Compensation Cafe

Are You a Pay Data Exchanging Scofflaw?

It seems innocent enough.  Just a little sharing of helpful information between trusted colleagues.  After getting pushback on engineering salary levels, you pick up the phone and call a fellow HR professional in your network whose company has similar positions and ask about their salary practices.  Naturally, in the spirit of kind reciprocity, you share back a little of what you're doing for these roles.

What could be wrong?

Can you say collusion?  Or illegal price-fixing?  How about wage theft?

Several conversations in just the past week have reminded me that few HR professionals (including, surprisingly, a number of compensation specialists) are aware that the conduct of both formal and informal (a la the phone call mentioned above) is regulated by the Sherman Anti-Trust Act of 1890.

Time out for a bit of history.  The Sherman Antitrust Act, named for its author, Senator John Sherman of Ohio, was original passed to limit monopolies and other restraints on commerce.  It is the Act's provisions on pricing and competition which impact those seeking information on compensation practices via salary surveys. 

Here's the bad news:  The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC), the bodies with primary responsibility for enforcing our nation's anti-trust laws, have determined that organizations conducting their own salary surveys could be seen as practicing illegal price-fixing.  But here's the good news:  In an effort to provide guidance to HR and compensation professionals seeking to determine competitive pay levels while avoiding antitrust violations, the DOJ and the FTC have jointly published a series of Anti-Trust Safety Zone Statements, which have been interpreted  to provide a "safe harbor" for this exchange of information.

The DOJ/FTC Antitrust Safety Zone Statements are highlighted below for reference (note that these were initially developed with health care organizations and activities as their focus):

Antitrust Safety Zone: Exchanges of Price and Cost Information Among Providers That Will Not Be Challenged, Absent Extraordinary Circumstances, By The Agencies

The Agencies will not challenge, absent extraordinary circumstances, provider participation in written surveys of (a) prices for health care services, or (b) wages, salaries, or benefits of health care personnel, if the following conditions are satisfied:

1. The survey is managed by a third-party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association);
2. The information provided by survey participants is based on data more than 3 months old; and
3. There are at least five providers reporting data upon which each disseminated statistic is based, no individual provider's data represents more than 25% on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the prices charged or compensation paid by any particular provider

The conditions that must be met for an information exchange among providers to fall within the antitrust safety zone are intended to ensure that an exchange of price or cost data is not used by competing providers for discussion or coordination of provider prices or costs. They represent a careful balancing of a provider's individual interest in obtaining information useful in adjusting the prices it charges or the wages it pays in response to changing market conditions against the risk that the exchange of such information may permit competing providers to communicate with each other regarding a mutually acceptable level of prices for health care services or compensation for employees.

Keeping a finger on the pulse of the pay market, particularly for hot skill jobs and in-demand talent, is an important and necessary part of managing a successful compensation program.  We simply have to make sure we're staying within the boundaries of the law when we do so.

Let's be safe out there!

Ready to become famous for getting results -- with your compensation programs? Then keep in mind that Everything You Do (in Compensation) is Communication -- and check out the book  written by Ann and Cafe cohorts Margaret and Dan.  Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force,  and Managing Partner of Altura Consulting Group LLC.  Ann also serves as past 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 "Woman Telling Something to Man" courtesy of ImageryMagestic/FreeDigitalPhotos.net

Influencer Networks * A Hidden Key to Recognition Program Success

I know readers of Compensation Cafe know this, but let me state the obvious – compensation and recognition are very different. A raise, for example, does not count as “recognition.” But one major difference between the two not often discussed is the public nature of recognition activities vs. compensation changes.

Sure the drumbeat for pay transparency has been increasing, but the likelihood of public, constant discussion along the lines of, “Hey! I just got a 5% raise for my performance last year!” seems pretty remote. Should that day somehow arrive, however, I still don’t see such publicity advancing the flow of positivity and a powerful culture of praise.

And that’s the beauty of social recognition – the truly social aspect. That’s the key element that drives culture change, increased employee engagement, and improved productivity. It’s the people involved every day, looking around for greatness around them, and appreciating and praising their colleagues for it.

Because of its public nature within the company, some assume it’s far easier to communicate change around social recognition. This isn’t true. As with any change, key messages need to be defined and ideal mechanisms identified to convey those messages. One such mechanism that is often ignored is the powerful communication network existing among your people already – your influencers.

