Compensation Cafe

Special Thanks and Next Week's Exciting Guest Series!

How great is it that we have a holiday dedicated to gratitude and giving thanks!

With that, and on behalf of all those who contribute here at the Cafe, I'd like to send out a special thanks to all our of readers.  We appreciate the chance to share our reflections and ideas -- and hear back your reactions and thoughts.  We are grateful to be on this learning journey with all of you!

Also a quick heads up on a special series coming next week, beginning Monday.  Gerry Ledford, Ph.D., Senior Research Scientist at USC's Center for Effective Organizations and a leading scholar (if not the leading scholar) in the field, will take us on a not-to-be-missed three part journey through the changing landscape of employee rewards.

So make a special effort to stop by with your morning coffee and join the conversation!

Creative Commons image "Fall Cornucopia" by ron cogswell

Promotions Are Rewards Too

Promotions are a form of reward, even though they don’t always jingle like direct cash.  A jump in title status alone is sometimes enough to be strong motivation for greater employee engagement.  Psychic income, whether intrinsic or extrinsic in origin, should count as compensation, anyway, since it is part of the employee value proposition.  Movement into a higher pay classification generally means more aggressive raises, too.  And when a promotional increase accompanies hierarchical advancement, the positive consequences are even greater.  There are also situations when promotions are used as rewards in place of any formal pay for performance program.

In fact, one particular employer’s internal policies and practices denied the existence of any merit pay approach, claiming that they maintained a membership-based “up or out” system where egalitarian principles akin to union step increases ruled.  Pay for performance was officially rejected.  Merit pay was formally denied. They had a century-old automatic progression pay program.  However, a study of their promotional practices revealed that employee performance judgments were being made and applied for universal benefit, without any problems.  The executives were shocked to learn they were wrong about their fears of indefensible subjectivity; but that discovery brought them to accept merit pay.   

This occurred at a major public utility on the East Coast.  Hardly an innovative employer, with a management team that was anything but revolutionary, they painfully dragged themselves into the modern world by ending their ban on performance pay and implementing a merit pay system.  Some of their inevitable struggle with the concept of pay for performance was eased by special research into promotions that proved they always HAD a merit pay program but just didn’t label it as such. 

Going back into their now computerized historical employee records, an outside consultant was able to identify their best performers despite the lack of any formal performance appraisal system.  Even without any rating scores to track, the best workers were apparent from the personnel files.  How, you ask?  Promotions, transfers, reclassifications and other job assignment  changes supplied a clear picture of how the best workers continually rose to the top by internal progressions. 

The list of suspects presented to the management committee produced gasps and raised eyebrows.  Yes, the external consultant uncovered the identies of virtually all their superior performers.  Yes, they always had taken individual worker performance output into account before they made decisions about assignment changes (beyond the terms of the labor agreements, of course).  When they realized they had always considered individual merit in the past, it became much easier to convince them they should formalize their judgment processes by creating and publishing a consistent pay for performance system. 

The new program did more than simply justify merit pay.  It also facilitated the efficient movement of key talent to ideal positions of leverage where they could do the most good for the organization.  Resistence from supervisors disappeared as their skills were enhanced by the training they received on the new approaches.  With rater decision criteria consistent and transparent rather than variable and secret (as it was in the old “promotional” era), general employee morale improved, as well.

Strange to say, it was the study proving their prior effective use of promotions as proxies for merit pay that stimulated their later wholesale adoption of pay for performance.  Since the research proved they were able to effectively judge and select the best performers for promotions in the past, it became relatively easy for them to gain confidence in the idea that they could evaluate performance on current work assignments going forward.  Past experience with compensation outcomes showed the way to a superior future for the employees, the company and the community they served.  And it all started with research into historical records on promotions.

What other odd originating motives have you encountered that led to major improvements in your total reward programs?

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.

Image "Walking on Coins" courtesy of patpitchaya/FreeDigitalPhotos.net

The Complexity of Globalizing Compensation

It is becoming popular to globalize compensation/benefits plans that, back in the old days, would have remained completely local.  The reason is to ensure companies have a globally aligned and integrated compensation/benefits strategy and to prevent duplication of effort.

