Compensation Cafe

One of Those Newfangled Experiments

Newfangled:  Different. Recently invented and hard to understand.  A polite way of saying something is unpleasantly weird or unacceptable.'

I’m referring to Dan Price, CEO of Gravity, who recently announced to all 120 employees that their pay will be increased to $70,000 over the next three years. The new minimum pay will be $70,000. 

To fund this initiative Price’s own pay will be cut from $1 million to $70,000. Additional funding will come from using 75% to 80% of the company’s anticipated $2.2 million in profit this year.  He plans to keep his own pay at $70,000 until the company earns back the profit it had before the new pay scale practice.

The trigger for Price was a study he read by psychologist Daniel Kahneman and economist Angus Deaton.   The $70,000 figure is just below the $75,000 salary pegged in their 2010 Princeton University study as an ideal benchmark for achieving happiness

In other words, if you make less than $75,000 a year, you are constantly worried about money to the point that it affects your overall happiness. On the other hand, if you make more than that, money is no longer such a pressing concern.

Price insists this is a capitalist solution. He believes the pay raises are an investment. In theory, workers motivated by higher salaries will ultimately attract more business and handle clients better.

While the overwhelming majority of responses are positive, there are also skeptics and naysayers*:

1) Everyone is getting a ‘trophy’ even if they don’t deserve it.

2) Low-skilled workers will be paid a much higher salary than the market requires.

3) Paying everyone the same will reduce motivation and lead to decreased productivity.  There’s no evidence that happy workers are productive workers.

4) Gravity will ultimately go out of business as competitors with lower cost structures will offer customers lower prices.

5) Overpaying lower skilled workers may create resentment among higher skilled employees who feel they are more valuable and therefore worth more.

Is this just a marketing gimmick?  Perhaps.  Will he fail?  Probably --- but there is always failure at first.  Is he naïve and idealistic?   Most likely.   

But this isn’t the only newfangled crazy scheme going on currently.  Here are some others:

1) Elimination of  merit pay (Lear, Netflix, Kelly Services)

2) Google’s pay raise of $10,000 to all employees

3) Ben and Jerry’s setting a pay ratio between highest and lowest paid

Why on earth are these companies, including Gravity, doing this?  They aren’t located in Colorado so we can’t blame it on pot!

In my opinion one of the biggest reasons for all these new practices is the huge increase in Gen Y and Z in the workforce.  They have different views of work.  They will "walk away" if a company doesn't match their ideals.  And those ideals include fairness, social justice and a less competitive/more collaborative/caring work environment.

I for one am pleased and excited to see traditional practices being re-examined in a business environment that has dramatically changed.   Makes sense when all functions are being forced to re-examine all of their models, operations and long-held assumptions.

What do you think?

*Space doesn’t permit an in-depth discussion of how this conflicts with traditional Compensation principles.

Jacque Vilet, President of Vilet International, has over 25 years’ experience in Human Resources assisting companies with both domestic and international HR issues.  The companies she has worked with include start-ups as well as major multinationals. Jacque’s expertise includes compensation, benefits, wellness, learning/development, strategic workforce planning and mergers and acquisitions.  She has a B.S. and M.S. in Psychology from the University of North Texas and an MBA from Southern Methodist University.  She has been a speaker at conferences in the U.S., Asia and Europe.  In addition she is a regular contributor to various HR and talent management publications and conducts frequent webinars. 

Employee Engagement All about Connections and Good Work

Yesterday SHRM released its annual “Employee Job Satisfaction and Engagement Report.” It’s interesting in how it segregates true “satisfiers” from the factors and conditions that help employees more deeply engage. Both are relevant measures, depending on what you are trying to determine or better understand about your workforce.

For example, SHRM makes the distinction this way:

“Employee engagement may or may not be aligned with employee job satisfaction, as engagement is tied to employees’ connection and commitment to their work and their particular organization.”

Table 2 below (from the report) show the top 5 employee engagement conditions as ranked by respondents. As you can see, the majority have something to do with 2 factors:

1. Connections with people at work
2. Ability to do my best work within a context that is meaningful to me.

To my mind, those two factors speak to the evolving nature of today’s workforce. More and more, we want to do good work with people we enjoy working with. We want to know the work we do has greater value – how does my daily effort contribute to the “big” picture both in terms of company goals and the greater good.

