Compensation Cafe

Part of the Team

My husband recently mentioned that the managers of his favorite soccer team not only encourage players to marry but even offer to organize the wedding!  The rationale for all this marriage brokering is that married players are more stable and less likely to run wild. 

In other words, they recognize spouses as an integral part of the team.

Now let me say that I only have my soccer fan husband’s word for this.  But I wonder how many companies are so forward thinking? 

Back in the 50s it was pretty clear that men needed a wife if they wanted to advance.  Popular sit coms like Bewitched depicted the wife as the ‘woman behind the man’, always available to host and cook for visiting dignitaries and completely understanding about long hours and weekends.

Even today, being married is good for the male career although strangely, it tends to have the opposite effect on female careers.  I don’t want to generalize too much here but I wonder how many companies actually consider the families of their employees when it comes to talent strategy and rewards.

Looking around, not many, especially in these days of downsizing, outsourcing and doing more with less.  Although it's popular to talk about work life balance, employees are implicitly expected to pursue work life balance on their own time, which is why married employees whose spouses cover the home front still have a career advantage.

But considering employees in a vacuum, separate from their families and significant others, is a bit of an oversight if you think about it because of the influence families have on how employees perceive the companies they work for.

For example, does this conversation about rewards sound familiar?

You: Honey, my cancer cure patent just got approved!

Spouse: Darling, that’s amazing!  We should celebrate!  Are you getting a raise?  Or a bonus?

You: Er… Well, I got a pen.  But it’s a really nice pen!

Spouse: We can barely pay our mortgage and they give you a pen for curing cancer?  That's it, I’ve had it with you working nights and weekends for no money and no appreciation.  You need to find a different job! 

(OK most of us haven’t cured cancer lately but you get the idea.)

What about this conversation about work life balance?

Child: Daddy, will you come to my soccer game tomorrow?

You: I’m so sorry, sweetie, I have to work.

Child: You never come!  I hate your job!

(Ouch.  How do you think this person feels about their job right now?)

What it comes down to is this: If you pay decently and treat people fairly, families tend to have a stabilizing and retentive effect on employees.  But if your corporate culture is more of the crazy-hours-combined-with-eccentric-incentives variety, you might want to up your family values game a notch.

Alternatively, you could try employing only single people and forbidding them from ever forming personal attachments. Worth a shot.

Bottom line: Companies that want to engage their employees foster a family environment.  They express appreciation to the spouses holding the home front.  They organize family friendly events.  They encourage employees to meet socially outside of work.  They make sure employees take vacation, offer flexible work schedules and place more value on work quality than quantity.

They recognize families as part of the team.

Picture courtesy of effective-time-management-strategies.com.

Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, 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 (well, kicking things) 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.

Good-Time Charlie/Charlene Gets Laid Off

Are you a good-time Charlie/Charlene?  Will your career proceed smoothly through the calm waters of highly profitable firms who own their markets?  Do you work at public sector enterprises firmly entrenched at a tax trough they can control who can even print money when needed?  If not, it is vitally important that you learn the cautionary lesson from the experiences of the American TARP firms.   Otherwise, you may be cast aside when your employer experiences economic distress. 

Keystone Award winner PhDs Jay Schuster and Pat Zingheim have boldly exposed the soft underbelly of our profession.  HR and Compensation professionals consistently failed the test of tough times at troubled financial institutions (TARP firms).  Work output results that were perfectly acceptable in good times proved qualitatively inadequate to the challenges of bad times.  Worse, the top “people people” had no idea what they had done wrong, how to correct the situation or how to remedy the shortfalls found both in their HR/comp programs and in their organizations. 

The experts presented a preview of that research paper at the 2011 WorldatWork Global Total Reward Conference and have now published the full results in the First Quarter 2012 WorldatWork Journal.  It makes for uncomfortable but important reading for those practicing our Total Rewards tradecraft.

