Compensation Cafe

Market Pay Disruption: Where is it Taking Us?

Anyone remotely connected with the ritual of market pricing (which is probably a majority of those reading this blog) is being confronted with a new reality.

This ain't your daddy's labor market.

Compensation surveys no longer show jobs making predictable and linear (if slow) strides forward in their "going rate."  Year over year market price movement is increasingly all over the map.  Market compensation for some jobs is going up, sometimes way up.  For other jobs, market compensation seems to be flatlining.  And for still others, market compensation is (gasp!) going down. 

This is no post-recessionary blip.  This, I'm afraid, is the new normal.  And signs indicate that the new normal may be just getting warmed up.

All of this throws the traditional realm of pay management into a bit of a tizzy.  Standard operating procedure with a market-based compensation system (still the most popular approach out there - at least in the private sector) links base salary opportunity/salary grade to market price.  Jobs, at least in theory, move up or down in the pay hierarchy or scale when market value rises or drops.  This approach, however, is built upon the assumption that significant, nonlinear market pay movement is the exception, not the norm. 

When technologies, business models, competitive advantages and even whole organizations can ascend or fail with the kind of speed we're seeing today, it shouldn't come as a surprise to us that the value of certain roles and skillsets can also rise or fall quite rapidly. 

The question is: What do we do about it?

The technology and tools are now available to track and analyze market pay data in almost real time.  That's good, but I'm not sure that gets at the real issue here.  The crux of the challenge is how we use this information, what kinds of decisions and actions we should take in response to market pay disruption.

I don't claim to have the answers, but a few thoughts come to mind.

Many writers here at the Cafe have talked about the need to shift from an emphasis on market mimicry and "sameness" to designing and implementing programs that reflect more precisely what our organizations circumstances demand.  Congruent to this is the need to move to evidence-based reward management, where we focus more of our analytical muscle on understanding the business impact of reward choices and practices. 

Bottom line: We can't and shouldn't simply yank our programs (and employees) around in a simplistic, knee-jerk response to what's happening in market job values.  This reality must be filtered through an informed understanding of what your company must do to succeed, and what people practices are most likely to deliver the talent base you need to get there.  Then, and only then, will we be in a position to make the right calls.

Can we get there? Perhaps market pay turbulence will prove to be just the boot in the butt we need to make the change.

That's what I think.  You?

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 "Pillar Rock Surfer too close danger Morro Bay CA" by mikebaird

Who is Reading this Stuff?

The phrase, "must be able to work with an Executive Assistant's PMS" was left in a finalized job description and eventually found itself placed in the permanent files.  No one read the text, just processed the description as submitted.

In another example, the text from an incentive performance appraisal form read like an Average or Satisfactory performance effort, with no particular achievement especially noteworthy or highlighted for attention.  One would presume therefore that the accompanied rating was in fact "Average."  Yet the employee was actually rated "Superior" and granted a large discretionary bonus award.

Is anyone reading this stuff?

Have you seen your own examples of this behavior?  When paperwork processing is viewed and handled as more important than what's actually written on the paper?  As if the submittal of the form(s) is project completion itself; the rest is incidental, sort of a by-product.

This by-product (otherwise known as the text) could be replete with erroneous statements, inappropriate language, assumptions not approved by management, etc.  Or you could have missing elements that are critical to the credibility of the form - and to the process itself.

We've all heard the rationale ("excuse" sounds so lame).  Sometimes you find so much effort invested in simply getting papers returned from management (job descriptions, performance reviews, incentive assessments, etc.) that quality control becomes a secondary consideration.  It's like you'd be asking for more from them if you also expect the forms to make sense.

When processing large amounts of paper (focal date reviews, annual incentive awards, etc.) the papers submitted early likely do receive an appropriate scrutiny, simply because they're the first ones received and you have more time.  But then it gets harder to keep pace as more papers keep coming in.  And right before the due date there's likely to be a flood of last-minute entries.  So eventually you find yourself merely processing the incoming mail, checking off the manager's name with a, "Yep, we got it."

Sound familiar?

The same problem arises when you expect the performance rating text (the supportive material) to match the submitted score.  That's reasonable though, isn't it?  However, if you read the review without looking at the score, how many times would you be able to predict the answer?  How often does the "Superior" rating read like "Average?"

Yet these gaffes do get processed, are read into the official record and personnel files, and are possibly the same documents that could see the light of day in a courtroom.  Because no one took the time to read what was written.

