Compensation Cafe

The Job: Bound for Extinction or Evolution?

For some time now, experts have been predicting the death of the job.

In his newly released book Management Reset: Organizing for Sustainable Effectiveness, Ed Lawler describes a new world of organizational management and has this to say about the concept of a job:

...job descriptions lost their usefulness years ago, and the next management reset will acknowledge that jobs themselves are an obsolete notion.  Instead, work will be defined by the projects and initiatives that drive current effectiveness and create future strategies.

And in their recent research paper, published in WorldatWork's Journal, Patricia Zingheim and Jay Schuster celebrate the accomplishments of 20 organizations who have defined conventional wisdom and replaced jobs - as the centerpiece of HR and compensation practices, with competencies.  From their paper:

One CEO summed it up, “We were in a system of jobs. The problem was that we could not evaluate performance effectively and develop an HR strategy based on jobs. So we moved to what the organization needs done by people and this was not necessarily connected to jobs. We did this in large part to combat bureaucracy and proliferating job titles. As organizations grow, they create titles and levels and never lessen the level-building process. And nobody wants to leave jobs unfilled. So competencies work for us.”

Going against the prevailing practice of jobs was likened to rowing a small boat against a strong river current. Yet these organizations embarked on the journey and report satisfaction with the result. The momentum to remain an organization of jobs is powerful. Nearly every organization is structured around organization charts with boxes inside that are jobs with titles and functional descriptions. For decades, people have been offered jobs and job promotions. When asked what people do, most describe their job and provide their job title rather than describe the  competencies and skills they have and the work they are doing. Changing this paradigm is a formidable task.

So is the job an antiquated relic, bound for the talent management dustbin? 

In modern industrial times, the job has served as a key link between employee and employer.  The intersecting point between a person's capabilities and an organization's needs.  In this way, it provides structure and a clear foundation for the employment relationship.  Unfortunately, it can also create bureaucracy and boundaries which impede collaboration and momentum.

Do the demands on today's organization to be agile and flexible require that we eliminate this link entirely?  In many ways, jobs have become the symbol of all that ails us organizationally - the red tape, the burdensome hierarchy, the title creep and confusion, etc.  Is this demonization of the job on target?  Will eliminating jobs help us fix these things?

There is no denying that the nature of work is changing.  I find the idea of person-based pay very compelling, but it certainly faces some challenges on the ground level.  Can we overcome the obstacles - from the regulatory (FLSA compliance, internal pay equity requirements) to the external benchmarking (how do we compare our pay levels to other organizations) without relying on a "shadow" system of jobs in the background?

Do we ditch the job?  Or does it live on, but evolve to be more flexibly and loosely defined?  Made up of ever changing projects and initiatives, rather than a finite list of key accountabilities?

What's your vote: extinction ... or evolution?

Ann Bares is the Founder and Editor of the 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 is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares.

Image courtesy of zdnet.com

Are Annual Merit Increases the Right Approach to Pay for Performance?

In my work with clients on strategy for their employee recognition programs, we dive into the various ways they express to high performers that their exceptional work is noted and they are appropriately compensated for that level of continuous performance. A challenge we often discuss is the problem of performance-based merit increases.

One of the most common methods today across organizations is merit increases. But the news around merit increases this year (as in many years past) is abysmal. Merit increases this year are expected to be the highest since 2008 – at a mere 3%.

Towers Watson tells us in the U.S. top performers (fives on a five-point scale) will receive 4% increases, next-level performers will receive 3.4% increases, and those who simply meet expectations will receive 2.5% increase.

Where’s the differentiation in that? As inflation rises will those merit increases even be noticed? And even those increases for top performers are reliant on a largely failed annual performance review process. How many of you have dealt with the manager who says:

“I give all my team members the same ranking year after year. Their performance doesn’t change that much. It’s easier, and I hit my targets for the appropriate number of employees at each level.”

Or perhaps this:

“I just give all my team members the same merit increase. It’s too hard to differentiate them and trying to do so leads to too many problems. I just don’t want to choose.”

Of course this is an abdication of managerial duty and something that should be addressed by other means, but the fact remains. Many managers are simply terrible at differentiating employees, especially when merit increases are on the line.

So what’s an alternative? I propose year-round rewards commensurate with year-round recognition of employee efforts. Those who perform at a higher level are naturally more frequently recognized and rewarded for those efforts.

