Compensation Cafe

Equity Compensation is in a Class of its Own

The origin of the word equity is not, as many people think, the word “equal.” In fact, its origin is almost the opposite of equal. “Equite” is a Roman word with the following definition: "members of a specially privileged class derived from the ancient Roman cavalry and having status intermediate between those of senatorial rank and the common people." Equity is about privilege.

Looking back, horsemen have almost always been considered a privileged class. On horseback Roman soldiers, Arabian princes and Native American hunters were professionals that others admired and envied. They have been the source of heroic stories and historic moments. Horse and man have also been the basis for less glorious stories of wild-west outlaws, and armies of invaders conquering the innocent. Horses have been the basis of great and tragic stories that have caught the public’s imagination.

Fittingly, the use of equity compensation has given rise to a new class of professionals. Holders of stock options during boom times have been given iconic status. Close your eyes and envision them. The millionaire secretary. The billionaire engineer. The serial entrepreneur who owns several houses and continues to work for more. Equity compensation has allowed those of a common background to obtain heights that usually only come from being born of privilege.

Of course, along with its ability to bring fortune and status, equity compensation also has its down side. During bad times it has brought us stories of tragedy and villains. The programmer who lost his house to AMT. The CEO who made millions while his company went under. The company that backdated options to guarantee success. These themes are not new. The instrument of demise has changed, but the results have a familiar ring.

Equity compensation is not truly about being equal.  It’s about providing individuals and companies an opportunity to grow to a new class. It is this unique aspect of equity compensation that brings both its praise and its scrutiny.

Let us keep this in mind as we plan for the compensation season ahead.

Dan Walter is based in San Francisco, CA and is the President and CEO of Performensation, a firm focused on improving its clients performance and equity compensation programs. He has worked with small start-ups through the Fortune 100 for more than 15 years. In addition to being a frequent speaker in the US and abroad, Dan is on the board of the National Center for Employee Ownership, helps run ShareComp, a virtual conference for the share plan industry and heads Equity Compensation Experts one of the largest free networking groups for equity compensation professionals. Dan loves to share ideas and information. Follow him on LinkedIn or Twitter at @performensation.

The Curse of the Golden Handcuffs

A friend of mine is in charge of global operations for a large textile manufacturer.  He came over for coffee last weekend and talked about his busy schedule, the demands on his time and attention, the endless travel. 

‘I have to figure out a way to earn the same money with a better work life balance,’ he joked with a grin. 

Ironic, isn’t it?  On the one hand, the news is full of salary freezes and the negative impact on employee engagement.  On the other hand, here’s someone feeling trapped by a high salary.

Reinventing oneself sounds so romantic, doesn’t it?  And it’s easy to be flexible in your twenties when all your paperwork fits in an accordion folder and you’re searching for that visionary employer who hires history majors into management training programs for fabulous sums.  With no ties and modest needs, you can finagle your way into a low-paid marketing internship on the other side of the world and a career is born. 

But once you have a spouse, kids, two cars, a house, a mortgage and a style of living you’re accustomed to it gets harder to make big career changes.  Not impossible, just harder.

And it’s not just the money, there’s the time angle as well:  ‘I could get out of textiles and go into, say, a food chain,’ mused my friend, ‘but I’d have to work even more than I do now to be effective.’

So my friend may dream of a simpler life with a few chickens in the yard but he’s not going anywhere.

The good news for companies is that despite gloomy predictions, experienced people aren’t necessarily a retention risk if you’re paying them well and they have reasonably positive feelings about your company.  

The bad news is that a high salary isn’t intrinsically motivating beyond wanting to keep the same salary level.   What is motivating:  fear, a desire to keep the status quo, loyalty and passion. 

Fear leads to mistakes.  Maintaining the status quo can be highly motivating but leads to stagnation.  Loyalty is good but narrow in focus.  Passion can achieve miracles.

But you’ll never get passion for the business with salary alone.  You won’t even get true loyalty.  At best you’ll get a desire to maintain the status quo combined with fear of loss.  Some good, solid work can come out of that combination but it’s ultimately a dead end.

