Compensation Cafe

Lessons Learned in 2013

"If everything seems under control, you're not going fast enough." Mario Andretti

It really does feel that way most of the time, doesn’t it? And 2014 is only a calendar page away. Before the new year begins in earnest, a few of us at the Compensation Café thought this would be a good time to stop, take a breath and contemplate the lessons of 2013. What did we learn in the past year that will make us better professionally? In compensation, talent management, innovation or just plain on-the-job adult self-control?

Here’s what we’re thinking. We’d love to hear from you, too.

The Perils of Waiting and Delays

2013 was another great learning year. Like most years I learned more things than I can list in a blog post. But, the most important thing I learned this year is that waiting serves no one well. Examples of this included equity plans rolled out years after they were promised, bonuses and raises delayed while key employees became disengaged and important executives called it quits because the final solutions offered could never meet what their imaginations had built while they waited. Most of these delays were caused by one of two things. 1) Not understanding the angst of those waiting for a solution. 2) Decision paralysis due to not knowing what step to take next. In 2014 compensation professionals can help solve both issues by making sure "promises" are converted to reality and that no one ever feels dumb asking for help or more information. Waiting in our industry just makes things worse.  Dan Walter

You Can Never Give Too Much Recognition

There is perhaps no greater learning experience than becoming a father for the first time (to twins, no less!). When my girls arrived in June 2013, I received a continuous wave of well-meaning, genuine, heart-felt best wishes.  And then also the hundreds of congratulations, WOW, OMG, ohhhh, best wishes, fantastic, ridiculously cute messages that filled my e-mail, voice mail and text message box. All this made me think of a question I get often in workshops – “Can you ever get too much recognition?”   I just got loads!   And you know what? I am now more sure than ever that you cannot get too much recognition. Each and every message of congratulations, encouragement and support has resulted in a warm glow to all of us in our new family.  Ensuring this is that every message is heartfelt, genuine, and thoughtful.  Apply the same to recognition at work, and you can never give too much of it. Derek Irvine

The Importance of Pay to Workers

Between conversations with employees, managers and Human Resources – not to mention a good look around – I have learned how important compensation is to every working person right now. Of course that was always the case, but I think people feel less confident of fundamentals than before. And I think compensation will become even more important and more talked about in public forums in 2014.  To me, this means that compensation communications will have a more powerful influence on the trust employees place in leadership in the coming year. To have real influence using compensation communications, Human Resources will need to see through the status quo. For example, investment in real, measurable improvements in compensation (and communication) training and development for managers could be particularly valuable in 2014, even though it is an out-of-the-box strategy in our world.  Margaret O’Hanlon

Pay Angst and the Power of Listening

One of my big lessons in 2013 was being reminded of the critical role we can play in addressing the emotions that surround pay.  I have fallen into a partnership of sorts in recent years with a consultant who specializes in crisis intervention, which has led to my being called into situations where compensation concerns and disagreements sit at the heart of a crisis that threatens to destroy relationships and severely damage the organization.  Fun, right? What I’ve learned is that we can perform a tremendous service when we are able to get beyond the impulse to simply parrot compensation policy and throw data at the aggrieved parties, when we focus instead on listening and bearing calm witness to their experience, and then on helping them to frame their concerns and sense of inequity in the language of pay principles and actions.  This doesn’t solve the problem, but by allowing those involved to be fully heard and by creating a neutral context and language for moving forward it increases the chances that a solution might be reached and accepted.  Sometimes that alone is a big win.  Ann Bares

What about you?  You did grow and learn this year, didn’t you?  Take a moment to share one of your 2013 lessons here.

Best wishes for the New Year from your friends at the Compensation Cafe!

Creative Commons image "Bulb (365-339)" by RCB

Christmas Is Over, Isn't It?

It’s that time again.  The end of the business year, when managers everywhere turn their thoughts to – bonuses!  The calculators are out and every eligible soul from Marketing to Manufacturing to Sales, IT, HR and the Executive Suite tries to figure out how fat that check will be.  For many, it's the gift receiving season.

And thus the same bad script repeats itself for the annual management incentive process, year upon year upon year:  objectives created at the last minute, embellished accomplishments artfully recorded, problems and shortcomings diminished or forgotten and assessment forms looked at with bureaucratic disdain – as in, how do I fill out this thing to pump up my results?