I’m not surprised these elements rise to the top of the list for engagement, as they are the very factors that speak to the human condition and our need to connect and contribute. It’s also why I’m not surprised that the two newest aspects added to SHRM’s assessment of employee satisfaction also rose to the top, above benefits and compensation/pay.

To me, it’s obvious that respectful treatment of others and trust are foundational to creating strong relationships and the ability to give our best. With that information, we must focus our attention on how we foster trust, strengthen relationships, and help our colleagues see how their work makes a difference.

There are many ways to do this, of course, including deliberately creating cross-functional teams to encourage new relationships between groups that might not commonly interact. But the most straightforward, most impactful, and most personal way is through specific, timely, frequent recognition from anyone to anyone. Now, this isn’t a casual, “Hey, thanks! Love working with you!” To help strengthen the factors of engagement in Table 2 above, we need to take the time to respect our colleagues and tell them specifically, “I really appreciate the work you put into the Metrix project. You really went out of your way to show initiative and dive into additional research sources and find trends that weren’t readily apparent. It’s these trends that helped us make a far more informed decision and arrive at a solution to benefits our customer as well as our business. Thank you.”

Moments of honest, heartfelt appreciation and thanks go a long way to communicating meaning and building relationships.

What are the elements you find most important to employee engagement overall? What about your own engagement?

As Globoforce’s Vice President of Client Strategy and 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.

Min, Mid, Max

Does a salary range really need a beginning, middle and end? I've run into this topic of conversation repeatedly in the last few months.

I've always had mixed feelings about naming the range midpoint, for example. It gives some immediate comfort to the listener because it is a nice, round, handsome number, but eventually it always seems to disappoint.  Sure it's the mathematical center of the range of numbers, but once we go much further than that in conversation (especially if the midpoint represents a job grouping) we sort of pull up short rather than having to explain the whole darn rigamarole. It often seems to me a range would be a more enlightened way to go than a single number, but nobody seems to like that approach, either. Once they've tasted midpoint wish fulfillment, they're hooked.

The minimum seems to stand up to closer scrutiny -- or does it? If you believe that your company should pay a market rate, then it just makes sense to pay new employees a salary that's in spitting distance of said market rate. Do we have guidelines to justify the length of time it takes before employees are paid at market? Can we stand up for these guidelines because they are based on something more than intuition? (Not very often.) And how freaked out are we if good performers don't get much closer to the midpoint as time and low merit budgets march on?

It's the range maximum that got me in this frame of mind, actually. An executive asked me recently whether his company really needed range maximums. "Now there's a great question for my consulting wisdom," I thought.  "Culturally, philosophically, strategically, there can be cases for making them disappear," I spoke up, "but what about responsibility to organizational finances? Where does that come in, especially when you're talking to stakeholders like the Board."

"Ah, optics," was his reply. See what I mean?

Want to step away from Excel and into the real world? Learn how to increase your influence through more than numbers in the popular eBook, Everything You Do (in Compensation) Is Communication. You'll find it @ 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 at Towers Watson.

Redesigning Work to Create More Mutual Value

For HR to become a valuable business partner clearly helping top management improve the bottom line, the total rewards function must take the initiative and act productively.  Reformatting talent into more mutually valuable combinations will solve many important issues. 

Here are the typical problems:

• HR feels left out from “the big table” where key decisions are made by top management.
• Supervisors (including all people-managers) see HR as unhelpful or an obstacle.
• Employees want higher pay but feel blocked by the compensation department.
• Scarce skilled talent and highly productive workers leave for better opportunities.
• Jobs remain substantially the same (although tools change) for decades.
• Public social pressure increases for higher minimum pay rates.   

At the same time, organizations want improvements:  i.e., to increase productivity, efficiency and profitability, while enhancing employee engagement and improving public support for their brand. 

Let’s look at all these various challenges as opportunities for an all-encompassing single solution.  Solving multiple negative problems while simultaneously satisfying numerous positive objectives is always an excellent idea. 

There is rarely any valid economic excuse to pay a lot more or less than necessary for any combination of work output expectations called "a job."  If you want to pay more, why not make the job worth more?  Rather than argue over excessive wages, change the economic formula to your advantage by redesigning work into jobs worth greater amounts.

Combining enough valuable output deliverable elements from two low-paying jobs to form one good-paying job can be smart, cost efficient and socially praiseworthy.  Simply paying more than the market requires for unskilled labor may win you praise from some, but any unnecessary economic cost passed on to the owners or shareholders will usually earn their displeasure.  Instead of even retaining a collection of extremely simple work tasks bundled into a job that pays too little to live on, why not instead upgrade the functions, blending the component parts until they support a living wage? 

