Compensation Conundrums

Since this will be my last post for 2012, I thought I would leave you with some basic questions I have about compensation that I haven't been able to resolve.  Let me clarify.  I know WHY these issues exist ----- I just don't know why we ALLOW them to exist.  You know the old saying:  Doing the same thing over and over again hoping for a different outcome is the definition of insanity.

Here goes:

1) If compensation is indeed a dissatisfier, then why do we spend so much of our time designing incentive plans, stock plans, etc.?  Since every employee has his/her own threshold of “satisfaction”, are these extra plans a means of making sure everyone’s threshold is met?  Or are we just following our competition by providing such plans even if we know better?
2) If “pay for performance” is such an engrained philosophy in the U.S., then why does it seem to apply only to employees below the rank of executive?   We know it, so why don’t we do something about it?
3) If stock plans seem to reward executives for short-term, quarterly stock performance when they were originally designed to reward long-term performance, why do we still use them?
4) If compensation is a dissastisfier, why don’t we focus on non-monetary forms of recognition to reward outstanding performance instead of giving more money in the form of incentive plans?
5) If using merit matrixes that include range position as a factor in assigning pay increases creates so much dissention, then why do we continue to use them?  Must we insist on being “purists”?
6) If our compensation plans are so simple and easy to understand, why is it so difficult to craft communication pieces that employees can comprehend?
7) Why do we consider what the competition does our “holy grail” when, if we truly think about it, we realize our company is unique and may require different solutions than Company A, B or C?
8) If we blithely spout “one size does not fit all”, then why do we turn around and try to force fit our U.S. practices on other countries where they truly DON'T fit and do nothing but irritate employees? 
9) If compensation’s main goal is to align with corporate business strategy, then why do some of us go off in a corner and design our own philosophy and strategy that may or may not support our company's goals?  Do we believe our strategy is better even though it doesn’t “fit” with our company's strategy?  Or worse, do we not even know what our company's strategy is?
10) Why is it that we are assailed with information that says we are not providing top management with the data they need --- and ignore it.  What keeps us from stepping up to meet their needs?

Again, I think I know the answers.  What I don’t understand is why we don’t change what we do.  What does that say about us?

Surely, in your heart of hearts, you have some conundrums of your own. I invite you to come up with your own list.

As for me, I’ll continue to struggle with how to address mine in 2013.

Merry Christmas and Happy New Year!   See you in 2013!

Jacque Vilet, President of Vilet International, has over 20 years' experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology.  She has managed both local/in country national and expatriate programs and has been an expatriate herself twice during her career.  Her true love is working on local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque has  been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.  She lives in Dallas and has two much loved, 4-legged children.

Image courtesy of magicalmaths.org

Comments

[Edward]

The answer is simple "We're not the owner/founder of this organization"...in other word we dont have enough authority which balance with the responsibility/goal

[Dan Walter]

1) If compensation is indeed a dissatisfier, then why do we spend so much of our time designing incentive plans, stock plans, etc.? Since every employee has his/her own threshold of “satisfaction”, are these extra plans a means of making sure everyone’s threshold is met? Or are we just following our competition by providing such plans even if we know better?
A: Momentum and inertia are hard to combat. It requires an almost constant force to move things like this, and even then it takes years.

2) If “pay for performance” is such an engrained philosophy in the U.S., then why does it seem to apply only to employees below the rank of executive? We know it, so why don’t we do something about it?
A: P4P is an engrained idea, but it has not yet reached the level of philosophy. Also the people who benefit for the lack of P4P are usually the people who are in control of it.

3) If stock plans seem to reward executives for short-term, quarterly stock performance when they were originally designed to reward long-term performance, why do we still use them?
A: A well-designed stock plan doesn't reward for quarterly, short-term gains. Most require years of waiting before people can take advantage of them. The majority of stock options are never exercise due to their lack of value.

4) If compensation is a dissastisfier, why don’t we focus on non-monetary forms of recognition to reward outstanding performance instead of giving more money in the form of incentive plans?
A: It is impossible to give people enough Omaha Steak gift boxes to make up for the loss of several thousand dollars in incentive pay (I guess we could give them a bunch of cows...) When we are talking about smaller sums of money non-monetary rewards are often wonderful, but first we have to pay people enough to live reasonably good lives.

5) If using merit matrixes that include range position as a factor in assigning pay increases creates so much dissention, then why do we continue to use them? Must we insist on being “purists”?
A: Good Point!

