Everything in Moderation, Including Moderation

Compensation professionals do a lot of moderating. We work to moderate expectations. We work to moderate misunderstandings with incentive pay. And increasingly, we seem to be working to moderate pay itself.

Someone once told me that when animals are in a big herd only those at the edges have a decent view of what's really going on. Those in the middle just have to trust that everyone around them is moving at the right pace and in the right direction. While others often decry the fact that targeting the 50^th percentile ratchets up pay, I would also argue that always targeting to 50^th percentile ratchets up mediocrity.

How many times in your career have you been asked some variation of the question, “What is everyone else doing?” How many times have you said, “The survey data says we should pay this person $52,340” (or some other artificially specific number.) And how many times have you heard, “I don't care what the data says, we are going to pay the way that works for us.”

Those of you who have heard that last statement know what I’m talking about. When has anyone’s passion been heated by moderation? When has anyone told an engaging story about how his or her day went exactly like everyone else’s day? The occasional larger than market raise or surprisingly big recognition reward can create memories and value that last far longer than the actual experience itself.

In executive compensation, Say on Pay is pushing more and more companies to moderate pay structures in a way designed to not offend anyone. And years of survey data have created wide swaths of companies who simply foretell their own future by following the same herd of peers. Reliance on “best practices” and “trends” (which, in truth, are seldom either) turns many companies into different tones of the same color. While moderation is needed on a regular basis, the occasional big move from the norm is needed to keep people’s attention.

We all have a statement that says our pay programs are designed to attract, motivate and retain staff members. If we all do things the same way, how can that purpose ever be served? Sometimes you have step to the edge of the herd and take a look around. You may find that there are some fantastic things beyond the relative safety of moderation. If you plan well and move quickly you can grab something new and be back in the herd before anyone notices you left.

Dan Walter is the President and CEO of Performensation and is focused on the needs of small and mid-sized public and private companies. Dan is working with fellow Compensation Café writers, Ann Bares and Margaret O’Hanlon on a new book due later this year. 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 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.

Comments

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Love this post Dan! Great analogy. But . . sometimes the animal on the edge of the herd gets picked out and eaten by the wolves. On the other hand . . . being an "outlier" always has its risk!

[Dan Walter]

Jacque,

It's true that sometimes an animal away from the herd will be attacked. But most herding species work to keep the old, young and infirm in the middle. The strongest, fastest leaders are kept at the edges.

I guess people need to ask themselves if they want to be viewed as strong, fast leaders, or as someone who needs help from strong, fast leaders.

[Jay Schuster]

That is wonderful, Dan. Is there a difference between 'moderate' and 'mediocre'??? I wonder. In all the years I have been in this business I have seen tons of 'moderate' folks come and go. (Mostly go I am sorry to say). If you read a text book from the 1950s (one by Herb Heneman or Dale Yoder for example) you see that what was great for the 1050s is seemingly the same old stuff we see now. Yet, have not times changed? You need more than a nice tie and a 'moderate' perspective to succeed these days.

I have always roamed the 'edge of the heard' and nobody has eaten me yet!!!!

[E. James (Jim) Brennan]

The overall statistical reliability of really robust executive pay surveys has increased steadily over many decades due to movement towards the high center. Note I said "the high center" because (a) some surveys overstate means/medians to please their buyers and (b) hired guns are well paid to customize narrow comparison groups of supposed competitive peers to show (what a surprise!?) that their client lags their proper market.

Self-fulfilling prophesies are the rule, and the outliers have become the norm in many comparisons. THAT has become a bigger problem, IMHO, than simple clustering around the center or conscious choices to pay BELOW average. Until more firms choose to target the 40th%ile rather than the 60th or 70th or 90th, selective imitation may remain a greater issue than faux "moderation."

That said, I remain a stalwart foe of "followership."

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Dan ---- Personally I love outliers. The bigger the risk the bigger the reward. Maybe that's why I love people in Sales!

[Dan Walter]

Jay,
Good question I think moderate becomes mediocre when it becomes the only way of doing things. Some moderation is always good. Only moderation is nothing but bad.

[Dan Walter]

Jim,

Statistics is literally a matter of numbers. When you have enough of them you can get a generally good picture of something. Kind of like a low resolution image from a distance.

But, when you get real close and try and pinpoint and exact detail (something that many comp people do all the time) the lack of granularity becomes apparent. Often the data is more holes than substance.

[E. K. Torkornoo]

No country ever became great simply by copying others, it has been said.