How Watching Homeland Helped Me With Pay-for-Performance

Think you only have two options for handling your 3% merit budget this year? The recently popular, "throw most of the money at the high performers" strategy or the "what's the point meddling with this little money, just give everyone the same increase" strategy?

I just finished catching up on Season 1 of Homeland, so you'll excuse me if I am triggered by security breaches and obsessed about getting things right. It's just that I have these misgivings that have started to boil over in my brain, just like Carrie.

It goes like this.

A pay-for-performance philosophy is based on the tenet that an individual's salary represents their performance over time.

That's why our pay structures are typically built out of salary ranges that are designed to take newbies towards market rate as they master job responsibilities. And they are designed to take experienced employees over market rate if their performance over time turns them into seasoned, valuable contributors.

If our pay-for-performance philosophy holds, then an employee's position in range should tell her/his story over the length of time s/he held the title, Accounts Payable Supervisor, or whatever.

So here comes the security breach. Given how we've handled our merit increases over the last few years, what story does an employee's position in range actually tell in your company these days? It's worth a check. If your analysis shows that there are a lot of operatives in your company who aren't where they are supposed to be, don't you have some important evidence? Doesn't it beg to be kicked up a level and studied for what it really means?

One thing it says is that your compensation philosophy may not be what you claim it to be. As of 4Q 2012, you're faking it.

Or, it may mean that the merit budget strategy for 2012 deserves another look.

Don't you want to act thoughtfully this time, looking toward the future, rather than behaving erratically, with the reactionary behavior of the last few years? Do the analysis to see where you stand and then make some tough decisions.

Should you say that your salaries reflect pay-for-performance anymore? If yes, it's time to provide better-than- average increases to those who are too far down in their range, given their long-term performance. Or some creative alternative, like performance bonuses or performance-based supplemental benefit allocations.

If the answer seems to be no, now what? Shift to variable pay?

Since everything we do in compensation is communications, it's important to be clear about what is going on. Pay-for-performance is a code word, but for what? If you want it to be part of your vocabulary, you need to either update your definition or acknowledge how you have strayed, and figure out what you are going to do to fix it (and by which Episode!)

Margaret O'Hanlon is founder and Principal of re:Think Consulting. She joined Ann Bares and Dan Walter of the Compensation Cafe to speak the unspoken -- "Everything You Do (in Compensation) Is Communication" -- at the WorldatWork 2012 Conference. Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Communications Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Watson. Margaret is Deputy Director 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, Bloomington. Creative writing is one of her outside passions, along with Masters Swimming.

Comments

[Korin Giordano]

You've hit the nail on the head Margaret and I am as puzzled as anyone...now what? It will be interesting to how organizations respond to these issues. One organization is addressing position in range for a very select population but it is costly. The sins of the past several years in terms of merit budget and a disconnect between hiring practices have played a key role in the situation.

[Margaret O'Hanlon]

Thanks for the info, Korin. You know, I'm not sure that many can afford a broad fix on position in range at the moment, but I really do believe we can't ignore the issue. Talking about it, understanding the impact, presenting to execs. And beginning to address the issue, if possible, as you describe in your comment.

We are undermining the stated purpose of salaries and we all need to understand that. Otherwise we are guilty of spinning our rewards "philosophy" by telling some real whoppers when we talk with employees. We all know what that leads to.

[E. James (Jim) Brennan]

Assuring proper pay progression over time is an old problem with a new sharp edge. When the net closure rate between normal pay increase and grade structure movement rates diminish, the laws of mathematics show that your promised "deal" is baloney. Major changes to close the gaps between promised employee pay progress expectations and obvious program shortfalls will be required eventually. Both action and communication will be vital.

Anyone can buy a back copy of the ancient March 1980 Personnel Journal article on the subject: "The Problem with Salary Ranges (and a Realistic Solution)" at Workforce.com. Or you might contact the author (wink, nudge).

[Margaret O'Hanlon]

Your right, Jim, this is a problem that has appeared before. And my consulting career began with a number of assignments involved with "fixing" the position in range problem following pay freezes and the like.

Right now, though, I think the most important thing is for us to talk about this openly. The word, "malarkey," became more popular in the last week, but I don't think I'd go that far quite yet. What I do think is baloney is not facing up to what we mean when we say pay for performance these days. Unless I'm at the midpoint by 4 to 5 years in my job, I have the right to use the word malarkey -- and that's not a good sign for engagement.

[Ann Whisenand]

Pay for performance, competitive pay, etc. You're right that all organizations need a deeper dive into how they pay v. company pay philosophy/strategy...and, COMMUNICATE it clearly to employees, managers, and applicants.

As long as I've been in comp actual pay points to market median and merit budgets have exacerbated competitive pay. The best approach I've seen in handling this issue long-term is just as stated here -- focus on total rewards.