More than the mechanics are at fault

Oh yes, the process is flawed, yet the foxes are in charge of the chicken coup – and they offer little hope for reform.  Why?  For those in charge the process works, and self-interest pays its own rewards.  Picture a belated Santa Claus with a large bag of goodies.

Cynical?  You bet.  For many of us in the trenches true pay for performance is an elusive concept best remembered from Compensation 101 textbooks, suitable only for life as it should be, not as it is.  Sad to say, but senior management is often the worst offender.  I’ve seen senior executives manipulate or adjust financial results to ensure that their own incentive awards wouldn’t be reduced.  Senior staff deserves competitive incentives, don’t they?  How can you not reward your senior leadership for their efforts?  And so once again entitlement trumps performance.

Studies suggest that the I-deserve-it mentality has weakened through this recession and slow recovery.  However I’m convinced that it’s still alive and well wherever rewards are viewed as payment due for time served and effort, not results.

But we go on hoping, one company and one client at a time, trying to persuade leadership that it's primarily good performance that should provide rewards; that tenure isn’t a compensable factor, that incentive payments should be earned, not simply an automatic gift of delayed compensation.  Lower level employees are expected to earn their rewards; shouldn’t the same case be made for management?

End of year expectation

Have you ever told an executive that their annual incentive might be reduced because of either corporate or individual performance didn't meet expectations?  They would look aghast at the possibility.  I’ve taken calls from spouses asking when the money would be available (post Christmas sales) – who then grew upset when told of the review process and that the Board of Directors has to approve.  The common attitude was, times up! – where’s the money?

Will the situation be any different for the bonus cycle in 2014?  I hope so, but bucking the trend of human nature is far from a sure bet.

To change those dynamics, as well as the effectiveness of your incentive plans you need to stand up and speak up.  The process is starting now, so it’s not too late to have an impact, to instill a management pay-for-performance philosophy in your company - even if it's only one step at a time.  

·         Performance appraisal shouldn’t be an activity list (I was very busy), but a focused statement of achievement against quantifiable and measureable objectives.

·         Let the assessment tell you the rating, not the other way around ("how do I fill out this form to give a 4 rating"?).

·         Confirm that the language on the assessment form corresponds to the performance rating.  Oh yes, you have to check.

·         Assessment forms should be required before an incentive payment is made – negating an old procrastination trick ("oh, just process the check.  I'll get the form to you . . . tomorrow or the next day").

·         For the 2014 cycle, start by having objectives established early in the year, not in an after-the-fact rush at the end

Granted, you'll need more than a steely look and a waving flashlight to stop a speeding freight train, so you should educate management about their ineffective and wasteful practices before the cycle starts.  Because afterward is usually too late; discipline as a learning tool is best used to prevent problems, not when Santa is already reaching into his bag of checks.

Maybe this can be your New Year's resolution?

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 stevendepolo

Motivating or Irritating?

I ran across a fun article recently about crazy and creative perks employees should ask for in lieu of cold, hard dosh.  I quite enjoyed it as a seasonal piece, even though only one perk on the entire list actually appealed to me. 

Clearly, I’m not the target audience for these particular perks - not being male, unmarried or in my twenties - but it’s a fun and interesting take on non-monetary benefits.  

Perk #1: The giant cargo net - I actually thought this sounded cool... until I imagined trying to work on a huge net with other people. 

Perk #2: The in-office massage - The caption ‘Feeling stressed about that big presentation?’ made me wonder why you’d employ people who get so stressed about a presentation they need a massage. 

Perk #3: A never ending stockpile of free coffee - No way, coffee’s not a perk.  It’s oxygen. 

Perk #4: A ball bath to bring back your childhood - Thanks, I get my ball bath fix on weekends.

Perk #5: Pets in the office - This is only a perk if you have a dog.  Or some sort of gigantic spider, snake or rodent you can’t keep at home.

Perk #6: Office fridge filled with favorite snacks - Fridge snacks in Tupperware containers that everyone can share.  Eugh! 

Perk #7: Free breakfast - If it’s donuts like the picture, you might want to chat with HR about their wellness program.

Perk #8: Catered lunch – Please not those awful corporate America sandwiches. 

Perk #9: Catered dinner - OK, let’s just call it ‘free food in the office’ and have one perk instead of five.

