on. Like midpoints and salary grades. In today's "new normal," do they really still mean what we have always believed to be true?

When I teach Base Pay Essentials with my colleague, Brooke Green of Presidio Pay Advisors, I make sure to remind my students that they are building salary ranges from a collection of competitive salary data. That a midpoint is not an exact market target. In fact, the middle third of the range more accurately communicates the reality of a market target since multiple jobs are clustered in each grade.  And I suggest that they should be very careful to explain these realities to employees so that they aren't misled into thinking that midpoints are meant to be exact mirrors of the marketplace.

And now we come to today. After two or more years of salary freezes or minimal increases and no structure updates. What do minimums, midpoints and maximums really mean after a few years of rough handling?  What if you put last year's Salary Grade "7" next to this year's Salary Grade "7"? In many companies, they may both actually have the same minimum, maximum and midpoint, but are they really equivalent? Not only in terms of competitiveness, but also in relation to what they should mean to your employees and their Total Rewards.

Here's a litmus test. Imagine using your salary grades to try to influence top performers who are being recruited to a competitor. Should they trust the explanation that you've used so many times about where their salary falls in their salary range? How confident do you feel that you're giving them accurate advice, especially if these employees will remain in the same salary range for the next few years?  How much more important has their bonus become to them and their family? How much control will they have on whether those bonuses are paid?

Let's not let our habits dull us to what is really happening in our compensation programs today. Look really closely, even at fundamentals like midpoints, and determine what they really mean. Make sure we are not being fooled by lingering, out-of-date assumptions. Midpoints have always been more than just a number. What do they mean now?

See the tuba in the tree? Is it a big leafy oak that happens to have a photoshopped tuba in its branches? Is it a horticultural wonder? Is it a years-old testament to a tuba prodigy who couldn't cut it any more? Could it have fallen out of a traffic helicopter? Has there been a tornado? Once it gets noticed in those branches, there may be lots of stories that it could tell. The trick is to find the one that's true.

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.

Trends in Annual Incentives: The Age of One Plan Fits All and the Ascent of Cash Flow

New research by Towers Watson reveals how annual incentive plans have evolved in the past several years and where they may be poised to go as the economy recovers.  The study, which the firm conducts every 4-5 years, reflects (in its most recent edition) the responses of 212 North American companies, collected in late 2009.

A few interesting highlights:

• One plan (increasingly) fits all. In most companies now, the annual incentive plan in which the executives participate is also the one offered to employees below the executive level. This seems a smart trend, supporting both the perception and the reality of alignment.
• The ascent of cash flow. There is a shift underway in the types of performance measures used most frequently. While sales or revenue continues to be the most popular financial measure, cash flow has emerged from the middle of the pack to tie for second place with earnings per share. Close behind these are other prevalent earnings/profit measures including operating income/profit, EBIT/EBITDA and net income/earnings/profit. Profitable growth, with a careful eye on cash, seems to be the predominant theme.
• Shift in eligibility criteria. Consistent with the trend to broader participation in a single plan, the most common factor for determining eligibility is now an employee's salary grade or band. This is a departure from the plans of the past, where the most prevalent factors were title, reporting relationship and officer status - criteria that may have suited "executive" plans, but don't fit the needs of plans that push further down into the organization.
• Results-based funding. Plan funding is increasingly based on financial results; likely an offshoot of lessons learned in the recent downturn. While the traditional "sum of targets" approach to plan funding is still the most popular (33%), results-based funding has nearly caught it in prevalence (32%, up from 13% in 2001).
• Broader, more complex set of measures. There is also a trend toward using a broader and more complex set of performance measures, likely in an effort to improve line of sight for the broader and more varied set of participants in the typical plan.  66% of respondents report that their plans use three or more performance measures.

More details in the Towers Watson summary of the research.

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 and enjoys reading in her spare time.  Follow her on Twitter at @annbares.

Pick Your Poison: An IRS Audit or Visit to the Proctologist?