What did you do?

If you did notice such inconsistencies (for lack of a less polite term), what did you do about it?  Did you send the form(s) back with a polite, "try again," or perhaps you refused to process the reward payment until the offending manager got it right.  Be honest now; how often do you put on the policeman's hat and risk angering your management team?

And therein lies the problem.  If you don't read the stuff, how do you know whether you're holding gold or lead?  Quality or garbage?  And you can't correct the unfairness of the system if you don't know which submitted form is wrong, and who committed that wrong.  You're relegated to an administrator, a paper-pushing drone.

Out in the real world there are many managers who, in effect are saying, "how do I fill out this form to give Bob a superior rating?"  That's what they care about, and even start the process with "Superior" already checked off.

But let's be fair.  Often times corrective action isn't that easy.  Every HR pro worth their salt will tell you, it's all about picking your battles.  It sounds easy to reject a manager's submitted form, but we all know the official response is often a matter of who is the offending party.

Sometimes, like with job descriptions and the PMS comment, you may have to make the corrections yourself.

But even a spotty record of enforcement would be an improvement over the paper pushing that happens all too often.  If managers know you are reading what they write, perhaps that fact alone will serve to reduce the infractions.

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.

Creative Commons image courtesy of lejoe

3 Memorial Day Lessons for the Workplace

Regular readers know I'm Irish, but my company is co-headquartered in Dublin and Boston. My team are all located in the US and are Americans by birth. So come holiday time, I'm always interested in their plans and traditions. (After all, "Memorial Day" sounds of such greater importance than "Bank Holiday," don't you agree?)

So, please forgive this belated Memorial Day post as I share what I've learned from my American colleagues.

Memorial Day is, officially, a day to remember, celebrate and, obviously, memorialize the brave men and women who gave their lives in service to their countries. I asked my teammates how they spend Memorial Day. Answers included attending town parades, family gatherings and picnics with friends. It is also, apparently, the unofficial start of the summer season.

What struck me most in thinking about these experiences is how the ostensible purpose of the day morphed and extended into more. Yes, people honor and remember those who served, but they also gather and celebrate with friends and family a break from the routine and the start of a new season. And that seemed altogether fitting for me. Our heroes (regardless of where in the world we call home) sacrificed for the betterment and good of us all. As a result of the sacrifice, we enjoy the freedom and the ability to gather together with others, we have the means to do so. We have a reason to celebrate the start of a new "season," a fresh chance.

What lesssons have I learned from this that can be applied to the workplace?

1) Remember and Celebrate the Heroes

Every great institution has heroes we remember and celebrate. It's important to celebrate the individuals as well as their achievements. Make these people and their successes part of the lore of your company. They should become easy-to-point-to reminders of why and how you work as an organization. The innovation of Steve Jobs and Steve Wozniak at Apple come to mind. Or Percy Spencer at Raytheon who invented the microwave after noticing a melted chocolate bar in his pocket. Every company has stories and history of how they have grown and changed as an organization over time. Make an effort to more formally memorialize these.

2) Gather Together

Sure, we're all gathered together five days a week (at least) just to get the work done. But that's usually still as individuals in our offices or cubes or positions on the line. Truly gathering together gives us a chance to better appreciate the work of everyone as a collective, or even just the work of your neighbors and how that impacts you and the organization as a whole. Informal gatherings also serve to dramatically strengthen interpersonal relationships, which are critical for more effective working relationsihps and just getting the work done. (There's a very good reason why one of Gallup's Q12 questions to measure employee engagement is "I have a best friend at work.") Create opportunities for people to gather together in smaller groups (lunch rooms and cafeterias designed to accomodate large and small groups alike, for example) and in big ones (an annual company picnic, perhaps).

3) Create Traditions

Above all, create traditions unique to your company. These traditions quickly become part of the employee values propostion as they become embedded in the culture of your organization. Celebrating and recognizing others and gathering together should become part of your traditions - part of the way your company simply does business.

What kind of traditions does your company have? How do they influence the culture of the organization?

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.

Red Circling = Regulatory Red Flag?

Have you ever tried to do the right thing, only to have it end in disaster? That's exactly what can happen if your red circling policy goes wrong.

(By way of background, red circled employees are those that are paid more than the maximum of the salary range for their job)

I came across an interesting chart at Payscale.com that proposes three options for correcting red circle issues, along with eight questions to help you choose which option is right for your situation:

Dealing with red circled employees is, I think, more difficult than simply following a flow chart approach. It's important to understand why the employee was red circled in the first place: is the red circling the result of an internal reorganization or from market forces? Is the red circled employee a long-time incumbent or a new hire? Different situations may require different solutions.