Perk #10: Free stuff - Gee, thanks, but I have all the cup holders, DVD folders, monogramed bags and t-shirts, pens, jazz drives and calendars I need.

Perk #11: Open workspace - I like open plan seating but I don’t think of it as a perk.  A corner office is a perk.

Perk #12: Health club at work - Hey, this is starting to feel like a conspiracy to keep people from ever leaving the building. 

Perk #13: A life coach - When exactly people are supposed to do any work, between all these counseling, massage and workout sessions?

Perk #14 - Cool workspace - Uh huh, only I shudder to think what some people consider cool… the picture in the article has purple lighting everywhere, gah! 

Perk #15 - An in-office rock wall - No comment.

Perk #16 - A barbershop - I told you these are ‘guy’ perks!

Perk #17 - A designated nap room - I worked for a company that had one of those.  Actually, the less said about that the better.

Perk # 18 - Unlimited alcohol on Friday afternoons - Ironically, I just got an email inviting me to an HR webinar about after hours employer liability.

Perk #19 - Special movie screenings - Obviously none of the employees at this company have friends or family outside the office.

Perk #20 - A free laundry service - OK, you got me.  I will work for you.  For free. 

Perk #21 - An office DJ booth - Why stop there?  Let’s go crazy and throw in a Foozball table, juke box and video arcade!  (Actually a recording studio would be cool…)

Perk #22 - Ergonomic office furniture - Since when is comfortable furniture a perk?

Stop!  Before you throw these rewards into the mix at your company make sure you can answer this question: Will putting a Foozball table in the break room motivate or irritate people? 

If you can’t answer that question, don’t install that cargo net just yet.  First, make a list of all your current monetary and non-monetary benefits.  Add in any you’ve been thinking of adding and include your best cost estimate for each benefit.  Survey your workforce and ask people to rank each benefit by personal importance. 

Now analyze the results by different dimensions, including job, location, gender, age and cost.  Find out if people in critical job roles prefer free lattes to free roaming dogs.  Weigh cost and importance.  Look for that golden grail of rewards, the inexpensive perk everyone loves.

That's the kind of information you need to offer effective, targeted, cost-optimised rewards.

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.

Picture courtesy of 22 Crazy Perks You Should Ask Your Boss For.

Predicting the Next 10 Years of Compensation

As someone who spends a lot of time designing and honing long-term incentive programs, I thought I’d skip 2014 and make some predictions about time frames that compensation people really have to worry about.

3 Years from now, 2017: The durations used to measure past and future performance for executive compensation. The most common service-based vesting for restricted stock and restricted stock units. Most frequently used forecast for performance plans that use Total Shareholder Return as a metric.

What can we expect? First, more of the same. Many current compensation programs will still be in effect. We seldom have wildly varied programs in place simultaneously. If you want your programs to be truly different in 2017 you need to make material changes this year and keep that pace for a few years. Beyond this, I think we will see executive compensation still gaining ground at close to the current pace. But, more leverage will be put on internal metrics and external metrics will need to meet generally acceptable standards for incentives to kick in. General compensation budgets will continue to increase at about 3.5% per year, but far more of this budget will be dedicated to strong performers. Weaker performers will, unfortunately, be left further and further behind.

5 Years from now, 2019: Five years from now most stock options granted today will still be vesting and have another 5 years to be exercised. Major HRIS/Compensation system projects started in 2013 will just be reaching the end of their initially planned goals. In short, most of the big stuff you are doing today will still be impacting much of what you do in 2019.

By 2019, stock option grants will have become clearly bifurcated in purpose. Plans will continue to exist that emphasize 5-10 year long-term incentive potential, while many companies will move away from RSUs to shorter term stock options. The use of pay for performance plans will increase from the current 56% of companies to somewhere near 75%. At least one very successful company will explain that its success was due, in large part, to its generous and atypical compensation and recognition plan. Tons of public companies will see an opportunity and jump on the new bandwagon. If we do things right, this may trigger a change in compensation as seminal as the equity compensation explosion of the late 1990’s.

10 Years from now, 2023: That plan you just designed should finally be about to die a natural death. You will likely be working at your second or third company over this period. The 30-40 year old employees of today will be seriously wondering how to fund their retirement while also paying off their kids’ college education. If the past has been any indication, compensation will have lagged cost of living while your “off-shored” staff will be catching up.