Putting plans in place globally may or may not make sense but one thing is certain.  The mechanics can get complex. Each of the world’s 190+ countries regulates many aspects of pay and benefits plans locally.

Here are some examples of plans that might be considered for globalization: sales commission, profit-sharing, variable compensation/ pay-for-performance, severance pay, equity/stock, tuition reimbursement and employee assistance to mention a few.  It is as though Corporate Compensation/Benefits looks at each plan it has in the U.S. (or other headquarters country) and asks: Shouldn’t we offer them to our employees worldwide?

Ripple effects: “Total compensation” includes base pay, bonuses and often the value of some fringe benefits. Many countries roll bonuses and even benefits into their definition of “total compensation” for calculating local mandatory extras like vacation pay, overtime pay,  “thirteenth-month pay,” pension contributions and severance pay. This can make a bonus plan much more expensive than bargained for. Companies sometimes try to solve this problem by inserting a clause to exclude plan pay-outs from these calculations.  But local law in many places ignores these clauses.

Global alignment:   Back to the question: Shouldn’t we offer them to our employees worldwide?

Maybe, maybe not.  The first step is determine whether these plans are common practice in each country. For example, U.S. employees get medical insurance and employee assistance plans because the U.S. doesn’t have a broad-based national health care system. Even though almost every country outside the U.S. does have national health care, U.S. companies may decide to offer supplemental plans locally because other multinationals offer them.  Another example is that some U.S. companies offer severance pay plans in the U.S. because even though the U.S. does not require severance pay, it is common practice for companies to do so.  However, labor laws overseas mandate specific severance payouts.

Consultation: In many countries proposing new plans (or terminating them) requires an upfront consultation or bargaining with the local works council or trade union committee. These discussions are legally required.

Cross-border data transfers: Administering any global compensation/benefits plan, particularly an employee equity/stock plan, can require transmitting local participant data back to corporate so it can administer them and track employee participation. But in Argentina, Canada, Europe, Israel, Hong Kong, Mexico, the Philippines and Uruguay transmission of participant data mandates that companies meet special legal requirements such as having an acceptable safe harbor program. Otherwise, employees have to sign data processing consent forms as part of the enrollment process.

Language: Laws in Chile, Belgium, France, Quebec, Poland, Portugal and Turkey require that most all employee communications—including written compensation/benefits plans—be communicated in the local language. For a multinational to say “English is our official company language” is not an excuse.  It is recommended that companies maintain documents in every country in both English and the local language.  In this way corporate doesn’t have to worry about keeping up with new laws as more and more countries mandate this.

These are only four issues that you need to understand and examine when globalizing. There are others.  But these four should give you a good idea of the complexity you will face when you consider globalizing your plans.

As everything you do in compensation is communication, you need to make sure any new plans are communicated to employees by managers, local HR, on the company intranet and via various other means.  Ignoring communication can work against you.  Something that is meant to be a positive can easily turn neutral or negative.

Are your compensation/benefits plans globalized correctly?

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 has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

Be Careful What You're Grateful For This Year

Superstar. Top performer. Rock star. High potential. Super hero. It's the time of year for these terms to trend. Many organizations are finishing up on focal reviews and determining merit increases right now. Managers are adding up the increases for those who go by these titles because, ever since the recession, you need to show up for work wearing a Marvel costume to be eligible for anything beyond a negligible salary bump.

With just a few bucks to spread around, common sense tells you to bet on the sure thing. But do we really know what that means in our companies? Have we tested our assumptions to determine if our super hero's  past success really does measure future "world dominance?" I have wondered about this and was hoping you were, too.

This week, I ran into a timely article in the Harvard Business Review (HBR) that should teach us to be  careful. Here's what I mean.

HBR " . . . decided to put our expensively honed analytic skills to work . . . looking at the career paths of the 24 women who head Fortune 500 companies. What we found suprised us . . . All told over 70 percent of the 24 CEOs spent more than ten years at the company they now run, becoming long-term insiders before becoming CEO." Others advanced over decades at a single company to then make a lateral move to CEO at another company.

The median long stint for the women CEOs they studied is 23 years at a single company before becoming CEO. For men in the HBR sample, the median is 15 years. "This means that for women, the long climb is over 50% longer than for their male peers."