Does that mean “raises” become a thing of the past? Of course not. They just take a different form, the most likely being:

• A standard annual cost of living or inflation increase for all employees to keep salary levels in line with industry norms
• Promotion-based raises

This is a controversial topic. A lot is invested in performance appraisal systems tied to merit increase adjustments. I’m looking to hear from the experts so I can offer a more informed perspective to the senior leaders I meet with.

What do you think? Are merit increases truly the best way to reward employees? Is differentiation strong enough to support this?

As Globoforce’s 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.

Can You Keep A Secret?

Early in my career I worked for a very successful, decades-old manufacturing company who maintained the practice of posting their salary structures on the walls next to the punch clock machines.  Every grade and salary range up to management positions was available for public viewing.

I was young and unseasoned at the time, hadn't been around much yet, so didn't think much of the practice at the time - either way.  It was just the way things were at that company.

Those were the days

Flash forward to today.  In your organization, if an employee asks about the salary range of a job other than their own, do you tell them?  If an employee asks the grade designation of a job not their own, do you answer them?  Or do you say that it's none of their business?  That it's on a need-to-know basis.

As my professional career progressed from those early days it often seemed that the disclosure practices of my employers slipped backward into the era of "we - they" management philosophies.  An era I thought long gone.  In one company the employee wouldn't be told the minimum and maximum of their own salary range.  Another employer would readily inform an employee of their own salary range, but not the range of a job one grade higher.  Say again?

Now of course it's entirely possible that my own career progression of employers is a unique combination of companies not typically replicated by many of you out there.  Perhaps most of you still post your salary ranges on the break room wall, or the pay grades are simply included within the periodic employer newsletters.

I'm betting that's not the case.

But why? Why not disclose the key elements of your job evaluation and base salary structure?  What's the harm in letting employees know where they stand, and what their career progression could look like?  What's the harm?  What's the big secret?

Whenever I asked that question, in all innocence and with a guileless question mark on my face, the usual answer was, "that's the policy.  Always been that way."  Dumb answer.  Pushing my query further never did get me a decent explanation though, which left me with the obvious conclusion that something was better off hidden from the employees.

Some sort of management discretion that would be challenged by letting too many people know what's going on.

Hiding the crown jewels

If a company is going to restrict information about their pay programs, it's common to guard two key elements:

• Salary range - laying out the minimum and maximum, or even just the midpoint.  Letting you know how much you're paid in relation to how the company has valued your job

• Grade - the designation of a position within the hierarchy.  If you know your grade, chances are you can figure (or guess) the grade of others - including perhaps your boss

Then again, if the grading structure can be manipulated, or job evaluations are slanted one way or another, perhaps there are a few skeletons in the closet after all. Perhaps there are little secrets better kept hidden.

If not, then why not post the salary structure on the office wall?  All the grades, all the salary ranges, and all the jobs covered by the compensation program.  For those who like to keep their little secrets, you can cut off the disclosure at the executive level.  No personal data need slip out at all.

Ohhhh, but that would be heresy in most quarters, wouldn't it?  If those jobs have been fairly and objectively evaluated and priced against both internal and external factors, what is the reason for the locked drawer attitude?  If there is nothing to hide, if you can defend, or at least explain your decisions, then why not hang your laundry out in the sun?

What's the big secret?

I think we know.

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 courtesy of Gregoire Lannoy

Black Holes and Compensation Metrics

It's a little-known fact, but the fields of astrophysics and compensation are closely related. Similarities are particularly apparent between black holes and compensation metrics. Both fields attract theorists and experimental researchers looking for a challenge, and both require a unique combination of empirical fact coupled with imagination. We know that black holes and compensation metrics exist, but the full extent of their innermost mysteries are yet to be revealed.

Taking an interdisciplinary approach can give us new insights into old problems. With that in mind, here are five things black holes can teach us about compensation metrics.

1. Black Holes and Compensation Metrics Suck - a black hole is a region of space from which nothing can escape. Because of strong gravitational fields and magnetic winds, these collapsed stars are impossible to resist. Compensation metrics also have strong gravitational and magnetic fields - it's easy to get sucked into the promise of finding that ultimate metric that will finally give you the perfect compensation system. Like cosmic dust into a black hole, a constant stream of time and money can get pulled into developing and implementing these metrics. If those resources are focused on measuring the wrong things, all that time and money can easily disappear into the singularity, lost forever, without shedding any light on the question at hand.