Just talking about banks and finance tends to scare “personnel” professionals. But there is much to be learned from the debacle in the financial sector.  HR and compensation departments behaved both as enablers and as fecklessly helpless observers… until they were fired.  The finance function deals with money and wants to control everything dealing with money, which invariably leads them to the major expense item called "human talent."  One can make jokes about whether you would let your banker run your business, but when banking IS your business, that is a very different situation.  It may happen, anyway, in any business enterprise, if you don't understand financial matters and the basic needs of your organization.  Bankers don't have to understand HR but (unfortunately) HR and compensation people have to understand the language of finance and the perspectives of financial people.  Schuster & Zingheim found that is exactly the disconnect that occurred when the 2008 financial crisis struck.  The people people living in a la-la land world of their own when business was profitable stood by helplessly with nothing of value to offer their enterprises when major changes became necessary for survival. 

Read it and weep.  Take notes, too, to assure that you do not become guilty of the same mistakes.  The errors are easy to make but have terrible consequences.  The consensus suggestions of the top executives surveyed in the study are clear, sensible and practical.  Anyone who fails to remedy their behaviors in accord with the recommendations deserves what will eventually happen to them.  As the researchers concluded, we have a choice about whether we decide to be part of the problem or part of the solution. 

The additional warning piece by Schuster/Zingheim published recently just supplies extra evidence of the importance of adding value to your employer rather than simply currying favor with the employees.  Business partners sit at the big table while the children amuse themselves in the playpen.  Choose your spot.

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 courtesy of blogging4jobs.com

Warning Light for Total Rewards Profession

Editor's Note: I am particularly proud to feature today's guest post, which comes to us courtesy of Jay R. Schuster and Patricia K. Zingheim, the winners of the prestigious WorldatWork Keystone Award.

Total rewards professionals are the best placed in Human Resources to add value to an organization. Our profession is situated to influence the development of strategies and tactics that align base pay, incentives, benefits and other total reward elements to link the workforce with organizational goals and priorities. In 2000 we posed a total rewards model with the achievement of business goals central to how organizations might plan their total rewards’ strategic thinking (Pay People Right, 2000). This model (Exhibit 1 below) has been adopted by many organizations interested in aligning rewards with business objectives and remains the only total rewards model with goal achievement at its center. Our recent study of large, challenged financial institutions (“Compensation and Human Resource Practices During Crisis: Which Solutions Add Value?”, WorldatWork Journal, Q1 2012) focuses on some troubling realities about how far the total rewards profession has wandered from a realization that a workforce can be secure and viable only if it adds value to organizational goals and if total rewards are closely linked to attaining organizational goals. CEOs and other senior executives we interviewed suggested that of all the functions, Human Resources and Total Rewards were least aligned with what the organization needed to do to respond to the financial crisis that impacted all of us. CEOs reported, “Everything works during good times, but Human Resources and Total Rewards were completely unprepared to help us meet business challenges during tough times.” And a read of this article will show that these words are just at the surface of the indictment of our profession.

While the credible research focused on total rewards is somewhat sparse, there is enough to have total rewards professionals ask more questions before leaping into adopting reward programs, that while easy to implement and enjoyed by people who favor gifts from their employer, have no support as it relates to providing real value when people need to help the organization prosper. Case in point is the subculture of work-life benefits that has emerged in our profession. These programs require no heavy-lifting on the part of those who propose them and research suggests they are most likely to create a workforce linked to their organization by entitlement rather than a win-win partnership based on being rewarded for adding true value to the organization. While there are many examples of organizations that engaged their workforce to help meet organizational and business goals by implementing variable pay, performance-based compensation, performance management, and pay based on the acquisition and application of skill and competency, there are no examples wherein troubled organizations were able to enlist the aid of their workforce by virtue of work-life benefits, pet insurance, yoga classes, and gift certificates to provide organizations the opportunity to help their ROI.

The total rewards profession is very important to the future of a serious HR field finally earning the “seat at the strategy table” that we constantly read about and hope for. The first step in this direction will be to focus on a total rewards model that truly adds value to the business and avoids the marketing adventures that suggest that the subculture of work-life benefits is the secret sauce for our profession.

Jay R. Schuster, Ph.D. and Patricia K. Zingheim, Ph.D., are partners in Schuster-Zingheim and Associates, Inc., a compensation and total rewards consulting firm founded in 1985. They are authors of three books and numerous articles and are recipients of the Keystone Award, WorldatWork’s highest honor in the compensation, benefits and total rewards profession for their contributions to the body of knowledge. Their website is www.PayPeopleRight.com.