What will compensation look like? There will still be just a few basic ways to pay people: money, recognition, ownership and prestige. The current mix of total rewards will move back to a greater emphasis on better base pay, even while more companies use incentives as a component of total compensation. Recognition will be more clearly separated into two camps. In the first camp, companies will strive to use recognition as a true motivator and link to prestige. This camp will be larger than it is today. In the second camp, companies will be low budget and dispassionate to a level where their programs have as much meaning as “cake day” (the infamous monthly all-inclusive birthday). Lastly, research will finally show when, where, how, why and to whom more complex compensation tools are effective. This evidence will provide companies the confidence they have always wanted to put in place effective compensation without simply following market trends.

Of course, I hope the good things progress more quickly and the poor things simply fade away. But, given the pace of our past, I think this is likely to be fairly accurate. What are your predictions for 3, 5 and 10 years from now?

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.

3 Ways to Boost Colleagues' Spirits during the Holidays

I am moved by this story every year. In the U.S., a new tradition is growing stronger – Layaway Santas. These people embody the true meaning of the holiday – giving out of the goodness of your heart to those in greater need. Here’s just one story on the phenomenon:

“Under layaway, customers purchase items, but the store holds onto the physical merchandise as they pay it off in bits over a few weeks. For those with uncertain cash flows and limited access to credit, it's a structured way to save up for the holidays. But even this system can be a stretch too far to make those final payments, coming due at many stores at the end of this week. 

“Unpaid, those gifts risk going back on the shelves instead of under the tree — unless a miracle happens. Enter the ‘Layaway Santa.’

“There are no elves or magic sleigh required. Just walk into a store offering layaway, such as Wal-Mart, Kmart, or Toys ‘R’ Us, head to the layaway counter, and say you'd like to pay off some folks' layaway accounts. Most stores will know exactly what you're there for and will help you out. You can set a dollar amount you're willing to spend, or only ask to pay accounts with toys on them. Some Santas only pay off all the balances under a certain dollar amount, like $100, to ensure sure they can help as many people as possible.

“Then the clerks behind the layaway counter get to work, calling up customers and telling them their balances are paid off and they can come in and pick up their items. The donations remain anonymous, the Santas, secret.”

Why am I sharing this on a blog focused on compensation? Because this story gets to the heart about what’s good in the world around us and what’s truly worth rewarding.

How does this translate to the workplace? This holiday season, I challenge you to:

1. Consider your fellow employees who are in greater need than you. This need not be monetary – who is working feverishly to complete critical projects before the end of the year, sacrificing time with family? Who could use an emotional “boost” to encourage them during a difficult project? You have the power to help – pitch in on the critical project. Offer a few words of praise and encouragement.
2. Look for opportunities to put “others first.” In the modern workplace, self-promotion has nearly become a disease. Instead, whose contributions can you promote ahead of your own? Trumpet their successes and make them the superstar.
3. Be a “Secret Santa” when possible. I’m particularly touched by the fact that the “layway Santas” are never known to those they helped. Giving in secret is truly the most selfless form of giving. What can you do to secretly encourage or help others this season?

What other ways can we spread holiday cheer in the workplace?

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.

The Independent Contractor Dodge

I've heard about two independent contractor dodges in the last two days -- both with high visibility. One was on the Op-Ed page of The New York Times, the other via a news release from the Department of Labor. You don't have to read the tea leaves to realize that independent contractor status is a hot issue once again.

The New York Times Op-Ed page editors select timely topics that have news value. Some may call this combo "media hype," but you can rarely apply the label to The New York Times Op-Ed page and have it stick. Especially since this article is not just an opinion piece, it covers federal lawsuits and a bill in Congress. If you're not familiar with these details, read along.

The Op-Ed is called "Victims of Misclassification" by Marjorie Elizabeth Wood. It leads with the testimony at a Senate hearing from a Michigan construction worker whose employer, "changed his status from employee to independent contractor, [while] the conditions of his work stayed the same."

Ms. Wood points out that, "Fifteen states have now teamed up with the Department of Labor and the Internal Revenue Service to reduce misclassification through information sharing and joint investigations." This is at the encouragement of the Treasury Department's Inspector General.

In other words, be careful out there. If you haven't audited your practices recently, 2014 would be a good time to do it. I don't expect many of us Compensation Cafers to have egregious practices like the Hibachi Grill & Supreme Buffet, named in the December 17 DOL news release. They called their employees independent contractors; didn't pay them minimum wage, overtime; and didn't even maintain employee records (and now they owe $2 million). But I bet you do have some grey area practices.