In any career a point is reached where either a person’s talent won’t take them further, or they’re not willing to go that extra mile for the next step.  So they more or less stay in place and at some point experience may lose its edge and turn into complacency, inflexibility and unwillingness to listen.

The good news is that there’s a big opportunity here.  As we look around at companies in general we see several related problems:

1. People who are good at their jobs and loyal to their company but exhausted by a relentless workload;
2. Lack of experienced successors for key positions; and
3. The next tier of management hopefuls, who feel ready for more responsibility and frustrated by lack of growth opportunities. 

The solution to all three of these problems is pretty obvious: Once skilled leaders have passed their personal efficiency peak the 'next step' is transition to a more mature style of leadership, that involves more coaching, mentoring and delegation.

The 'catch' is that leaders who coach and delegate instead of tightly clutching the reigns may find themselves out of a job in companies where leadership is defined by personal achievement. 

Which is counterproductive because businesses need to provide growth opportunities and prepare the next generation of leaders. 

So... why are we still paying people to do the opposite?

Picture courtesy of Fantasic Fiction.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen 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, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

What’s Your Recognition Style: Mad Men or Tesco?

Any Mad Men fans out there?

I first caught an episode during a trans-Atlantic flight and have been hooked ever since. For those not up on the latest US television shows, Mad Men is a retro drama set in the heady New York advertising world (with firms traditionally located on Madison Avenue) of the 1960s.

In the episode two weeks ago, Don Draper, founding partner of the ad firm, perfectly espoused the prevailing attitude towards employee recognition half a century ago as captured in this clip.  (Skip ahead to the 1:44 mark if you’re short on time and don’t need the context.)

Peggy is angry with Don (her direct manager) for failing to properly recognize an idea of hers that led Don to win a major industry award, which led to this volatile exchange:

Don: It’s your job! I give you money, you give me ideas.

Peggy:  You never say thank you!

Don: That’s what the money is for!

Don caps it off towards the end of the clip by telling Peggy: “You should be thanking me for giving you another day.”

I’d like to believe we’ve grown past that attitude in the last 50 years, but too often I still hear the argument, “My employees’ salary is thanks enough.” As I’ve said before, cash does not motivate, it does not recognize, it does not appreciate. Cash compensates. Pure and simple.

People – at all levels – need to know that their efforts matter, that their work is noticed and appreciated.  Some leaders are getting this right. An example out of the UK is Lord Ian MacLaurin, former Chairman and CEO of the massive Tesco chain of stores. (Click through for the short video.)

Lord MacLaurin makes the point:

“The humblest person in an organization is the most important – never, ever forget that. … Human touches, saying thank you, acknowledging people – that brings the spirit through for the company.”

Watch the video for a better understanding of how this very busy CEO always found the time to directly and personally thank his staff for their efforts that have made Tesco such a success.

As an employee, what has your experience been? Like Mad Men or Tesco? If you are in a leadership or managerial position, what’s your style? Oh so 50-years-ago or much more in the spirit of today?

As Globoforce’s CMO & Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin, Montreal and Boston. Follow Derek on Twitter at @globoforce.

Hybrid, Shmybrid (Jobs) -- Another Dose of Reality

Last month I mentioned that I was starting a series of Compensation Cafe chats on hybrid jobs. The idea is that hybrid jobs are becoming more and more common, so it's a good time to build job pricing skills.

Think I've been drinking my own potions? Take a look at some data from the 2010 Global Talent Management and Rewards Survey that Towers Watson published last week.

First, the absolute facts. As work demands continued during the recession in the U.S.:

• 74% of the survey participants reduced workforce
• 66% announced hiring freezes
• 61% introduced salary freezes

And 61% of the employers worldwide report increased workloads for employees. 

None of this is a surprise. But the numbers are stark and the smoke is just starting to clear in HR. A colleague recently described real frustration that due to hiring freezes and stymied growth, there are just no new jobs to go around even for high potentials and high performers.