Creative Commons image "Warning Light" by miss-britt

It’s Moving Day! Anniversary Date to Focal Point Reviews

I have come across several companies in the past 6 months that are using anniversary date reviews and asking me how to make the switch to focal point. I thought this practice had died! Of course having spent all my life in the high tech industry -- we all used focal point.

So let’s talk about the two methods, showing the pros/cons as well as how to make the “switch”.  Just to make sure we are all in sync --- focal means that performance/salary reviews are done for every employee effective on the same date once a year.   Anniversary date means reviews are done at each employee’s “anniversary” date of hire.

OK, let’s imagine that your CEO has asked for your opinion.   Currently you use the anniversary date method.  Managers are complaining to him.  They are tired of having to write an appraisal on a different employee almost every month.   Your CEO has heard about the focal method and has asked you to determine the advantages and disadvantages of both methods.

You do your research and come up with the following:

Advantages of Focal:

• All employees are rated/appraised at the same time each year.   It allows management to get a single snapshot of the organization.   They can see the top and bottom rated employees
• The salary budget is fixed.   If the total proposed increases are rolled up and are greater than the budget, they are re-worked until they come in on target
• On time completion rates for written appraisals and salary increases are better.  With focals, HR knows which managers are late because they receive all reviews at one time
• If focal reviews are done a few months after the company's year-end, performance can be reviewed against company year-end results.  This assumes, of course, that all goals have been created to align with company goals.

Disadvantages of Focal:

• Managers must write appraisals and discuss them with each employee in a prescribed period of time.   It can require a lot of time for managers with a large number  of employees
• Managers face the dreaded “forced distribution” issue.  Performance ratings are almost always tied to a specific salary increase percentage, and the ratings must meet the required distribution to meet budget.

Advantages of Anniversary Date:

• Managers do not have to write appraisals on all their employees at the same time.   It lightens their load by spreading them throughout the year
• There is less visibility of “forced distribution”, and managers believe they can rate employees more fairly --- in other words, give more employees a higher rating.  (This can be an advantage or disadvantage depending on who you talk to!)

Disadvantages of Anniversary Date:

• Managers tend to delay/postpone reviews because they are not being as closely monitored by HR.  
• Employees may end up having retro-active salary increases because the manager misses the payroll effective date
• Because salary reviews are occurring all during the year, departments can easily go over budget
• There is less alignment to corporate goals as reviews occur and goals are set throughout the year

After reviewing the results with your CEO, he/she decides to move to a focal point review.  So how do you make the transition?   

Most companies use a pro-rated method.   They delay reviews for employees who have recently received their anniversary reviews ---- say during the last three months ---- until the focal date of the next year.   At that time their increase is annualized on a pro-rata basis. 

An employee who has an anniversary date increase exactly three months prior to the focal date of the first year would receive 15/12 of the normal amount (based on performance rating) on the second focal date.   Someone that has an anniversary increase 2 months prior to the focal date of the first year would receive 14/12, and so forth.  Thereafter, all current employees would be on the same focal schedule and eligible to receive a full 12 month increase.

The same method would be used for new hires during a focal year.   If hired during the last three months of the focal date, he/she would receive 15/12, 14/12 or 13/12 of the normal amount (based on performance rating) on next year’s focal date.

A switch in salary/performance timing like this can create a big disruption, confusion and misunderstanding on the part of employees.   Needless to say, a change like this calls for a very simple and clear communication plan.   A suggestion might be to train all managers first.  That way managers are prepared ahead of time to answer questions on an on-going basis.  Then have employee meetings to make certain everyone understands. 

Remember, compensation may not be a “satisfier” ---- but it sure can be a BIG “dissatisfier”.  So take your time and do the “switcheroo” the right way!