6) If our compensation plans are so simple and easy to understand, why is it so difficult to craft communication pieces that employees can comprehend?
A: There is no such thing as a simple compensation plan. Sometimes we try too hard to simplify the complex. Humans ae pretty smart, we should treat them that way. I wrote a little post about this. http://www.compensationcafe.com/2010/11/when-kiss-becomes-wish-understanding-compensation.html

7) Why do we consider what the competition does our “holy grail” when, if we truly think about it, we realize our company is unique and may require different solutions than Company A, B or C?
A: Most people don;t like standing out in a crowd. Next time you are at a comp event, ask people to act silly....they generally won't (without imbibing)

8) If we blithely spout “one size does not fit all”, then why do we turn around and try to force fit our U.S. practices on other countries where they truly DON'T fit and do nothing but irritate employees?
A: Why do so many people wear lycra?

9) If compensation’s main goal is to align with corporate business strategy, then why do some of us go off in a corner and design our own philosophy and strategy that may or may not support our company's goals? Do we believe our strategy is better even though it doesn’t “fit” with our company's strategy? Or worse, do we not even know what our company's strategy is?
A: It's more work?

10) Why is it that we are assailed with information that says we are not providing top management with the data they need --- and ignore it. What keeps us from stepping up to meet their needs?
A: Comp data is poor at best. It is messy, complex and the survey companies are often comparing apples to oranges to rubik's cubes. Many comp people do not come into this profession from an area of data expertise. This makes it even more difficult to explain the messy data.

DID I PASS THE TEST????

[Joe]

So are you including yourself in the "we" or since you "know the answers" you're cooler than everyone else? Where are are these "if" statements coming from? Are they or are they not?

[E. James (Jim) Brennan]

1. Who ever claimed that "compensation is a dissatisfier"? Never found anyone complaining about being paid.

2. Executives are convinced that P4P is implicit in their posts and their positions. While others contest, they believe they have already proved their performance value.

3. Stock plans reward what the shareholders want to get.

4. While the lack of adequate compensation is a clear dissatisfier, surplus pay can be a waste when other reinforcement consequences are more powerful; i.e., money will not give you honor. But cash is easier to count and distribute and is a universal reward quickly deposited and spent by everyone, even though not always as effective as alternatives that demand more thinking.

5. Any system that presumes that the rich should get richer at the expense of the poor who get poorer will be prized by the rich and despised by the poor. Those who demand that those already highly paid should carry off the majority of all future increases are those who oppose technical tools like merit grids and job value increases that reward current performance rather than compound pay for achievements long past.

6. Simple comp plans can be simply described. And they will still be misunderstood because humans read things into reward programs.

7. "Competitive peer practice" is CYA context that protects you from failing all alone by yourself. Lemmings are never innovators or leaders but simply copiers who seek safety in numbers.

8. U.S. practices don't match global practices but they are what we know. Everyone is the same in their uniqueness. Ergo, we all look out at the world from the lens of our own experience and are incapable of imagining what we have not known even intellectually. Everyone generalizes to survive and we start from our personal base. Nipponese firms try to impose their models on Americans, too.

9. No comp plan that conflicts with organizational strategy will ever pass muster with top management. But sometimes it takes such an attempt to discover what the strategy is, or to challenge the leaders to refine and define it.

10. Some requests are impossible to meet. No one has an infallible crystal ball. Accurately predicting all trends is difficult; and when your minority position was right, that makes you unpopular. But that is no excuse for ignoring what top management wants. Maybe that's why comp has such a high turnover rate, due to failure to respond appropriately to challenges.

This was a fun quiz!

[Jacque Vilet]

Hi Joe --- Yes I am included in the "we" and no I'm not smarter than anyone else. These are the issues that concern me --- maybe no one else.

As stated ---I think I have the answers as to the WHY for each. But MY question is WHY do "we" as comp pros let these issues keep occurring ---- why don't "we" do something about them. If they don't concern you --- then maybe these are my own issues and no one else's. Maybe I am alone in wanting to fix them.

Where do the "ifs" come from? My own head --- they are issues to me. Are they real issues or not? You decide. As I said these are issues to me --- maybe not you.

Seems like this article was a negative for you. I only meant it to be thought-provoking.

[Jacque Vilet]

Jim here's my answers to your comment.

1) Hertzbert claimed compensation was a hygiene need or dissatisfier.

2) Whatever the reason --- employees are closely scrutinized for this --- executives don’t seem to be held accountable for this by BOD or whoever

3) Yep – so we shouldn’t call them long-term incentives. Let’s ‘fess up and call a spade a spade. They are short-term

4) Agree so let’s get off the “it’s easier” bandwagon and really think about non-monetary rewards. Maybe Derek could help us here? Let’s be creative for Pete’s (who’s Pete?) sake!