That process is not very different from the result of many job reclassifications. When you confirm that an incumbent has "growed" her role from A to D, you often conclude it deserves a higher compensation level.  In that case, HR passively reacts after "suddenly discovering" that someone has enhanced his/her job into a new value category.  Instead, you can take the initiative to deliberately design a richer combination of tasks and responsibilities.  Finding a more powerful leverage point or a superior bottom-line context application for the KSAs already available in your talent pool is a great way to add value to the enterprise.

Another approach might be to eliminate minwage “jobs” by making those functions part of orientation, probationary periods and on-the-job training (OJT) for “living wage” jobs rather than stand-alone dead-end positions.  Or reserve them for developmentally disabled workers or employees temporarily on limited duty status, maybe.

Reshaping work content can meet many needs.  A proper, appropriate and aggressive use of total rewards tools can be much more cost-effective to the employer than arbitrary minimum wage increases.  It also should be less expensive and less organizationally traumatic than a re-engineering project conducted by outsiders, too.  I know many of you have "re-bundled" or "reconstructed" jobs, even if you called it something else, like “work transformation,” “job design” or “career enrichment.”  What did you call it when you tried this?  And how did it work?

Or has this process contributed to job elimination, outsourcing and off-shoring?  There seem to be more questions than answers, but these questions must be asked before they can be answered.

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 "Building Blocks" by Eran Sandler

Higher Wages, Value Creation and Work Design

The path to value creation, according to a noted private equity executive in a recent Harvard Business Review article, is through return on invested capital (ROIC).  Indeed, the best way to create real value in a business -- he says -- is by making smart investment decisions.

This should interest us, as HR and reward professionals, for a few reasons.  First of all the obvious one: that the biggest category of investment for most organizations is employee compensation.  Secondly, because proactively managing that investment to maximize return -- and create real value -- ought to be top of mind for any of us who fancy ourselves "business partners."  Thirdly, because it bears directly on a compensation topic that is capturing a lot of attention these days: companies that are coming forward to voluntarily raise the minimum wages of their employees.

Aetna is one of a number of organizations (including the likes of Starbucks, Gap and Walmart) who've made this move -- and distinct in being a financial services firm rather than a retail enterprise.  The company announced in January the increase to increase Aetna's minimum wage to $16 per hour.  The move will impact 5,700 employees and result in an average pay increase of 11%.

There are a lot of things to like about this movement, and certainly the companies at its forefront are benefiting from the press and goodwill their announcements have generated.  From my viewpoint, one of the positives is that these decisions -- being self-imposed and presumably a product of internal analysis and consideration -- are more likely to be sustainable over the longer term.  That isn't to  say that there will be no unintended consequences to offset the positives as these actions ripple through the labor market.  Our economic system is way too complex and has too many levers being jiggled to assume otherwise.  There seems a greater likelihood, though, that they can be successfully absorbed, managed and even turned to advantage by the "host" organizations.  Because ultimately, a move to disrupt the cost structure of an organization must work to the advantage (or at minimum, not to the disadvantage) of all stakeholders to be sustained over the longer tem.  This includes but is not limited to all members of the workforce, owners/investors and customers.  All these are seeking their own returns, intangible as well as tangible, and their expectations cannot be ignored.

Many are referencing the efficiency wage theory -- the notion that simply paying workers a higher wage should lead to increased productivity -- as the rationale for these wage-boosting decisions.  Perhaps this can be banked on, but I would submit that the astute among this vanguard (and I suspect they are all astute) have actively considered and are pursuing steps to maximize the positive return of these enormous investments.  One of these is likely work design.

And that's where we come in.

Work and job design has long been an orphan, a second-class citizen largely ignored by the HR and reward professions.  As a discipline, it has only been pursued with seriousness by industrial engineers.  There may be lessons to draw from their work but few of today's jobs -- even at the front lines of retail service -- are purely mechanical in their execution.

As those with responsibility for managing our organization's compensation spend and doing so to maximize the return on that investment, many of us should be looking at an opportunity to embrace work design.  I'd wager that the examples of Aetna, Starbucks and Gap are being discussed in many of your boardrooms.  If moves like this are being contemplated, you have an opportunity to provide leadership and expertise.  Who better?

