Compensation Cafe

Compare for Success

Comparisons drive behavior.  Making the right comparisons can set you up for success.  Making the wrong comparisons can drive you towards failure.  People judge their progress by measuring results against expectations, so feedback on progress towards objectives is essential to guide, adjust, and reinforce proper performance. 

As Ann Bares once pointed out with comments on how a German ranking program creates improvement and as Derek Irvine is constantly emphasizing, feedback is an immensely powerful reinforcement mechanism.  Sometimes it is accompanied with a cash delivery.  At other times, the message is communicated by noncash methods.  Programs that celebrate group success send a strong message about achievement expectations.  Individual approaches can supply feedback customized to the specific performer.  Of course, compensation itself can be a form of feedback, too, because all rewards don't jingle.  The best feedback focuses the attention of actors on specific output results and can activate intrinsic competitive motivations.  Some of my favorite anecdotes about performance management deal with comparative feedback:

Steel magnate Andrew Carnegie painted yesterday’s production totals on the floor of a struggling steel mill, departing through the crowd of watching workers without a word.  Each day, Carnegie silently painted the new tonnage figures.  Each day, the numbers rose.  Mill workers drew their own inferences from absolute facts and the comparisons they made influenced their later actions.  Without speaking a word, Carnegie supplied comparative feedback that activated in his workers a desire to do better. 

Analogies about feedback fill the world of total reward management.  Bowling in front of a curtain, shooting arrows at a target hidden behind a brick wall, running a race (check the marvelous article on running in the dark by Dan Walters), etc., are all typical simple examples.  Without relevant timely useful information about the adequacy of actions taken, it is impossible to adjust your behaviors to improve performance output results.  Everyone can easily visualize scenarios that illustrate and emphasize the critical nature of clear and prompt feedback. 

With all that background, you would think that no human resources professional would ever overlook or minimize the vital importance of supplying solidly effective comparative feedback to enable and enhance positive performance.  So... how do we do as a profession?  Do we really stack up well as providers of good comparative information for total rewards applications? 

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. 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.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.

Creative Commons image "comparison" by jimshooz7

Can We Give Thanks for Performance Reviews?

Want to give thanks this week for a tip about performance reviews? Here it is.

Turn the darn things on their head, shake them and see what falls out.

Root around in the pile of rubble. By this time of year in many companies, forms are long finished, reviewed and approved. So you're not going to find self appraisals, competency assessments or even ratings in the pile.

But you will find fingerprints on the debris, and here's where we get to my point. How often do we look at performance reviews to find out what they tell us about the people who sign them? You know, the managers and executives who lead this deeply personal and utterly necessary assessment of our company and its people?

There's lots to learn about their communication skills -- take a look at the comments on the forms. Insightful? Specific? If they can't give employees feedback in writing that will help them change or continue behavior, how well can they be doing it verbally throughout the year? 

How about managers' commitment to employee development? Many managers struggle with the competency section found in performance review forms. But, really, this has been going on for over twenty years. It could easily be the form design, but how about the human factor? Do you know if your managers really do coach employees on communications, team work, customer service and other competencies that clearly contribute to professional abilities? Have your managers ever had a chance to learn how to coach?

Want insight on the level of engagement in a department? How well were the employees' self-assessments completed? Were they on time? If an employee challenges a performance rating, how often do you check to find out if this has happened to the manager before?

Do I need to mention the link between effective objective setting and business strategy? Poor objectives may come from lack of discipline and time, as we often believe. But if we're really being truthful, they also derive from managers' inexperience with metrics. If your company is focusing on efficiency or margin, for example, I'd be concerned if my managers (and the employees they guide) didn't shine at the objective setting process.

Few companies consider performance reviews a leadership development exercise. Imagine how differently you would handle it if you did.

2014 anyone?

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 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.

What Compensation Can Learn From Marketing

When business professionals suggest HR/Compensation needs a stronger background in business, they probably mean overall Business Strategy as well as some Accounting and Finance.

However, there’s another major business discipline HR/Compensation professionals can learn from:  Marketing.               

I am personally fascinated by Marketing and how much in common I think it has with Compensation.  Let’s take a look at some of the similarities between the two:

1) Market intelligence

Marketing provides the company with information on what is happening in various marketplaces, what the issues are and what competitors are doing.  Marketing also looks at supply and demand by market to determine if there enough demand to support a new or improved product.                                    