Employees know what's going on. While 62% would prefer the opportunity to rapidly develop their skills and abilities, only 33% believe it is achievable -- which is exactly the number of employers who report that these opportunities are available.

In fact, when Towers Watson identifies the most difficult challenges we face currently, two address jobs and job availabilities. Here's the quote from the Executive Summary: "Now, as we emerge from the recession, companies face additional challenges and need to:

• Develop new leadership competencies for their executives
• Respond to increasing demands by employees for security, stability and opportunity that are difficult to satisfy
• Confront the complexities caused by a lack of career advancement opportunities for top talent and employees with critical skills"

If you ask me, hybrid jobs will be with us in a big way for a while, along with many other job and job definition challenges. So check out my columns in the next few weeks for tips from some real pros. Margaret Dyekman of Corporate Compensation Services and Judy Canavan of HR + Survey Solutions, will share their experiences and solutions with you. In 2010, they've addressed more hybrid jobs than ever before.

Hybrid, shmybrid -- is that your attitude? If you don't believe me (or Towers Watson), take a close look around your place as the smoke clears. Odds are, you'll realize that you could use their help. 

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 dialog 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, along with Masters Swimming.

Trust Me - I'm from HR

What can staff functions in general - and HR in particular - do to earn the trust of their "clients".

Charles Green, who authors the Trust Matters blog, posted a fascinating analysis of the trust challenges and opportunities facing the "Big 4" staff functions:  IT, HR, Legal and Finance.  Challenges and opportunities that exist whether you work inside or outside the organization you are striving to support, although he pays special attention here to the internals.  The capstone of his post is a chart outlining the five trust enhancing opportunities facing these key functions; he identifies "Improving Credibility" and "Lowering Self-Orientation" as the biggest opportunities for HR.

From Charlie's post...

Improving Credibility. More an issue for HR than the others, remember that credibility is not only—in fact, not even mainly—an issue of credentials. The average internal client is not impressed that you have advanced degrees, or that you are a recognized expert in OD. You can argue that’s not fair, but arguing fairness just digs the hole deeper.

What improves credibility is the capacity to apply your knowledge to a specific client situation--in their language. Instead of letting the client know that you’ve seen the latest, greatest research on teaching emotional intelligence—instead, use emotional intelligence yourself to help identify, and identify yourself with, client issues.

Ring true?  I think it does.  I think we're prone, as a profession, to focus on HR expertise as the "end" in itself, when from our clients' point of view it brings value only as a "mean", only to the extent that it helps solve the business problem.  Often as not, we can only bring our expertise to bear in a valuable way by taking the time necessary to understand the deeper context of the business problem, embracing their language and point of view - rather than insisting on ours.  Which takes us directly to Charlie's second opportunity for improvement...

Self-Orientation. We find that nearly everyone can improve their trustworthiness by getting better at lowering their self-orientation.  Within the Big Four staff functions, this is particularly useful for the HR and IT organizations. Too many clients see HR as whiney, and lawyers as officious, both of which are forms of overly developed self-orientation.

The solution is harder than for the other issues, but well within reach. Simply be very, very sure to see issues from the client’s vantage point—not just from yours. No one’s asking you to abdicate your professional perspectives, just to see it as well from the other side of the table. If a client says to you, “We want to do X, how can we do it?” make sure to start with, “Interesting idea; let me make sure I understand what this means to you. Tell me more about what you could do with this, how it would make you more successful. I want to make sure I know where you’re coming from before I try to comment.”

Frankly, I think this second one really nails it.  We are enormously self-oriented as a profession, and it is not to our credit.

Can we embrace this good advice from someone outside our profession looking in?  Forget the seat at the table; this is about earning our chops as trusted advisors to our line compatriots.  This is about adding bottom line value.

Remember, the first step is admitting that we have a problem....

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. Follow her on Twitter at @annbares.

Image: Creative Commons Photo "/wink" by striatic

The Perils of Personal Research

It's not unusual in the recruiting process for a candidate to balk at the company's initial offer.  Sometimes in their push back they might say that, having conducted a bit of "research" they feel that their personal value, or perhaps the company's job pricing, should be greater than what is on the table.