2. The Information Loss Paradox - when an object falls into a black hole, all of the information about that object is evenly distributed along the event horizon and is lost to outside observers. The same is true for compensation metrics. By their very nature, metrics are designed to aggregate information across observations and distill that information down into meaningful insights. But information is lost in the aggregation process. The primary unit of observation in compensation metrics is the person; people invariably have a rich history full of details that help to explain their current characteristics. Before crossing the event horizon of information processing and aggregation, it's important to think about what secondary information and individual characteristics might be of interest, and come up with a way to preserve that information in the overall metric.

3. Lack of Direct Evidence - by their nature, black holes cannot be directly observed. Astrophysicists looking for black holes have to rely on indirect evidence - usually gravitational interactions of the supposed black hole with its surroundings. Metrics essentially show us gravitational interactions, allowing us to make inferences about the unmeasurable things we really care about. Metrics may provide indirect evidence of problems in base salaries, workload, or management, but they rarely are able to accurately capture the problem itself. Metrics are proxies, and before we draw conclusions about the underlying processes at work, we need to make sure that our metrics are really measuring what we think they're measuring.  

4. Observations Are Influenced By Position Of Observer - one of the most interesting effects associated with black holes is gravitational time dilation. To a distant observer, an object falling into a black hole appears to slow down, taking an infinite time to fall in. But an observer falling into the black hole crosses the event horizon after a finite time, although he doen't know when (it's impossible to determine the location of the event horizon from local observations). A similar phenomenon is true for metrics - two people could look at the same metric and come to different conclusions. Assume that employee turnover has increased in the last quarter. One person could look at this metric and conclude that the wrong people were being hired in the first place. Another could look at the same metric and conclude that the micromanagement policies implemented three months ago are the problem. Neither is really wrong; the new policies had a negative effect on the incumbent employees, but if individuals preferring micromanagement were hired, turnover would likely decline... The point is, perspective matters in interpreting the metrics.

5. Gravitational Collapse - black holes are created when the celestial object's internal pressure is insufficient to resist that object's own gravity. Metrics, if left unchecked, can lead to the same kind of gravitational collapse. We're assigning more importance to metrics in all areas of our lives - from KPIs at work to tracking 3-D information about workouts at the gym and the quality of our sleep at home in our beds. We love those little graphable sound-bites of information. There's something really gravitational about metrics, and it's easy to get caught up in their pull. But when the reasons for creating the metrics in the first place takes a back seat to the "what-can-we-measure-next" mentality, it's easy to collapse into the singularity of measuring for the sake of measuring.

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 analysis. Stephanie has published several articles on examining compensation systems with respect to internal equity, and has appeared on NPR to discuss the gender wage gap. She is the host of The Proactive Employer, and is the founder of Thomas Econometrics. Follow her on Twitter at ProactiveStats.

Image courtesy of Wikimedia Commons

Icing is Nice, but Frosting is Essential (Compensation is like Cupcakes)

How is compensation like a cupcake? Is it just that people crave it, or is it something far more fundamental? I’d like to suggest that it is in understanding the important difference between frosting and icing.

Think about generic plans created from stale boilerplate documents. Or, communication programs which teach little and inspire nothing beyond high-level overviews or lengthy legal documents. Or, even sales compensation plans promising commissions and bonuses, but don’t drill down into the true cause and effect of the sales process. These are examples of programs plagued by the “icing on the cake” excuse.

My wife loves cupcakes and considers herself somewhat of a connoisseur. Throughout her cupcake journey, I have studied the cupcake more than I care to admit.  When creating the cupcake there are the requirements and the extras. The obvious requirement is the foundation made up by the cake. It can be comprised of a wide variety of substances and one or multiple layers.  The common extras are the icing decorations that give the cake its unique character.  These are usually flowers, designs and piping that are strategic placed and serve the purpose of making the cupcake pretty and personalized.

However, there is confusion regarding the not-so-obvious essential, which is the frosting.  Frosting is the layer that is part of every bite. While frosting does look good, that’s not its true purpose. It helps fill-in or cover-up a cupcake’s deficiencies. It moistens the dry and sweetens the bland cake foundation.

I recently spoke to a friend about the stock options her company offers. We spent 10 or 15 minutes discussing the plan. We talked about how and why stock options work and some of the risk reward scenarios that can unfold. We also discussed how her options could have value. At the end she said, “These are great, why doesn’t my company want me to understand them?  What’s the downside for them?” I responded, “I am sure they want you to understand them, but sometimes that part of the equation is seen as icing on the cake.” I realized immediately it was a terrible metaphor.