For example, I know of an individual who has been a contract worker on a project for Big Pharma for over a year. (As he has been, on and off, for almost a decade.) His employer was just going to log him out for a while (again) when they asked him to work on a project in Europe. Some of the work is being done on site, some of it is in the US. I don't know what his current classification is or pay agreement, but I'm sure this complicated combo rings a bell with many of you. And with global mobility being added to the contingent workforce mix in so many companies, it's hard to keep track of your company's alignment with the regulations. But it would be prudent to get serious about it soon, so you can clearly explain what you are doing, if you have to.

November 14, 2013, WorldatWork DC Employment Law Update

During Tuesday’s Senate Subcommittee hearing – Payroll Fraud: Targeting Bad Actors Hurting Workers and Businesses – Senator Robert P. Casey, Jr. (D-PA) announced that he, along with Senators Tom Harkin (IA) and Sherrod Brown (D-OH), had that day introduced the Payroll Fraud Protection Act of 2013 (S. 1687), a bill that would “hold employers accountable” for independent contractor misclassification.  This hearing occurred just days after the Department of Labor (DOL) sent its proposed Worker Classification Survey to the Office of Management and Budget (OMB) for review and approval. The proposed survey will likely provide the groundwork for the future “right-to-know” rule that would amend an employer’s recordkeeping requirements under the Fair Labor Standards Act (FLSA) to provide employees with greater information about their employment status. . .

"Payroll Fraud." See what I mean?

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.

Clarity in Numbers and Funny Phonics

Numbers can be confusing, especially when spoken aloud.  Effective compensation communication requires clear understanding of numbers when they are used in an oral presentation.  Serendipity strikes again, with an internet news story about oral audio practices that finally justifies an article about clarity in numbers and funny phonics.  Huh?*  Without going into the details, I spent many years on the telephone rattling off license codes for access to individually secured salary survey databases and discovered first-hand how confusing letters and numbers can be when spoken aloud.  A sample might be S4F5E-387X9-U2TV1, for example. Yes, I know, words cause more confusion than numbers, and that’s part of my point here.  Our trade requires us to use both.

When speaking out the sequence over the phone, it seemed simpler to use a well recognized international code rather than make up a new word for every letter or number.  Military experience made the NATO standard phonetic alphabet, shown below, instinctive for me; but it occasionally was a source of communication error.

Saying “sierra, fore, foxtrot, five, echo” would confuse some listeners.  Did “fore” mean F or 4?  “Number fore” usually worked, but some phonetic equivalents of letters like Sierra for S were problematic.  One geographically challenged fellow once responded with “Ciera, like the car model?”  So I began to replace the official “Sierra” for S with “Sunshine,” which no one ever misunderstood.  Likewise, “Foxtrot” for F once brought a response, “You mean eff tee, right?”  Obviously not a Fred Astaire Dance Studio graduate, he thought foxtrot was two separate words.  My substitute for Foxtrot became Firefly, which always worked.  You may note that the clarity and precison of both practical options were reinforced by the redundant placement of the significant spoken letter sound:  two ss in Sunshine and two fs in Firefly.

Of course, local national oral  pronunciation patterns still brought some questions.  Brits, for instance, tend to use Zed for Z more often than Zulu, although English flyers and international pilots recognized the standard homonynm used for flight communications.  For those who could care less about English and Greek word roots, homophones sound the same but can have different meanings (and usually do).  Homonymns sound alike but always mean something else.

I must admit to the occasional temptation to employ alternative taxonomies to explain letters and numbers.  Try some of the optional Funny Phonics samples shown below and see if you can’t seriously mess with minds that way.

While illustrating the potential for confusion in letter/number communication, I actually held back here, because I had created even more obscure matches for most letters.  A could also be Awe or Axe.  G could be Gel, Gnaw or Gnome.  However, I found it impossible to generate a third level of complexity for one letter.  Can you guess which it was? 

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.

*a recent study in linguistics  revealed that “huh?” is an interrogatory interjective phrase understood in virtually every language and by every culture in the world.  Sorry about the ad that precedes this audio clip of “huh?” in different languges, but it shows the nationalities recorded.