Odds are all these women were considered strong performers throughout their long slog. But superstars? I can easily imagine management conversations where these women's focus and commitment were compared less than favorably to someone else's flash. Can't you?

Hard work takes a lot of forms, so let's make sure our decisions for 2015 are as well-considered as possible. So much attention is put on whether an incumbent is "at risk" that, under this pressure, we overlook opportunities to make much more valuable investments in the future. Employees who are truly dedicated to your company's success would not be considered "at risk." Why disdain their commitment and engagement?

Margaret O'Hanlon, CCP is founder and Principal of re:Think Consulting. She brings deep expertise in communications, compensation and career development to the dialog at the Café. Before founding re:Think Consulting, Margaret was a Principal with Towers Watson. She's wondering if you've completed the self assessment on page 73 of Everything You Do (in Compensation) Is Communication? It will help you do a better job on 2014 focal review right away. You can download the book at www.everythingiscommunication.com. Margaret collaborated with Ann Bares and Dan Walter to bring it into the world. Filled with innovative ideas, practical tips and experienced advice, it's a quick read and a valuable resource for building your influence as a compensation strategist.

Rewards and the Uncredentialed, Disruptive Misfit

Organizations that are unable to innovate and evolve will likely not survive - let alone prosper.  Few inside and outside our profession would argue the point.  What role can rewards play?

Our local compensation network recently had the opportunity to hear a great presentation on strategic thinking -- and came away with interesting ideas and an intriguing book on creative invention:  The Medici Effect by Frans Johansson.  The book presents the case that new discoveries -- those that have real impact - will no longer come from within disciplines and established fields of expertise, but will instead spring from situations where ideas from multiple fields and points of view come together.  That is the Medici effect, named for the Medicis, a wealthy banking family in fifteenth century Florence.  The Medicis used their wealth to bring together and fund the work of creators from a wide range of disciplines -- from sculptors to scientists, from financiers to architects.  This diverse group of people who converged, beckoned by the Medici family, on Florence ignited one of the most creative eras in history, known today as the Renaissance.

We've discussed before how deep, specialized education in a field can potentially limit an individual's ability to think creatively.  Innovators are often self-taught (think Steve Jobs, Thomas Edison) or have pursued a broad learning experience that crossed many fields.

Johansson shares the story of Charles Darwin and John Gould as one example.  Darwin was a below average student who (to his father's chagrin) wandered around the English countryside pursuing various botanical interests and meeting with a range of scientists.  He enrolled to become a physician, then a minister, then finally decided to board a boat for a five year trip around the world to study geology on his own.  Along the way, he collected and wrote notes about birds from the Galapagos Islands.  Because they were of little interest to him, he gave the collection to John Gould, one of the most prominent zoologists of the time.  Gould, an accomplished taxonomist, assessed the collection and reported his rather interesting findings back to Darwin: that the birds were a single group of finches yet also reflected 13 distinct species -- one for each of the 13 islands.  Gould, the expert, stopped there.  Darwin went on to use this information to propose a radical notion that became a new theory of evolution, considered to be one of the most significant scientific theories of our time.

In a more recent example, successful venture capitalist Paul Maeder discusses the important role that disciplinary outsiders, often people without formal training, play in generating innovations. For him, identifying these individuals can help pinpoint the entrepreneurial teams worth betting on.  Johansson recalls a conversation with Maeder:

"Take this guy Stan Lapidus," he told me one day.  "He doesn't have an M.D. or a Ph.D., but he has come up with an amazing way of analyzing stool samples for colon cancer pathology.  Put it in a blender, mix, and you can spot cancer with hardly any false positives.  It's really an amazing invention.  Now, why did he think of this?  Because he's not a doc."

Back to us and the organizations we serve.  Too many have cultures and embedded practices that inadvertently (or maybe not) discourage, punish, even expell the uncredentialed, disruptive misfit.  Because everything we do in compensation is communication and organizations often become what they reward, I believe we have a role to play -- if we can get out of our own disciplinary silos.  A number of questions come to mind, including:

• Could linking rewards and promotional opportunities too directly to formal education and credentials create a barrier to those who may have followed a different learning path but could bring a valuable perspective to the table?
• Are our performance management/career development/succession planning processes designed to recognize those with expertise gained in non-traditional ways as well as those who may be counter-cultural and disruptive in a way that's ultimately beneficial?
• Can we do a better job of using non-cash rewards like high visibility assignments, the chance to work on key projects, and the opportunity to participate in exciting product/service development efforts to recognize the potentially valuable "misfits" and encourage a healthy convergence of different ideas and viewpoints.

