Compensation Cafe

The Dinosaurs Among Us

Do any of these employee-types sound familiar to you?  Perhaps you've come across one or more in the hallways at work.  Perhaps you work with someone like this. Perhaps you work for someone like this.

• The technocrat with the pocket protector and ready access to multiple survey sources for analytical data on any given subject.  Always has a technical and often convoluted answer to questions.  You may not understand them.

• The employee who administers a point-factor job evaluation system or performance management program like the processes are an untouchable, sacrosanct bible.  Definitions and point factors have been memorized and can be quoted at will.

• The employee who understands more about compensation methodology and data manipulation formulae than the business dynamics of the company. They can explain a regression line and standard deviations faster than they can describe the main product or service of the company.

One dimensional thinking

These are the folks who have their eyes pointed straight down, walking the cautious step by step, not having a clue or a care as to what's on the horizon. They're heavily engaged with the technical aspects of their craft, with compensation methodology, and seem to their coworkers to be in a fog about everything else. They're the so-called subject matter experts, at least as far as their technical analysis can take them.

But at the same time they may not be able to relate to the day-to-day challenges faced by line managers.  Instead of being problem solvers they find their comfort zone as data junkies who can show you the numbers, can point at the charts, but not necessarily can they suggest what to do next. 

Don't get me wrong, we do need these employees, as they serve a useful purpose to help understand the intricacies of our payroll, the competitive marketplace and the financial impact of various pay decisions.  But when we let impersonal analytics dictate our strategies, our day-to-day tactics in dealing with our employees, we tend to lose a quality of humanity that is critical to building within our organization a successful workplace culture. 

In order to manage compensation, not simply administer the programs, practitioners need to understand the impact that the analytics can have on employees, on business operations and of course on the financials.  And a grasp of possible unintended consequences.

Time marched on

It wasn't that many years ago that the compensation technocrats described above played a strong hand within their little kingdoms.  Management was mesmerized by the data streams, confused by the formulae, charts and graphs and more readily accepting of technical strategies that promised savings or an improved bottom line.  For their part employees tended to be viewed as blocks on an organization chart, or simply cells within a spreadsheet.  They weren't actual people.

But these days most companies (not yet all, I'm afraid) expect more from their compensation practitioners. They expect to see a balance between technical abilities, familiarity with business operations, understanding of the employee perspective, communication skills and a capability to offer practical solutions that create a win-win atmosphere within the organization.

Increasingly the one dimensional technocrats are viewed as dinosaurs by a leadership that views their limited capabilities as too restrictive, too judgmental (the policy says, the survey says, figures don't lie, etc.) and overly reliant on espousing tactics that others employ.  They struggle when it comes to helping their own organization solve problems and overcome challenges that may not be common outside of their own environment.

So, where do you fall in the grand scheme of things?  In an increasingly complex work environment you need to wear more than one hat, more than a single competency.  You also need to have one foot in the present and the other in the future.  Don't live in the past.  The "good old days" are gone.

So have care.  Because if your colleagues, peers and even senior leadership ever start to think of you as a dinosaur they won't be thinking of a T-Rex, but a lumbering Brontosaurus.

 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, "T-Rex," by Scott Kinmartin

May You Live in Interesting Times

This purported curse could be the best slogan for what's going on in our business lives. The recession certainly has mixed things up, but we are also at a phase of the information age when we feel the wind mussing our hair as the speed of technological change redefines jobs, remakes careers, and drives pay practices. And if you've noticed the wind pick up, you may have realized that it's also transforming the work culture for employees and what we mean by customer service for consumers.

Why are we talking about this on Compensation Cafe? Because we have a chance to look at a case study about the entanglement of technology, job redefinition, evolving pay practices and social policy.

It involves the new start-up, Tanjarine, which would like to revolutionize your dining experience by giving you and your tablemates an interactive tablet that will let you drive your own ordering experience. As its Vice President of Product Marketing, Heidi Gibson, points out, the company's sweet spot is small- and medium-sized "family casual" restaurant chains.  

The thing is, with a small bit of tweaking, this case study could apply to many other industries -- healthcare, life science, insurance, finance, engineering and so on -- that employ a combination of highly skilled specialists and hourly workers in support occupations. So Ann Bares and I thought this would be an interesting story to share.