A number of my clients are already involved in work and job redesign efforts, particularly at the lower wage end of their organizations.  The redesigned jobs will pay more -- significantly so in some cases.  You won't see their names splashed across the pages of the Wall Street Journal.  They aren't doing it for the PR benefit but because it makes good business sense.  And HR is leading the effort.

If proactively lifting the wage floor is going to be a thing for enlightened organizations, I'd sure like to see us driving the train ... or at least sitting near the engine.

That's my point.  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.  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 "Dollar Growth" courtesy of hywards/FreeDigitalPhotos.net

Develop Grow Achieve - 3 Tiers for P4P

Pay for performance continues to rise. However, the failure of pay for performance is rising almost as fast. As the discussion about best practices continues, I thought I would provide a few thoughts about an approach that may work for your employees.

Usually the drive for pay for performance comes from the top of the company. “We need to have people be more productive.” “I don't want to have to pay people that much, unless they are REALLY doing a great job.” While these are valid concerns, we must be able to better define what people do that makes a company successful.

1. DEVELOP  In the early stages with your company, an employee needs to focus on development. They need to learn who your company is and how it does things. They need to fill the gaps in their professional knowledge with the things that make your company’s approach special and different. They need to build a foundation that can support them as they grow their career and excel at their job. Metrics for development can be tricky when looking for direct alignment to pay.

For these people the goal is to keep things simple. Identify a few key foundational elements that your best employees have told you are essential. Rather than focusing on the results of these elements, focus on people learning or growing these skills, talents or ideas. These are the kind of goals that work well for regular coaching sessions and a loose link to pay.

2. GROW  The bulk of your staff should be focused on growth. In broad terms we are usually talking about the growth of the business. In individual terms we should focus on those metrics that drive growth, rather than the end result of growth. Focusing on the drivers allows leaders to continue regular coaching. It is fine to include some aspect of the DEVELOP metrics for those newer to this level. And for those who have the potential to transition to more senior positions, you may consider adding a few ACHIEVE metrics so they can learn how to be accountable for results that may not be directly related to the work they do.

P4P for this group can be challenging, especially if a company is growing quickly. If you focus on the things that drive your company’s success, you can then sprinkle in a metric or two, that is based on a unique time frame, location, project, or other specific, but is perhaps a temporary  area of focus. Grow metrics and goals work especially well for short-term-incentive programs and as interim measurements in long-term incentive programs.

3. ACHIEVE  This is what your CEO or other “boss-like figure” means by performance-based pay. They only want to pay people incentives if they have proven results. It’s understandable, but not always the best approach. Most companies are successful with ACHIEVE metrics when they are applied to the top tier of the company. When these can obviously be communicated and driven deep into an organization (they may already be part of your company’s cultural approach to management) they can be used at any level. But, let’s face it. Communication of an individual’s impact on these types of metrics requires a long-term and consistent effort. It’s the type of effort that most companies won’t fund, and for which most compensation departments cannot get support.

Effectively linking pay to results requires a fairly tight connection between the actions or decisions of the individual, and the results that are likely to be a combination of many people’s efforts. These metrics include revenue, EBITA, TSR, profit margin, percentage of growth, stock price and similar big-picture measurements. These metrics also have the effect of frustrating someone at the end of almost every measurement period. Your shareholders are upset when overachievement results in big executive payments. Your executives are annoyed when big payouts to managers cut into their ability to spend money elsewhere. Every participant will become upset when success was denied. This is especially true when failure to meet the goal was due to outside market conditions. But in the end these programs, when layered with other good compensation practices, can help a company succeed in a competitive market.

Implementing this approach can take a few years at some companies. At smaller companies, with little prior pay for performance and a strong initiative to create a P4P program, this tiered approach can immediately become the foundation of your program. Of course, there is not a magic formula and I am always excited to hear from readers about how they have approached this issue.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. Do you want to be a better business leader? Get your copy of “Everything You Do in COMPENSATION IS COMMUNICATION” written by 3/8^th’s of the Comp Café, Dan Walter, Ann Bares and Margaret O’Hanlon. It’s a practical guide to improving the communication process (with how-to worksheets). Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”, and “Equity Alternatives.” Dan welcomes connections on LinkedIn. Follow him on Twitter at @Performensation and @SayOnPay.