Shel Holtz tells this story in Ragan.com:

"I first read about internal influence networks in a Harvard Business Review article sometime in the late '80s or early '90s; in any case, I haven't been able to find it. I was able to apply it for the first time during an engagement while working in the communications practice at a human resources consulting firm. We were about to communicate some very controversial changes that could throw the organization into chaos. We mapped the influencers in the company and brought them into a series of meetings where we shared the situation and our planned communications. They offered their critiques. We incorporated nearly every suggestion they made, even if we didn't necessarily like them; it made them owners of the message.

"We didn't tell them they had been chosen for these meetings because they're influencers. Most of them didn't even know the other people in the room. As far as they knew, they were randomly selected for focus groups and agreed to keep the information we gave them confidential. When the news finally did break, though, as we had thought, employees sought out their local influencer for a read on the situation. And, also as expected, they supported the change and even helped explain it. In the end, the change produced little tension. There was no need to get the word out in this case; it spread like wildfire."

Your influencer network is powerful, and it exists today. The big question is, what message are they helping to influence? Is it the one you want? In Shel’s illustration above, there are three key steps to identifying and utilizing your influencers to best effect:

1. Identify – Who are your influencers? It may seem daunting to identify them, but many can be discovered just by keeping your eyes open. Who’s the “Office Mom?” In the cafeteria or breakroom, who always seems to be center of the lunch crowd? Who’s the person with a reputation for spreading gossip far and wide?
2. Involve – If you want your influencers to proudly carry the message you want, you must give them ownership over that message. That means involving them in the decision-making around the messages to communicate, including when and how.
3. Unleash – When it’s time to introduce change, turn your influencers lose. Let them carry much of the message for you. Trust them with the change.

When introducing social recognition into your organization, these influencers are critical to most important message to convey – permission. In many organizations, peer recognition is often a very new concept. Giving employees explicit permission to notice, appreciate and reward their colleagues is necessary for viral adoption of social recognition. Your influencer network – your Appreciation Ambassadors, if you will – carry that message of permission better than leadership ever could.

Who are the influencers in your organization? How are they used today?

 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. He is the co-author of "The Power of Thanks" and 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.

Be The Hero - You Can Do It

Do you want to be admired and respected by your colleagues, recognized by senior leadership for who and what you are?  Do you want to be known throughout your universe as a go-to person, as a hero amidst the minions?

Then solve a problem.  Stand up and show someone how to get things done.  Clear the pathway; support someone’s idea, save a step somewhere.  Do what it takes to cross the finish line.  It's a target-rich environment out there, so pick something.

Just do it

It's not hard, really.  It's a matter of thinking not so much of yourself first and foremost, but of a greater value that is broader than yourself - and of focusing your attention on getting the results that help the department, the team, the business.   It's called a giving of yourself.  Of extending yourself.  But at the same time you can benefit in return.

All too often what we see from many employees at all levels of the organization is an effort to be the star, the success story, even at the expense of someone else.  "Look at me," these eager A-types seem to shout, "look at what I have achieved."  These are folks who seem to have missed reading the memo on team effort.  These are the "selfies" of the workplace.

We all have them in our organizations.  They surround us.  And don't we resent them?

Here's a thought, though.  Isn't it better to be lifted up (reward, recognition, the pointed finger, etc.) by someone else, then to be constantly trying to push yourself up there?  Doesn’t that ego rush get a bit tiring, what with the constant pressure of looking over your shoulder to gauge the competition?  Do you suffer from periodic stress headaches, where the muscles at the back of your neck tighten to stone?  Are you sleeping well?

Now picture yourself receiving that award, with the accompanying recognition, spotlight, accolades etc.  Nice feeling, isn’t it?  A proud moment.

Not all recognition is the same

I think it does make a difference in how one gets recognized.  I suppose that there are levels of self-satisfaction, but the highest must be when you're lifted on someone else's shoulder.   When you hear the cheer of the audience.  Self advertisement, political deal-making and a passive resistance that attempts to hold others back simply cannot provide the same level of genuine personal satisfaction.  Because deep down you'll know that you cheated to get there.

And others will know it too.