Jacque Vilet, President of Vilet International has over 20 years’ experience in International Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology.    She has worked with both local nationals and expatriates and has been an expat twice during her career.    Jacque holds the CCP, GPHR and SWP (Human Capital Institute).  She is a member of WorldatWork,  Society of Human Resources Management and the Human Capital Institute.   She is co-chair of the Global HR professional emphasis group for the Dallas chapter of SHRM.  She is a regular contributor to HCI, HR.com and IHR Forum.

Image courtesy:  katiealange.wordpress.com

Shamrocks and Compensation Communication

On Saturday, people around the world will be celebrating St. Patrick's Day. Parades, feasting, and of course, the consumption of alcohol will occur from Boston to Birmingham, Manchester to Montserrat, and Cheonggyechon to Calgary. Prominently featured in these celebrations will be the shamrock.

Legend tells that St. Patrick used the shamrock to teach the Irish about the doctrine of the Holy Trinity, or "three divine persons in the one God". 

I'm going to borrow a leaf from St. Patrick and use the shamrock to illustrate the Holy Trinity of Compensation Communication: The Message, The Language and the Holy Ownership.

The Message: Compensation communications with employees is about more than annual percentage increases and bonus amounts. Communications should help employees understand the objectives of the company, the goals of their department or functional line of businesses, and their work teams. If employees understand these objectives, they can see more easily how they fit in and how they can best contribute. A well-designed message can influence employee engagement, behavior and performance. 

When building your message, think about how much information regarding the structure of the compensation system you will share. Transparency is a key consideration. Transparency is about clearly communicating the why and how of the company's pay practices, not divulging employee-level pay data so everyone knows what everyone else is making. 

Less is not always more. Not providing enough detail about your pay practices leaves employees wondering how their performance and behavior affect their pay. It also feeds the rumor mill. If an information vacuum exists, misinformation will rush in to fill the space. The right level of transparency will clearly express how the compensation program affects each employee, what behaviors are expected of them, and how they can move forward in the company. 

The Language: The actual words we use when communicating about compensation are extremely important. As Sandrine Bardot points out, every word counts. Your choice of word will depend on your audience. Your communications to professional employees will be different, in terms of format, vocabulary and perhaps volume of information, than your communication to hourly laborers. Due to cultural differences, your communications to overseas employees may take a different tenor than your communications to US-based employees. 

The actual words are also important because of the nature of what you're communicating. Compensation is technical, and technical discussions require precision. Median salaries are not the same thing as average salaries. Salary as a percent of total expenses and total compensation as a percent of total expenses are different animals. A target bonus is not the same thing as an actual bonus. Be precise, and be correct. 

When thinking about the language, remember that a picture is often worth a thousand words - or pages and pages of data tables. Using a well-designed chart is a more elegant - and usually more effective - way to make your point. We, as a society, are becoming more and more accustomed to data visualizations. Think about incorporating graphical representations - in some cases it can be a better way to communicate the information.

The Holy Ownership: Your communications about your compensation program are the "face" of the program. Put your best face forward, and own the program. Take responsibility and answer any questions directly. Don't pass the buck and respond to criticisms about pay and performance decisions with "(S)he made me do it!" or "I don't like it either, but there's nothing I can do." Explain how the decisions were made, and stand up for the outcomes. Keep your comments neutral and fact-based. Explain the rationale and leave your opinions out of it.

Taking ownership and being direct doesn't mean being a jerk. Remember that compensation is a very personal matter. It directly affects the ability to provide for yourself and your family. Compensation is also one of the ways that self-worth is measured. Whether we like it or not, someone's pay communicates a sense of how much the company values that person. This, in turn, can have an effect on self-esteem within the organization and outside of the organization. Be mindful of this. Communicate directly and openly, and remember the Golden Rule.

 Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics and is the host of The Proactive Employer. Follow her on Twitter at proactivemployr. 

The Bigger They Are . . . .

It used to be a common view that the Human Resources department in large companies was more sophisticated, more professional, and more forward-thinking than what you would expect to find from HR in smaller companies.

We all presumed that the "big guys" knew what they were doing.

However the current pendulum of thought has begun to swing the other way.  Indeed, sophisticated has become cumbersome, professional has become bureaucratic and forward-thinking has created a chasm of credibility between philosophical concepts and the practical realities that managers deal with every day.