He Said / She Said Is Always Expensive

Recently I was asked by a U.S. client why I recommended that they create an international assignment policy for their expatriate employees.  After all, they only had a few employees overseas and previously had resisted the call to “play the lawyer card.” They felt that management could effectively deal with the circumstances of individual situations as matters came up, and were reluctant to lose what they considered their prerogative – to set terms and conditions as they thought appropriate for each employee.

It's not unusual for small companies or non-profit organizations to send an employee overseas with little more than a verbal agreement and a series of vague assurances.  These organizations wish to avoid bureaucracy and move quick.  However, often these casual and hurried arrangements have proven painful experiences:

• The shock faced when coming to grips with actually living in a foreign country.  The realities of daily life, combined with cultural differences compared against “back home” become quite a wake-up call when no longer insulated by the transitory nature of a business or vacation trip.

• The constancy of unforeseen and confusing local situations (medical claims, driving licenses, bank accounts, schooling, language, etc.) proved such a frustrating distraction that employees lost focus on the job – the reason they were there in the first place.

• Relationships with headquarters suffered as the employee asked for consideration (increased coverage) to redress what they considered gaps in their terms & conditions.  The trust element was weakened as employees felt they were being short-changed.

Coming from an environment where every expatriate was given a detailed assignment letter “before” getting on the plane, I was taken aback by the client’s question – because the absence of mutually agreed terms and conditions is almost certain to prove disruptive.

So why is providing an assignment letter good practice?

• Protection:  Like any contract, confirming assignment details protect both parties from misunderstandings, misinterpretations and assumptions – before expenses are incurred.

• Clarity:  Accepting an overseas assignment is a major step for any employee, as well as for family members.  The more you clarify the assignment terms, the more likely you are to ensure a smooth experience for everyone.

• Cost control:  Defines expenses that the company will pay for and conversely what they will not.  An agreement will mitigate issues arising once the expatriate is on the ground overseas.  Concerns raised once the assignee is relocated usually result in increased company costs, as negotiating leverage is lost and the company feels compelled to avoid alienating an expensive investment.

• Standardization:  Your international policy should strive to treat expatriates in the same fashion.  Unique circumstances do occur but the basic principles should be followed for every assignee.

So how bad can it be, playing it by ear and leaving terms & conditions to be developed over the duration of an employee’s assignment?   Prepare yourself for:

• Higher and unbudgeted costs.

• Frequent negotiations to improve the expat's situation.

• Disgruntled assignees and / or affected family members.

• Greater risk of failed assignment.

Short cuts usually limit the financial and emotional protection the employee and their family rely on, after the company has committed  substantial monies to place them overseas. 

Terms and Conditions

When preparing an international assignment letter, certain key elements should be included.

• Title, compensation and assignment duration – critical elements of status and reward in the host country.

• Housing and cost of living allowance – should include the amounts involved and frequency of review.

• Benefit coverage (medical, dental, life, vacation, etc.) – how home country benefit protections are handled in the host country.

• Relocation – overseas movement of household goods, both ways.

• Property management (as applicable) – managing the home country residence.

• Tax preparation – employee obligations in both countries.  Usually a statement of company liability for “additional” taxes.

• Home leave – how often, and under what circumstances?

• Schooling, language, cultural orientation (as applicable).

• Repatriation – a balance is usually struck here between employee concerns and the company’s natural vagueness for what the future might bring.

These items represent only a portion of the questions that your expatriate candidate will have.   So if your company considers taking a casual approach to sending an employee overseas, unsupported by a signed assignment letter, be aware of the risks involved.

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, "ber-antem," by Dimaz Fukhruddiny

A Fool With A Tool . . .

“A fool with a tool is still a fool.” ---- Grady Booch

Imagine you are taken to the emergency room with two problems:  a heart attack and a scraped knee.  You would think the attending doctor would treat the heart attack first and then once that’s under control look at the knee.   The fact that the doctor has just gotten a revolutionary new CT scanner for knees and is anxious to try it out shouldn’t be the deciding factor in which medical problem to treat first, should it?

Unfortunately many in HR/Compensation are guilty of this. They get hyper-excited about a new system, program or process and rush to try it out without analyzing if it's really what they need.

“If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it.” ---- Albert Einstein

Einstein’s quote illustrates an important point.  Before jumping in to solve a problem, you need to step back and first define what you’re trying to solve.  The best tool you come up with will be in direct proportion to the quality of that problem definition.

Begin with the end in mind.   This is one of Stephen Covey’s seven habits of highly effective people.  You must know what you want to accomplish, how you’ll know when you achieve it and how you’ll measure its success.