Regardless of the cause(s) and solution(s) you choose, red circling can result in regulatory red flags. As I've mentioned before, internal pay equity is a top priority for regulators right now. There are a variety of initiatives from the DOL (and OFCCP in particular) and the EEOC to collect more compensation data at the employee level. The agencies are starting the data review process with a very cursory review, looking at averages, medians, minimums and maximums by protected group status. Red circled employees - especially if they are disproportionately male, white, younger, etc. - can send up a huge red flag. On the surface, pay rates for red circled employees appear to be out of line with those of similarly situated employees. These kinds of "out of line" situations are exactly the thing that can trigger discrimination investigations.

Your chosen solution for dealing with red circled issues can also send up a reg flag. Freezing pay or providing smaller lump some increases for some employees but not others can also trigger internal pay equity questions. Remember that while we typically think of pay discrimination in terms of "men earn more than women" it is just as illegal to grant men smaller increases than women if that decision is based on gender.  

The bottom line is that regardless of the underlying reasons for and solutions to red circling, they can create the illusion of surface disparities in internal equity. They key is to thoroughly document the reasons and solutions at both the organizational level and at the employee level. You should have a formal red circle policy in place that outlines the kinds of situations that can create red circle situations, and how red circle situations will be addressed. Once that policy is in place, it should be consistently applied to each and every situation. In the event that an employee is red circled, it's critical to document the reason(s) and proposed solutions in the employee's file and maintain that documentation so that you can support your decisions down the line. 

There's not much you can do about red circling creating the illusion of surface disparities in internal equity. But if you have the documentation to back up your decisions, you can stave off further regulatory investigation and avoid compensation discrimination litigation.

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 quantitative 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 Inc., the host of The Proactive Employer radio show, and author of the upcoming book Compensating Your Employees Fairly: A Guide to Internal Pay Equity. Follow her on Twitter at @proactivemployr. 

Where Employees Are Assets and Real Money Is Made

"Companies that invest in higher salaries for low-level employees find success in a competitive market." This was the tagline from a recent article in The Atlantic by Sophie Quinton that I though we should all take a look at . . . and ponder.

Not because I think it means that we should all increase our salary ranges. There's something more at work here. The article covers two stores where I like to shop -- Costco and Trader Joe's. (And another, called QuickTrip, that I am not familiar with.) I enjoy the two stores because the prices are great and the service is always wonderful. Odds are you like them, too.

Compared to most retailers who consider employees a cost to be minimized, Zeynep Ton of MIT's Sloan School of Management reports that these stores operate on a different model. "They start with the mentality of seeing employees as assets to be maximized." And their stores achieve better operating efficiency and customer service, resulting in higher sales. From a customers' standpoint, these stores are a pleasure to shop in. I choose them over online shopping, another outcome of the stores' employee investment that increases sales.

As the article points out, higher employee costs need to be balanced out somewhere. Costco stocks products on pallets, for example. Trader Joes keeps their stores small. But there are more lessons for us in the article about the economic outcomes of valuing employees. So much so, that Harvard uses the stories about these stores' strategies as case studies.

'At the upper echelons of the American workforce, salaries have soared. Companies are accustomed to thinking of their highest-level employees as "talent," and fighting to hire and reward people who will help grow the company. Now Trader Joe's and QuikTrip are proving that lower-level employees can be assets whose skills improve the bottom-line as well.'

What would make a better topic for study and discussion at your next staff meeting? Here are two uniquely effective business strategies that are supported by uniquely innovative talent and reward strategies. And there couldn't be a better time for this discussion. After all, the trend toward lower paid, part-time employees continues to grow in most industries. It's always easier to be penny wise and pound foolish.

Cutting employees to cut costs hasn't just affected customer service in retailers. Most of us can name a range of businesses where the consumer experience has changed for the worse since the Recession (including, perhaps, the company shown on your own email address). This article from The Atlantic is part of a series called, "The Next Economy." It will be an economy, I guess, in our near future where it still takes academic research for us to learn -- or to learn once again -- that "underinvestment in workers can result in operational problems . . ."

Or, instead of putting out fires, you can take the time to analyze the truth about the outcomes of your company's own strategies and make some progress today.