Compensation needs to research supply and demand in all company locations; who competitors hire from, who they lose people to, what the market compensation position is and what jobs are “hot”.  There is more to market research than just looking at survey information.

2) Differentiation

Marketing differentiation is the way a company makes its products/services more desirable than similar products/services of its competitors. Marketing looks for ways to differentiate – to make products “stand out” and be noticed in the market. It is the heart of market competition.

Compensation needs to differentiate total rewards from that of competitors by perhaps offering unique rewards to all employees or by creating different reward packages for different employee groups.  Following “best practices” does not make a company “stand out” and be noticed.

3) Segmentation

Marketing segments by dividing the entire market into groups of individual markets according to each group’s wants/needs and how people in those individual markets make buying decisions. If done properly this helps to focus marketing campaigns on what attracts and interests people in each market. It prevents the company from investing too much time and money on trying to sell products that an individual market doesn’t need or want. 

Compensation usually does segment employees by performance and supply/demand.  Employees that are in short supply get higher salaries both at joining (attraction) and during employment (retention).  And those whose performance is superior get larger salaries/bonuses at merit review time. But a majority of other companies do this too. This is just following “best” practices”.

To step it up a notch, Compensation needs to segment critical jobs from the rest. These are the jobs that top management needs to invest more money, time and attention to as these are the ones that have the greatest impact on meeting the company’s goals/business strategy.  Therefore Compensation needs to insure that critical jobs are well rewarded.

4) Communications

Marketing tailors messages to different types of customer groups and leverages different communication channels.  This is very important and something that Marketing typically does well.

Compensation needs to do the same. As it is, Compensation usually uses the same communication pieces/channels to communicate messages to all employees.

Using some of Marketing’s communication methods would help in creating material for each diverse employee group that makes up a company’s workforce as well as using different channels.  Example:  There is little use in expecting production workers on the manufacturing floor to access a Compensation message produced online when they have no access to computers. 

Developing a Marketing mind-set could go a long way in helping Compensation professionals add value.  And all they have to do is walk down the hall to learn how.

Your thoughts?

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. 

Gender, Incentives and the Choice to Collaborate

As the parent of one young man and one young woman, I've had opportunity to observe some interesting examples of the differences between males and females.  A particular example comes to mind.

My son was and still is a hockey player, so I've had lots of chances to observe male hockey behavior (some examples of which drove me behind the bleachers where I hid, cringing, until the game was over) but little exposure to female players.  Working concessions at a local tournament one weekend, I caught a few minutes of a girls' game just when one of the players was hit hard and took a fall.  The whistle blew, the action on the ice stopped, and the young woman who had hit her opposing teammate reached a hand down, helped her to her feet and gave her a hug. 

Yes ... GAVE HER A HUG!  Something I can say with near certainty would never, ever happen in boy's hockey. And not the first time I witnessed striking differences - especially in competitive settings - between the behavior of girls and boys.

According to neuropsychiatrist Louann Breizendine, who wrote the fascinating book The Female Brain, studies indicate that women are motivated, on a molecular and neurological level, to ease and even prevent conflict.  She explains this particular difference between the functioning of female and male brains:

The female brain has a far more negative alert reaction to relationship conflict and rejection than does the male brain.  Men often enjoy interpersonal conflict and competition; they even get a positive boost from it.  In women, conflict is more likely to set in motion a cascade of negative chemical reactions...

Brizendine further tells of research conducted by Dr. Robert Josephs at the University of Texas, finding that "men's self-esteem derives more from their ability to maintain independence from others, while women's self-esteem is maintained in part by the ability to sustain intimate relationships with others."

Now this is not really new news, but the question for us centers on what implications these findings might have for rewards.  Which is exactly the question that Peter J. Kuhn and Marie-Claire Villeval of the National Bureau of Economic Research set out to answer in the research they summarized in a recently published working paper titled "Are Women More Attracted to Cooperation Than Men?"

The researchers ran a "real-effort" lab experiment allowing undergraduate men and women to select (and be compensated for) team-work versus solo-work, and then re-ran the experiment where they tweaked the compensation method to increase the reward for the outputs of team performance by about 10 percent.  In arguably their most significant finding, Kuhn and Villeval state that more than three times as many women as men (22.73% versus 7.14%) chose to be paid on a team basis, a choice made under the initial baseline conditions where there was no compensation advantage presented for team production and despite the fact that the team situation could (in principle) expose the participant to a risk of free-riding by a "self-interested teammate."  Check out the chart below to see this finding - and then take a look at what happens when compensation is tweaked modestly (by 10%) to introduce a team advantage.