Labor and employment newsletters, compliance publications and accountants have recently been abuzz warning employers to be on the watch for the IRS initiative known as the Employment Tax National Research Project. As the Federal government wrestles with its systemic inability to control costs, or even simply limit spending more taxpayer money on an ever growing list of programs, projects, and bureaucracies, it must generate more revenue. Hence,the resurgence of this IRS endeavor to fix the "tax gap," as politicians call it, meaning that the government wouldn't need to raise taxes if it collected what it was owed.

So for the first time in 25 years, the IRS has undertaken this project to randomly select 2000 employers for examinations that will be "comprehensive in scope."  A total of 6000 employers will be audited over the next three years with a focus on employment tax reporting and payment obligations, more specifically payroll taxes, fringe benefits, independent contractors, expense reimbursements, and other related payroll issues.

As reported in the IRS's publication for employers titled "Reporter," the IRS has identified two goals in conducting these audits: 1).  To secure statistically valid information for computing the Employment Tax Gap, i.e., the difference between collected taxes and taxes owed to the U.S. government, estimated to be about $200 billion, and 2). To determine compliance characteristics so the IRS can focus on the most non-compliant employment tax areas.

According to the labor and employment law firm located in Sacramento, CA, Carlton DiSante & Freudenberger, LLP, the audits are "expected to be long, lengthy, inconvenient, and expensive." Notifications to employers are not to be disregarded; instead should be taken very seriously by selected organizations.

Compliance Week's March blogpost by Tammy Whitehouse reported that, "Even the most conservative taxpayers and those most closely in compliance will not be spared the expense of defending themselves in one of these "comprehensive" audits, since the IRS is trying to collect detailed audit data even from conservative taxpayers, " say David Fuller and Jerry Holmes, attorneys at the law firm of Morgan Lewis & Bockius and former IRS managers. 

Their inside IRS sources report that the audits will be "excruciating" and somewhat like seeing a proctologist, expect Fuller and Holmes.  "While perhaps overly graphic and crude, these descriptions of pain and foreboding lead us to conclude the National Research Project is a tsunami, not a ripple on the sea," they wrote recently in their Thompson bulletin.

The audit is expected to focus on four areas: 1). worker classification (independent contractor versus employee); 2). reimbursed expenses with properly created accounting plans; 3). compensation of owner employees to ensure enough wages are paid instead of only dividends; and 4). taxable fringe benefits that are treated as nontaxable benefits. 

The IRS recommends forming an internal team consisting of members from payroll, accounts payable, human resources, internal audit, general counsel and outside tax professionals.  They and other experts recommend performing an internal audit now to identify and resolve any troubled areas, before your company receives notification.

You may recall the famous class action lawsuit filed against Microsoft, Vizcaino, et. al. v. Microsoft which was settled for $97 million dollars in 1998.  The suit alleged that Microsoft had misclassified workers as independent contractors instead of employees, which prevented them from being eligible for benefits (including their stock purchase and option plans).  Many other major corporations have been similarly sued for the same violation.  A short list includes Hewlett-Packard, Time Warner, Inc., and Allstate.

If your gut check is telling you that your company has a problem with independent contractors or any of the other three focus areas for these audits, today is a good day to start tackling it.  Being proactive in addressing these landmine areas for potential class action litigation is always a sound strategy in my book.  Well, better than a visit to the proctologist anyway.....

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.

Flickr photo courtesy of bitzcelt

The Seven Step Compensation Diet: Step # 7 - Stay The Course

In our last post we introduced you to step # 6 of the Seven Step Compensation Diet - the need to create quantifiable program metrics.  Such tools are used to help understand (measure) whether costs are being contained, where the problem areas lie and whether the ROI on employee rewards is at the level you want them.

At this point in your compensation diet you're well on your way to establishing successful cost reduction / effective spend program(s), but your struggle isn't over yet.  All can still be lost, as most dieters will attest, if you fail to stay the course.

Step # 7: Stay The Course

Consistency of effort is the key to long term success, whether you are trying to lose a few pounds, save money for your company's bottom line or build a more effective and efficient organization.