How should a Manager respond?

Back in the day, before the advent of the worldwideweb companies were seldom challenged over how they priced their jobs.  The perceived value of a candidate's background and experience might be negotiated, and often was, but not the internal value of the position itself.  These days the wealth of information available via the internet offers interested parties an opportunity to attempt their own investigation, to analyze what a company's job is supposedly worth in the real world.

What do you say when a candidate tells you that your $70,000 job should be priced at $80,000?

What a Manager Should Know

If you haven't been hit with this scenario yet, consider yourself lucky.  But it will happen.  The challenge could even come from an existing employee, one who feels that they are being undervalued for their responsibilities.

So how good is that "research" you've been told about?  Can you take it to the bank, or should it go to the garbage pile instead?  First of all, the online data sources most often quoted are frequently criticized as unreliable (inaccurate), and are seldom used by compensation professionals to base their program recommendations.  These sources often use data provided by the employees themselves, and without adequate filters to assure proper job matches.  Data collection techniques are often challenged by the critics.

Several referenced sources tend to be self-serving, especially those sponsored by firms tied to the staffing industry.  Reporting higher salaries would benefit them in the form of higher fees.

These sources are also convenient and inexpensive, another reason for their popularity.  But quality costs; you get what you pay for.  Here you get straight arithmetic, plain and simple.  The data cannot know the internal importance of a specific job within an organization.  It cannot interpret, cannot assign subjective values the way company decision-makers do when assigning a grade among peers, among like valued jobs.  Thus it is easy to miss the mark by not understanding the company's job in terms of true market comparators.

So How Should the Manager Respond?

When the time comes and you're exposed to this under-priced research tactic, step with care.  Your willingness to debate the issue hands at least a partial victory to the challenger, who will no doubt boast far and wide about their successful "strategy."  So if you engage, be prepared for more of this as word spreads.  Don't be put on the defensive.

You might consider several possible reactions.

• I didn't hear you: As suggested above, you could ignore the gambit, refusing to engage in speculation, as discussing the matter gives a degree of credence to the challenger's viewpoint.  Simply state your confidence that the job has been properly priced - then drop it.

• The push back: You could ask the candidate or employee what their professional credentials are for such research, as your company pays good money for compensation pros to keep you abreast of the market

• Push back II: You could challenge the "research," but that of course gives more credence to the point being made.  Likely you will not win the argument, as whatever you say would be viewed with skepticism.

• I'll pass:You could skirt the issue and refer to HR, saying that you'll "have them take a look."  this fools no one, but it does give you the opportunity to move the conversation in a different direction.  Note: this will not work with an external candidate trying to negotiate.

Your reality is that the company has already determined the value of the subject job, and will not welcome outside second opinions.  The job will have a grade, salary range and a midpoint - none of which will be changed because someone claims to have done a better job of "researching" how it should be valued.

I'd recommend the "I didn't hear you" response, and be firm.

Btw, managers and executives have asked me which sources should they use to research the market value of the job they're interviewing for.  They're planning tactics for reacting to an employment offer.

Do they really think that the company is going to listen?

I tell them, "don't do it."

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 dbking

A Closer Look at Occupation in Explaining the Gender Wage Gap

In a previous post on the gender wage gap, I outlined how the "77 Cents" statistic tossed around so frequently in the gender pay equity discussion is misleading. If you remember, I pointed out that the study by Blau and Kahn found that about 59% of the gender wage gap could be explained by non-discriminatory factors such as occupation, industry, experience, race, and union status. Occupational category provided the largest explanation, and accounted for 27.4% of the gender gap. So let's take a closer look at earnings by occupational category and see what else we can learn about the gender pay gap.