 

The gender gap in willingness to join or form a team disappears when a pay advantage is introduced.  In other words, men appear to be more likely than women to have their behavior and choices regarding competition versus collaboration impacted by the introduction of a team-based pay element. 

The researchers conclude by sharing their hope that these results will "shed new light on gender differences in the tendency to gravitate to situations where cooperation rather than competition is rewarded."

Your thoughts?  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 range of client    organizations.  Ann serves as President Elect of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of 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 foodie in her spare time.  Follow her on Twitter at @annbares.

You Get What You Reward

A company's sales incentive plan is like the Pied Piper from the childhood fable; it plays a tune and the sales force follows behind.  Wherever the Pied Piper leads, the sales force will go - whether it be down the straight and narrow toward a bright tomorrow, or into the rough, down the hillside, through the brambles and over the cliff.  Because the melody being played is about money, and when that tune catches the ear those chasing behind will follow it anywhere.

I was once brought in by a client whose sales incentive plan rewarded the sale of products that generated a loss on each sale.  And it wasn't part of a loss-leader tactic, either.  The sales reps were rewarded - even though their actions were detrimental to the company.   Bad behavior was rewarded, and therefore it was repeated - over and over again.

Which begs the question, why would a tactical plan for incenting sales employees encourage actions that don't support the company's own self-interest?  Isn't anyone watching the store?

What behavior do your own plans reward? 

Do you know?

It's up to those who design the sales incentive plans to carefully pick the right pathway.  Because as long as the money is flowing the sales rep isn't going to raise a red flag and ask, "are you sure you want us to do this?"  That's not going to happen, as most incentive plans are not self-correcting.  The lemmings will race over the cliff as long as a dollar bill is waved in front of them.

Have you looked at the details of your own plans lately?  Do they outline a plan of action that rewards the right kind of measurements (sales volume, revenue, margin, market share, etc.) that support the company's objectives?   That drives an employee behavior that helps to deliver business success?  Do you expect a Return on Investment (ROI) for the incentive money you've targeted for payment?

Get your checklist ready

While there might be more variations in sales incentive schemes than snowflakes in the winter sky, certain fundamental design elements do apply as prerequisites for success.

• First and foremost the company has to succeed.  Only sales targets whose achievement advances the company's bottom line should be used to incent employees.  Are you paying for busy work?

• Spell out what you want the sales force to achieve.   Can employees tell you what their specific targets are?

• Provide enough reward to change behavior.  Like any incentive, if you want to encourage a certain behavior you need to place a carrot out in front.   Not enough reward usually equates to not enough effort.

•  The greater the selling effort, the greater should be the reward.  If your reps are simply taking orders (product sells itself), are you paying for what would have happened anyway?

• Make sure you can measure  performance against quantifiable milestones.  Are payments made on the basis of measurable results or discretionary judgment?

Yes, there are other important criteria for sales plan success, but unless you start with a clear map that details where you want your sales force to focus their efforts, you run the risk of missing the mark - which can be an expensive mistake.  You will need a team effort, not the disconnected activities of individually focused entrepreneurs.

The success (and continued use) of a sales incentive plan should be measured by the success of the business, not by how busy employees are, or even how much revenue is generated.  Unless activities can be measured and achieved, and support the company's business plan, you're better off with a straight base salary plan (horrors!).  Because providing incentive rewards that don't advantage the company is often paying for busy work.

So ask yourself, does your sales incentive plan encourage the right sort of behavior, activities that will drive business success?  Are you paying for the results you need?  Are you getting your money's worth?

It might be time to check.

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 clowder of cats.

Creative Commons image courtesy of mr_k_rm

Defining Exemplary – Better than Great

Performance reviews and ratings are tough. When I work with companies that are new to the concept, I always start with a basic three-tiered scale. This scale is easy for anyone to understand, but admittedly a bit crude for fine-tuned performance management.

I ask people to define three acceptable performance levels. Good, Great and Good Enough. Good should be a stretch. We aim for that as the target. Almost everyone has a feel for this. Great sets the edge for reasonably expected performance by an excellent performer. This may require some discussion, but most people get it pretty quickly. Good Enough is just that. It represents acceptable, but not too impressive, performance. If someone isn’t performing good enough, they need help up or help out. These three levels provide a core for performance measurement.

