Compensation Cafe

Will a Word to the Wise Be Sufficient?

Employee pay has become a trending topic in the media and online.

Last week, the President celebrated Equal Pay Day in the shadow of a report from the Office of Personnel Management addressing the overall gender pay gap for white-collar occupations. There have been two executive orders meant to push federal contractors on pay equity. A Paycheck Fairness Act didn't make it through the Senate. The minimum wage is promising to be in the news for the near future, with the most recent action happening in Alaska where there's a tentative approval to raise the minimum wage to $9.00 an hour this July and $10.00 the next.

And while the howls about executive pay can be heard on most days, they are getting louder at regular intervals. The New York Times Sunday Business Section led with two articles on the, "Invasion of the Supersalaries," this weekend.

One article's lead in was, "After another jump in 2013, executive pay draws more scorn as an engine of income inequality," and goes on to list Equilar's total compensation numbers on the 50-highest-paid and 10-lowest-paid chief executives in America. The other article, "Pay for Performance? It Depends on the Measuring Stick," made a case for replacing Total Shareholder Return (TSR) with earnings-per-share growth as the executive performance metric, based on research by James F. Reda and David M. Schmidt from Arthur J. Gallagher & Company.

No matter where you stand on any of these issues, it's not your opinion I'm after, it's your attention. When your company's internal practices become a topic for public discussion, you need to be alert. Your employees live public and professional lives. They will be bringing topics, information and opinions from the public forum to work.

Human Resources often finds out later, rather than sooner, that managers and executives have been facing questions about topics in the news. Taken by surprise and with nothing else to draw from, they share their personal views. Compensation professionals are not as used to this situation as benefits professionals are, since the cost of health care and wellness topics have been popular media topics for decades. 

But when managers and executives draw exclusively on personal opinion, all sorts of confusion can begin. What if their personal opinions contradict policy? What if managers in the stores answer questions differently than in corporate? What if executive credibility is taking a heavy hit because of media reports? (And what kinds of rumors are spreading?)

If you haven't thought about what managers and executives should be saying about these trends, spend some time on it. Employees have a right to ask pointed questions, especially if your chief executive shows up on the top 50 list for the first time, or if you have large numbers of hourly employees who would be affected by changes in hourly wage practices, or, or. If you have a Communications department, get them involved, you need their advice and experience.

The discussions on tight employee pay opportunities and the erosion of the American dream are here to stay until business practices and the economy start moving in a different direction. Your employees may not be talking about it at work -- or they may be, and you just don't know enough about it.

Margaret O'Hanlon, CCP 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.

Terms of Engagement

The research firm i4cp recently released a new report on the practices that boost employee engagement and market performance.  Members can read the report here but for non-members, here is a summary of the practices that drive higher levels of engagement:

1. Use onboarding to assimilate new employees into the culture - New hire orientation is a great way to engage new employees and reinforce their decision to join your company.  If you’d like some more tips about getting the most out of new hire orientation, Ben Eubanks of Upstart HR fame put together a popular - and free - eBook that you can download here.
2. Conduct "stay interviews" as an alternative to exit interviews - Think of it this way: Exit interviews are too late!  Communication is an essential ingredient to get your engagement to rise, a bit like eggs and soufflé.  High performing companies solicit feedback from both employees and managers and act on opportunities for improvement. Some companies even turn the interviews into employer branding videos.
3. Personalize employee development through individual development plans - High performing companies provide career opportunities and hold managers accountable for skills development.  Executive coaching was also called out as an engaging practice, as it can open doors and smooth over obstacles to have someone with chops on your side. 
4. Offer high-visibility assignments and strategic projects - You can’t give talented, ambitious people too many opportunities to be recognized, unless of course they are introverts.  Offer opportunities to shine and be recognized, including special training and global assignments.  High profile assignments may also lead to new career opportunities, which is one of the best ways to hang onto good people. 
5. Create a physical environment that supports creative thinking and wellness -  I know this is meant seriously but it reminds me of a recent post I wrote about creative(ly annoying) workspaces: Motivating or Irritating? 
6. Allocate time for creative-thinking/ideation - Innovative companies like Google, Facebook and Foursquare dedicate time to personal projects and hold regular hackathons, where people from different teams collaborate intensively on software projects.   

