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The CEO actually did respond to this. 40,000 employees received promotional raises last year. Hard facts on the organization's committment to internal growth and rewarding people for that growth is also a good strategy to quiet the critics.


Thanks, I read that, too. Thing is, promotions are in a different category than recognition and reward for doing your current position. Culturally, banks tend to do more promoting than other organizations, so promotions may stand in for merit increases in that situation, but that is not the case in other industries.

Anyway, I was always certain that Wells Fargo had pay practices that made sense within the business, but while Mr. Oates likely has more extreme feelings than most, employee understanding of why they are being rewarded and how valuable it is (both as pay and Total Rewards)seems to be a public issue now. Most companies will have lingering employee skepticism and confusion due to the extreme measures taken during the recession, and to some extent continuing today. Unless, of course, they make an effort to talk about them.

Compensation professionals deal with difficult issues regularly. While the column has good basic advice - it is hard to argue the value associated with a better understanding of the issues facing employees throughout the organization you support. While I found Mr Oates approach to the issues naive, with little perspective of the larger trends that create and amplify inequality, I was also deeply disappointed in the faith that Ms O'Hanion places in the ability of a market based compensation system to produce correct answers within market ranges.

A radical view of the process might assert that the game is rigged by those in power and the workers are being held down by the implicit cooperation between companies to create the appearance of a market that is fair but is fundamentally asymmetric and unfair. As a committed capitalist, I have a far different perspective.

Capitalism is a technology and as such, well tuned and implemented it produces great results for society. But even in the best implementation, the results are not guaranteed to be optimum (Economics 101 is not conceptually wrong but the system is too complex to arrive reliably at a global optimum). Without getting into the issues raised by market based compensation (i.e. compensation between organizations set at comparable rates that reflect the market value of comparable jobs) and the potential for market inefficiency in such an asymmetric environment, the trends in the United States over the last 40 years are clear. Over this time, adjusted for purchasing power, real income for most wage earners has not maintained a reasonable connection with productivity increases and has been flat or declining for decades. During this same period, the earnings of the top 10% have as a group grown faster than productivity in the economy and the higher you go in the income distribution the greater that trend has been.

These trends are impossible to easily reconcile with the concept of an efficient, neutral labor market. I stated earlier that Mr Oates was naive. Even if a company's compensation program was flawed (and I would leave it to others to make that judgement in the case of a specific organization), it is inconceivably unlikely that Mr Oates' proposal would be the correct approach or answer. The attention that his (arguably ill advised) email has touched off is hard to ignore. Some of the attention is mere sensationalism. However, just like most viral videos are wildly popular because they touch on deeper hopes and fears, Mr Oates has at least touched on deeper issues that are difficult to ignore. Ms O'Hanion, has recognized the need for communication and that has real value but has not addressed the deeper issues that are both beyond compensation professionals to solve independently and that increasingly call into question the system used to establish and maintain market based compensation as currently defined.

I would encourage compensation professionals to add the following topics to the discussion:

1) Are there unintended systemic effects on the economy that are created by or enhanced by the application of market based compensation that have negative effects on the economy and if there are, how might market based compensation be changed to deliver better results?
2) Are changes to compensation ranges within your organization reflective of both changes in the market and changes within the organization such as productivity, profitability, etc.?
3) Are different trends in the compensation for various positions within your organization in line with the value delivered (e.g. a position that has a compensation trend less than inflation and productivity would be expected to be delivering less value to the organization by the differential while a position delivering increased value would be closer ore even higher than the overall trend.)
4) Would changes to your compensation program, that were different than market trends, allow your organization to attract and retain personnel that would enhance the organization's competitiveness, productivity, and profitability?

Fair compensation - being able to honestly communicate that employees are being compensated in line with similar positions at other organizations has real value. We all want to be treated fairly. Adding a clear understanding of why they are collectively being compensated above or below the market has the potential to not simply avoid demotivation but if well designed and implemented, to motivate and reinforce how your organization creates and delivers value - that would be a message worth delivering.

Chuck, you've covered many important points that we at Compensation Café have thought and written about over the years. I hope you have a minute to wander through our archives and that you keep reading our work.

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