A couple of weeks ago I was once again reminded why we have a level above Great. I recently moved and forgot to tell UPS. I receive a lot of packages including a bi-monthly perishable shipment (ok, it’s really good wine!) Since I forgot to provide any forwarding information I just assumed I would need to reach out to the winery and have the package reshipped once it had gone through the process of being returned by UPS. I was happily mistaken.

It turns out UPS has some Exemplary employees. The driver went to the neighborhood café and asked if they knew where I had moved. Rather than leave a slip on the door, or send the package back to the sender, he went back to the office and told the manager at the distribution center. That same day the manager called me directly and asked if I wanted them to modify the shipment to my new address.  When I told them I would be back in town in a few days, she offered to extend the hold and have the package waiting for me.

Now this isn't a little corner UPS shop. It is a major center in a large and bustling city. To single out any one person or shipment requires an attention to detail not often seen.

Good Enough would have been for the driver to try the allotted number of times then mark the shipment for return to sender.

Good would have seen the driver doing the same as Good Enough then informing his manager that a regular customer had moved and a perishable shipment was on his truck.

Great would have been making a concerted effort to expedite the return shipment to the sender to reduce the possibility of damage.

Exemplary is doing something that the customer would never expect. It is doing something that is almost certainly not documented in any formal process. It is doing the thing the owner of company would do in the same situation.

Define your core levels well and make sure that there is enough flexibility to allow extraordinary actions to be rewarded above the top. Too often we try and clearly define the very top when in fact it is perhaps not yet something we can imagine happening. How does your company differentiate between Great and Exemplary?

Note: UPS is not a client of Performensation, nor have they been in the past.

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 Known 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.

Futurama: Seven Trends Transforming HR and Rewards

I get asked a lot about the Future of HR and I always say - if I’m not talking to someone totally uptight - that in about ten years most of us will be replaced by artificially intelligent machines* who don’t whine about money or appreciation.  That’s why I tend to limit my crystal ball gazing to about 5 years. 

*For you doubters,  I just watched a science show in which I learned that the biggest obstacle to robots replacing humans isn’t the ability to think or learn, it’s the ability to climb stairs!   And between you and me, I think they’re gonna solve that one sometime over the next ten years.

So let’s look at the next five years and leave everything beyond that to the clever folks over at MIT.  Here are seven trends that are transforming HR as we speak and by extension, how work is compensated.

1. On Demand Workforce - By 2019 nearly half of the workforce will ‘rent’ their skills to one or more organizations.   Do you know who these people are, what they do for your company and how much they cost?  If not, it’s time to think about visibility into the continent workforce, how you pay these people and which roles absolutely need to be in-house because they are core to your business. 
2. Talent Without Boundaries- I’ve worked with a couple of folks who had absolutely no boundaries and they were always good for a laugh.  But seriously, the exciting thing about this trend is that HR organizations that struggle to ensure they have the right skills now have access to a global and diverse talent pool.  Location restrictions in the workplace are rapidly becoming a thing of the past and the challenge of how you pay someone living in one location but ‘working’ in another is about to go viral.
3. Data Driven Talent Management - Big data and using real data rather than intuition to guide decisions about talent development, benefits and rewards.  Executives love hard numbers because it makes them feel safe and there are all kinds of insights that can be gleaned from information, such as how wellness correlates to insurance costs, how talent practices correlate to market performance and how compensation decisions impact retention. Of course, we all know the past doesn’t predict the future so don’t stop listening to the nagging, pessimistic voice of experience just yet.
4. Disruptive Technology - Technology drives or enables most of these trends and has ushered in a new age of informed consumers and networked knowledge workers.  As an added bonus, everyone knows that networked employees with smartphones happily require less downtime than non-networked employees so everyone wins.  I also predict that in five years the comparatively clunky video conferencing tools we use today will be replaced by state of the art holographic technology, or at least headed for obsolescence.  Take note HR that managing a remote workforce is fast becoming a critical leadership skill and in terms of compensation: Who will you pay by the hour, who will you pay for the job, and who will you pay for results?
5. Social Networking - I just ran across this great article on the Future of Work that talks about how work is likely to change as technology continues to advance.  It’s time to think about new ways to reward innovation, not least of which is creating a corporate environment where people can collaborate, share information and bring crazy new ideas to life.
6. Change as the Only Constant - Business leaders have historically been known to change their minds overnight.  But in a world where business strategy can change daily, business strategy may change every day.  How quickly is your organization able to execute new business strategies with new focus, skills and organizational models?
7. Tailored Talent Practices - Otherwise known as ‘Workforce Segmentation', this trend recognizes that cookie cutter talent practices are unlikely to drive higher levels of performance or engage your best people.  At the very least you should look at different workforce demographics when designing rewards programs and for truly critical skills you may need to offer individualized development and incentives.