Margaret O'Hanlon is founder and Principal of re:Think Consulting. She'll join Ann Bares and Dan Walter of the Compensation Cafe to speak the unspoken -- Everything You Do (in Compensation) Is Communication -- in an upcoming book. Margaret brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, she was a Principal 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.

From Academic Research to Evidence-Based Management: A Step in the Right Direction

I don't know about you but I've been confused about whether academic research and evidence-based management (EBM) are just two terms that mean the same thing ---or if they are totally different.   So I looked into it.

Here's a definition of each one:

Academic Research:  Scientific method of inquiry that starts by making assumptions (an hypothesis) about what the findings are expected to be. The methodology for testing the hypothesis and analyzing the results is usually mathematical. 

EBM:  Evidence-based management involves making decisions about the management of employees or companies through the use of four sources of information:  practitioner expertise and judgment, a critical evaluation of the best available research evidence, evidence from the local context and the perspectives of people who might be affected by the decision. 

Although academic research has existed for years, it has never been much help to HR practitioners.  Reasons?   Academic research is very narrow and covers only a small portion of subject matter that is useful to HR.   In addition, researchers are rewarded and their tenure depends on conducting research that is accepted for publication in top-tier journals not in conducting research that is geared towards application.

EBM is practice-focused and starts with questions, problems, and issues faced by HR practitioners in daily situations. It’s not hypothesis or theory which is the primary focus of academic research.

Consequently there is a gap between what academic researchers want to study and what practitioners want them to study.  Ed Lawler says:

“If I had to choose one change that would make a difference, it would be for business schools to change their research focuses.     . . I would argue that they should do much more research and writing that focuses on practice.  The problem is that I do not see business schools showing any interest in changing their approach to research.”

Enough said about academic research.   Let’s move on and look at a description of what EMB is and is not.  

Analytics is one type of EBM evidence that is proving to be a huge help to HR practitioners.  A survey by Mercer/World at Work provides some good information about HR analytics including external and internal benchmarking, projections, simulations and predictive modeling.  

Today total rewards involves more than just insuring competitive pay and pay-for-performance.  It requires a broader analysis showing the business impact of specific practices.  This includes looking at how rewards effect the ability of the company to hire the right skillsets, to satisfy different employee generations/demographics and to reduce or reallocate costs without disrupting productivity.   And all of this can be done via the use of analytics.

Some good news: the first EBM peer-related journal is available.  It would be worth your while to look at it.  The current issue has several articles on compensation.

Welcome to the new world of EBM and HR analytics!   Where have you been?

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 expat twice during her career.   Her true love is working with 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 been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

Monkey Business

A colleague of mine forwarded me a fun video about how monkeys respond to unequal pay.  I just love it when people send me funny compensation news.

Kinda says it all, dunnit? 

We can learn a lot about rewards from our primate friends.  A few years ago I watched an excellent related TED talk by Neurobiologist and Primatologist Robert Sapolsky on The Uniqueness of Humans.  It turns out that the genetic difference between humans and primates is fairly negligible. 

Which may put paid to that old adage, ‘If you pay peanuts, you’ll get monkeys,’ because from a genetic point of view you kind of get monkeys anyway.

Mr. Sapolsky presented some interesting facts related to what primates and humans have in common with respect to behavior and motivation.  For example, behavioral scientists used to believe that people feel happy when they receive a reward but this is actually not true.  Most of the pleasure occurs in response to the anticipation of the reward. 

It's also worth noting that more pleasure is experienced - as measured by dopamine levels - if an element of risk is introduced.  In fact, the highest level of dopamine is found when a reward is received only 50% of the time, which represents maximum unpredictability.  If you change the frequency of the reward you also decrease the pleasure of anticipating the reward.

The takeaway here is that when coupled with other factors, the combination of anticipation and risk can greatly enhance motivation when it comes to rewards.  If the goal is to control behavior, clearly defined goals combined with predictable rewards may work best.  However, if the goal is to motivate, too much predictability may have the opposite effect.   Food for thought.

When it comes to designing rewards strategies, both studies seem to indicate that we can learn a few tricks about motivation from primates.  After all, both people and monkeys enjoy feeling anticipation and react negatively to perceived unfairness, which we just saw in action with the monkey and the cucumber.

The bottom line is that how companies define their strategies will depend on a variety of factors but the most successful companies will be those that understand people. 

Or do I mean monkeys?

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.

Taking the Easy Road

How many success stories do you figure start with the phrase, “I took the easy road”?