Tanjarine is running lean and mean, with an in-house staff of about 30 backed up by a similar number of contractors. You can imagine that the market for Android tablet/games architects is steaming hot right now, and Heidi tells us that Tanjarine offers "generous salaries" and other forms of compensation while it struggles to find "quality people" to build its product offering up. So far, this business case should sound pretty familiar to many of you, even if the scale may be a bit off.

Restaurants run on a bleeding edge margin. (That might sound familiar, too.) Tanjarine's new product will help their target market of restaurants to move orders more quickly and give waitstaff more time to upsell and cross sell. Waitstaff will help to turn over the tables, growing income from tips. However, other forms of efficiency will deliver the classic goal of increased productivity -- flat staffing. Heidi, who is also a successful restauranteur, doesn't think staffing needs will be revolutionized, but there will be some impact.

And here's where things get more complicated. This unpopular bulletin board appeared in San Francisco recently.

 by Paul Carr, Pandodaily

In November, San Francisco voters will be asked to approve raising the city's minimum wage in four increments until it reaches $15.00 an hour in 2018. This in a city that requires health care expenditures of businesses employing 20 or more. I suppose some would say the bulletin board is right. Many, many residents are offended. Business owners struggle. Employees cheer.

Heidi believes that the new minimum wage will become law and she's pretty sure that labor costs will increase 20% next year. This in a city where some owners have already shifted a portion of their income to cover labor costs. Faster table turnover will come in handy (as will the higher wages if you're trying to feed your kids).

In an article called, "Signs of things to come," The Economist notices with surprise in its prose, that "we are beginning to get a glimpse of the productivity potential of machine intelligence . . . it takes a high level of expertise and experience to advance the science of machine learning, but applying machine learning techniques . . . to new problems . . . is relatively straightforward." Take note: Changes in your company's operations are inevitable.

At the same time, 26 states have increased the minimum wage in the recent past. More will be added, helping our employees who are struggling mightily, but also challenging the status quo. Heidi worries that experienced waitstaff from outside San Francisco will trade a longer commute for higher pay and begin to eliminate opportunities for unskilled San Francisco residents. That would be a real challenge to the city's culture and highly unpopular.

This is a Compensation Cafe case study. Whether it's new news for you, or everyday stuff -- what do you think may be in store for your company or industry?

Margaret O'Hanlon, CCP is founder and Principal of re:Think Consulting. "Everything You Do (in Compensation) Is Communication" the much-awaited ebook is in prerelease! (Tell everyone, will ya.) 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.

Too Successful for Incentive Compensation

Compensation professionals have a basic mantra: Attract, Motivate and Retain. It is the basis for many companies’ compensation philosophies. It is included in a majority of public companies’ CD&As (Compensation Discussion and Analysis). It is foundation of countless sales compensation programs. But, what if your company is just too darned good?

I am currently working with a company in exactly this situation. Their product is so popular they simply can’t make enough of it. Their sales team is so effective that they have sold everything possible and still have consumers knocking on the door for more. It sounds great, but it is truly a problem.

Like many companies in the retail world, supply and demand doesn't drive their prices. A larger pricing structure exists for their industry. This means that they can't make more money just because people love their stuff. It also means that their incentive compensation programs have a conspicuous hole.

Sales people are often referred to as “coin operated”. This can be a great thing. As long as your products are strong and your company is fairly successful, paying sales people is competitive but predictable. But, what if the coin was taken away?  The calculation becomes far different.

A company now must find a way to keep people producing when their main source of motivation and money offers no additional upside potential until after the end of the year. Success has its downsides!

Wait there's more! Because revenues are essentially capped for the last couple of months of the year, the company won’t have additional budget to build a significant short-term “bridge” into next year. And, of course, the market is hot and competitors are continuing to call.

It is now here where the overall strength of your total rewards and human capital package become SO ESSENTIAL. This company has a great internal culture and it offers long-term incentives and ownership. It even has great programs that augment pay. The company prides itself in being a place where people want to come to work. It values its employees in ways that not only cost money, but require a little more time, effort and understanding.

Because the company has communicated a strong long-term strategy and has been built on a powerful internal culture, this company has an impressive foundation and useful tools to help keep employees engaged and retained during this fantastic albeit rough patch. If they had not spent the time and money over many years to build that holistic package, these critical team members would probably be the first to leave.