Remember the K-I-S-S principle (keep it simple, stupid)?  Many large organizations seem to have forgotten that common sense caution as they saddled their reward programs with ever more forms, procedures and bureaucracy.

The Evolution of Performance Appraisal

A good example of HR systems gone wild is the difference between a small company performance appraisal and the convoluted processes often followed by large companies.  Herein lies a stark contrast not only of styles but of methodologies and core beliefs that a more complex better way will increase the effectiveness of employee reward programs.

This growth of complexity is commonplace; by the time an organization achieves a certain population size HR feels compelled to complicate their processes - usually in the name of increased employee sensitivities and streamlined procedures.  What worked well before (when the business was smaller) is suddenly suspect, deemed somehow less effective, less desirable. 

What began as direct cause and effect, performance followed by assessment = reward, suddenly became much more complex, more confusing to some, more aggravating to others.  Critical communications are often flawed and ineffective as both employees and managers question the additional complexity.

Let's look at a comparative example, using the performance appraisal process.

The Small Company Experience:

• The employee's performance is assessed against what is expected of them.

• Performance discussions usually take place on the anniversary of either employment or promotion.

• Forms are basic, even simple.  They may not be standardized, and one or two pages are usually enough.

• The process is brief.  Meetings tend to be short and focused, so both parties can get back to work.

• The approval chain is abbreviated; messages from the performance meeting are typically what actually happens.

• The money discussion (pay increase) is front and center, a cause-and-effect dialogue.  You have performed thus and so, and your salary will be changed from "x" to "y."

How Large Companies Tend to Operate:

• The employee's performance may be assessed against other employees as much as against what is expected of them (their job description).

• Performance discussions use a Focal Point strategy, where everybody is reviewed at the same time.  For managers with more than two or three subordinates, this represents a challenge in terms of time spent and quality of assessments.

• The forms used are intricate, multi-part, multi-page affairs designed by HR specialists.

• Employee performance as a group may be viewed against a desired bell-shaped curve of ratings.  Individual assessments may be modified to fit the expected / budgeted shape of the curve.

• The boss makes upward "recommendations,"  which may or may not be approved.  Thus the conversation with the employee ends on a "we'll see" basis where money is concerned.

• Other topics like developing future performance, improvement strategies / action plans, and "where are we going?" discussions may predominate.  Sometimes talk of a pay is deferred, raising the question of whether performance actually relates to reward.   Meanwhile, the employee wants to hear about a raise.

So what has been lost as the organization grew larger?  Has it become more impersonal, forms-centric, process controlled, and standardized?  And is that better than before?  Perhaps more has been lost than gained.

How did the organization evolve into something potentially less helpful, less effective?  Perhaps the poking and prodding of systems and procedures in the name of improvement went too far, until they created a convoluted and twisted version of their desired state. 

Perhaps we've let specialists over analyze the psychology of a boss rewarding a good performer.  We've exchanged hard decisions with real impact for a muted "everyone deserves something" approach.  The following scenario is common.

• Sub-function specialty groups are created within HR, be they Training, Management Development, Succession Planning or others popularized in prevailing industry jargon.  Each group has advocates that push an agenda of change.

• These specialty groups must justify their existence to validate the worth of their profession, and their mission.  The result is additional layers of forms, procedures and extra time constraints for managers to struggle with.

• Over time these experts lose sight of the managers they should be trying to help.  They don't understand the beast they're trying to tame.  By pressing their own agenda they tell management how to assess performance.

• Ultimately these groups become blockers, getting in the way of a smooth-running operation.  Objecting managers tend to respond with a campaign of passive resistance.

So can we make our large companies "feel" smaller when dealing with employees?  How do we reverse the model of increasing complexity and confusion?

When the state of affairs has gone off the tracks, how many times have you heard - or used the phrase, "let's get back to basics?"

Perhaps that thought could be useful today, no matter what size organization you hail from.  Simply return to the fundamentals of performance management, where performance is assessed, and in turn leads to reward.

It doesn't have to be any more complicated than that.