It really comes down to this: If people love what they do and the people they work with, you’re going to get a lot more return on your people investments. 

There’s been a lot of research around what motivates employees, much of it here at the Compensation Café:  Fairness.  Opportunity.  Autonomy.   Recognition.  Great colleagues. Communication.  Inclusion.  Competent leadership.  Trust.  A sense of adventure.  A feeling of community.  Etc.

Most important of all may be a feeling of ownership, because people put more time and creative energy into things that belong to them than things that belong to someone else.  The engagement practices outlined above are designed to give people a sense of ownership of their company’s culture, their careers, their personal development, and their work.

I expect that’s why they correlate so highly to market performance.

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 i4cp.

Power Curves, Pro Football and Rewarding the Stars

Editor's Note: Today's post comes to us courtesy of guest contributor Howard Risher.

Wow!  I’ve taught basic stats several times and studied graduate level economics. I have to admit I had never heard of a Paretian distribution – the power law distribution -- until I read Jacque Vilet’s recent post.  As I think about her argument, I’m sure she’s correct.  But from my perspective she is also wrong.

The normal distribution is irrelevant to the management of people.  Its use dates to World War I and the selection of men into the US Army.  When large numbers of people are selected (or drafted) so they constitute a random sample, the distribution of their IQs and other innate abilities should conform to a bell shaped curve.

However, no organization, including today the US Army, selects people randomly.  And needless to say, innate abilities are not the basis for selection. 

Latching on to the power law distribution is not ‘the’ answer to the evaluation and management of people.  To illustrate, pro football teams rely on a highly selective draft (hiring) process and on rewarding performance.  They also have to live with a salary cap similar to a company’s concern with managing labor costs. 

It’s arguable but Denver’s Peyton Manning is probably the best quarterback in pro football today.  As such his pay is at or above that of other quarterbacks.  Wes Welker is a favorite target for Manning’s passes and one of the best wide receivers.  On defense Champ Bailey is one of the best cornerbacks.  Each would be at the extreme, outlier tail of the curve.  Each expects, probably their agents demand, they be paid accordingly.  But the Broncos have to balance their salary demands with all the other players to keep the total under the cap.

I certainly was not involved in the discussions but my bet is the Broncos evaluated and paid Welker relative to other wide receivers and Champ Bailey relative to other cornerbacks.  They did not compare Manning with Welker or Bailey.  At no time in years of following pro football, or any other sport, have I seen a forced distribution that tries to compare players in different positions.

In the real world, it makes no sense to compare carpenters with painters – each has a unique set of skills and separate labor markets – or for that matter it makes no sense to compare accountants with HR specialists.  In the same way I would not want to use the same performance criteria to assess a journeyman carpenter and an apprentice.  The performance expectations would be very different.

As I recall from the textbooks, the goals of performance management include: (1) developing job-specific performance plans and identifying the criteria relevant to assessing an employee’s performance, (2) providing job relevant feedback, (3) evaluating at year end how well each individual performed relative to their performance plan, and (4) rewarding them relative to market pay levels for their job family.   

I know Jack Welch has used the argument about children in school all being graded with the same system.  He is of course correct that letter grades are commonly used for every student but he ignores the obvious fact that they are not all taking the same tests.  An A in spelling has the same basic meaning as an A in physics but they are obviously very different subjects.  When I was in school I hated physics but was reasonably good at spelling.  I wanted to be recognized for my achievements – I was proud to be in the regional spelling bee.  That had nothing to do with my mediocre performance in physics.

Jacque is correct -- identifying the star performers is important.  And it’s definitely important to recognize and reward their contributions for the same reason Manning gets all the accolades.

But it is also important –- possibly more important -- to encourage every employee to develop their skills and progress up their career ladders.  The Broncos and every organization need solid performers at every position.  That’s the goal of performance management.  It’s different than recognizing the outliers on the curve.  From my perspective, the potential payoff is far greater than focusing on the few superstars.