Compensation isn't the be all and end all of everything. When it breaks, and it will someday, your foundation had better be strong enough to fill the hole until you can correct the problem.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with corporate strategy and culture. Dan and fellow Compensation Café writers, Ann Bares and Margaret O’Hanlon are happy to announce our new book: “Everything You Do in COMPENSATION IS COMMUNICATION.” Dan has also co-authored of several other books including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, “GEOnomics 2011” and “Equity Alternatives.” Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay.

3 Lessons on Knowing vs. Sharing, Leading, or Doing

I’m a fan of the weekly “Corner Office” column in The New York Times. Generally, there’s a good nugget of learning that’s broadly applicable. Sometimes, however, a bigger theme emerges for me. The latter is true in a recent interview with Tiger Tyagarajan, chief executive of Genpact. In several ways, Tiger hit on the differences between knowing something and making it reality. Here are three:

Knowing vs. Sharing

Tiger shared how familial expectations drove his passion to always be number one – first in his class in school, especially in maths and sciences. But then, in college, he learned an important lesson:

“I changed my view of what’s important to be successful. You have to be able to work in a team and communicate. Just knowing the answer is not good enough. That was a big transformation.

“A group of us would work on projects together and then we would go around the room and decide who’s going to present. Invariably everyone would say, ‘I’m not presenting,’ because they figured that having the answer was the most important thing. None of us realized that presenting is equally important. So I would raise my hand to present, and I enjoyed it.”

The Lesson: Knowing the answer has no value if you’re unable to share your knowledge with others so they can benefit from it as well. In the workplace, this often presents as “information hoarding” and can have significant deleterious effects on immediate team productivity as well as long-term success outcomes.

The Question: What do you know that may be valuable information, but that you’re choosing not to share? What’s holding you back?

Knowing vs. Leading

CEOs featured in the “Corner Office” column often tell stories about management experiences very early in their careers. Tiger is no different, though his maturity in his approach far exceeded his years.

“I joined Chesebrough-Pond’s as a management trainee in sales in charge of a regional territory. I had about 10 people on my team. I was about 24, had no work experience, and the oldest person in the group had 35 years of experience.

“I started by saying I didn’t know anything. There was no reason for my team to listen to me, and I didn’t even know what to tell them. So I quickly decided that I needed them to teach me. I gravitated to the most senior person in the group and had him coach me. I was also completely open and transparent with him. That helped build trust.”

The Lesson: Usually, leading others does not require knowing all the answers. It does require knowing what you don’t know, knowing who does know, and seeking those people out to educate you and, in many ways, partner with you in leading the team.

The Question: Who on your teams knows more than you do? Are you intentionally seeking them out, soliciting their knowledge, and incorporating it into your own learning and leadership approach?

Knowing vs. Doing

People know their jobs (as is all-too-often evidenced by the phrase, “That’s not in my job description.”), but do they understand what they should be doing in terms of the contributions and efforts that are more valuable for success? The answer is often, “no.” And that’s the difference between a satisfied, or even happy, employee and a truly engaged one – understanding the “big picture” goals of the organization and how personal efforts and job duties help to achieve it, then going the extra mile to deliver. Tiger understands this difference, commenting:

“I’m a big believer that you have to have incentives that drive behavior, and to align everyone around them you must make them easily understandable. Metrics that show progress, and that make it possible for everyone to know where they are going, are even more important than trying to be the fastest or the first. You’ve got to find a way to measure progress, because if you don’t, you might end up with a person spending a year thinking that they’ve done a great job, but actually they haven’t.”

The Lesson: Recognizing progress is as important as recognizing results. Indeed, failing to do so can cause the end result to be far afield from the desired goal.

The Question: Are you taking the time to help every member of your term understand how they and their efforts fit in and contribute to achieving big-picture goals?

In what other ways can “knowing” be a false measure of success?

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.

Considering the Compensation-Recruiting Inflection Point

Relationship with your recruiting cohorts a little rocky these days?

There has always been, will always be, an element of tension between compensation and recruiting.  Recruiting pros want to bring in the best candidate and offer the package necessary to make this happen -- with their compensation colleagues often functioning (in their eyes) as the biggest obstacle to achieving this end.  Compensation pros often feel they are the last line of defense for the integrity of the pay program, seeing their recruiting counterparts as wielding the wrecking ball that will bring the delicately balanced house of cards tumbling to the ground.  I hold to the opinion that its a healthy tension, and I particularly appreciate the position of those in HR whose role demands that they perform and balance the objectives of both functions.