K-I-S-S

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.  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 scottdesignworks.com

Executive Compensation: The Political-Taxation Conspiracy

We hear the cries every day. “Executives make too much money. Let’s raise their taxes!” “Executives are  our job creators. Let’s cut their taxes!” Perhaps key members of both sides of this argument are keeping the focus on compensation levels to deflect from where taxes and political contributions come from. Are there underlying reasons for politicians to avoid strong support for performance-based compensation?

In this election season, we are all aware that the large contributors to political races are often people who make large sums of money. It’s no surprise that some people believe that politicians favor the needs of those who provide funding for their campaigns. Tax season has just begun and it has its own political links.

Not so surprisingly, the individuals who pay the largest amounts in tax dollars are generally those who are the highest compensated. Most people, even those who are paid these large amounts, would say that this is a fair system. But, what happens if compensation levels drop, as will more frequently happen as companies focus compensation on pay for performance?

A Feb 29, 2012 article, “Bonuses Dip on Wall St., but Far Less Than Earnings,” in the DealBook section of the New York Times, discusses how Wall Street bonuses are forecasted to drop 14% at a time earnings are forecasted to drop more than 50%. The article was essentially a discussion about the lack of linkage between pay and performance, but a small section caught my attention. It talks about the impact of the 14% bonus decrease on New York State and City budgets.

“Still, a dip in year-end cash compensation is cause for concern for New York government officials. Before the financial crisis, Wall Street accounted for 20 percent of the state’s tax revenue. Last year, that tally was 14 percent. For New York City, the share dropped to 7 percent of tax revenue from 13 percent over the same period.

“The city budget is dependent on a very small group of people — the 1 percent, if you will,” said Nicole Gelinas, a senior fellow at the Manhattan Institute. “If the 1 percent isn’t doing well, the city’s not doing well.””

Imagine, that instead of a 14% decrease in variable compensation, companies didactically followed “pay for performance” to the exact level demanded by some of its most ardent supporters. In the case of Wall Street in 2012, this would mean a drop in related taxes of 53%. In terms of real dollars, we can use the estimates provided by the article. It claims that in 2011 “New York firms paid roughly $20 billion in year-end cash compensation.” First, this specifically removes the changes due to equity compensation, which us comp pros know is a big piece for this level of employee. Second, $20 billion generates a lot of tax revenue. New York State income tax is about 6.85%. New York City income tax is about 3.65%. That gives us a combined local rate of 10.5%. 10.5% of $20 Billion is $2.1 billion in tax dollars. That’s a lot of school lunches and road repair. Cutting this in half, to match corporate performance, would mean tax losses of more than $1 billion! And, that’s just in the city and state of New York!

Of course, this isn’t just a Wall Street problem. Local newspapers around the country regularly create lists of the highest paid executives in their area. Pay for performance decreases would impact the contribution potential of every one of these people. In states, or other areas, with income taxes, pay decreases would also directly impact local budgets. Consider the case of California, where the budget was decimated by the fall of the stock market and subsequent lost tax income that stock options and other equity compensation provided.

As long as we have political races, we will have at least some level of conflict with reductions in executive pay. As long as we have taxes, we will have additional conflicts between the needs of the public and executive pay. Since neither of these issues is going away in our lifetime, perhaps we should get them out in the open and start discussing how to plan according on all sides of this equation. The title of this piece uses the hyperbolic term “conspiracy.” I believe that is a gross overstatement. The political and taxation ramifications of pay for performance are simply realities that we have yet to fully address. It will be interesting to see how this works a decade from now.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay

Disengaging from Compensation Schemes

No reinforcement program or incentive plan works forever; but they seem to last forever, lingering on long past the day when their effectiveness expired.  What can we do about it?  Tradecraft literature concentrates on new ideas while giving short shrift to how you erase old ideas that have lost their luster.  Searches on “disengagement” all show topics about employees becoming psychologically distant rather than how you end ineffective motivational plans.  It is about time that we collected the best suggestions on how to back out of reward programs that are still valued and prized by recipients who don’t want to lose them.

Every experienced compensation professional knows it is extremely difficult to disengage from any system seen as a significant part of the total reward “contract” with employees.  Simple expectation theory teaches us that once people receive a consequence perceived as valuable, they want it to continue infinitely.  One of my Brennan’s Laws is, “Old entitlements never die; they just accrue.” 