So there you have it in a nutshell.  HR is changing, how you pay people is changing and most of the changes are positive because they bring such a diverse global talent pool into play.  For roles that require flexibility, creativity, leadership and the ability to apply knowledge to new situations the selection of available talent will be bigger and better than ever before.  Leaders will emerge where least expected, defined not by title or executive endorsement but by… well… ability to inspire and partner with others.  Knowledge will be shared and amazing new ideas will emerge that change the world.

Happily for compensation specialists - at least for the next five years - you still have to pay people.  You may just want to do it a bit differently.

Picture courtesy of The Scary and Amazing Future of Work.

Laura Schroeder is EMEA product marketing director 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.

3 Lessons Learned from Over-Reliance on Pay for Performance

Many of my friends and clients in various industries are deep into compensation planning this time of year. Though I am not a compensation pro myself (I focus on strategic, social employee recognition), I seem to attract stories of companies where employee recognition efforts are largely addressed solely through formal compensation – pay only. Below I share the story of one team of highly skilled professionals in one very large organization, and how this sole focus (poorly implemented) affects their daily motivation and engagement.

1) Moving the merit target.

In a small team of a half-dozen people who have worked together for nearly three decades, people talk. Over the course of the last several years, this team cannot figure out how the merit budget is applied. Performance is ranked on a typical (if discredited) stack-ranking model, and all the team members seem to fall in the 2-4 range each year. No one ever achieves the highest or lowest ranking, and they pass the 2, 3 and 4 ranks amongst each other year to year with no seeming rhyme or reason.

Every year, all members of the team are told the merit increase average – let’s use 3.6% for an example. Yet, every year, no one on the team, regardless of rank ever, receives even the merit average, and everyone receives the same increase – e.g., 2.2% for everyone on the team across the board. That, of course, leaves everyone wondering, “Where’s the money going?”

2) Hitting the pay range ceiling.

Since the members of this small team have been working in the same department for so many years, it’s not surprising that a few have hit the top of their pay range. For these team members, there is no possibility of a raise. They are offered instead an annual bonus that is supposed to make up for the inability to give them a raise. Since they are also skilled, hourly employees, however, these employees know full well the bonus in no way compensates for the lost extra earnings from time-and-a-half overtime potential on an increased base rate throughout the year.

3) “Promoting” to salary but reducing earnings.

Two of the team members who hit their pay ceiling were instead offered “promotions” to salary band. Since, as salaried workers, they cannot earn overtime, they were instead promised they would be “taken care of” with other bonuses to make up the difference. These bonuses never materialized, so these promoted employees assumed more responsibility while taking a pay cut (in the several thousand dollar range per year).

All three instances led to one result – growing employee resentment. Of course, these examples speak to poor management practices and poor implementation of how pay-for-performance is intended in the organization. The obvious solution is better management training. But a first step should be an honest, direct conversation with the entire team on their value to the organization and how that is compensated.

Even better, would be to stop relying solely on compensation and pay for performance as a means of communicating to employees the worth of their contributions to the organization. Yes, managers should better implement the program as intended, but additional levers should be added – primarily, a frequent, timely and specific social recognition approach. Every day, encourage all employees to notice and appreciate the good work of their colleagues and recognize them for it. Make it possible for celebration and acknowledgement of success to happen in line with the daily work, stop killing employee desire to do the work, and see motivation grow.

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, Montreal and Boston. Follow Derek on Twitter at @globoforce.

We Are The Market

With few exceptions, most compensation programs are linked to external market pay rates.  Some more tightly than others, but even job evaluation systems that rely on internal comparisons to "compensable factors" to award points must utilize market data to set salary ranges.

And yet many employees and many managers (perhaps even many HR professionals) struggle with the idea of the market and the dominant role it plays in setting compensation opportunity.  They resent what they see as its capricious nature and arbitrary power to determine relative winners and losers in the great game of pay.  Why should engineers be paid so much more than customer service representatives?  It isn't fair!