The Current Population Survey collects information by gender and occupational category (among other characteristics). Data for 2009 were published in a June 2010 report by the Bureau of Labor Statistics: Highlights of Women's Earnings in 2009. Using this data, we can take a closer look at the the pay gap by occupational category. For each of the twenty-two major occupational categories, there are three key pieces of information:

1. The relative size of the occupational category - in terms of number of workers - is represented by the size of the sphere;
2. The percentage of females in the occupational category is presented along the horizontal axis;
3. The ratio of female-to-male median weekly earnings is presented along the vertical axis.

Here's how the twenty-two occupational categories compare on these three dimensions:

 
 

Here's some of the key observations from this infographic:

• Office and administrative support occupations employ the most individuals (14% of the total workforce age 16 and over);
• Farming, forestry and fishing occupations employ the least individuals (0.7% of the total workforce age 16 and over);
• Healthcare support occupations have the largest percentage of females (88.9%);
• Construction and extraction occupations have the smallest percentage of females (2.1%);
• Computer and mathematical occupations have the smallest difference between female and male median weekly earnings (ratio = 96.5%);
• Legal occupations have the largest difference between female and male median weekly earnings (ratio = 56.6%);
• In all twenty-two occupational categories, the ratio of female-to-male median weekly earnings is less than one.

The weighted average female-to-male earnings ratio across the twenty-two occupational categories is 80% (weighted by the number of females in each occupational category). This seems pretty close to the "77 Cents" statistic number... What's going on?

To find out, we need to take an even deeper look within these twenty-two occupational categories. Let's take a look at the "legal"occupation, which has the smallest ratio of female-to-male median weekly earnings. Within the "legal" category, there are four sub-categories:

• Lawyers;
• Judges, magistrates and other judicial workers;
• Paralegals and legal assistants;
• Miscellaneous legal support workers.

When we look at the distribution of males and females across these four sub-categories, we see an interesting pattern:

 

Most males in the legal category are in the "Lawyers" subcategory (77.2%), while the majority of females inthe legal category are in the "Paralegals" subcategory (86.7%). It shouldn't come as a surprise to anyone that paralegals typically earn less than lawyers. This goes a long way in terms of explaining the gender pay gap within the legal category.

So why can't we just cut right to the chase and look at the smallest occupational sub-groupings possible? It seems like we could get to the heart of the issue by comparing males and females who have the same job titles, right? Thr problem is lack of data. The deeper into occupational sub-categories we go, the fewer people there are to study. This makes quantitative analysis harder. In fact, for the judges, paralegal and legal support sub-groupings, the Bureau of Labor Statistics doesn't even present earnings data for males because the sample size is so small...

Looking at the issue of pay equity at the  "macro" level of occupation is too broad to answer the question, but when we get down to the appropriate level for comparisons between men and women, there's too few data points to study. So what are our options? At this point, they're kind of limited. Until we can get plentiful and reliable data at the micro level, we're stuck from an empirical perspective. Maybe the new data collection tool planned by the (wo)men of NEPET will give us the data to finally put this issue to rest.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than a decade, she's been working with businesses and government agencies providing expert EEO analysis. Stephanie has published several articles on examining compensation systems with respect to equity. She is the host of The Proactive Employer, and is the Director of the Equal Employment Advisory and Litigation Support Division of MCG.

New Words for Old Issues

One of my many weaknesses is the habit of creating new words needed for compensation discussions.  The standard of acceptability is that they must be so clearly self-defining that listeners instantly recognize the meaning.  Further elaboration is usually unnecessary for a good memorable phrase that summarizes complex dynamics in short terms.
 
Binky-survey:  the particular long-familiar survey that supplies an irreplaceable sense of comfort, satisfaction and continuity to critical decision-makers.  It may be the least reliable of the (traditionally 3) sources you analyze for consensus results, but its absence activates anxiety while its presence produces peace of mind.
 
Blemish-hunt:  the process of seeking one flaw (hmmm… would flaw-hunt be better?), no matter how miniscule, as a pretext to reject something you don’t want to accept.  An activity prompted by an aversion reaction to an unacceptable report, enabled by a rationalization that will inevitably triumphantly declare, “Obviously, it is not perfect; and if there is one mistake, Gawd knows how many OTHERs there are.”  Beloved of trial attorneys preparing cross-examinations to impeach the testimony of hostile witnesses but also popular among managers confronted with reports containing uncomfortable facts.
 