Examination of overall remuneration systems at mature enterprises usually reveals multiple overlapping redundant layers of reward programs and incentives that have been added over the years.  An expert house painter will strip off the old paint so they can most effectively lay a new coat on a freshly cleaned and newly prepared surface.  Maybe we compensation people should similarly strip our jumbled batch of simultaneously administered reward programs down to a clean simple basic core foundation before adding anything new.  Cost-justification is vastly simplified if a promising new plan replaces old ones known to be flawed.  At least, we should explore how to maneuver the organization into a position from which it is possible to add something new without stepping all over the existing redundant or ineffective stuff that has accumulated over time.

Old reward programs take on a life of their own.  Once in an annual budget, they are (relatively) easily renewed.  They become taken for granted, both by management and by the employees, readily accepted as a fixed cost.  One would think that the past decades should have given us many opportunities to practice disengagement and to gain experience about which methods work best in what situations.  The fact that you can’t easily find such information is depressingly informative.  Few enterprises make money by recommending that their clients reduce expenses; after all, they want to be paid themselves, and that generally means an increase in expenses, so they tend to jump enthusiastically on the “invest a penny to make a dime” train.  Rarely do you see consultants saying that their client should end a popular but expensive compensation scheme.  By the way, I see “scheme” as the British do, as a neutral synonym for a “plan” rather than meaning a “wicked nefarious plot”.  No, rather than drop programs, consultants are expected to create added  programs that pay out more money on top of the sums already being dispensed; otherwise, the authors of the pre-existing reward plans have to admit they are flawed or no longer appropriate.

Enough of background chatter stating the obvious problem.  Let’s get down to potential solutions.  Naturally, they will not be universally useful.  What works very well in one situation may be completely ineffective in a different environment; but we have to start somewhere.  To prompt more thoughts, here are some initial quick suggestions on how to withdraw from a reward program:

• Buy out pre-existing programs with a one-time cash payment
• Fold old systems into new incarnations
• Wipe the slate clean by cancelling all current incentives as a date certain, then redesigning all
• Incorporate expiration dates into existing plans
• Forbid the addition of any new program until others have reached their drop-dead dates

What else can you suggest?

 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 courtesy of wallstreetsectorselector.com

At Last, the Secret of Successful Implementation

It involves a chocolate chip cookie. Seriously. Stick with me on this, there's a video from You Tube with a New York Times reporter involved.

Each business cycle, you ask employees to reexamine their objectives and behaviors in order to adapt them to the business priorities of that year. They get rewarded when achieve their objectives. They get rewarded more when they meet their objectives, plus their behaviors indicate that they will repeat that achievement in coming years as well as grow and learn.

That's why implementation is so important. You don't want to get in the way of people adapting to the new business priorities. In fact, you want to help employees make the change by following the first few steps of effective implementation:

1. Make them aware it is time to change
2. Explain the rationale for the change
3. Inspire them to accept responsibility for the part they play

If employees take on the responsibility for the new business priorities, doesn't the need for implementation and change management come to an end?

We often develop our implementation plan that way, but that's short sighted. In fact, if we leave it there everyone ends up frustrated. Working hard to achieve objectives but ill-equipped to actual get there. Because real change can only occur if employees change their habits, with your help.

What have we been missing? I could go into elaborate detail on change management theory, but really! 

I ran into a guy with a simple, concise way of sharing the secret on yesterday's Fresh Air program on NPR. New York Times reporter, Charles Duhigg, talked about his book, The Power of Habit: Why We Do What We Do in Life and Business. He did a great job of explaining how hard we hang on to habits, and how much change can be accomplished when we let go. He talks about the importance of rewards, so he's talking our language. Take a look at this explanation.

 

Yep, to implement our pay-for-performance programs effectively, we need to help employees -- and our organization -- change long-established habits and replace them with new behaviors. To create an effective plan for change, our analysis needs to be as subtle as the chocolate chip cookie study in this video.