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.  Do you buy that our organizations are what we reward and that Everything We Do in Compensation is Communication?  Check out the definitive book on the topic that Ann co-authored with Cafe cohorts Margaret and Dan right here.  Ann also 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.

Image "Leader Holding Multiple Color Umbrella" courtesy of hin255/FreeDigitalPhotos.net

Who’s at Fault for a Lack of Perceived Value?

I recently attended an industry event where practitioners debated whether it is still a good idea to grant Incentive Stock Options (“ISOs”). The arguments on both sides had some merit, but the one that soundest the strongest was, in my opinion, the weakest.

Those that spoke for the continued and even expanded use of ISOs mentioned the incredible benefits they offer for employees. ISOs offer the ability for employees to avoid nearly all of the ordinary income and associated tax withholding that are required when using Non-Qualified Stock Options (“NQSOs”) or restricted stock, RSUs, Phantom Stock, SARs and just about every other compensation instrument. It was argued that a company making the effort to offer stock options and NOT to offer ISOs simply didn’t make sense.

Those who argued against ISOs discussed a wide array of issues. ISOs are more difficult to administer. They provide less tax deduction to the company. There are potential finance and accounting issues that may make them worse than NQSOs. Seemingly the strongest argument against ISOs was the fact that most employees disqualify their grants from preferential tax treatment. So, why offer employees something they don't take advantage of?

The last issue, the fact that 85-95% of employees disqualify their ISOs when they exercise is the most vexing. Taking something good away simply because it is not used optimally seems lazy and a bit simple-minded. It is sort of like arguing that we should get rid of voting because most eligible voters didn't vote in the mid-term elections.

It seems to me the blame is being placed on the wrong people. This is kind of true about nearly every type of compensation. The complaint is too often that people don't value what the company is offering, rather than admitting the truth. Most companies are pretty lazy when it comes to ensuring people are both informed and excited about the potential of the opportunity being offered.

Is your approach to employee education passionate? Do you spend as much effort and money on ensuring understanding as you do on analyzing survey data and setting pay levels? We claim we use the tools beyond base pay to help motivate, retain and engage our staff. But, do we really do everything we can to get the most out of those tools?

Don't structure your compensation programs based on what you think your employee value. Teach your employees to value the tools you know are best for them and the company. The cost of a great communication program is usually less than the lost value of a single poorly communicated incentive award granted to a mid-level employee. Rather than waste those compensation dollars, imagine if you spent the little bit extra in time, money and effort to squeeze every bit of value out of every compensation element.

In other words, before you decide to get rid of something valuable like ISOs, first make sure that you have truly done everything possible to allow employees to perceive and actualize the real value of the awards. It might not be your employees who aren’t valuing what you have to offer. It may be you.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with corporate strategy and culture. You know compensation communication can always be better so get your copy of the new book: “Everything You Do in COMPENSATION IS COMMUNICATION.”  Written by Comp Café writers, Ann Bares, Margaret O’Hanlon and Dan Walter. Dan has also co-authored of several other books you may be interested in including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, and “Equity Alternatives.” Please connect with him on LinkedIn and follow him on Twitter at @Performensation and @SayOnPay.

Who Moved My Manager?

In my last post The Politics of Performance I wrote about how manager bias during the performance review process may impact an organisation's ability to accurately identify and retain critical talent.  That's why it's important to identify the best managers in the organisation, i.e. the ones who look out for their teams and operate with the least personal bias for the good of the organisation.

But how do you identify the best managers?  I suggested several metrics, including quality of hire, quality of movement and quality of turnover.  These metrics look further than the typical KPIs of time to fill, time since last promotion and turnover rate to give a feel for the quality of people who join and leave an organisation under a particular manager.  

Note that these metrics still won't solve the bias problem if 'quality' is measured by manager review ratings.  To make these metrics meaningful it's important to take a broader view of quality, which may include multiple reviewers, social feedback, successful projects completed, days absent, etc.