Howard Risher is a private consultant who focuses on pay and performance. His career extends over 40 years and includes years managing consulting practices for two national firms. He is the editor of the journal Compensation and Benefits Review. He also has an MBA and Ph.D from the Wharton School of the University of Pennsylvania. Contact him at [email protected].

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Reverse the Purse: Get More Benefit from Investing in Spot Awards than Annual Incentives

WorldatWork, Deloitte Consulting and Vivient Consulting recently released results of an October 2013 survey of more than 350 publicly traded companies, 190 mostly large private, for-profit companies, and 175 nonprofit and government organizations. Results show employee incentive plans (as they term them) are alive and well (see the chart below and click through for the full report to see the full definitions for each of type of program).

Considering the type of organization, I can’t say I’m surprised at the balance or use of the specific program by organization type. That makes sense to me. What I don’t understand is the comparatively lesser use of spot awards across the board as compared to annual incentive plans. The survey defined the terms as (quoting):

• Annual incentive plan: A pay plan that rewards the accomplishment of specific results. Rewards usually are tied to expected results identified at the beginning of the performance cycle. Unlike bonuses, they are not primarily discretionary but may have a discretionary component.
• Spot awards: Recognize special contributions as they occur for a project or task, generally accomplished in a short period.

While there is value to annual incentive plans, so much more immediate benefit can be derived from reversing the investment levels in these programs. Why?

With a focus purely on results, annual incentive plans can result in unintended consequences because they can unknowingly encourage bad behaviors. These can include gaming the system to ensure results are met, but potentially not exceeded. Think of a sales executive who has achieved his numbers for the year (thereby assuring his annual incentive plan bonus) choosing to delay a contract until the next year. Or, as we saw so often in the last few years, a desire to deliver results at all costs, regardless of how those results are achieved. Think WorldCom, Enron, etc.

A focus on spot awards, instead, should recognize, reinforce and reward the demonstration of desired behaviors as well as results, balancing the way in which results are achieved with the results themselves. The immediacy of spot awards is also far more memorable and impactful for employees, helping employees know what is most needed for success and encouraging them to repeat those behaviors again and again. Additionally, research conducted by Harvard Business School professors Teresa Amabile and Steven Kramer (and published in The Progress Principle) shows that the most powerful motivator for employees is making progress in meaningful work. That’s why frequent, timely and specific recognition drives business results faster and more deeply than annual incentives.

Again, both approaches serve a valuable role, but consider switching the emphasis and investment.

What incentive approaches does your company pursue? Which do you find most effective?

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 @DerekIrvine.

Excessive Overpayment vs. the Real Solution

Excessive compensation is one of the most popular options used to persuade people to stay in terrible jobs.  Rather than redesign the function or improve the support system to make the work more palatable, it is much easier to just offer fantastic pay.  More money is often seen as a universal cure for all ills, even though it may be the wrong solution. 

The fixation on cash as the consistant culprit is a cop-out.  It conveniently transfers responsibility for the issue from operational managers to the compensation specialists.  Assuming that a problem can be solved with money proposes a quick solution by payroll action before fully investigating the cause of the problem.  Jumping straight to prescription without ever entering the diagnostic phase is a recipe for disaster, but it offers the extra advantage of essentially changing the way the challenge is viewed:  if can be solved by money, it is not a management question but simply an expense cost item. 

When morale is low or turnover is high, granting big money might make a difference.  Or it might not.  Of course, the amount of remuneration is usually not a long term solution to any problem, but no one will turn it down.  Besides, attributing the issue to low pay suggests that a quick fix is possible.

Whenever turnover becomes a problem, someone always immediately concludes everyone needs more money. The continuous popularity of that frequently misguided approach fix shows up all the time. 

Best example of that inappropriate attribution situation was many years ago at the highest paying software department in Southern California.  Outside consultants were brought in to solve their continual IT turnover issue by finding the right pay level.  But the problem was not turnover, it was the manager. 