Today's talent market is a particularly challenging one, demanding that we who design and manage rewards step out of our comfort zones and explore the new practices and solutions necessary for our organizations to purchase and hold on to people with the necessary skill and competency sets.

Steve Boese -- Co-Chair of the HR Technology Conference, creator and host of the HR Happy Hour Show and my favorite HR Tech blogger -- wrote a great post this week driving home some critical points about today's talent market, from a recruiter point-of-view.  In his post, Steve shares a striking chart (see below) about the degree to which (over the past few years) candidates or employers are in the driver's seat, compiled as part of MRINetwork's biannual Recruiter Sentiment Survey, which features the responses of 235 recruiters.

The chart shows us that this group of recruiters are reporting a dramatic shift in terms of who holds the power and leverage in the marketplace for talent.  Related to this power shift, the survey also reports the following highlights and observations (with my comments in parentheses):

More than ever, highly skilled and top performing candidates are in demand.  It is sometimes difficult to communicate this fact to hiring managers and other company stakeholders (including, I suspect they mean, the compensation department).

Candidates have more options than they have had in years.  Yet companies still want to give low-ball offers.  (A function of policy and internal equity considerations that push hiring in the lower half of the range, perhaps?  Managers that are out of touch with labor market reality?)

Some companies are not adjusting to this market change and, as a result, dragging out the process and losing good candidates (probably struggling internally to find a compromise that will land the desired candidate without upsetting the internal equity applecart).

It isn't my intention to paint compensation as the bad guys here, or our efforts to manage compensation as unnecessary. (And I do realize that recruiters bring their own issues to the table.)  Too often, we are stuck feeling like the little Dutch boy with his finger in the dike, hoping to stall the flood waters.  Mostly that's probably legitimate, but sometimes we may be trying to hold back necessary change and progress in our pay practices and solutions.

At any rate, I think it's always helpful to get a glimpse into what our colleagues on the other end of the talent management train are dealing with.

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 and fellow Compensation Café writers, Margaret O’Hanlon and Dan Walter will soon be releasing a new book on communicating compensation - stay posted! 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.

Creative Commons image "Fault Line in Þingvellir National Park" by Jon Connell

Employment Cost Index vs Salary Structure Changes

Why would anyone use the ECI for salary structure changes?  The BLS Employment Cost Index has nothing to do with pay structures and seems to have accuracy issues.

The ECI is an index like CPI, derived from an arbitrary base and not a standard measure of percentage changes in comparable pay amounts; so I can't imagine why anyone would tie structure changes to it.  Unless all your jobs and their pay figures matched the standard index model in the base comparison year and your changes thereafter were equivalent to those at the employers measured, it would seem to have little relevance to your specific local competive market for pay.  About 30% of the ECI metric value comes from benefit costs, too, so it can be difficult to identify only the wages & salaries component.  The measure does not include Federal workers, either, despite the influence of federal pay on salary trends.  Plus, the published results are constantly being corrected for periods ranging from monthly, quarterly and even back six (6) years!

The enterprises surveyed tend to be well established very large employers rather than low-paying small firms or agile start-up entrepreneurs who all pay quite differently than the dinosaurs.  The technical notes clarify that it is an estimate based on a probability sample covering about 10,000 public and private employers and the results for Employer Costs for Employee Compensation (ECEC) will differ from Employment Cost Index (ECI) results.  Hard to explain all that.

This gross national metric is used in setting Federal monetary or fiscal economic policy; but it is also tied by law to some Federal pay adjustments, so that would explain why someone might decide to piggy-back on it at a private employer.  It remains to be seen whether you are using it like the Federal pay system does, however.  ECI has an impact on Medicare payments, military pay changes, state property tax rates and labor cost budgeting.  It can be used as a wage escalator in collective bargaining contract clauses, too, and is fequently a federal defense contract cost escalator metric.  But it remains an estimated index and not a measure of surveyed pay structure percentage changes from one year to the next. 