I have a method I use that works for me because I’m a visual person.  I use a whiteboard and write the words “Present State” on one end and “Future State” on the other end.  Then I work through three steps:

1)    Define the “Present State” --- the problem.  Under “Present State” on the whiteboard write descriptions --- what the problem is, the impact it’s having, what the consequences have been and what needs to change.  This step is where you list all the details.  Then start asking why.

If you’ve ever spent time with a child, you know what I’m talking about. The child asks you why something works. You answer, and s/he asks why again…and again.   Just like the child you need to ask yourself why over and over to try and flush out all the details.  The process of problem definition is in-depth --- not broad-brush.

Maybe you’ve seen the Charles Schwab commercial on TV where the little boy keeps asking his father why about how his money is being managed.  Each why leads to another why until finally the father --- who looks like he’s beginning to have his own questions now --- has no answer.

2)    Define the “Future State” --- the desired result.  At the other end of the whiteboard under “Future State” write a description of what the end result will look like. How will the new process, program, etc. work, how will you know you’ve reached it and how will you measure its success?

3)    Build the link --– bridge the gap.  This step is all about describing how you will get to the end state. Are there internal and/or external constraints?  Are there people, policies, systems that don’t provide the right information, training, etc?  What approaches have been tried so far that haven’t worked?  Write all these descriptions in an arc connecting the two “States”.

Once you’ve built the bridge connecting Current and Future states, you’re ready to look at relevant solutions.

4)    Select a solution.  There are dozens of programs and systems to select from.  Just don’t lose sight of the analysis you’ve done and get side-tracked looking at the wrong ones.

If you need help from an external professional, be very careful who you select.  If not, you may just find yourself getting advice from someone who is actually a “fool with a tool”.

Does anyone have an example to share?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel. Her expertise encompasses many areas of HR --- compensation, benefits and wellness, learning/development, strategic workforce planning and mergers and acquisitions. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. She has certifications from HCRI, World at Work and Human Capital Institute 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.    

Fair Pay, Differentiated Rewards

My last post was a bit provocative – or at least the title was: “An Argument for Unfair Pay.” In the post, I asked compensation pros to weigh in on the idea of “unfair pay” with more of the merit pot going to the top 10% of high performers who arguably do far more of the work.

The comment stream to the post was very informative, even educational. Often, comments get lost. In this case, that would be a missed opportunity for readers of this blog, so I’m bringing the crux of the comments into the heart of this post to share more directly with all of you.

Jacque Vilet, a fellow Café blogger and international HR expert, offered several good ideas for recognizing that top 10% without relying on the tropes of failed merit increases:

“Have a VP hold small group meetings with them and appreciation and also "tap" their ideas for improvement. SMALL INFORMAL meetings -- no surveys... Keep it small, personal and very INFORMAL... Let these employees shadow their VP for a day or two including any meetings with clients and top management. Let them know their contributions are valuable. Give them a project/problem and tell them it's an important one for the company... Let them have access to high level management to discuss progress and to get help in removing any organizational barriers that are keeping them from solving the problem…”

Jim Brennan, another Café blogger, points out that the original “unfair pay” phrase is catchy to draw a point:

“… I would prefer to substitute other terms to describe your otherwise valid points. Paying inequitably, differentiating appropriately and customizing your reward reinforcements for the variable contributions of unique individuals and recognizing exceptional performance would all be nicer ways to achieve the same objectives with friendlier words. The Pareto Principle still applies.”

E. K. Torkornoo agreed that merit pay methodologies are “anachronistic relative to rewarding performance,” offering ideas for effective recognition:

“Beyond attending as well to non-cash rewards that provide a balance of 'total rewards' aligned with your employee interests / values, we need to focus on the things that help high performers (individuals and teams) do their thing. Hire them well; resource and engage them well on projects (instead of making them sit around for too long in dysfunctional groups, or in scrappy work spaces and work environments, etc.); keep them away from terrible managers, narcissistic leaders and distracting politics (to the extent possible); assign them to teams with others they respect, listen carefully and respond to them…”

Ted Weinberger also thinks the merit increase paradigm is becoming irrelevant, offering an additional resource for readers:

“Those of us who have been compensation practitioners for many years were inculcated with the notion of performance levels across employees being distributed as a normal (bell shaped) curve. This notion was compatible with how businesses operated in the late 20th century -- company performance was dependent on the collective contributions of the mass of employees. However, in present day, it is the "superstar" employee that counts. The performance distribution really reflects a Paretial (power law) curve. I refer you to an article in Personnel Psychology 2012 on "The Best and the Rest: Revisting the Norm of Normality of Individual Differences" by O'Boyle and Aguinis for an academic discussion of this subject…

“As compensation practitioners, we will need to change our thinking to accommodate this new reality of delivering more polarized pay treatment that places emphasis on the top 10%. The traditional merit pay program -- with its more broadly distributed pay treatment -- is becoming a less relevant vehicle for this new era.”