Your success will not be achieved via a quick-fix cure, but through the steady application (repeat, steady) of the constructive re-design steps we've been discussing.  You must keep a firm control of both the gas pedal (keep moving, keep moving) and the steering wheel (minimize distractions).

By carefully applying each of these steps a side benefit will develop - that of a stronger trust relationship with your employees - demonstrating that management is intent on fair and equal treatment for all its workers.  That trust will take time to grow, and it needs to be nurtured through visible and repetitive actions that continue your message.  Like a steady drumbeat, the continued application of uniform policies and procedures will pay dividends that grow with time.

Your employees should also see that their senior management team is "walking the talk", adjusting their own behavior to match that of newly trained lower level managers.  Leadership is critical to ensure organizational success, as a shared effort among all employees will invigorate and motivate group activity into doing the right thing.  Conversely, playing with internal politics, favoring special interests and / or displaying executive arrogance (us vs. them) will doom your dietary efforts as employees will lose faith with a message that's only talk.

It is also worth noting that not everyone will agree that the steps you're taking are the right choices.  Those who disagree will likely employ one of several tactics in an effort to render your initiatives ineffectual; you should anticipate such reactions and plan your counter-measures.

• The Naysayers - those who whisper dark thoughts in the hallways and cubicles, shaking their heads with the knowledge that "of course it won't work"

• Passive Resistance - offering little in the way of upfront objections, these folks will not actively assist the process but will do what they can behind the scenes to delay, discourage and otherwise weaken your efforts

• This too will pass - especially prevalent with those who have been around for a while; these folks will sit back, offer neither help nor active discouragement, but will simply wait you out.  They figure that the existing culture will overwhelm your initiatives, especially if support is minimized.

Forewarned is forearmed.  Enlist senior management for visible support from above, frequently communicate your positive messages to employees, reward performance over personality, be fair and consistent in your decision-making - and keep at it.

To close out the dietary analogy remember that most weight loss efforts do not work in the long term, mainly because the dieter is unable to achieve long-lasting behavior change.  We all want that quick fix diet pill.  Similarly, if your company is unable to change its practices it will suffer the same discouraging result (cost increases, inequitable treatment and worsening employee relations) as ruinous business practices creep back into play.  You might even be worse off than before.

Or not.  Make your choice.  Get out there and shake things up.  You can do it.  We've just shown you how.

Step # 1: The Mirror

Step # 2: The Strategy

Step # 3: The Guidelines

Step # 4: Position Control

Step # 5: The Budget

Step # 6: Metrics

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. 

Image: Creative Commons photo by alancleaver

What is a Manager?

What does your company think a manager is?  A manager is someone who leads and directs the work of others.  Managers are frequently held accountable for the work of those who report to them.  We generally expect managers to grow and develop their direct reports.  But we don’t always align our programs and processes with these expectations.  The way we hire managers, the job descriptions we develop, and the way we review managers sometimes send a different message. 

We’ve all heard the complaint that there are people in management positions who aren’t good managers.  They were the best in the organization at the technical aspects of their job, so they got promoted to the manager of the department.  The reality is that managing the people in a department typically requires an entirely different skill set than doing the work of the department.  So why does this happen? 

Manager’s job descriptions sometimes look like a higher level version of the job descriptions of the rest of the team.  Frequently the top few items under the essential duties are dedicated to the more advanced tasks that the department has to perform.  The focus should be items such as providing regular and ongoing feedback and opportunities for development.  When we interview managers we sometimes ask them about their ability to perform the more complex analysis and tasks in their department.  Instead we should be asking them questions designed to uncover their ability to lead and influence people.  When reviewing managers we shouldn’t be using the same form that we use for non-managerial staff looking solely at how well they perform tasks and manage tangible projects.  We should evaluate their ability to influence their team and to bring out the best in all of their direct reports.  We should rate how well they brought their team together to achieve common goals.

If we truly value managerial skills and want our managers to spend their time and efforts focused on developing their team, then we need to make sure that we communicate that expectation to managers.  We do this by clearly stating that this is the most important part of their job.  We need to hire for that skill set, and review that skill set.  Only then will we get people who can lead a team instead of just our strong individual contributor who may cause team strife and/or burn themselves out doing too much work on their own and holding everyone else back because they don’t provide any room for growth.