Creative Commons image courtesy of grahambones

Beyond the Merit Increase/Incentive Combo Pack: Alternative Ways to Pay for Performance

Have we locked ourselves into an unnecessarily narrow view of pay for performance?  Are we missing opportunities to consider alternate models which are well grounded in labor economics research and literature, but not yet adopted into widespread practice?

That is the assertion of a new Mercer study -- building on the continued work of Haig Nalbantian, Brian Levine and others around this topic -- which calls us to consider three other pay for performance models that rely primarily on base pay to drive desired outcomes.

Tournament Model: A promotion-focused model where pay varies significantly from one career level to the next and employees are motivated by the opportunity to advance. In this model, the best performers earn more via promotions based on relative (rather than absolute) performance evaluation.

Membership Model: Also known as the "efficiency wage model", where pay levels are targeted above the market median and employees must perform to high standards to stay on with the organization.  In this model, the desire to keep a highly paid position is what delivers incentives to perform well.

Service Model: Also known as the "bonding model", where employes are motivated by an updward trajectory of pay over time.  This model is characterized by pay rates that start below market levels but rise with tenure, offering an attractive "lifetime earnings" potential.  In this model, employees are "locked in" over the longer haul, preserving firm-specific knowledge but enforcing performance minimums in order to stay with the organization.

Mercer's study results, which reflect the practices of 570 U.S. and Canadian employers, indicate that 14% of respondents are using a tournament or promotion-focused pay model, 14% a membership model centered on premium pay levels, and only 7% a service or "bonding" model. 

Might one of these alternative approaches be a better fit for your organization than the standard merit increase/incentive package?  Answering that question demands a careful assessment of fit with your overall talent management model.  As always, notes Mercer's Nalbantian, context is everything.  These models will succeed or fail based on their alignment with your work environment, your sourcing and staffing practices, your performance management tools and abilities, and your competitive pricing and positioning of pay opportunity, to name just a few key links.

As an example, I would be wary of any interest in pushing one of these approaches based on a desire to let managers "off the hook" for making tough performance decisions.  The success of both the membership and the service model hang on the organization's ability to establish and enforce a high baseline level of performance.  (I did a three part series on the membership model a few years ago, final post here, that addressed this particular requirement.)  The tournament model relies on a relative ranking approach to performance assessment. (See a recent Cafe post on this topic for more perspective on ranking.)

Culture and the time horizon of work being performed might be other important considerations.  The competitive spirit underlying the tournament model may make it a poor fit for organizations where collaboration is critical.  On the other hand, as Mercer notes, the membership and service models can provide a good fit to circumstances where work is performed and measured on a particularly long time horizon (research and development comes to mind as an example).

An important point highlighted by the Mercer study is that more than one-third (36%) of responding organizations report having multiple pay models in place.  Rather than a wholesale replacement of your merit increase/incentive combo model, you might wish to explore one of these three alternatives for a function or unit, perhaps even a job family, where your organization-wide approach is hitting the wall.  Maybe the tournament model would be a fit to your engineering group.  Perhaps the membership or service model would work well for your scientists.  It may be time for a pilot effort and a little experimentation.

More information on the three alternate models can be found in this WorldatWork article on the topic by Nalbantian and Levine.

Readers with experience in (or just opinions on) any of these alternative models - would love to hear your thoughts!

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 foodie and bookhound in her spare time (now working her way through Siddhartha Mukherjee's "The Emperor of All Maladies").  Follow her on Twitter at @annbares.

Creative Commons image "Three Choices" by Inbarigler

What A Christmas Party Can Reveal About Company Culture

I’ve attended my share of company Christmas parties --- my employers’ and as a guest at other parties. There were some that I really enjoyed, some that made me uncomfortable and a few that were downright miserable. 

It was not until a few years ago that I realized something.  You can tell a lot about a company’s culture by its Christmas party.  I became aware of this because one year there were two parties at the same hotel on the same floor --- and I was familiar with both companies.   The difference between these two parties was striking.

One company, known for its sophisticated image, was having a formal party with a live band and sit down dinner.  The women wore floor-length dresses and the men wore tuxes.  Very formal and very . . . proper.

The other company was well known for its family oriented image. Entire families attended.  There was face-painting, Santa Claus with a professional photographer, a present for each child, clowns handing out balloons and snack food.   There was dancing in the ballroom and everyone --- men, women and children --- danced.  The CEO was having a great time watching the fun.