The only way to really solve manager bias when it comes to performance and rewards is to give people better tools to manage their own careers rather than relying on the manager to do it and leaving the organisation for a better role when it doesn't happen. This implies the need for a more organic approach to organisational development and management of talent.

Lately there's been buzz about algorithms that can predict your next job and how successful you'll be at it.  Since many of today's jobs didn't even exist ten years ago, it's unclear how accurately an algorithm - even one that looks beyond manager feedback and 'what has worked in the past' - can predict success in a new role. Nonetheless, big data has the advantage of taking a wider view of a person's skills and potential than a typical performance review.  Even more interestingly, big data can suggest next career steps to individuals looking for a new opportunity.

Josh Bersin wrote a compelling post about how the nature of jobs are changing. Instead of functions, people assume roles, perform tasks and participate in projects.  They may ‘report to’ a number of people besides their own manager, from project managers to stakeholders.  They may lead teams and manage projects without a manager title.

In this borderless work environment the traditional 'management' role of the manager becomes less important.  People still need direction and leadership but classic top-down management gets in the way of collaboration.  Instead, people need visibility into the business information that shapes their decisions and autonomy to get the job done.

The traditional career development role of the manager also looks different in this environment as people plug into social networks, reach out to mentors, and broadcast their skills and experience in public forums such as LinkedIn.  Companies that want to retain top talent will have to provide tools that help people define their own career paths so they don’t feel they must go elsewhere for the next development opportunity.  

The formal annual manager performance evaluation is likely to evolve into less formal, more frequent peer reviews and feedback supplemented by improved insight into work and business results, which should also drive individual and team rewards. 

It seems pretty clear that in this new world, the need for traditional ‘managers’ who make the all important decisions about careers and rewards will decline, even if organizations still cling to them out of habit for a few more years.  At the same time, more people will uncover new opportunities to become leaders in their respective areas of expertise.

Which means that modern organisations must identify, develop and reward leaders, not just managers.  And for many companies, this will require significant changes in how they operate, how they organise and how they manage people.

 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.

Give Your Employees the Benefit of Space

Compensation and benefits covers a lot of ground. Can we consider it to also, well, literally cover ground?

I’m asking this after a dinner with close friends recently. Jane works for a very large, multi-national high technology company. She’s been with this company more than two decades as a very highly educated and skilled engineering professional. During that time, she’s changed desk locations, offices, even states (having moved between coasts of the United States). But it’s her latest move that’s causing her the most problems.

In a cost savings measure, her company is compressing square footage per employee (and keep in mind that this calculation includes shared spaces such as hallways, bathrooms, cafeterias, etc.) from 370 square feet per employee to just a bit more than 100 square feet per employee. What does that mean in practical terms? “Open office space” rules.

What does that look like in Jane’s day-to-day work life?

• She has an allotted space at a very long communal table-like desk with her workstation and very short dividers (we can’t call them “walls”).
• At the end of every work day, she must pack up her personal items (folders, information, pens, notebooks, mouse, keyboard – all the accoutrements of work) and put them into a locker.
• The next day, she must first unpack her locker to begin work.
• She wears noise-cancelling headphones nearly all the time in order to concentrate on her work.
• She hesitates to ask nearby colleagues any pertinent questions out of fear of disturbing other colleagues.
• Jane has security clearance and works on sensitive files all the time. She does have a privacy screen she puts over her monitor every day, but anyone directly behind her (including anyone sitting at similar long tables in seats behind her) can see her screen quite clearly.

Advocates of open offices state the primary benefit is fostering an atmosphere of innovation and collaboration with free-flowing conversations and impromptu meetings that are not possible without walls. The reality is quite different. People are, indeed, less collaborative out of fear of disturbing colleagues. If conference room space is unavailable (which is more common as people seek private meetings space more often now), many even leave the office to find a more private place to meet to discuss projects. Perhaps most concerning, this can mean the local Starbucks is now the venue for private business discussions.