Move-raise:  quitting, to perform your same job elsewhere where the money is better.  Often greatly appreciated by the abandoned department which now has compelling actual proof to support its arguments for higher pay.
 
Foot-promotion:  abandoning your employer for another offering the conventional politically correct excuse for resignation, “A bigger title with more pay and greater opportunity for advancement.”  (N.B., pay alone is sufficient excuse to support a mutually acceptable departure justifying a glowing or at least non-damning letter of reference, because then the abandoned boss can use your declared reason for personal benefit.)
 
Compensation by Consanguinity:  Pay determined by degree of blood relationship.  First defined in a report on Reasonable Compensation at a Kentucky family-controlled regular corporation where all profits were distributed as tax-deductible bonuses disbursed to members of the controlling shareholder’s family in direct relationship to their blood or marital relationship. (Don’t worry… they ended up repaying Taxpayers for the excess amounts siphoned off as untaxed disguised dividends.)
 
Weasel-wordy:  Filled with carefully chosen modifiers which practically negate the claim that is being made.  Intentionally deceptive and disingenuous clever double-talk, where every precise phrase must be parsed to expose the absence of the implied meaning. Derived from “weasel words,” an old phrase describing words that suck the meaning out of the words around them. 
 
Lazy-speak:  Sloppy superficial terminology; inadequate thought given to the words chosen for the intended terms or desired concepts.  Using precise terms inappropriately.  Done often enough, it will erode meaning, like the way “decimate” has morphed from meaning select by lot and kill one-tenth (a disciplinary practice of the Roman legions to deal with units that fled in the face of the enemy) to totally destroy  Conventional wisdom (rarely truly either) has expanded the term to mean drastically reduce in numbers, and it is now also frequently used to mean utterly wipe out.  A much more dangerous example is when folks who should know better refer to The Cost of Living when they really mean annual payroll increase projections dealing with the rate of change in the open competitive market prices for labor.
 
Rotten equity:  Delivering fair or equitable treatment so late and obviously unwillingly that any positive motivational opportunity has been spoiled and converted into negative resentment by the recipient.  A rotten hiring bonus is paid six months after hire; a rotten relocation expense reimbursement is made a year after you took out a loan to pay your overdue moving bill supposedly covered by your employer.
 
What are your favorite self-created tradecraft terms?

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.

Image: Creative Commons Photo "So Many Words" by dps

The Value Gap

The Cornell University Center for Advanced Human Resource Studies (CAHRS) recently published a research paper exploring the correlation between employee satisfaction and the bottom line.

It turns out there isn’t a direct correlation, which supports that assumption that making your employees happy for the sake of happiness won’t lead to profit.

There is, however, an indirect correlation between employee satisfaction and the bottom line that can be measured.  Leaving out the more technical details, which are available in the report, it goes like this:

• Satisfied employees stick around longer.
• They gain valuable experience, meaning they can work a problem more effectively and provide better – not necessarily more enthusiastic, but more knowledgeable - customer service.
• Customer satisfaction tends to be higher when the workforce has sufficient experienced employees who don’t have a chip on their shoulder.
• Customers buy more and tell their friends.

It seems overly simplistic (and fairly obvious) but the point is, just keeping your experienced employees from hating you and leaving has a positive impact on the bottom line beyond the cost savings of not having to replace them.

Which is nice.  But common sense dictates that satisfaction and retention alone aren’t enough to drive outrageous performance, which is needed if companies want to transition from the cost cutting strategies of the last year or so to creating value. 

There’s a missing piece, which is passion.  Or engagement, or drive, or commitment or whatever you want to call it.

Consider Jay, an experienced senior technical architect and father of four near the top of his pay range.  He’s pretty satisfied where he is, albeit frustrated by office politics that prevent progress on what he feels are critical issues.  Because his salary is high and two of his kids are nearly college age, he's not interested in offers to do something more interesting for less money.  Of course, his tepid monetary satisfaction won’t stop him from accepting a more lucrative offer, but he’s not an immediate flight risk. 