Icing is something a cupcake can live without. Understanding the purpose and potential of complex compensation is far more like frosting. Without it your programs simply won’t work. A sales compensation program must fully account for the underlying drivers of success. A generic plan is like a carrot cupcake without the cream cheese frosting. In other words, it looks like health food, not dessert. In our attempt to navigate the increasingly complex world of compensation, we often forget to finish our cupcake.  Is it any wonder that our employees are not interested in eating it?

Spend the additional hours or money it takes to finish things up and frost your compensation plans.  We might not always have time for the pretty icing flowers and trim, but that does not give us an excuse to skip the frosting. When we’re busy we sometimes make ourselves feel better by reclassifying essentials as “icing” or “nice to have”; when they are truly “must have.” If we approach compensation like cupcakes, we may find that our employees line up for more, rather than complaining about whatever they get.

NOTE: Tomorrow, April 26, 2011 I will be writing a guest article for Robin Ferracone’s Executive Pay Watch Blog at Forbes.com. I will be discussing transparency for proxy advisory firms. Come on over a take a look! http://blogs.forbes.com/robinferracone/. 

Dan Walter is based in San Francisco, CA and is the President and CEO of Performensation an independent compensation consulting firm focused on the needs of companies not in the Fortune 1000. Dan’s unique perspective and expertise includes equity compensation, executive programs, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, helps create ShareComp, a virtual conference addressing equity compensation and founded Equity Compensation Experts a free networking group with more than 1,100 members. Dan is also in high demand as dynamic and humorous speaker. Connect with him on LinkedIn or follow him on Twitter @performensation.

One Little, Two Little, Ten Little Motivators

My previous post examined the difference between motivation and engagement.  While engagement arguably leads to better overall performance, sometimes motivation’s the best you can do. 

Let’s face it, someone in a boring, repetitive job is unlikely to feel engaged, but it is possible to motivate them to do a better job:

Motivator #1: Rewards - Despite a certain amount of controversy surrounding this topic, the prospect of personal gain is highly motivating. The catch is that rewards-based motivation is pretty narrow in focus.  The opposite of reward is punishment, which is more likely to produce sullen resentment than motivation and should therefore be avoided as a motivational strategy.

Motivator #2: Anticipation – In an earlier post Show Me the Monkey I explored how anticipation with a dash of uncertainty significantly increases the pleasure of receiving a reward.  The opposite of anticipation is entitlement, which is extremely de-motivating because it removes the need for personal exertion.

Motivator #3: Fear – Fear is a strong motivator but tends to backfire in a business setting because people avoid taking chances or making decisions.  The opposite of fear is confidence, which is a good thing unless it swells into overconfidence and starts causing trouble.

Motivator #4: Pride - Pride is one of the strongest motivators but it’s tricky to formalize because not everyone takes pride in their work.  People are most likely to feel professional pride when their skills, aptitudes and interests line up with their work.  Pride can also be encouraged with strategic recognition.  The opposite of pride is shame, which adds no value whatsoever.

Motivator #5: Responsibility – A feeling of personal responsibility can be highly motivating but not for everyone.  The trick is to give responsibility to people who feel motivated by it.  The opposite of responsibility is obscurity, which frustrates people who crave responsibility no end. 

Motivator #6: Interest – People who find their work interesting want to work and devote their personal time to doing so.  The opposite of interest is boredom, which can’t always be avoided because some jobs are just plain boring.  Fortunately, you can inspire people to do a boring job well with strategic application of other motivators.  

Motivator #7: Progress – Nothing motivates like feeling you’re moving ahead, which is why career development is so important in high performing companies. The opposite of progress is stagnation, which is like boredom on steroids.

Motivator #8: Loyalty – Loyalty’s a strong motivator, which is why you find high-performing teams in poorly-managed organizations.  However, loyalty tends to be focused on a specific person rather than the business.  The opposite is disloyalty, which can manifest in various undesirable ways.

Motivator # 9: Gratitude – Most people feel a sense of obligation when someone helps them and will try to repay the favor.  Nonetheless, gratitude is a weak motivator because people have different ideas about what is owed.  The opposite of gratitude is resentment, which may lead employees to subtly sabotage the business.