The strangest party I ever heard of (and thankfully didn’t have to attend) was held by a CEO who invited all the VPs to his vacation home in Hawaii.   (There was no employee party.) The company paid all expenses --- but each VP was supposed to bring a gift . . . for him!   This company had a brutal culture, and the employees' nickname for the CEO was “Psycho”.

The VPs worried over what gift to buy and competed among each other for the “perfect” one.   The CEO unwrapped all the gifts in front of everyone and made it very obvious which ones he liked and which ones he didn’t.   Woe to the VPs whose gifts did not make the cut.

Then there was one company that hired strippers for their party.  That showed absolutely no respect for the female employees that attended who felt very uncomfortable.  What does that tell you about the company?

I don’t know why this Christmas party/company culture issue was so interesting to me but it was.  What kind of image does your company party reflect?  Family oriented?  Fun-loving?  Zany?   Chic and formal? 

Final thought:  I'm very aware there are many unemployed people right now, to whom any kind of a company Christmas party might seem like a dream come true --- even a miserable one.   Let’s hope they all enjoy a party next year at a company with a great culture.

Since this is my last post for 2013 I want to wish you all a Merry Christmas, Happy Hanukah and Happy Kwanzaa!

See you next year! 

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. 

Where Did That Number Come From?

How does a company decide how much to offer for a new hire or promotion? 

This is a question that I'm frequently asked; during my webinars, speaking engagements, and even on the street while sipping my Starbucks. 

Well okay, maybe not over coffee.  It just feels that way.

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You're interviewing for a position, whether a promotional opportunity or with a new employer, and prospects are looking good.  You feel that they're going to extend an offer. You know what salary you want, what you deserve, but you don't know whether the company sees your value in the same terms.  

When they do present an offer the salary may be a good figure, or it may not - but where did that number come from?   And could you have anticipated it?

The offer that a company extends doesn't drop from the sky like a brainstorm of intuitive thought.  Nor will it necessarily mirror what you think you deserve.  It does relate though to what the company feels is appropriate for their position, what they can afford to pay, and what amount fits within their internal pay structure.  If the figure is also the amount you desired, all the better for everyone.

Candidates often think that what they're offered has a direct connection to what they were making before, or what they asked for.  They would only be partially correct.

Coming up with the number

Every company has a decision-making process they follow as a guide in constructing an offer.  This process is applied to some extent for every candidate, no matter what final figure is ultimately used.

Firstly, the company will have either a hiring range or a projection of what they want to spend (what they paid the previous incumbent, pay rates of similar jobs, what's been budgeted, etc.).  Thus to the company their target job already has a value, so they can anticipate what they'll likely pay, even before they've met you.

So they have a number in mind.  Now you come along and seem like a strong candidate.  They'll need to know how your desired number compares with what they're prepared to offer.  Don't attempt to withhold your compensation history - or try to confuse the issue, as this tactic might explode in your face as the employer simply moves on without you.  And as they never like surprises once an offer has been made, any reluctance to explain your compensation history could be a huge red flag.

While hiring guidelines are usually set up for recruiters to follow, exceptions can and will be made, but they'll likely require some justification, some "selling."  Simply saying what you want, what you feel you deserve is something they hear every day - and won't make much of an impression.

Offer amounts can also be restricted by policy or precedent:

·         Starting salaries may not exceed salary range midpoints

·         A reluctance to offer too little or too much over previous compensation

Internal equity is also very important, and may dictate a company's degree of flexibility.  They can't afford to anger two employees in order to please one.

Taking a step back

Many candidates lose sight of the company's perspective, thinking of their own value in the marketplace - what they feel they deserve, given their background and experience.  For its part the company is trying to fill a job for which they already know the value.  That's what usually commands the offered salary, more so than what the candidate is necessarily worth in a universe of possibilities.

Consider a hospital seeking to hire a general practitioner, and a brain surgeon applies for the position.  The brain surgeon may well be worth the going rate for their skill set, but the company is hiring a different position, with a different (lower) value.  At this point they don't need to pay for the services of a brain surgeon.

What to do?  Ask about the hiring range, how much the company expects to pay for a qualified candidate.   They will have a number in mind.  Best you know up front in case there's a disconnect in valuing your services, lest you both waste your time.

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 marco_1186