Can Your Compensation Philosophy Do This?

The topic of compensation philosophy was raised recently in a conversation I had with a group of local executives.

As companies migrate to new products and services, to new customer profiles, to new technologies and competitive sectors, and to new partnerships, unless this happens purely by merger and acquisition, the people and the work must follow along.  Rarely does this happen smoothly and predictably.  More often it happens in fits and starts, where we pounce on opportunities and then scramble to assess the implications after-the-fact.

From a compensation perspective, this doesn't just bring new jobs and different skill sets into the picture.  It can also mean a shift to a whole different competitive labor pool and a challenge to the principles and assumptions on which your pay program is built.

It can mean that one day you're competing with the local manufacturing industry for talent and the next day you're up against Yahoo or Google.  One day things are in steady shape and the next you're bringing in a stream of very different talent that upends internal pay relationships in a way that  ripples through half the organization.  One day you have a relatively homogenous workforce and the next you are facing a glaring delineation between them that built today's business and them that will build tomorrow's.

This is when you discover that your traditional compensation philosophy, that beacon of eternal wisdom that is supposed to guide all compensation decisions, is of little help in steering through the morass.  A declaration that you intend to "establish salary opportunities at the 50th percentile of the relevant labor market" doesn't bring much comfort when you're straddling a moving fault line.

While reflecting on these issues raised by the executive group over the past week, I ran across The Agility Factor, an article published this week in strategy+business (authors include Edward Lawler, among others).  The article highlighted four routines that distinguish "outperforming" companies from their peers by helping them anticipate and respond to events, solve problems and implement change more effectively.  This agility, the article notes, is more than just the ability to change.  It is "a cultivated capability that enables an organization to respond in a timely, effective and sustainable way to changing circumstances."

Quick summary of the four routines of agility described in the article:

A dynamic strategy - including not only an enduring purpose, but also an intent and identity relative to that purpose which is flexible enough to change on short notice.

A perception of environment change - maintaining continuous contact with and drawing information from the environment, which can be evaluated against the company's existing identity, intent and business model.

Response testing competencies - resources are available and can be quickly deployed to experiment with and learn from new ideas.

Change implementation - having the authority and the ability to change habits and practices embedded in line operations, rather than being limited to staff/headquarters groups.

I think this suggests some interesting possibilities for making our compensation philosophies more agile and responsive.  Most compensation philosophy statements that I've encountered (and this includes the ones that I have historically partnered with clients to develop) focus on the organization's objectives, principles and intent relative to how it pays its people.  The result, however, can be a somewhat static document that leaves us helpless in the face of wrenching change. 

Taking a cue from The Agility Factor, what if we made our compensation philosophies more dynamic by:

• Ensuring that our statements of pay purpose and objectives, while clear and robust, will allow us to stay true to some enduring principles while still retaining the flexibility to respond to unanticipated changes in the business environment?

• Defining and articulating our commitment to the routines of ongoing environmental sensing, information gathering, idea generation, experimentation and learning?  This means that our contact with the environment must go beyond annual benchmaking studies.  This sensing must be grounded in a deep understanding of our current and any emerging business models, as well as implications for our workforce and how we reward them. It also means a commitment to regular experimentation and learning.

Your take?

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 to a wide range of client organizations.  Ann was recently named President Elect of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and has joined the Advisory Board of the Compensation & Benefits Review, the leading journal for those who design, implement, evaluate and communicate total rewards.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares. 

Creative Commons image "gymnast showing a bad back bridge" by Rick McCharles

Comments

[Vidal F]

Good perspective!
I believe it’s well known by executives that the market changes and shifts, therefore actions must be taken.
Sometimes a different marketing campaign, a more aggressive sales approach or a way to show differentiation from the fierce competition.

It is curious how they recognize it, but most do not accept that the same applies to the labor market - salaries, incentives and benefits, perhaps not at the same pace or impact, but it happens.

A great challenge is how to strike the balance like everything in life, market is UP: review and perhaps UP pay; market is DOWN: now what?

Unions, sometimes overly-protected labor laws and so on will surely give you a bit of headache.

[John A Bushfield]

Ann - As usual, a well articulated post on a critical competency. Change is indeed the only constant!

A holistic view of an organizational vision, mission and strategy recognizes that the philosophies which drive the business are tightly connected, and adjusting one will likely impact the others.

Compensation professionals have a unique ability to be on the bleeding edges of the future. The 'Agility Factor' is an organizational muscle that, when exercised regularly, will act as a significant competitive advantage.

[E. James (Jim) Brennan]

If it doesn't change regularly, it's dead. Any living philosophy must accommodate continual evolution and periods of irregular change.

[Ann Bares]

Vidal:

Very true that our workforces and our reward structures (particularly base salaries) are not as malleable or as easily adjusted as a marketing campaign or budget, but as you note, it is still important for us (for the sake of the longer term success of organizations) to step up to the challenge.

John:

Well said - it is indeed an opportunity for compensation professionals to step up and show that they can contribute to establishing competitive advantage. Let's see if we are collectively up to the moment!

Jim:

True that. Not only must our philosophies be reviewed regularly, they must have the routine of evolution and change built right in!

Thanks all for the great comments and observations!