Trying to work within existing merit structures, Jules noted:

“Paying fairly means you acknowledge the contributions of your star peformers who went above and beyond hit stretch goals by giving h(im/er) more merit/bonus and not giving merit/bonus to the slackers.”

Tony Bermann-Porter agreed but provides an important observation:

“The notion that you can provide meaningful performance differentiation with a 2-3% budget is fanciful… Besides, why would you want to annuitize last year's performance?”

I appreciate the bloggers and readers of Compensation Café deeply. During my years both reading and blogging here, I’ve learned a great deal. Please keep up the conversation on these important topics of fair compensation and appropriate and meaningful recognition.

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.

Context Affects Job Value

What work is worth depends on how it affects the bottom line.  Activities that appear substantially the same can have tremendous variations in compensation value according to the context in which they are performed.  How and where specific knowledge, skills and abilities are applied make for different pay amounts both between and within organizations.  Here is one example…

Adopting department identity as a predictive job evaluation factor was an interesting aspect of one large public utility’s pay system.  Advanced statistical analyses of the reliably identifiable features of their benchmark jobs against their competitive comparable rates showed that when all other factors of skill, effort, responsibility and working conditions were precisely the same, some specific functional areas of operation paid more than others for the same human capital elements applied at the same hierarchical levels.  The fulcrum point of the work (where it occurred) affected pay. 

The value of human capital elements at that particular employer varied according to the organizational context of the specific work application.  For example, precisely identical job evaluation scores in the regulatory affairs department produced much higher pay than in the human resources department.  All else being equal, a mail room supervisor would be paid far more if transferred to a lateral organizational post in the critical government relations department where their personal talents would be applied to lobby legislators.  A nuclear engineer was worth more running a power plant than occupied issuing worker identification badges.  

It made sense.  Impact can be defined in terms of organizational location as well as in terms of the targets of individual personal behaviors.  The same work elements performed in a department engaged in critical dealings with government groups who controlled virtually every aspect of the public utility’s operation had a much greater fulcrum effect on competitive market value than comparable activities in a department focused on employees.  Writing news stories for the company newsletter or website is less valuable than writing public relations news releases that can influence stock prices. 

Situational effects also similarly affect external competitive market dynamics and internal pay equity judgments.  Frequency of application tends to be less significant than the importance of the activity when it is performed.  The executive administrative assistant who treats the intrusive IRS Examination Agent with courtesy, respect and deference might do it only once every few years; but that might be crucial.  (Tip:  do NOT transport an already hostile IRS examiner between your offices in the back of a dirty pickup truck bouncing over rough rural trails!)  A disaster mitigation specialist who is a luxury on your payroll in good times can be critical to survival when things go wrong.  Frequency is not the same as importance. 

Bonuses therefore tend to be a preferred reward mechanism for emergency response workers whose specialty is rarely invoked although vital when really needed.  Some people earn their pay every single day while others may only “do their thing” a few times a year.  Actually fulfilling the principal responsibility occasionally does not necessarily change the value of the work performed, either.  Acquisition experts don’t complete mergers on a daily basis, but they still earn far more than security guards who continually patrol the territory they secure.

The duration of time involved before an effect is identifiable is another different type of context.  Remember the time span of discretion rule of Eliott Jacques?  The longer the period of time between action taken and proof of its successful outcome result, the more it is worth.  The receptionist who guides a visitor to their destination knows immediately if it was done right or wrong.  The head of any enterprise who directs the organization onto a new strategic path may have to wait three years or more to learn if the course change was productive or not.  Each tends to be paid according to the value of doing their job right, too. 

Since this topic is not usually discussed, it may not be well understood.  But context remains a vital concept for proper compensation decisions.  Have you seen anything inconsistent with what I have said here?  If so, post a comment so we can kick it around.  

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.

"Manager Busy on  Phone " from imagerymajestic / FreeDigitalPhotos.net