This is another good illustration of the inadequacy of once-a-year compensation communications. It's not that the communications aren't well crafted or that we haven't worked hard on them. It's that they aren't built to accomplish change. (Skeptical? Check out the book if you want examples of companies who have focused on breaking habits and succeeded.)

We are all going to stay frustrated with our efforts at implementation until we accept responsibility FOR HELPING ACHIEVE THE BUSINESS STRATEGY, not just the merit increase matrix. 

And we are all going to feel more effective at implementation when our plans move beyond tactics to accomplishing change. You can bet a ton of chocolate chip cookies on it!

BTW, if you want to hear Terry Gross' full Fresh Air interview of Charles Duhigg on NPR, here you go.

This is the last episode in a series on research findingings that can help you improve Implementation. There's loads more to talk about, and I will because it is so important. Companies that are more effective at implementation -- of business strategy, pay for performance, change, communication -- deliver higher Total Shareholder Return.

Here are the earlier topics. It's been fun!  

1. Action that must follow ideas if you actually want something to happen
2. Implementation: Are you the 71%
3. These companies actually want something to happen
4. It's a scandal! Manager training exposed!

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 is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She 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. 

Do You Have a "Plan" or a "Strategy"?

Do you have a compensation plan or a compensation strategy? The same question is equally important for employee recognition and rewards – do you have a plan or a strategy? On a broader level – how would you answer that question in regards to Total Rewards in your organization?

What’s the difference between a plan and a strategy? A Strategy + Business article on an executive definition of strategy sparked this question for me:

So, what is a business strategy? Strategy is different from vision, mission, goals, priorities, and plans. It is the result of choices executives make, on where to play and how to win, to maximize long-term value.

“Where to play” specifies the target market in terms of the customers and the needs to be served. The best way to define a target market is highly situational. It can be defined in any number of ways, such as by where the target customers are (for example, in certain parts of the world or in particular parts of town), how they buy (perhaps through specific channels), who they are (their particular demographics and other innate characteristics), when they buy (for example, on particular occasions), what they buy (for instance, are they price buyers or service hounds?), or for whom they buy (themselves, friends, family, their company, or their customers).

From an HR leader perspective, that translates to:

• Where are the target customers? In organizations with more than one office, employees outside of Headquarters often feel like secondary citizens. This is especially true on a global scale. HR Pros must always consider all employees – everywhere in the world – to be critical “customers” and worthy of the same investment of time and attention. And this principle applies across job types as well. Too often, some employees in certain job functions are thought to not contribute to strategic objectives. I argue strongly against this. After all, if it were true, why are you paying them?
• Who are they? Obviously, the employees are in terms of fair pay, a comprehensive and competitive benefits package, recognition and rewards that motivate, and so much more. But the “business” itself is also a target customers in that HR Pros are constantly balancing on the fine line of what’s needed to secure and retain the best talent in the industry while never forgetting the bottom-line.
• How they buy? Humans are fickle beings, as any HR Pro can attest. The annual rite of passage – benefits selection – is an excellent example. Understanding how your unique employee demographic mix looks at benefits, their personal needs, and how you can accommodate and – critically – communicate to them so they “buy” appropriately is another delicate balancing act.
• What they buy? What is it your employees choose to engage in? Do you offer an employee recognition program but struggle to increase adoption and usage of it? Do they simply refuse to invest as they should in your 401K package (at least to get the “free money” through the company match)? Understanding the underlying reasons (sometimes cultural, sometimes as a result of history with the organization or personal history), makes it easier to help employees “buy” appropriately.

The Strategy + Business article concludes:

In the end, to define the fundamentals of your business strategy, you need only to answer three questions:

1. Who is the target customer?
2. What is the value proposition to that customer?
3. What are the essential capabilities needed to deliver that value proposition?

Without clear and coherent answers to these three questions, you may have an exciting vision, a compelling mission, clear goals, and an ambitious strategic plan with many actions under way, but you won’t have a strategy.

That’s an interesting proposition for HR Pros in the context of the discussion above. How would you answer these three questions regarding your compensation (or recognition and rewards, or Total Rewards) initiatives? Do you have a plan or a strategy?

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 and Boston. Follow Derek on Twitter at @DerekIrvine.