Think about someone whom you really admire, in whatever field of endeavor you like.   Chances are it’s a person who has accomplished something, delivered the desired results, made something of themselves.   They stood up for what they believed in.  They meant something.  Likely that person you admire so much isn't someone who took shortcuts, pushed others aside, ignored the call for help or otherwise kept their focus solely on the mirror.

Success can be fleeting, especially if built on thin ice.  So why would you want to taint yourself, like success with an asterisk? 

Of course you wouldn't.  But now reflect a bit on how you practice at your relationships at work.  Do you admire only yourself, and act accordingly,  or can you spruce up your act and become more of a team player?  Can you start using the word "we" more than "I"?

Naive?  Perhaps I am.  But I think we need more heroes out there, more decision-makers, more team players and more people willing to make a stand for what they believe in.

But that’s just me.

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, "A.Jackson statue," by dbking

Put Some Teeth in Your P4P

Do you remember getting having your first teeth come in? I don't, but I have seen it happen and it isn't fun. Often, Pay for Performance can be a similar experience. Of course, it is required for long-term success, but while it’s happening it is painful and confusing. And, you quickly learn the process is nowhere near complete when the teeth have finally come in.

Every compensation professional who has ever worked on an incentive plan has struggled long and hard with figuring out exactly what was to be accomplished, how it could be measured, what levels of achievement were good enough, what levels were actually good and what levels were truly great. We have fought to get our programs understood and approved by the same management teams who requested them in the first place. We have trained managers to support these plans and coach their staff. We have worked to explain these programs to participants in ways that would help them perceive the value of accomplishing the goals set for them. We have watched these programs be marginally successful in the face of great planning and extraordinary effort.

The pain that usually accompanies putting these plans in place can be enough to bring tears to your eyes. The relief when the plan is finally rolled out can be the first time to relax in months.

But, like the infant with new teeth, the work really begins at rollout. It takes time and practice to make things work the way they were planned. Along the way you will occasionally bite into the wrong thing (sometimes yourself.) You must learn from every new experience and push forward even when your tongue hurts from the last errant chomp.

As you master using your teeth, you tend to forget about how important they are in helping you succeed. You forget the time they protected you from an overly aggressive cousin. You can’t remember a time when eating solid food was impossible. You can become complacent. Then one day you are once again in pain after so many years of peace. You visit the dentist and they tell you the lack of brushing and flossing has resulted in cavities that must be addressed immediately.

The same is true for a P4P plan.  A new CEO or outside consultant comes in and asks a few questions and we are relegated to guesses and assumptions. The holes in our programs become instantly obvious and everything else gets put aside as we scramble for a quick solution.

It may be obvious that the lack of sleep from my 5-month old son’s teething is causing a collision with my thoughts on compensation. I hope I remember to show him this post when he gets old enough to read (maybe by this summer?) Hopefully, he will start taking better care of his teeth or, at the very least, begin working in the family compensation business!

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. Dan, Ann Bares and Margaret O’Hanlon of the Comp Café were recently honored to have their book “Everything You Do in COMPENSATION IS COMMUNICATION” called one of the “best comp books I’ve seen”, by Steve Browne of HRNet email fame. Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, and “Equity Alternatives.” Dan welcomes connections on LinkedIn. Follow him on Twitter at @Performensation and @SayOnPay.

Moving In Reverse Towards the Future

There are disturbing signs that the Human Resource community is losing more of what little relevance it holds today.  Even as tradecraft veterans increasingly endorse open transparency in reward systems and recommend robust communications about compensation as the desired best practice, the consensus actual practice is moving away from that ideal.

The most recent study by the global professional society that focuses on Total Rewards is depressing.  It indicates that the profession charged with the responsibility of providing effective consequences for worker behavior is not producing results that live up to its ideals.  Employers are increasingly failing to explain their salaries to individuals.  Confusion about compensation is spreading.

More and more organizations are reporting that only minimal information is shared with employees regarding individual salaries. In 2014, this number reached more than a third (39%).  

In addition, the number of organizations admitting that most employees don’t understand their compensation philosophy rose to 46% in 2014.  Almost half?  Yikes!

Heck, if employees failed to meet their individual objectives as badly as compensation people seem to have fumbled the ball, they would get stern rebukes, critical performance reviews, remedial action plans and downgraded performance appraisal ratings.  No bonuses, either!