Most companies with global operations tend to pay their internationally-based top level executives in accordance with some form of global compensation structure – with the intent to level the playing field for those with multiple country responsibilities.

However, for the rest of their international population it’s not as straightforward.

The Challenge

Companies with local national employees face a challenge and a risk when it comes to their decision as to how to reward in each of their operating countries.    Do they “do as the Romans do” and follow local practice, or do they seek to create a standardized global framework in an effort to standardize pay practices?

For those charged with developing tactics to effectively pay employees across the globe, the headache is in dealing with a diverse collection of economies, cultures and competitive pressures – some of which may be moving in different directions.  However the approach of recognizing country-specific differences in pay methodology often comes up hard against the interests of corporate staff administrators, who traditionally look for the easy way, the simple way, the one-size-fits all way of dealing with far-flung employee groups. 

The headquarters staff will ask, "what difference does it make"?  Unless otherwise required by legislative action or representation, why can’t we be fair to all our employees in the same way?  The metrics below illustrate what they would wish to standardize for each country:

• Value (price) jobs irrespective of locale.  Some prefer to use the US dollar as a global "common denominator."

• The pay mix of base salary and incentives.  This presumes that everyone views the opportunity for variable pay in the same fashion.

• Universal date pay increases.  Every employee should have their performance review at the same time.

• Average pay increase percentages.  The percentage should be fixed with a global percentage, not country-specific.

Why Not?

Why doesn’t one size fit all?  Why can’t you treat all employees in the same fashion, no matter where they're working; they all belong to the same company.  Perhaps you should consider these points before reaching for that cookie cutter.

·         Economy:  When dealing with country-specific inflation rates ranging from flat to 20%+, do you really want to offer the same percentage salary increase?  What if one country's economy is struggling (US), while another remains relatively unscathed (Australia)?

·         Culture: In some regions job and income security needs command greater interest over pay-at-risk, so in the pay mix the base salary dominates the variable portion.  For example, while China has a very aggressive sales compensation environment, India shows more interest in base salary and the CTC (cost-to-company) package than variable compensation.

·         Competition: Companies react to the cost of labor vs. the cost of living.  If their marketplace rewards in a certain fashion (pay mix, commission vs. bonus, quarterly vs. annual rewards, etc.), companies who provide a different approach risk lower employee engagement and a talent drain.

·         Representation: National unions and Works Council impact on pay actions could reverberate up the hierarchy as companies strive to maintain equitable treatment with their other employees.

To be fair, varying practices according to country-specific conditions could cause a degree of consternation with the back office or headquarters staff and their computerized systems.  These are folks who like things neat and pretty, the path of least resistance.  "Where's my easy button"?  In their defense though, senior management often asks for standardized metrics that may be difficult develop and compare:

•      Tabulating global statistics when definitions or methods vary

•      Identifying global trends based on diverse conditions

•      Balancing the impact of cross border movement

If you force international operating units to convert their practices to an common format and methodology, the result could be more than just confusion and local administrative difficulties.  It could also mean the likelihood of over payments in some quarters while under paying the market in others – all for the sake of sameness and common report generation. This would serve up a combination of hurting employees while also harming the business.

So think about it.  The easy road of simplified administration is rarely an effective rationale when making proper business decisions.

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.

Creative Commons image courtesy of liberalmind1012

Executive P4P: What Came First, the Chicken or the Egg?

It’s an age-old negotiation. Pay me more and I will perform.  Perform better and I will pay you. So, what comes first, the payment or the performance?

Hay Group’s Annual CEO Compensation Survey was released last week. The results show for only the second time in the history of the study, long-term performance plans were the most heavily-weighted aspect (31%) of the entire pay portfolio. Was this a result of executive pay programs that have been re-geared with performance metrics since the advent of Say on Pay?  Was this the result of CEOs performing better as more attention has been paid to their actions and behaviors? Or, was caused by something else?

Some have suggested that this is proof that if you perform better you get paid more. Others argue that this is evidence that executive compensation has been gamed to ensure amazing pay when things are great and pretty darned good pay as long as things are better than terrible. Hay Group’s recent article mentions that superior performance resulted in a cash-pay premium of only 9 percentage points over poor performance, even though the difference in net income was more than 70%.

Obviously the overleveraged hockey stock graph that is claimed by many to show cranked up pay of top executives doesn’t apply to cash compensation. The incredible (although inedible) stock market has driven equity compensation to impressive highs. (Those who express any surprise at this must either admit they do not understand the impact of steep drops in the market (2008 anyone?) or stop talking about executive compensation for ever more.)