As well explained in this comprehensive article about the CPI, COLA clauses use indexes as standards against which tiny income changes are typically tied to absolute index point movements via a formula: i.e., one cent in hourly wage will be added for every positive change of 8 index points over a certain period.  A 3% change in the index does not necessarily equal a 3% change in pay but usually generates a much smaller pay increment, because such indices are typically applied simply to take certain sums off the table in labor negotiations.  Experienced negotiators already know that both sides are not going to dispute the necessity for some incremental increases up to a certain point during the terms of the contract.  Therefore, it is much easier to derive a formula that binds both parties to a method that offers a mutually acceptable way to respond to extraordinary changes than it is to waste valuable effort renegotiating the contract every few months. 

An index can be used for temporary minor adjustments or to minimize disputes over non-controversial “givens.”  Those are appropriate uses of such indexes or indices or whatever you want to call them.  Fewer employers than ever still use COLA clauses like that, however.  Using any index as the sole factor for a major plan places a whole lot of weight on a very fragile mechanism, especially if the index measure was not designed for that purpose. 

I could be wrong, but using ECI instead of surveys of salary structure changes seems like comparing apples to raisins.  They are quite different.  On the other hand, the advantage is that reliance is placed on a highly visible nationally published figure that costs nothing to collect and which no one except an expert can be expected to challenge.  It's free, and as the old saying goes, "It's good enough for government work."  In fact, that’s the only place it is usually found.

Does anyone have any other suggestions for federal bureaucratic procedures to adopt at private employers?

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 "Measure a Thousand Times Cut Once" by avrene

The Pay-For-Pulse Culture

Picture the scene: Your company doesn't have enough monies in the annual merit spend budget to grant more than an average 2% increase to employees, so the powers that be decide that -"let's give everyone a flat 2% increase and call it a day."

Has this happened to you?  The practice is what some would call a "pay-for-pulse" strategy, where if you haven't been fired on the date of the scheduled increases then you're going to get a raise. Every warm body who occupies a chair will receive an increase, just because.  Individual employee performance isn't taken into account, so the high performers will receive  the same 2% increase as Joe Average.  And as to Bob-the-Bumbler?  He'll receive the same 2% as well.

And everyone is supposed to be happy.

Really.

But it happens.  So why is it that some managers think that such a giveaway tactic is a great idea?

• It's easy to communicate and administer.  Picture someone pushing an EASY button and all the changes are made, in an instant.

• You don't have to worry about performance reviews.  Oh, some organizations may go through the motions, but essentially the goal is to have a paperless exercise.

• Managers won't have to agonize over performance ratings.  Everybody receives the same treatment and no one has to be given a negative review.  Because let's face it, no manager looks forward to that conversation.

• Some advocates will actually convince themselves that they're being fair to everyone. They're not discriminating , not pitting one group against another.  We all work for the same company, right?  This same vein of thought believes that everyone on the receiving end will thank them.

• DidI mention that it's quick and easy to do?  No fuss, no muss.

Of course, this isn't a tactic that you'd see in a pay-for-performance culture.  And certainly not where management is trying to develop the oft-desired  "high performance" culture.  In some ways this tactic actually encourages and rewards the opposite, as it's the lesser performers who consider this a grand idea.  And why shouldn't they?  It's a great deal for Joe Average and an even better one for Bob-the-Bumbler.

But watch the exit door for the high performers.  Because they won't be sticking around for long once they feel that they're not being recognized or rewarded.  But don't worry, as Joe and Bob will stay with you. They may never leave.

So have a think as you consider what it is that you're really intending to recognize and encourage with your discretionary reward dollars.  If it's simply tenure, if it's saying thanks to someone for sitting in a chair for another year, then I suspect you're wasting a lot of money.  And you won't get a lot of improved performance for your efforts.

You'd be better served rewarding what someone has contributed to the organization (performance) while they were occupying that chair.  Unless of course you think that every warm body has a right to an annual increase - regardless.

So take your choice; pay-for-performance or pay-for-pulse?  What if it was your money being taken out of your pocket?

Broad based reward strategies don't often focus the reward where it will do the most good, where it will benefit the company the most.  Instead, picture the fellow opening a window and tossing out dollar bills into the wind, all the while chanting,  "I hope this helps."

It won't.

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, "Cathead," by mightyhorse

"Say on Pay" for Employee Compensation?

Today the Wall Street Journal website included an article called "When One Pay Raise a Year Isn't Enough." The topic is intriguing and the graphics were great. The thing is, the article addressed a 2013 survey by Aon. Not so cutting edge for a publication that brings us "breaking news and current headlines."