The IT head didn't do COBOL, FORTRAN, C+ or any other "modern" software languages of that era; but he was a long-time close friend of the CEO.  Backed by that power, he  bribed overqualified MIS PhDs to program in early Autocode, which he did know quite well.  That ancient computer language preceded machine assembly language and was so antiquated that these highly paid experts lined up outside the managers office every morning for help as they struggled to reconvert modern operating programs into ancient formats the manager understood.  The job was so frustrating that immense sums were required to hire and retain these experts.  Heightened qualifications were required to support the high salaries; and the more qualified the personnel, the more they earned even as they resented the waste of their highly developed credentials.  The exasperated programmers confidentially vented to the consultants that they knew they would have to take a pay cut to go anywhere else, but the situation was professionally frustrating.  Eventually each would reach the point where they finally quit before their advanced skills atrophied too much for other employment elsewhere.

The consultants immediately interviewed every employee in the department and followed up on recent quits so they could produce an undeniable consensus report where all source identities could remain anonymous.  Simultaneous technical audits and comprehensive pay surveys were also conducted, to confirm and document facts for a recommendation that could withstand CEO opposition.  Any report criticizing the chairman's poker buddy had to be bullet-proof.  

The solution was to replace the IT head with a competent MIS manager.  The consultants were fired, of course, because they uncovered an unwelcome truth. 

Watch out for those who  prescribe a fix without even doing a diagnosis and make lots of assumptions as they rush to judgment.  It’s impossible to close pay gaps that don’t exist.  Sometimes the gap is in our understanding, instead.

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 "Money Flying" by Tax Credits

Ding! Dong! The Wicked Bell Curve is Dead!

It's been a long-held assumption that human performance fits a normal distribution — a bell curve in which only a very small number of people are outliers.

When applied to work performance, it basically means that most performers (68%) are in the middle and are average performers while 16% are high performers and naturally the other 16% are low performers.

While easy to understand, this model does not accurately reflect the way people perform.   Research conducted in 2012 by O’Boyle and Aguinis with 633,263 people in a total of 198 samples found that performance in 94% of these groups did not follow a normal distribution. Rather they fell into what is called a "Power Law" distribution.  Most performance was generated by a small group of “superstars”.

This graph of employee performance looks like a ski slope (red) where the under-performers are at the upper most starting point of the slope and high performers are at the tip of the end.  The typical/average performer would fall below the mean or average result.  Again, in this model, the typical performer is “below average” (speaking from a statistical perspective).

There would be approximately 80% below average, 10% around the middle, and 10% exceeding; meaning that the assumption that the typical performer is average is a myth of the normal distribution assumption.  The results lend themselves to the “80 / 20 rule”, which says that 80% of the work is done by 20% of the people.

To quote Josh Bersin:

“The really big difference between the “bell curve” and the “power curve” is that the power curve reflects the fact that a small number of people deliver an inordinate amount of contribution. This means that "most people" are below the mean. It does NOT imply that most people are lower performers, only the fact that the variability of performance is high and that the curve should not be equal above and below the mean.”

Sounds cold doesn't it? People believe the bell curve is "fair." It’s nice and neat.  There are an equal number of people above and below the average. And fairness is very important. But fairness does not mean "equality" or "equivalent rewards for all." High performing companies have very wide variations in compensation, reflecting the fact that some people really do drive far more value than others. 

Given the research findings, doesn’t this indicate that compensation is inefficiently distributed?  If you believe the results, then at the very least we need to examine the design and focus of our programs.  Perhaps it’s time to rethink them - and find ways to create a higher variability in pay.  Think about paying people based on the value they deliver.

Maybe we need to shift focus away from the majority of the current workforce and to the superstars that have the greatest company impact.  The revenue producers.  Those with critical skills that can “make or break” the company.   

Maybe when you find someone who's truly outstanding, the normal pay rules shouldn't apply.

What do you think?

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. 

Should Pay Disclosure Be a More Common Practice?

Editor's Note:  Today's post comes to us courtesy of guest contributor Rory Trotter.