Let’s face it, even less than stellar performers are lifted when the market rises.  And, with the leveraging action of stock options mixed with rising stock prices, it is hard to create separation between the high and low performers of the corporate world.

Another spoiler alert for the upcoming future are performance unit programs using TSR as a metric. TSR is impacted when the market gets hot. As top performing companies begin to plateau, investors push the prices of mid-range performers more than some underlying fundamentals may support in the long run. From 2010 to 2011, net income for the group measured increased by 13.1% and TSR went up by a median of 3.1%. From 2011 to 2012, net income increased by a far less impressive 2.1%, while TSR went up by equity spiking 14.4%.

These results give rise to the ongoing question: Whose fault is it that executive pay continues to climb, seemingly in every market turn?

The argument regarding executive compensation continues. When pay is up, one side picks a set of metrics to explain why it should have gone up more. The other side picks a set of metrics that shows why it never should have been so high in the first place.

Does better pay drive better performance? Of course! Not always, not perfectly, but…of course.

Does better performance result in better pay? Yep. Sometimes more, sometimes less than desired, but it certainly does.

Which comes first, the performance or the pay? In today’s world of executive compensation pay must be great to get performance, but performance must be great to justify pay in the long run. I guess this is just a long way of asking: What do you think?

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”, “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.” 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.

Pay for Supervisors

The well-established principle that supervisors should praise in public but criticize in private can derail a compensation system.  An article caught my eye recently on how slackers pull down the group because the crew rarely sees the corrective discipline privately applied.  It illustrates that what keeps people productive is effective communication of the appropriate feedback that drives behavior.  That made sense, but the recommended solution sucked.

Two thoughts came to mind:  (1) just as compensation is communication, isn’t communication also compensation? and (2) why are supervisors paid if not to keep the entire staff productive?  This article will focus on the second question, because the first deserves a complete post of its own.

If a boss follows the accepted rules and keeps corrective interventions private and confidential, that apparent silence bespeaks indifference to the workgroup who do not see any improvement steps, remedial actions, reprimands, punishments or open displays of negative consequences to the slacker.  One consultant prescribes intervention by the peer workers with the offender.  Rather than getting pissed off and demotivated yourself, he suggests, you should take ownership of the issue (because you are most affected by it and therefore more responsible than the boss!) and handle it yourself.  If the boss doesn’t act, some claim the peer co-workers should step up and chivvy the culprit.

Whose responsibility is it, to maintain a productive workforce?  Nowadays, it is true, bosses may supervise remotely, having little proximate physical contact with the team and therefore frequently unaware of slackers who goof off.  Even if out of sight, however, bosses are paid and supposedly trained to handle exactly these issues.  It is their monkey. 

Should co-workers be expected to cover for the supervisor, taking up the slack created by ineffective management to “supervise from below”?  I think not.  While social pressure from peers can be wonderfully effective, most workgroups are not elite teams of highly self-actualized experts who require little guidance.  An immediate supervisor is usually PAID to manage the performance of subordinates.  The boss may be called lead person, crew chief, foreman or forewoman, supervisor, manager, director, VP… or any title under the sun, but this role of people-monitor is the sole reason they receive a supervisory title and get higher income.  Leaders don’t neglect the well-being of their followers, because that is a repudiation of their pay grade. 

Remember that supervisors frequently have a more difficult task than mere managers.  Many people get the fancy title of manager (higher rank, pay, status, etc.) while remaining a sole individual performer, handling a project personally or administering a functional area.  Supervisors oversee people.  Managers may have no subordinates reporting directly to them, but all supervisors are responsible for the output of workers who report directly to them.  Handling people is actually a far more complex challenge than dealing with materials, administering plans, generating ideas and doing things that do not require exercising authority over people.  Instead of doing things yourself, the supervisor is supposed to delegate tasks and leverage the application of talent through others.  That is often much harder than handling issues personally as an individual contributor.

Since supervisors are already rewarded for filling that role of monitor and guide, they should be charged with the duty of fulfilling that responsibility.  It seems wrong, improper and unfair to expect underlings to enforce discipline and to maintain the productive work environment when a supervisor is neglecting their duty.  Any boss incapable or unwilling to perform that authoritative human interaction role should be demoted to a coordinator position where they can deal with data and things and not face supervisory challenges. 

Or am I wrong, again?

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.

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