So why did they publish it? Aon reportedly indicated than only 5% of the 1,147 companies who they surveyed follow the practice of giving increases more than once a year. And by this time, the data is more than a year old.

It looks to me like one more example of the growing media trend to give employee compensation a public forum. As I've observed in my last couple of blogs, I think a trend is taking shape. The media would like to give employee pay the same attention it gives executive compensation, keeping it in the public eye and delving deeper and deeper into our practices.They have a hunch that our practices need to be given a public discussion. We may not appreciate the scrutiny we will face.

Whether you think they are right or wrong, some of our colleagues are reading the tea leaves. I have recently been invited to speak about pay transparency to a group of cutting edge companies. Why now? Odds are, they've been reading the media speak and, hopefully, talking with their managers and employees. The truth is, the longer we have teeny weeny merit budgets, the weaker the case for pay for performance and the harder it is to feel rewarded by competitive pay. And WorldatWork recently told us that 2015 is going to be more of the same, with current planning for 3.1% total salary budget increase in the U.S.

In my mind, part of the interest in pay transparency is actually, "How do we explain what's happening in our pay program."  Better yet, "How do we make a case for our practices, and give people a business context?"

Executives and managers are having an ever harder time answering employees' direct questions. And websites are building better and better public pay databases. Even without the media pressure, we would be in for some real communication challenges. Throw in the media, and you've got a bigger issue on your hands.

Of course, the optimistic approach is always the best, and this is looking like a good, much needed shift. After all, here's another business case for investing in compensation communications, so get ready to make the case and include the funds in your next budget. Everything we do in compensation is communications. I'm thinking it's time to take that advice seriously, or find yourself dealing with what someone outside your company thinks you should say.

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 ebook to be released before the end of July! 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.

Pay for Performance Lessons from the Tour de France

The 2014 Tour de France is 2276 miles (3664 K). It is a grueling race that covers 21 stages that include mountains, hills and flats. The “winner” is the individual with the lowest total time at the end of the final stage. How they accomplish this goal is very enlightening and applies directly to pay for performance and corporate culture.

Every rider is part of a team. Every team has a designated leader. The leader is generally very good at multiple disciplines, while other team members may have specific skill sets that are important during different stages. The final trophy is presented to an individual, but no one rides alone.

Like the employees at most companies, many of the team members work hard but are fairly anonymous. And like corporate executives, the lead rider gets most of the glory, money and fame. The top riders on each team can make more than $1,000,000. The average salary is around $200,000 and there is even a mandatory minimum wage of $52,000. In addition to these amounts, there are performance bonuses, appearance fees and other considerations. So, in general, the riders are paid much like employee of most companies.

Individual performance is lauded. The specialist riders have specific goals throughout the race. The sprinters, hill climbers and young riders all get recognized from day one through the race completion. They compete in races within the race even as they help their teams.

We all know it can be hard to see how each employee contributes to the success of a company. The Tour de France is great because the teamwork involved in winning the Tour can be easily seen every mile of the race. The teams mostly ride in groups to make the race easier on the team leader. They protect the key players and they allow for a team to control the pace of the race. When everyone is riding well it is similar to an effective software development or manufacturing team. It’s when things go wrong that we see our real pay for performance lesson.

When an average rider crashes or has a mechanical problem, they can quickly fall behind the peloton (or pack of riders). The lower level riders may get help from a teammate or may be left to work their way back to the team. But, when a team leader goes down, a multi-person escort immediately falls back to ensure their path back to the front is as easy as possible. Yes, this is the guy who is paid the most, but he is also the guy who is most likely to get every team member a win. There is a team manager riding in car who decides who gets help and how much help will be given.

Rather than build an all or nothing environment where an individual must perform perfectly or be left by the roadside, the teams understand which individual gives them the best chance to win. As long as the team leader provides them with the best chance in the long run, the team will do anything to support them. As pay for performance becomes the new normal this is a lesson we must all remember.

Designing a plan that pays all or nothing creates many issues. It magnifies a single failure into what may seem like complete failure. It can leave an individual feeling like they have no support to get back to the front, even when they provide the best chance for everyone else to win. It can inspire people to display bad behaviors. The leaders may “bend” rules in order to win. The next layer of players may be inspired to sabotage the leader to capitalize on their own opportunity. In long-term incentives, the focus on the end of the race can distract from the day to day strategy and tactics required to stay in contention. In short, providing for small wins and measured success along the road is a far more effective way to win a race.