Most experienced Total Reward professionals agree that transparency is A Good Thing, healthy and positive for all.  This conclusion is based on reality rather than just academic theory.  Studies and conference workshop presentations routinely reveal that the sunshine of exposure kills the toxic germs of skepticism and suspicion.  When information about reward program design and delivery is shared with employees, challenges become less frequent and general morale improves.  Whatever is hidden immediately becomes suspect, while what is openly revealed is presumed safe and non-threatening (or management wouldn’t let it be shown). 

Yet companies seems to be moving farther and farther away from the approaches considered ideal by HR folk.  The desired improvement towards best practice seems to be stifled in favor of a blind adoption of the most common custom.   One problem is that what is seen to be the most popular method at any given moment is often not the best option for the future.  Another recurring issue is the weakness of HR when it lacks a strong voice “at the big table” where top management makes its critical decisions. 

If employers continue moving backwards towards more compensation secrecy, it suggests that either we are wrong about what is "best" or the key decision makers simply disagree and ignore us.  Both possibilities are bad.  The accelerating trend towards the suppression of transparency shows we are losing the communication battle.  The simultaneously growing ignorance of employees about their enterprise’s compensation intentions proves that damage has been done.   Potential backlashes are building up.  Many HR people may be flailing in frustrated futility even while while isolated islands of excellent achievement find themselves pounded by tidal waves of indifference.

What will it take to change this disturbing status quo situation?  Recognition of the issue is necessary before anything can change.  Nothing ignored can be corrected.  Now you know about it, so you can take action.

In all professions, there are leaders, there are followers and there are the hopelessly lost.  Which will you be? 

E. James (Jim) Brennan was 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 "Lefty Clock" by RBertelg

Loving the Way Your Numbers Make Me Feel

Did you think we're just standing on a soapbox when we say that we believe that, "Everything we do in compensation is communication?" Well, for those of you who don't buy the "soft stuff," it's time to pay attention. It turns out this insight into our work is even more accurate than we first thought. 

There's an entire field of psychological research that is helping us understand that, 'People don't interpret numbers objectively; instead they base their opinions on how numbers make them "feel."'

That's right. Perceptions influence emotions, as we all know from Psych 101. Ergo, we react to numbers similarly to the way we react to MLS Home listings -- almost impetuously. If we take just one look and the place looks run down, we're moving on, even if we know the interior looks like the Property Brothers just pulled out of the drivewy.

Here's a short take on the research, highlighted in The Daily Stat of the Harvard Business Review:

If research participants were informed that their error rate on a task was 5%, compared with an unseen other person's score of 2%, they rated their own performance more poorly than if they were told their success rate was 95% and the other person's was 98% -- even though the two statements convey exactly the same information. That's because the difference between 5 and 2 looms much larger in people's minds that the difference between 95 and 98 . . .

Anybody start wondering yet how a world of 3% merit budgets has contributed to collaboration and engagement? We perceive more extreme differentiation between smaller numbers than we do between larger numbers (say total salary, for instance). Yes, how you communicate continues to have real influence on engagement and performance.

Researchers have been studying how we perceive these issues of "justice" because, " . . . justice perceptions are crucial for determining a wide variety of outcome variables in organizational contexts." You betcha, and we all have our dazed and amazed stories to tell about employees (let alone managers) who reacted in a completely surprising way to information they were given.

As communicators know from their professional training, people don't deliberate on numbers or any other information, they react immediately and emotionally. Now for a taste of the science involved. Years of industrial-organizational research tell us about the influence of one proven psychological dimension -- people are generally self-serving. We are constantly repeating, "Mine, mine, mine" in our heads like the hilariously self-serving seagulls in "Finding Nemo."  Industrial psychologists know that this always needs to be factored into their research protocols.

A short example of the takeaway lesson -- when it comes to reporting incentive results, it's more likely to be perceived as substantively positive to say that you've achieved 96% of goal that to say you missed the goal by only 4%. Unless, of course, you have critical business results to improve upon. Then you'd be better off shining a harsher light via the smaller number, in order to encourage employees to feel emotionally driven to achieve the targeted results.

If you're interested in finding out more about the why and how, I encourage you to download the research paper. It includes quite a lengthy publication reference list.