I regularly get the chance to spend an evening with college students, courtesy of a colleague who is a professor at a local university, where we sit down together and have a conversation about what the world rewards.  In a recent session, I shared a lot of data with the students, including information on average starting salaries for college graduates in various majors from NACE (National Association of Colleges and Employers).  They were shocked - appalled even - at the differences in starting rates, as evidenced by the example of computer engineering majors reporting an average of over $70,000 compared to history majors who barely cleared $40,000.  Which kicked off a discussion about supply, demand and the market.

Like so many employees and managers (and HR professionals), they talked about the market as though it was a mysterious arbiter who made decisions and influenced salaries in ways that were difficult to understand and sometimes fundamentally unfair.  The relative fates of the history and computer science majors were particularly troubling to them.

And then I asked them how much of their personal spending went to technology - smartphones and apps, iPads, laptops, computer games ... not to mention time invested in online platforms like Facebook, where their time and attention (and exposure to advertisement) creates indirect economic value.  Things designed and produced largely by computer engineers and the like.  And about how much, beyond what the university required, of their individual purchasing power went toward history books, films and other things that might have been produced by someone who studied history.

For me, I know that I have invested more in technology.  The same was true for most, if not all, of the students.

The world rewards work that its people need or want done.  Our collective needs and wants drive purchases that support and sustain the businesses that emerge to satisfy them, allowing those organizations to grow and offer work to people who have the skills to imagine, create and deliver the desired products and services.  It is the wisdom of crowds.  It is an organic, emergent intelligence - not unlike that which drives Google search algorithms - based on individual choices which work their way through our economic system and ultimately translate into employment transactions. 

It is us.  We are the market.

Tell that to the next employee who whines about making less than their technology-schooled cohort.

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 range of client    organizations.  Ann serves as President Elect of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of 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 foodie in her spare time.  Follow her on Twitter at @annbares.

Creative Commons image by epSos.de

 

The Value of Good Information: Informatics, Accuracy and Compensation

Every employer likes to think they pay people to do The Right Thing.  They do NOT pay according to the theoretical value of potential mistakes or even remotely possible errors.  Knowing in advance just what is “the right thing to do," however, can be an arcane and quite difficult task. 

How one makes good decisions is a surprisingly poorly researched topic.  On the other hand, mistakes  are more frequently discussed, perhaps because they are so much more common.  One article in this blog on the Value of Mistakes addressed in greater detail some of the various theories about what is important for job evaluation, such as Time Span of Discretion.  That particular factor considers how long it takes before anyone will know if your decision was correct.  It involves how frequently work output will be weighed for adequacy.  For example, one quickly discovers if the receptionist properly handles the visitor, but the impact of long-term decisions by a board chair may require many years before the results are known.  Obviously, there is a very high positive relationship between this factor and compensation.  The farther out in time that your job requires you to predict, as if you had a crystal ball, the more you tend to be paid.

So, how does one hop on this gravy train powered by predictive accuracy?  Foreseeing the future with an accurate eye is a daunting task where good input is essential. The old acronym GIGO comes to mind.  Whether one is forecasting  salary budget increases or planning  long-term organizational strategic objectives, the accuracy of the output produced depends on the accuracy of the input applied.  That means using valid raw data to  produce properly analyzed information for useful practical application.

That sounds like a job for an analyst, but new times may call for new titles.  On an ancient NPR Conversations from Wingspread radio show in 1981, I predicted the emergence of a new job, a position like an answer-finder, described as a human search engine (this was the pre-PC  era), as a dramatically important job of the future.  It would be someone who doesn’t have to possess all the answers but simply knows where to go to find them.  Similar to a research librarian, it would do reference work while not being dependent on books alone.  Sources could include individuals, data bases, print media, etc.  A universal consultant, an informational ombudsman or a “finder” of some kind may be needed who can access and explore new fields of knowledge.

Informatics (making full use of Big Data) is one of those new fields.  It could be the best descriptive category for such intensive research.  But let’s get back into the compensation corner.  What might such a job be worth?  Value in the competitive marketplace for labor is typically contingent on cost/benefit balances involving need, supply/demand and commercial profit.  A practical example is the old story about being paid for where to strike when you hit malfunctioning equipment with the hammer.There are many fables about the value of superior information applied for maximum leverage.  One would expect that a position whose effect is focused by conscious intent, using knowledge as a force multiplier, should bring a market pay premium. 

Surveys don’t show any job title that specifies those tasks, though, so it may be difficult to learn much about how the open competitive market for talent would compensate that function. 

What would your organization pay for a finder?

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. 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.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.

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