It’s an established practice within most U.S. based firms to keep pay a secret. Ergo, while federal securities law requires publically traded companies to disclose the compensation of their five highest paid executives, most people are in the dark about how their earnings stack up relative to peers. Websites like Payscale and Glassdoor have made it easier than ever to get a ballpark estimate of the market rate for a job and/or skillset, but understanding where one falls on the pay continuum from an internal equity perspective remains in many ways as tricky a proposition as ever.

With that said, research from Elena Belogolovsky and Peter Bamberger suggests that perhaps companies should be rethinking their approach to pay disclosure. In a 2010 study, they found that pay secrecy can negatively impact the work performance of less inequity tolerant individuals. Part of this phenomenon is no doubt attributable to illusory superiority; many people overestimate their abilities relative to peers, assuming the value of their contributions far exceeds actual output. In this respect employers may be wise to be cautious about disclosing general population compensation data – even if pay is equitable there will always be someone who feels shorted.

Conversely, suspicion over the objectivity of organization’s pay policies is often justified. Managers have been known to take subjective, short-term approaches to divvying out merit increases to their direct reports as opposed to awarding pay increases based upon merit. And this practice says nothing of the role that new-hire salary negotiation plays in where one falls within a population from an internal equity perspective (a disparity that often only compounds on itself over time). These realities make pay disclosure an inadvisable endeavor for many companies. After all, as one of my comp mentors communicated to me early in my career, we need to be able to defend any decision we make around pay. Unfortunately, for many organizations this proves quite a tall order; and in such cases disclosing pay and bringing rampant salary compression issues to light would not only lower employee morale and engagement, but also open said employers up to significant legal liability. In this respect, a company’s ability to consider disclosing employee salaries comes down to its ability to justify how its workforce is paid.

But it can be done. There are organizations – like the San Francisco-based startup Buffer – that are disclosing the pay packages of every employee in the company. Having said that, Buffer unveiled what appears to be a fairly regimented salary formula at the time of its disclosure. Applying such a formula to a more mature company with a larger employee population and decades of compression issues might prove decidedly more difficult (Buffer has less than 50 employees at the time of this writing). Ironing out equity issues in such cases can take years and is sometimes never fully resolved.

Ultimately, however, I’m of the mind that salary disclosure – or at least range disclosure – is something that companies should aspire to… if for no other reason than because the publication of such information holds employers accountable for making sure their compensation structures are both aligned with performance and the external marketplace.

What do you think – yay or nay on salary disclosure? When and why? Please share your thoughts in the comments section below.

Rory C. Trotter Jr. is an HR Manager specializing in Compensation, Talent Management and Employee Relations. He has provided enterprise wide support on matters related to base pay, executive pay, and long-term incentives for a Fortune 50 company, managed employee relations for various operations and commercial client groups, and led recruitment efforts for hundreds of jobs spanning a wide range of functions, complexity, and scope. He has both an MBA and a Master of Human Resources and Industrial Relations from the University of Illinois at Urbana-Champaign. You can read more of Rory's thoughts on compensation and HR at rorytrotter.com and you can find him on Linkedin here, Twitter here, and Google+ here.

Creative Commons image "Magnifying Glass and Money" by Images_of_Money

The Questions We Should Not Be Answering With Market Data

Would you make a critical life decision based on market norms?  Decide to uproot your family for a job opportunity, divorce your spouse or determine the best care approach for an elderly parent based on "average practice?" 

Probably not.  You would want to consider your specific circumstances, your goals and aspirations and your values, among other things.  And you'd want to seek input from those directly involved and/or impacted by the decision.  Data on what other people have done in similar situations may inform your decision, but will not likely determine it.

Similarly, there are questions in the world of compensation design and management that we should not be answering solely on market practice and "competitive norms."  When you fall into the trap of thinking that benchmarking is the most important arrow in your quiver, however, it is tempting to fire it at every question you encounter.

As a consultant, I get a lot of market data questions that really make me scratch my head.  Here are a few of my favorites.