5) Personally I think we need to just need to give each VP a budget and let his organization decide how to divide. (I hear a sharp intake of breath). Other than monitoring continued low increases/ratings for protected classes I don’t have a problem with this. Who says that highly paid people should continue to get the big increases? Not me. BUT they should not be penalized if their performance is high for __ number of years. What would you suggest? Eeny, meeny, miney, mo???

6) Maybe so, but perhaps we could test out our communications before a broad release by asking a random sample of employees to read and tell us if they make sense, what questions they raise, etc. Not an empirical study --- but better than trusting our own “compensation speak” opinion. May not satisfy everyone, but better than what some companies have now.

7) True “we” in HR seem to have a lot of “lemming-like” practices. I agree we are great at copying. I’m just saying we ought to get off our collective “duffs” and try to help our companies deal with their unique problems --- come up with our own recommendations for a change

8) Hey! It is compensation’s responsibility to know/understand the cultural issues with all compensation practices. No excuse! If your company has operations offshore --- get knowledgeable about each country culture

9) Our first and foremost responsibility as HR pros is to align compensation strategy to business strategy. If we don’t know --- we need to find out. Even if we have to lasso (Texas talk) the C-suite and put them in a corral until they tell us. Hmm . . . . could it be they don’t even have a business strategy? Nah . . . .

10)Well that’s not good enough in my mind. But HR in general doesn’t even bother to ask top management what HR can do. HR may need to put together a list of things that are strategic and get a “yes” or “no” answer ---- but at least, even if top management hasn’t a clue what they want from us, we have list of things to show them what we can do that is strategic. The problem is that top management doesn’t know what they want from us --- they only know they’re unhappy with us. From a business article (can’t remember which one) a CEO was asked why he has the HR function. He answered he didn’t know --- just that he was taught that he should have one in a management course at the university.

Glad you enjoyed it --- now think about your own!

P.S. I may be "hard" on HR but only because I love it and want it to do better. :-)

[Jacque Vilet]

Dan --- thanks for your comment. Here's my response.

1) Agree with you. So let's get crackin'. If we wait ten years we'll be 20 years older and have no progress to show for it.

2) Yep agree. Seem like it's hypercritical though and employees see right through it.
There is this quote: "It is difficult to get a man to understand something when his salary depends on his not understanding it.”

3) Well yes the well designed ones are not short-term. But designers face a hell of an uphill battle. Keeping up with the Joneses is particularly obvious at the CEO level. Who's going to argue? The BOD? The Comp Committee? Be patient and wait until I finish laughing to respond. AND you will see all kinds of articles on this very subject. So some people think it's a problem.

4) Sorry I didn't phrase this issue correctly. I should have said: If pay is a dissatisfier then once people are satisfied why do we continue to dump more pay on them --- i.e. cash incentive. Why don't we use recognition instead?

Sorry about that. Given the issue I DID list I agree with your response.

5) Thanks

6 Well maybe --- but we need to be very careful about compensation speak. And I personally think that people get frustrated with long technical explanations. I for one (maybe I'm not typical) get "antsy" and finally say "For crying out loud -- just tell me in simple words". I also get suspicious of people giving long involved explanations. Makes me think they are trying to hide something or just waiting for me to give up trying to understand. I also think (IMHO) that compensation pros get all caught up in the "eloquence" of thehir responses not realizing that except for other comp pros --- no one understands.

7) I hear you. Why are we so risk averse?
We should be more like Sales and Marketing don't you think!!

8) Hah! Well I don't wear lycra. Too afraid I will "explode" in front of a bunch of people. Maybe because my first love is international comp but I just hate when we mouth platitudes and come to find out . . . they really are just that . . . platitudes.
I always want to people out on this --- but I don't because that's not playing nice.

9) You can't be serious! This coming from an executive comp consultant which is truly the most difficult job in the world?
You're right though. But just think of a pilot with a plane headed straight into a mountain. Imagine him saying "I really should change course . . but it's too much work".

10)You're too easy on people. Yes it's hard work. If comp people can't do it they need to learn. What would the CEO say to someone in Finance or Marketing if they said "hey I can't explain the data, but trust me it's accurate". They wouldn't be there long.

Yep you passed the test although I think you were just playing towards the end.

Think of your own conundrums and share!

PS. Like I said above I most assuredly lump myself in this in the very comp group I am beating up. We all need to get more serious about dealing with these issues --- again IMHO.

[Joe]

Thanks Jacque. I do appreciate you taking the time to post on this blog and that you give thoughtful replies in the comments section.