The challenges of the open office are more than the physical. It can negatively impact the bottom line in terms of falling productivity and job performance. This New Yorker article references one study on this:

“In June, 1997, a large oil and gas company in western Canada asked a group of psychologists at the University of Calgary to monitor workers as they transitioned from a traditional office arrangement to an open one. The psychologists assessed the employees’ satisfaction with their surroundings, as well as their stress level, job performance, and interpersonal relationships before the transition, four weeks after the transition, and, finally, six months afterward. The employees suffered according to every measure: the new space was disruptive, stressful, and cumbersome, and, instead of feeling closer, coworkers felt distant, dissatisfied, and resentful. Productivity fell.”

And before we say open offices are the way of the future as Millennials progress in their careers, consider this last point from the New Yorker article:

“Though multitasking millennials seem to be more open to distraction as a workplace norm, the wholehearted embrace of open offices may be ingraining a cycle of underperformance in their generation: they enjoy, build, and proselytize for open offices, but may also suffer the most from them in the long run.”

If you’re evaluating compensation and benefits for your employees, consider the workspace you give them to be a key component of that strategy.

Do you prefer an open office or working with a few walls to minimize distractions?

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 and Boston. Follow Derek on Twitter at @DerekIrvine.

Living Wage --- Sometimes It Really Does Make Sense

First, this post is not about the U.S.  I’ll leave that for others to address. Second, it’s about living wage, not minimum wage.  There’s a difference.

This post is about workers in very poor emerging countries such as Bangladesh, Cambodia, Vietnam, Sri Lanka, India and Pakistan.  Workers make extremely low wages – barely enough to survive on, even considering the lower cost of living.

The ILO (International Labor Organization) defines living wage as "the level of wages sufficient to meet the basic living needs of an average-sized family in a particular economy."  Thirty-four countries in Asia and the Pacific are members of the ILO.

Creating living wages for employees in these impoverished countries is a daunting task as there’s a staggering lack of data about wages.  Government data may be available, but it’s doubtful that it’s accurate.  Countries may have official minimum wage levels which can be used as a starting point, but the lack of uniform regulations across industries and even within a country remains a huge problem.  And even if there are laws, they are not always enforced.

Here are some of the questions that a company needs to consider before making a go/no go decision about paying living wages:

• What methodology exists to determine a living wage?
• What does “basic” needs mean?
• What prices should be used as reference prices in calculating the basic-needs/market basket --- those of small neighborhood stores, mobile vendors, etc.?
• Should calculations assume that family income is provided by both employee and spouse?  Or the employee only?
• Should non-monetary benefits (e.g. medical care, food, transport etc.) be included in providing workers a living wage?
• Should a company require living wage in their supply chain?  If so, how should it be implemented?
• Do the benefits of paying a living wage (reduced turnover, increased productivity, protection of reputation etc.) outweigh the increased labor costs?

If companies decide to include suppliers in their living wage program, there will be additional challenges.  For example:

• How do efforts by companies to promote living wages among their suppliers balance with their need to purchase products and materials at the lowest cost possible in order to remain competitive?
• Suppliers are sometimes told to cut costs in order to stay competitive.   Example, Reuters reported that buyers from 50 major brands and retailers including Marks & Spencer, Walmart, JC Penney, Tesco and Nike Inc., attended a meeting with Bangladesh's textile exporters, calling on them to reduce their prices if they wished to remain internationally competitive.
• Governments often compete to attract foreign investment by offering favorable regulatory environments including labor cost.
• The ability to monitor suppliers is limited.  Host governments don’t/can’t enforce the suppliers’ wage requirements. The threat of legal proceedings is also limited, and fines for non-compliance are low and not an effective deterrent.

If a company decides to go forward, methodology is the biggest challenge. Although the ILO has provided an extremely broad definition, the devil’s in the details. Therefore, any companies wanting to develop a program have to do so through trial and error. 

Novartis, based in Switzerland, is an interesting example of a company that in 2005 rolled out a living wage program globally in 60 countries with 90,000 employees.  It was one of the first international companies to do so.   

Novartis worked with the nonprofit organization Business for Social Responsibility to determine living wage levels around the world. Together they developed customized calculations for different countries, which are periodically adjusted for inflation.

It’s anybody’s guess whether the path forged by Novartis or others will eventually become commonplace.   There is no mandate, but many UK companies voluntarily pay living wage to employees. Those that do view it as a “badge of honor”.  It's definitely a differentiator.