What are the most common incentive measures for management (or sales or professional level) employees in the technology (or contract manufacturing or pharmaceutical) industry? 

I call this one "plan design by market average" and it is not an uncommon approach, particularly with less experienced professionals.  Incentive plan design should always, ALWAYS begin with an understanding of the company's unique business strategy, what it wants to accomplish with the incentive spend and which specific efforts and results (if reinforced) will most likely lead to attaining those objectives.  It should not begin with the average choices made by others in the industry.

How many companies are providing incentives to their nonexempt employees?

While it may be interesting and even helpful to understand the direction of the market here, the decision to make any particular group of employees incentive eligible should not be simply an effort to mimic the crowd.  Are there sound business and talent management reasons to provide incentives to this group?  Are your managers willing and able to take on the communication and coaching activities necessary to establish and reinforce the connection between employee efforts and moving the bar on plan measures -- necessary for success and any chance of return on award dollars?  These are the types of things that should guide incentive participation decisions, not simply the determination of whether everybody else is doing it.

How many companies in our industry position their pay above the 50th percentile (median)?

Whether or not the average company in your industry purports to pay at premium levels shouldn't be the primary factor driving your compensation philosophy.  Rather, is there a strong business case -- for your organization -- which suggests that positioning compensation aggressively for all or some portion of the workforce is necessary?  And likely to deliver a positive economic return?

Do most companies classify this job as exempt or nonexempt?

Yes, let's do crowdsource our FLSA classification process.  This is one of my favorites -- and I will tell you that I hear it a lot.  With all the scrutiny and attention being directed at wage and hour compliance these days, do you really believe that a borderline exemption call could be defended, if it came to that, with data that shows how other most companies have classified that title?  Me neither.

An HR executive (who shall remain anonymous) recently remarked to me that, in his experience, most compensation people are great at benchmarking.  Period.  The implication being that our contribution begins and ends there. 

Let's be better than that!

(And please do share your own versions of questions we should not be answering with market data.  I'll bet there are some doozies out there.)

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 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.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.

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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.

Think You Know Who the Opinion Leaders Are? Think Again!

When I want to test compensation plan design options or overall program changes and my clients won't/can't consider focus groups, our next stop normally is to talk with a selection of "opinion leaders." And when I am working on a compensation implementation and I want sponsors throughout the organization to advocate for the change, I work with my client to involve "opinion leaders."

Throughout my career, I've believed -- along with you -- that you can pick out the opinion leaders by hanging around and watching closely. But, ah, those scientists. They rely on measures taken via validated procedures.

Through recent research, scientists have determined that we've been wrong about saturated fat. In different  research they've shown us that we've are frequently inaccurate when we identify decision makers. Two bedrock beliefs exploded in the same month!

The research on opinion leaders is reported in the McKinsey Quarterly. The article describes a tool developed by social scientists studying social groups whose members are reluctant to participate in formal research. (Think street gangs or drug users.) Instead of trying to chase everyone down, they ask some people to name acquaintances who should be asked to participate in the research. Then they ask some more and so on. One name or group of names start to show up more frequently, and now you know the names of your opinion leaders.

The process has been used in business, too. Here's a excerpt of the McKinsey authors' business findings. Their message is important to our work:

" . . . we've found that influencer patterns almost never follow the organizational chart. Informal influencers exist at all levels of a company and aren't easily identified or predicted by role or tenure . . . Moreover, we find that even when company leaders believe they know who the influencers will be, they are almost always wrong . . .

Most HR practitioners would nod their head sagely at the first part of that quote. Hopefully you can still read while you're nodding, because -- whether we like it or not -- we're among the company leaders referred to in the last sentence. The ones who, research indicates, are almost always wrong.

The article offers some guidelines about the research methodology. It's called "snowball sampling" in the biz. It would be great if someone who's tried it could report in on their experience. Or, if this article inspires someone within a good-sized company to check out the methodology and teach us what they learned. I will happily interview and write an article about any company that wants to follow the methodology formally and help make all of us better at this.

Margaret O'Hanlon, CCP 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.