This week's word of mouth? Steve Browne of HR Net calls it " . . . the best Comp book I've seen and I recommend you get a copy."  Download your copy of our popular eBook, Everything You Do (in Compensation) Is Communication, at www.everythingiscommunication.com. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, Margaret was a Principal with Towers Watson. 

Two Truths and a Lie

Have you ever played the game called Two Truths and a Lie?  You tell people two things that are true about yourself and one thing that's a lie, and people have to guess which one is the lie.  It’s a classic “get to know you” ice-breaker to use with employee groups. They learn a little about each other and have some fun in the process.  Two truths and a little white lie.

Let's play it.

1)I have two sisters and one brother

2)When I was little I wanted to marry Roy Rogers so I could ride Trigger every day

3)I’ve flown in a helicopter over the Australian outback

This is a game --- but what about in real life?  We all tell white lies from time to time, but it’s generally considered okay when it’s well-intentioned.

For example, a CEO may believe it's necessary to only offer a half-truth to employees:

Question:  “Are we going to have a lay-off on Friday?”

Answer:  “No, we aren’t going to have a lay-off on Friday.” 

The truth is there will be a layoff in two weeks --- but not on Friday.  The CEO’s answer is technically correct and prevents an employee panic.   But the unspoken white lie is that a layoff is coming.

Let’s take a look at some of the white lies Compensation people might feel compelled to use in response to employee questions. 

1) “It’s company policy”

The truth is that any company can make exceptions to their own rules. Compensation, and HR in general, have been indoctrinated not to make exceptions because they might create legal problems.  In practice, exceptions are made.

2) “Top performers get rewarded!”

Actually, even average performers get rewarded --- sometimes even poor performers especially when they’re in the lower quartile of the salary range.  So an employee can be great and get a 3% raise. The employee sitting beside him/her could be a slug and get a 1% raise.  What message does that give top performers?  Worse yet, top performers don’t get an increase at all regardless of their performance when they’re at the top of the salary range. 

3) “We treat everyone equally!”

Not true. We treat everyone equitably.  Certain employees are treated better because they are more valuable to the company than others.

4) “Our salaries are competitive in the market”

Salaries are the biggest cost for the company.  Therefore salaries are paid at the 50%ile on a lag-lag basis --- low enough to meet quarterly profit goals but just high enough to keep employees working there.  Competitive?  Just depends on how you define competitive.

5) “The salary for the position depends on experience”

Salaries are almost always negotiable.  And they aren’t typically based on ‘experience.’ They’re based on how much a company wants to hire/keep employees. If they are a great asset and bring in great value, companies are willing to pay a higher salary. This will be based on accomplishments and market value, not length of service.  

If a company's going to be transparent, consider the “pay truths” that exist.  Are policies truthful --- consistent with actual practice?  Do they need to change?  Will Compensation people feel comfortable explaining the unvarnished truth about how compensation works in the company?

Personally I'm just a little nervous about being totally and completely,100% honest in our effort to be transparent.  There's so much to do to correct not only the glaring issues but also the little white lies.   

Can it be done?  What do you think?

P.S. The answer to my initial statements --- the two truths and a lie?  I think I’ll let them lie . . . . so to speak.

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 expatriate twice during her career.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA.  Jacque has been a speaker in the U.S., Asia and Europe and is a regular contributor to various HR and talent management publications. 

Millennials on the Market: Recognition & Retention in an Age of “What’s in It for Me?”

In my work consulting on employee recognition and rewards, one question I hear repeatedly centers on the perceived Millennial/Gen Y need for constant feedback and praise, often linked with the trend for Millennials to remain in a position for less than two years.

What does one have to do with the other?

I think both are more indicative of life phase than of their generation. On the question of praise, I’ve been known to say that all of us (regardless of our generation) sought praise for our work when we were in our 20s. And that’s a good thing. Indeed, I would be concerned if that wasn’t the situation. For many employees at this very early stage of their career, they are not saying, “Look at me! Aren’t I wonderful?” No, they are asking, “I’m learning new skills here and doing things for the first time. I’m not sure I’m doing it right. Please give me lots of feedback, early and often.”

As for the challenge of Millennial retention, this is quite real. Attributed to many factors (immaturity, lack of focus, lack of loyalty), the real reasons behind Millennial tendencies to switch jobs quickly are likely as myriad as the people who make up the generation.