My opinion?  I think eventually living wage programs will become standard practice and a competitive necessity.  Whether it be in 2020, 2040 or later --- I think it’s coming.

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 has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

A Possible Direction for 21st Century Rewards

Editor's Note:  Today's post comes to us courtesy of guest contributor Tony Bergmann-Porter.

I don’t think there’s anyone left to argue that the Pay Transparency train isn’t leaving the station, so we need to start thinking and talking about what this will mean for those of us who have to live with the consequences.

We know that pay transparency inevitably leads to flattening and compression effects (see here for example), and also that these effects may not be altogether a Bad Thing (see here for example).

It’s also clear that merit budgets will be small and flat for the foreseeable future, to the point that it will remain extraordinarily difficult to provide meaningful performance-differentiated pay increases – assuming that it will even be culturally or legally acceptable to do so in the first place. 

However, none of this will obviate the need for the attraction, motivation and retention of the talent necessary to compete.  And the incentives to get performance management right – which are already considerable in a globalized/first mover advantage/tournament economy - are going to be even greater if base pay ceases to be one of the levers to pull.  

So let me suggest the outlines of a 21^st century reward model  that I expect to take shape in response to these conditions  (and obviously, I’m talking about primary labor market white-collar jobs with mid – large size organizations):

1)      It will be extremely difficult to get in. Selection processes will not merely be rigorous; companies will openly publicize and make a very big deal about their selectivity.  Just as it does now with elite colleges, the selection/rejection ratio will actually play a role in ranking organizations as great - and therefore very desirable - places to work. (Google does this already. )

2)      Performance appraisal will be continuous, 360 degree, and closely monitored by both machines and humans.  I foresee some form of data mining of calendars, project plans and other forms of electronic communication to identify those with whom you interact, with corresponding push requirements for performance feedback, both immediate, and at one or more future points in time.  Algorithms will identify current or impending deficiency, and perhaps even whether an intervention is likely to have positive results. Individuals who are not expected to be remediated will be, with varying degrees of kindness, removed from the team. 

3)      Obviously, there will continue to be a market against which pay can and will be benchmarked, and pay levels set, but base pay in private sector organizations will structurally resemble the Federal Government’s GS schedule. That is to say, there will be a transparent step-and-grade arrangement under which the base pay of all similarly-situated employees will be identical, with differences based solely on tenure. The steps will provide for modest maturity curves in the organization, but given the rate of technological change, I doubt there will be very many steps per grade below the upper 25% of grades. The only exceptions will be identical “hot skill” premiums for similarly-situated employees.

4)       Because base pay for the very highest performers will not differ from the base pay of their organizational peers, there will necessarily be other ways of recognizing and “compensating” top performers. I expect these to be organizationally and ethnoculturally –specific, and that they include access to/mentorship from senior management; fast-track promotion; restricted developmental opportunities (company-paid education, international assignments); the opportunity to serve on or lead high-visibility teams;  assignments to work on the next big next big thing; and so on. Participation in LTIP and equity plans may likewise be restricted.  Needless to say, all indivisible prizes will be scrupulously examined for demographic equity.

5)      Most variable pay will be team-based, and teams will determine the allocation of such pay to their members. In turn, that will typically result in equal distributions, whether proportional or per capita. I do not expect to see these kinds of changes in Sales Compensation plans.

6)      As soon as one of the big kahunas (GE, GIS, GOOG, GS) adopts this approach, you will see the same rush to follow suit that happened when MSFT dropped stock options in favor of restricted stock in the 1990s.

How does all this strike you – likely and reasonable, or far-fetched and preposterous? Have at it.

Tony Bergmann-Porter is the Principal and Owner of Yale Associates LLC, a compensation consulting and contracting entity. He has many years' professional experience in compensation and total rewards, and is the 2014 President-Elect of the Twin Cities Compensation Network, the leading WorldatWork Local Network partner. Tony holds a BBA and BA from the University of New Brunswick, and an MAHRIR from the Carlson School of Management. He also holds CCP, CSCP and SPHR certifications. He enjoys track days and autocrossing with his Corvette.

Image "Hand Holding Snow Globe " courtesy of janaan /FreeDigitalPhotos.net