What do you think?  Do your managers know what their primary job is?  Do your programs and processes support job clarification?

Darcy Dees, CCP works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO.  She has worked with RBR for nearly 10 years helping to develop many of the compensation and performance management programs the company uses today.  She spends what little free time she has hiking and reading.
The opinions expressed here are the personal opinions of Darcy Dees. Content published here is not monitored or approved by Rock Bottom Restaurants, Inc. before it is posted and does not necessarily represent the views and opinions of Rock Bottom Restaurants, Inc.

Image:  Creative Commons Photo "Making Connection" by Irargerich

I'm a Hi-Po, He's a Hi-Po, She's a Hi-Po...

According to a Hay Group study on key reward drivers, the war for talent will be waged around high performers, high potentials, and mission-critical roles.  There’s been a lot of focus lately on identifying and motivating high performers. The purpose of this post is to focus on high potentials.

Why?  Because let’s face it, the war for talent in the coming years won’t be won by retention and acquisition alone, at least not for mission-critical roles needed by a wide spread of companies.  Companies will be forced to invest in people to ensure they have the critical skills they need when and where they need them. 

There are several challenges involved with developing a successful high potential strategy:

Challenge #1: Identifying High Potentials – The simple definition of a high potential is someone who has what it takes to grow into a new role, typically but not necessarily a leadership role. But how are these people identified?  The answer to this question varies from company to company – for example, flexibility and a 'can do' attitude may be more valuable than a fixed skill set in companies that pride themselves on agility.  Other companies may place more value on social skills and cultural fit, although you might want to check out Chuck Csizmar’s recent post ‘Is Performance Still Important?’ if that's the case at your organization.  I also recommend Joshua Letourneau’s post on social network analysis, which explains why your high potentials may not be who you think they are. 

Challenge #2: Developing and Retaining High Potentials – Once you’ve identified your hi-pos, you want to develop and hang onto them as they - hopefully – grow into their potential.  This brings us into rewards territory but what does that mean? The Compensation Handbook cautions that rewarding hi-pos with higher base pay is expensive and probably won’t help you retain them as their skills grow.  Recent studies indicate that combining adequate base pay, differentitated variable pay, flexible work conditions and career development opportunities is the best way to retain hi-pos (and everyone else for that matter).  My recent post 'Who’s Your Talent Manager?' offers more detail around defining an overall talent management strategy.

Challenge #3: Everyone Else – Assuming you take your hi-po identification and retention seriously, it’s easy to get myopic.  The first thing to be cautious about is throwing the term ‘high potential’ around, since it may lead to inflated expectations among the chosen few and feelings of resentment among the non-chosen.  Another important point to keep in mind is that when we talk about hi-pos we’re usually talking about a fairly small, select group of people that are themselves selected by another small, select group.  Tammy Erickson’s post ‘Are High Potential Programs an Anachronism?’ warns that overlooking experienced solid performers who are not identified as 'hi-pos' can be detrimental to overall company performance. 

Bottom line: If you narrow your hi-po strategy to a few rarified leadership roles, you’re missing an opportunity to develop the entire organization.  Whereas if you also focus on lateral potential and alternate career paths, suddenly everyone’s a contender.

Ann Bares pointed out in a recent Compensation Cafe post that if companies want employees to take more responsibility for their own job security they need to meet people halfway with clear communication, active coaching and training.  The idea is that instead of choosing a select few from on high and giving them the keys to the kingdom, you create an environment where everyone who wants to can be a high potential.

… wouldn’t you like to be a hi-po too?

Picture courtesy of Mission Minded Management.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has more than twelve years of experience designing, developing, implementing and evangelizing Human Capital Management (HCM) solutions in the US, Asia and Europe.   Her articles and interviews on HCM topics have been published in national and European trade journals.  She currently lives in Munich, Germany and enjoys reading, writing and spending time with friends and family.