Motivator #10: Belonging – Belonging is a strong sense of group identity that can have a motivating effect if properly channeled with team messaging, public recognition and perks.  The opposite of belonging is alienation, which is a feeling of being outcast and alone.  High performing companies hire for cultural fit as well as skills to help create a strong sense of belonging.

All of these motivators are partial motivators and the more motivators you offer the closer you are to achieving engagement.  In fact, I tend to think of engagement as ‘holistic motivation.’

Which is a fancy way of saying that the best way to engage employees is to be a great company.

Picture courtesy of thejoywriter.

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 holds a certificate in Strategic Human Resources Practices from 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.

Salaried Can Mean Non-exempt, Really!

Hate to admit it, but a surprising number of people in the compensation profession don’t understand that “salaried” is only a term referring to payroll treatment.  It does not determine overtime exemption status.  Furthermore, you can’t simply “make someone exempt” from overtime without jumping through multiple hoops subject to Federal trials for final decisions.  A recent discussion in the WorldAtWork Online Community illustrated how problematic the issue remains even for HR people who should know the law, at least at the common Federal level.  States can have more favorable overtime rules.

Under the United States Department of Labor Wage and Hour Division Fair Labor Standards Act (DOL WHD FLSA), you can be:

• hourly overtime-eligible non-exempt,
• salaried overtime-eligible non-exempt or
• salaried exempt from the overtime provisions of the FLSA.

The U.S. government doesn’t care if you call someone “salaried” because you tend to cut their payroll checks in exactly the same amount from week to week.  They obsess instead about whether the person has been properly paid their obligated time and one-half overtime for all hours worked in excess of forty (40) in the workweek.  Most workers are legally entitled to overtime.  Those whose individual work content meets specific regulatory standards detailed in the newly revised 2004 statute may be exempted from the overtime requirement, but merely modifying their title, altering their payroll cycle or changing their employee category cannot make them exempt.

The terms "salaried" and "hourly" refer to company payroll practices on the frequency for paychecks and the consistency of amounts.  "Salaried" usually implies a fixed rate of pay every week, while "hourly" anticipates a variable weekly paycheck.  Hourly workers are required to report actual hours worked each workweek and are almost always non-exempt and eligible for FLSA time and a half overtime.  Some salaried employees are also eligible for FLSA overtime, even though they may typically receive the same paycheck amount for the same amount every week, especially if they work the exact same 40-hour week every week. 

The essential point is that exemption is a matter of factual law finding and is not an option chosen by the employer. Exemption requires passing specific regulatory tests applied by the Federal Court, which always (by law) operate to the advantage of the employee, with a statuatory bias towards granting overtime entitlement.

For instance, the salary of salaried non-exempts can be docked, by law, to match the hours worked.  At many employers, it is standard practice to modify the weekly "salary" of non-exempts when they take off 2 hours early, for example.  But then, you have to constantly and continually recompute their "normal rate" for subsequent 1.5 overtime computations.  Make sense?  FLSA Fact Sheet #23 shows an excellent example.

See the section on computing overtime pay at the very bottom of the FLSA Reference Guide here for more specifics:  Handy Reference Guide to the Fair Labor Standards Act, Revised September 2010.

Confusing salaried status with exempt status can be dangerous.  You risk $10,000 fines per incident and possible prison sentences if you don't comply with the letter of the law.  

Clear as mud, right?  With regulatory challenges like this, I become much more appreciative of payroll departments who are typically tasked to wrestle with this issue.  Nevertheless, HR and comp people must be sensitive to the reasons that onerous payroll reporting rules must be followed, so supervisors can be trained effectively and held accountable for their compliance with U.S. law in the way they schedule and report work in their sections.

Here in America, it doesn’t have to make sense, if it’s the law.

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.

Editor's Note: We have opted to modify this post in order to make corrections and remove information found to be potentially confusing or misleading.  The central point of this post, however, remains important – that we as HR and compensation professionals need to be aware of the fact that a worker can be both salaried and nonexempt.  Thanks to all who shared comments and thoughts below.

Image courtesy of clearasmud.eu

Paycheck Fairness Act Not "Magic Bullet"

"The Only Solution You'll Ever Need!"

We've become obsessed with magic bullets. You've seen the advertisements - products for miracle weight loss, body sprays that promise to attract scores of beautiful young women to men with questionable hygiene, and books for turning your brooding teenager into the model of open and direct communication in under one week...