The sobering reality is that many Millennials are making the right move for their current and future earning potential. The Federal Reserve Bank of New York issued a report discussed in the Washington Post:

“Your first 10 years in the labor market likely shape your lifetime earning potential.

“‘Across the board, the bulk of earnings growth happens during the first decade,’ wrote economists Fatih Guvenen, Fatih Karahan, Serdar Ozkan and Jae Song, who studied the career paths of about 5 million workers over nearly 40 years.

“The jump in pay could be largely driven by the steep learning curves early in your career, said Guvenen, an economics professor at the University of Minnesota.”

If Millennial employees aren’t seeing a good, rapid career path in your organization (including corresponding pay increases), then they are acting in their best interests to switch jobs throughout their 20s to increase their lifetime earning potential. I can think of few stronger arguments for excellent training, development and career advancement programs.

We all know the high cost of turnover. Recruiting, training, learning curves – they all add up to 50-200% of base salary to replace an employee. It’s inarguably a far better use of those funds to develop promising employees and advance them in your own organization.

Bringing this post full circle, how does this tie back to Millennial need for recognition? It’s not all about the career path. Sure, promotions and corresponding pay raises are a form of recognition, but that is a finite resource. Bersin by Deloitte research tells us:

“Organizations with recognition programs which are highly effective at enabling employee engagement had 31% lower voluntary turnover than organizations with ineffective recognition programs.”

The two approaches must go hand-in-hand: regular, frequent, timely and specific recognition to reinforce desired behaviors and outcomes in the moment plus appropriate career advancement opportunities in line with skills. In fact, your social recognition efforts can be useful in using the wisdom of the crowd to help identify those most deserving of more rapid advancement (and therefore retention) in your organization.

What’s your retention record with Millennials? How does your organization work to foster longer-term relationships with these key, motivated employees?

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. He is the co-author of "The Power of Thanks" and 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.

Cheap Talent Can Cost You

Picture the scene:  your company is seeking to employ a Department Manager, and the leading candidate is currently “in transition.”  Human Resources has pegged the market value of the job at $75,000, but you suspect that the preferred candidate (Bob) will accept $65,000.  A seasoned and experienced professional, Bob was previously paid $77,000 by his last employer, but was caught up in a restructuring staff reduction.  He’s been out of work for almost a year and is getting desperate, worried about feeding his family and paying the mortgage.

When the decision point arrives other, less qualified candidates are already making $70,000 and are asking for $75,000 and up.  Some hiring managers would look at this situation as a no-brainer.  “Let’s hire Bob and save $10,000 to $15,000” would be the smug decision. 

That wasn’t hard, was it?   A preferred candidate has been gained at a low ball price.  The hiring manager deserves a pat on the back for saving the company money.   But . . . wait a minute.   Perhaps it should be a boot in the butt instead. 

A savvy professional like Bob will have a sense of the competitive market, so he’ll be aware of having taken a significant pay cut to land this job.  So how excited will he be with the offer?  Oh sure, today he’ll be delighted and will celebrate getting a job and finally having money coming in again.  Tomorrow, not so much enthusiasm.

How long before his resentment grows, knowing that he was taken advantage of – gotten on the cheap?  What will happen to his energy level, his engagement, even his morale?  What will he now think of the company, never mind his hiring manager?

The likely future

It's safe to presume that how you treat a candidate will be discovered at some point by that same new employee.  So when Bob confirms for himself the low ball treatment, what reaction can you expect?

• Angered by a sense of being taken advantage of he could continue with his job search - looking for a better opportunity - while still working for you.

• His job performance might suffer, dropping from 110% to automatic pilot to somewhere south of Satisfactory.  He’ll be going through the motions – not exactly the dynamo you thought you had hired.

• His attitude will turn negative and he’ll morph into another disengaged employee – critical of the company and management, doing no more than he must in order to get by.

• He’ll ultimately quit, but on his terms and timing.  His anger will have kept simmering and he’ll likely feel little concern as to how his departure affects the organization.

What you now have is a bad hire - a situation that's unnecessary and easily avoidable if you treat candidates fairly.  Look at it from the candidate’s perspective; when your back is to the wall and you feel your “rescuer” is taking advantage, that feeling causes a pit-of-the-stomach resentment that lingers and festers.  And it costs.