Wanda’s situation is slightly different.  She used to earn more as a consultant but has three kids and appreciates the flexibility of her current job.  She’s diligent and punctual but doesn't feel challenged.  Still, despite bouts of boredom she’s satisfied with her work life balance and is also not an immediate flight risk.

Both Jay and Wanda are competent, conscientious and complacent – the 3 C’s of stagnation when taken together - but neither of them are passionate about their work.   There are several signs:

• They aren’t shy about stating their opinions but they avoid conflict.
• They respond promptly and superficially to direct requests but don’t go out of their way to help others.
• They produce high quality output as a matter of course but don’t try to exceed their goals.
• They have friends at work but they don’t actively mentor or seek out new communities or information.
• They don’t complain about work but they also don’t rave about how great their company is.

Should we fault them for their lack of passion?  Maybe.  But if they work for a company where passion is neither encouraged nor rewarded, we can’t really blame them for going with the flow.

There's no dire scenario here.  Both Jay and Wanda are satisfied enough to stay in their current jobs and their work has a positive impact on the bottom line.  That's the good news. 

The bad news is that there’s a sizable gap between the value they add today and the value they could add as thought leaders, mentors, evangelists.

That's the value gap and everyone's got one, although few companies try to bridge the gap by assessing people's skills and interests, encouraging their passion and helping them maximize their potential.

Great companies mind the gap.

*Jay and Wanda are fictitious and any uncanny similarity to people you know or work with is entirely coincidental. 

Picture courtesy of Technoccult.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen 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, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

“Soft” Business Practices Deliver “Hard” Numbers

What drives your organization? It's easy to determine. Take this simple quiz and choose the most likely answer for your organization in each scenario.

1)    A client who was repeatedly abusive to our employees was:
a.    Quickly “fired” as no amount of revenue from such a customer is worthwhile
b.    Advised the relationship, while valuable to the organization, would not continue without positive change
c.    Pursued for repeat business as the offensive behavior was swept under the rug

2)    A high-producing sales rep who achieved his numbers through questionable means was:
a.    Fired for violating company policy and values
b.    Counseled to bring his selling approach in line with company values, even if the his numbers suffered
c.    Received the President’s Award and held up as a person to be emulated

3)    A manager known for berating his staff and requiring long hours to get the results he wanted was:
a.    Reassigned to a position in which he did not manage other people
b.    Coached and measured on implementing more effective, kinder management techniques
c.    Ignored as long as the results of his team remained high

If you chose mostly “a,” there is little toleration in your organization for poor behavior, but also little patience to coach others to choose better actions. If you chose mostly “c,” your organization couldn’t care less about the human equation in pursuit of almighty profit. If you chose mostly, “b” – congratulations! You work in an organization that understands the kindness principle.

What’s the kindness principle? A belief that everyone (even the offenders) deserves to work in an environment of trust and respect where you are encouraged to achieve your best.  Of course, repeat offenders may need to be removed, but even they deserve a chance to change their approach.

I’m inspired in this thinking by a recent article by Tom Peters that appeared in the Financial Times.

“We said (in my first book In Search of Excellence) that in the end it was the supposedly ‘hard numbers’, so readily manipulable as we have seen of late, and the ‘plans’, that are so often flights of fantasy, that were soft. And the true ‘hard stuff’ was what the business schools and their ilk undervalues as soft: people issues, character and the quality of relationships inside and beyond the organisation’s walls.

“Thinking about this led me to the softest word of all – and perhaps the most lasting impact in dealings among humans: kindness. …

“I will stake my professional reputation on it; ‘soft’ is indeed ‘hard’, and Kindness = Repeat Business = Profit.”

What will be your act of kindness today? How will you inspire kindness in others?

As Globoforce’s CMO & Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin, Montreal and Boston. Follow Derek on Twitter at @globoforce.