The latest magic bullet on the scene is the reintroduced Paycheck Fairness Act. To mark last week's Equal Pay Day, Representative Rosa DeLauro and Senator Barbara Mikulski reintroduced the Act into the House and Senate, respectively. (You'll remember that the Paycheck Fairness Act died in the Senate last November...)

Supporters of the Act have argued that this piece of legislation has the power to end the gender pay gap - and gender pay discrimination - once and for all. Unfortunately, the Paycheck Fairness Act is destined to fail when it comes to delivering on this promise.

The problem with magic bullets is that they address the symptoms of the problem, but not the underlying causes. While the fresh-smelling body spray may mask the underlying problem of questionable hygiene, let's face it - you're not going to get the girl if you only bathe once a month. Magic bullets for weight loss might work in the short term (perhaps with some negative consequences for your overall health), but long-term weight management requires looking at diet and exercise. 

The same is true for the gender pay gap. Most of the discussion on the gender pay gap focuses on a general statistic that says women earn 77 cents for every dollar men earn. This is a symptom that has been mis-measured and misinterpreted; the truth is, we don't fully understand the cause of the gender pay gap.  Even the federal government has admitted that they don't fully understand the gender wage gap. One of the "persistent challenges" identified by President Obama's National Equal Pay Enforcement Task Force is the government's ability to understand the full scope of the wage gap and to identify and combat wage discrimination.

It's at this point of the Paycheck Fairness Act infomercial where the clever sales pitch comes in - the Act would enhance the collection of information on the wages of men and women in order to better understand the reasons for the gender wage gap.

AHA! The Act WILL work! More data = better understanding, right?

Nope. While the Act would give us a lot more data to look at, it will essentially be focusing on the same kinds of data we've been looking at all along - earnings by occupation, industry, etc. We already know that industry, occupation, work experience, race, education and union stats account for almost 60% of the gender pay gap. What we need to focus on are things we haven't yet looked at, but are likely to explain the remaining differential - things like hours worked, career interruptions, differences in compensation expectations, willingness to engage in salary negotiations, and what drives the choices people make about their employment and compensation. Right now, it doesn't look like the Act will collect any of these other pieces of information.

The truth is, magic bullets don't exist. There are no quick and easy solutions to problems that really matter. It takes critical thinking, some creativity and a lot of hard work to put together a long-term solution. There is no one-size-fits-all answer to what causes gender pay gaps. Legislation won't eliminate pay discrimination (if it would, the Equal Pay Act should have already taken care of the problem).  The real question we need to asking about the Paycheck Fairness Act is whether or not it will really achieve what we think it will achieve. I have to question whether any solution can truly correct a problem that we don't fully understand...

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 analysis. Stephanie has published several articles on examining compensation systems with respect to internal equity, and has appeared on NPR to discuss the gender wage gap. She is the host of The Proactive Employer, and is the founder of Thomas Econometrics. Follow her on Twitter at ProactiveStats.

Are You Pushing the Wrong Rock up the Hill?

We all know the story about Sisyphus, the man who was sentenced for eternity to roll a stone up a hill only to have the stone roll back down and begin again. I have been speaking to compensation professionals recently who seem to have assigned themselves this same punishment. 

In one case, I recently spoke to a company who has placed communications at the top of their “needs” list each of the last few years. They are fully aware that their compensation programs will be more effective if their employees better understand them.  They even put together a project plan each year. Even with this understanding and planning they have ended each year without a major communication accomplishment.  One year their budget was cut.  One year they had a big corporate action. Another year they had someone on maternity leave. All are legitimate reasons, but each rings as a hollow excuse when starting another new-year in the same place as the last.

In another case, I worked with a company who had put in place long-term incentives for several years in a row that ended up paying out at 0% each cycle. Each year they used the same metrics and essentially the same goal levels.  Each year they came in below threshold.  They used the same consultant to create these ineffective plans each year. When I asked why, the response was that the consultant understood their industry and designed their plans around market trends. In the end, they paid to have plans designed and implemented.  However, the accrued compensation expense could not be reversed and they delivered absolutely nothing to their participants.  Most importantly the plan did not seem to have any direct impact on corporate performance.