The Tour’s focus on the team work, interim goals, long-term planning and execution make it a great example of how to do many things right. Of course, it has had many ignoble problems over the years, which also shows the need for great oversight and management. Let’s discuss “all or nothing” plans that have worked or failed in your career.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with corporate strategy and culture. Dan and fellow Compensation Café writers, Ann Bares and Margaret O’Hanlon are happy to announce our new book: “Everything You Do in COMPENSATION IS COMMUNICATION.” Dan has also co-authored of several other books including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, “GEOnomics 2011” and “Equity Alternatives.” Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay.

Misapplying Maslow and Pay as a Throwaway

From all appearances, Abraham Maslow's Hierarchy of Needs is generally accepted throughout the business world as "concrete, unwavering fact."  This was confirmed a few years ago in an informal poll taken by Paul Hebert at Symbolist, which showed that 72% of those surveyed responded "yes" -- that Maslow's theory is a good model for motivation.

Of course.  What a shock that a simplistic, linear explanation of human motivation is enthusiastically embraced by the masses and accepted as unquestionable fact.  I suspect that this may even be particularly true in HR.

Problem is, as psychologist and organizational consultant Susan David argues in her recent HBR blog post on the topic, Maslow never structured human needs as a pyramid.  That was an invention for textbooks, an adaptation imposed on his ideas that ultimately skewed his theory.

From David's post:

People latched onto this pyramid structure immediately. But, in doing so, they forgot Maslow’s many notes about the dynamic messiness of human motivation, which we usually experience in one conscious stream rather than small parts. “We have spoken so far as if this hierarchy were a fixed order but actually it is not nearly as rigid as we may have implied,” Maslow wrote. He would probably be appalled at how we use his theory today.

Not long ago, a team of evolutionary psychologists led by Douglas Kenrick of Arizona State University examined Maslow's Pyramid of Needs and put forth the argument that this iconic diagram -- while elegant, approachable and uplifting -- is at best out of date.

From a summary of the team's work in a Pacific Standard article (hat tip to Paul Hebert on this):

Despite the pyramid’s continuing popularity, Kenrick and his colleagues — Vladas Griskevicius, Steven Neuberg and Mark Schaller — note some modern researchers consider it “quaint” and largely irrelevant. But during the years they spent studying deep-seated human motivations from an evolutionary perspective, Kenrick and his colleagues realized many of their findings lined up quite nicely with Maslow’s concepts. The lower rungs of his hierarchy — immediate physiological needs, safety and, a bit higher up, esteem — appeared quite solid in light of this new evidence.

But they also found several problems with the pyramid. We now know that needs, once they are met, don’t simply disappear; rather, they reappear when prompted by certain environmental cues. Watching a news report about a crime spree will trigger fears for our own safety, which can influence our opinions and behaviors even if that need is being effectively met. (More fancifully, Kenrick notes that many well-fed people love to watch cooking shows. Having a full belly doesn’t negate our fascination with food.)

As with all behavioral theories, I suspect, Maslow's contains its share of insights and truth but also its share of fallible constructs and conclusions.  In the field of rewards, Maslow's theory has served a good purpose in reminding us that compensation is not the solution to all motivation problems, much as we (and our customers/managers) might wish it to be so.  On the other hand, however, I can't help but smile at some of Susan David's comments about pay.  Similar to many experts in other fields (Dan Pink is also guilty of this), she appears to view pay as a simply throwaway.  Pay reasonably well, she suggests, and then focus your managerial concerns on whether your employees' emotional needs are being met.  Good thing that providing reasonable compensation is such a clear and simple task, completely unconnected from employee emotion, huh?

But I digress...

Bottom-line is this: it is long past time we stopped referencing Maslow's hierarchy as if it spoke gospel truth and embrace the notion that human motivation is complex and messy.  One more reason that immersing yourself in that messy human organizational system and working to tease out some insights and understanding is the only way to ultimately design reward programs that deliver results.

That's what I think.  You?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting to a range of client organizations.  Ann and fellow Compensation Café writers, Margaret O’Hanlon and Dan Walter will soon be releasing a new book on communicating compensation - stay posted! 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.

Creative Commons image "Human Pyramid 2010" by rkramer62