Let’s tally up the cost

The manager claimed a cost savings by the hiring decision.  But when you factor in the longer term ramifications of that decision, how do the initial savings hold up?

• The hiring decision saved $10,000 to $15,000 per annum by consciously underpaying the candidate.

• What's the discounted value of a disengaged employee who doesn’t perform as expected or desired?

• What's the value of time lost when Bob quits and the job is vacant again while a replacement is sought?

• What's the value of hiring a potentially more expensive replacement (plus agency costs) and perhaps relocation?

• What's the value of productive time lost while a new employee gets up to speed?

• Finally, what's the subjective value of a discontented employee in your midst, one who is possibly poisoning the attitude of other employees?

So the next time a hiring manager proudly announces how to save a bunch of money on a candidate who’s in transition, take a moment to think it through.  You may want to consider a boot in the butt instead.

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, "Appearances," by Bark

Jon Stewart Isn't Worth Two Cents!

Jon Stewart, the host of the long-running Daily Show on Comedy Central, will be leaving the show later this year. When I heard this and the resulting response, three things came to mind: Executive Pay, Equity Compensation and Succession Planning. I figure I have about 600 words (about 2 minutes for you), so I should be able to cover all three without a problem.

How much can one person possibly be worth? This is apparently the mating cry of activists and non-executives. The Jon Stewart exit allows us to quantify this in a new way. When his announcement hit the market, Viacom stock dropped about 1.5%. In other words, Viacom lost $350M of its market value…in a day. While other factors may have played into this, and over time this will be absorbed into regular volatility, investors felt at least for a moment, that Jon was worth $350 MILLION DOLLARS! That is how much one person can be worth.

But, Jon isn't even worth $0.02. For every dollar of investment, shareholders only lost one-and-half cents. Think about it this way.  If you had a pocket full of change and dropped two pennies on the sidewalk, would you panic? This leads us to equity compensation.

Equity compensation is still a mystery to many compensation professionals. People have a tough time communicating its value, understanding its cost and buying into the way it aligns employees and shareholders. I have written about the value component in the past (try this as a start). Cost is something else altogether. Many compensation professionals wonder why finance is so stingy when valuing equity. As mentioned before, a couple of pennies can quickly add up to millions of dollars. Giving each person a few extra shares can result in the same thing. If your equity plan is 10% more effective than your peers, it can mean the world in real shareholder returns.

According to a report from TV Guide , Jon is the highest paid late-night TV host, making between $25-30M annually. There is no knowing how much of this, if any, is in equity. But, we do know that he has given the network plenty of notice. We also know that there is virtually no way from a succession planning or compensation perspective that his replacement should expect to see anywhere near this amount (at least not immediately).

We hear a lot about succession planning for key positions, especially CEO. But, Jon’s exit gives us a good example of how hard this can be. There are many issues that must be addressed. How do you identify an upcoming star that can guide the show on the same success trajectory for the next 10-15 years? Some of the “best” possibilities have recently left Comedy Central to big positions, including natural successors Steven Colbert going to CBS and John Oliver to HBO. Is there anyone left to promote from within? How do you change the show to attract a new audience to “grow-up” with the new host while not alienating the old audience? And how much money will all of this take? You have to assume that every new player will expect a contract within range of the middle of the market, even though the person is unlikely to have any ability to prove their worth before the job starts.

Each of the issues are addressed by executive compensation professionals on a regular basis. Few CEOs last as long as Jon did at the Daily Show. The executives in the next layer down also change jobs frequently as they begin to bump their heads against the shoes of the person above them on the ladder.

How much is each person worth? Most can be framed within terms of market data, but a unique few can be worth more than imaginable. Why is equity compensation still so contentious? Even the smallest movements in stock price, fair value and number of shares can result in massive value shifts. How do you plan for succession when the person is “irreplaceable”? Understanding the first two items is a good start, but there is no formula that can guarantee success on this issue.

Well, that took closer to 700 words. I hope you share your perspectives on these issues. What more can we do? What else should we know?

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. Become a business leader in 8 simple steps with the book “Everything You Do in COMPENSATION IS COMMUNICATION.”  Written by Dan and fellow Comp Café writers, Ann Bares and Margaret O’Hanlon. Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, and “Equity Alternatives.” Dan welcomes connections on LinkedIn. You can also follow him on Twitter at @Performensation and @SayOnPay.