In the final case, a company built over many years a complex system of spreadsheets to “automate” the administration and reporting for their unique compensation plan. When they started the spreadsheet, the industry had not yet built tools to support their plan. Over the years the industry caught up, but the company didn’t have the time or inclination to replace their spreadsheets, even though they had become slow and job limiting for the compensation staff. In a matter of months, after finally deciding to replace their spreadsheets, they were able to migrate to a more automated solution that allowed one staff member to be promoted to an open position and everyone else to access information whenever they needed it.

In the first case, it seems as if the task was simply too big. The goal of creating a comprehensive communication plan was more than could be accomplished with the staff available in the time allotted. This resulted in the project getting pushed off to the side for “more pressing” concerns, even though communications was the highest priority task at the beginning of each year. The company has now carved up the communication project in smaller pieces and things are starting to move forward. It will take two or three years to get everything done, rather than the one year of the original plan. But, the past plan resulted in nothing being accomplished in a three-year span.  Something is better than nothing.

In the second case, the company brought in a new consultant with a fresh perspective. They kept much of the plan structure the same, while adding metrics that were better integrated with the participants’ direct deliverables. Whether the goals will be made is still a question, however it is clear that the participants are now performing because of the plan, rather than in spite of it.

The case of the home-built system is all too common. Pride in the work it took to create such a system along with a feeling that providers will never do it exactly the same way can hinder progress.  Each year someone became less of a compensation professional and more of a “super-duper spreadsheet expert.” Everyone suffered and every year started looking like the prior. 

As we move out of year-end, take a moment to evaluate everything you do.  You may find a few self-imposed “punishment boulders” in your task list.  Take a few moments to evaluate why you allow them to continue. You may want to consider pushing a different rock up the hill.

 

Dan Walter is based in San Francisco, CA and is the President and CEO of Performensation an independent compensation consulting firm focused on the needs of companies not in the Fortune 1000. Dan’s unique perspective and expertise includes equity compensation, executive programs, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, helps create ShareComp, a virtual conference addressing equity compensation and founded Equity Compensation Experts a free networking group with more than 1,100 members. Dan is also in high demand as dynamic and humorous speaker. Connect with him on LinkedIn or follow him on Twitter @performensation.

The New York Times Is Outing Executive Pay. Where Do You Stand?

SPOILER ALERT: You Are Going to Be Asked to Give Us Your Opinion. Don't Panic. Read On. 

Last week, The New York Times issued a Special Report on Executive Pay in the Sunday Business Section. They asked Equilar to compile and analyze pay data from proxy statements filed by April 1, then published a data set of information for 200 executives at 199 companies with annual revenue of at least $7 billion. In addition to publishing the numbers, The New York Times also explained how they calculated the pay data and assembled the report.

The reporters' take on the state of things lined up with Jacque Vilet's great Compensation Cafe posting from Friday, "Deja vu All Over Again". All I need to do is repeat the titles of the articles for you to know where the reporters stand.

In "Fair Game: Enriching a Few at the Expense of the Many," Gretchen Morgenson weighed in on the impact of executive pay on the health of the company and the wealth of its shareholders. In "The Drought Is Over (At Least for C.E.O.'s)," Daniel Costello reflected on the messages sent by the data. For example, "The median pay for top executives at 200 major companies was $9.6 million last year. That was a 12 percent increase over 2009 . . ."

Always wondered what it would be like to be an expert witness? Here's your chance. I don't want to know how you feel about the size, mix or fairness of executive pay.

I want to know whether you think The New York Times is doing an effective job of educating the general public on executive pay. 

I've been writing about the difference between pay transparency and clarity in this space for over a year now, along with the rest of the Compensation Cafe writers. I believe there is a crucial difference between telling all and actually communicating -- especially about compensation. 

Transparency is defined as, "the full, accurate and timely disclosure of information". As all of us with information overload know, a mountain of details does not equal understanding. On the other hand, clarity’s definition is literal, "to make things clear". When you shoot for clarity, you respect the reader's need for context and explanation. 

When it comes to helping people understand either executive or employee compensation, clarity is quite a feat, as I believe anyone of us who's made an management presentation knows well.

The media is weighing in on our work. Where do you stand? Are they doing a good job of briefing the public? Are they setting things straight? Could we do it better?

Should we?

BTW, if you're interested in further insights after you check out the April 10 Special Report, Daniel Costello, The New York Times financial reporter is joining Equilar for a Webinar on CEO pay trends tomorrow, Tuesday April 19, at 10:00 a.m. PST.

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin.  Margaret 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.