Compensation Cafe

Will Employee Compensation Beat Out the Kardashians for Celebrity Status?

Employee compensation was a lead story in The New York Times on Tuesday. You can find the headline "One-Time Bonuses and Perks Muscle Out Pay Raises for Workers" on the front page of the Business Day section. The increase in variable pay practices is no surprise to the readers of Compensation Cafe, but the editors of The New York Times have determined it's hot stuff for their readers.

Why? It's important for us to try and figure out the answer. Employee compensation is a trending media topic, I believe -- and I've been trying to get you to believe it, too. For one thing, there are opinions forming about our profession, and we better be ready for the spotlight before it hits us. For another, at some point in the future, the compensation program that we are so carefully nurturing could be the topic of public conversation -- it may not be inevitable, but it's sure becoming much more likely.

Do I know why it's important for us to understand this trend? Here are some of my ideas.

• It sells papers. If your company isn't explaining compensation, the media might as well. And here's the thing that we need to keep a close eye on. When employees are getting their education about compensation from the media, does that mean we, in compensation, have finally taken our employee relationship for granted too long, and allowed employees' trust to shift to outside sources?

• Everyone is trying to read the tea leaves about the economy -- are we on the way up, across or down? Should we recognize a bubble has been forming, and liquidate our retirement investments (so we can bury them in the back yard)? The media is starting to figure out that how companies spend their money on employees provides clues to the companies' sense of long-term security. Next thing you know "the Street" will be evaluating your company's stock price in relation to the proportion of variable pay to salaries in a given year.

• The media is starting to figure out that everything we do in compensation is communications. If you watch how a company handles compensation, you can learn a lot about its business principles, its belief in the future, as well as its Human Resource practices. (In comparison, excessive executive compensation typically tells you more about the CEO and the Board than any single operating issue.)

• As salaries continue to languish, everyone wants to figure out why. And since we can't get good answers there's emotional baggage to deal with. It's oddly reassuring to hear that most of us have been in the same boat, getting crummy increases (even when execs are getting such a better deal). And while it's alarming to The New York Times' readers that their salaries are being whittled away, it is somewhat reassuring to hear some other sources of income exist.

One last thing. Talk about a star turn! When the (arguably) best paper in the country wants real answers to tough questions on employee compensation, to whom do they turn? A Compensation Cafe alum, of course -- Stephanie Thomas, who was a recent regular contributor. She and her colleague, Linda Barrington, who were both quoted in the article, are leaders in the Institute for Compensation Studies in the ILR at Cornell.

How about you? Do you have an opinion? Become a celebrity by giving us a quote or two.

Yearning for celebrity? You'll stand out in the compensation crowd once you read 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.

When Bigger Isn't Better

It used to be a common perception that the Human Resources department in large companies was more sophisticated, more professional, and more forward-thinking than what you'd expect to find from HR in smaller companies.

We all presumed that the "big guys" knew what they were doing.

But current thinking among practitioners now challenges that presumption.  In fact, the pendulum of thought has begun to swing the other way.  Sophisticated has become cumbersome, professional has become bureaucratic and forward-thinking has created a chasm of credibility between philosophical concepts and the practical realities that managers deal with every day.

Remember the K-I-S-S principle (keep it simple, stupid)?  Many large organizations seem to have forgotten that common sense caution as they saddled their reward programs with more forms, procedures and bureaucracy.

The Evolution of Performance Appraisal

A good example of HR systems gone wild is the difference between a small company performance appraisal and the convoluted processes often followed by large companies.  Herein lies a stark contrast not only of styles but of methodologies and core beliefs that a more complex better way will increase the effectiveness of employee reward programs.

This growth of complexity is commonplace; by the time an organization achieves a certain population size HR feels compelled to "improve" their processes - usually in the name of increased employee sensitivities and a broader definition of performance review.  What worked well when the business was smaller is suddenly suspect, deemed somehow less effective, less desirable. 

What began as direct cause and effect, individual job performance followed by assessment = reward suddenly becomes more complex, more confusing to some, more aggravating to others.  While communication is critical it is often flawed and ineffective as both employees and managers question the additional complexity.

What follows is a brief comparison between how small and large companies tend to approach the critically important performance appraisal process.

The Small Company Experience:

• The employee's performance is assessed against what's expected of them.

• Performance discussions usually take place on the anniversary of either employment or promotion.

• Forms are basic, even simple.  They may not be standardized, and one or two pages are usually enough.

• The process doesn't take a lot of time.  Meetings tend to be short and focused, so both parties can get back to work.

• What the boss says - is what's going to happen.  The approval chain is abbreviated.

• The money discussion (pay increase) is front and center, a cause-and-effect dialogue.  "You have performed thus and so, and your pay will be changed from x to y."

The Large Company Experience:

• The employee's performance may be assessed against other employees, as much as against what's expected of them (based on their job description).

• Performance discussions use a Focal Point strategy, where everybody is reviewed at the same time.  For managers with more than two or three subordinates, this represents a challenge in terms of time spent and quality of assessments.

• Managers are often required to use multi-part, multi-page forms.

• Employee performance may be viewed against a desired bell-shaped curve of results.  Individual assessments may be modified to fit the expected / budgeted shape of the curve.

• The boss makes upward "recommendations,"  subject to approval.  Thus the reward conversation with the employee can end on a "we'll see" basis.

• Other topics like developing future performance, improvement strategies / action plans, and "where are we going"? discussions may predominate.  Sometimes talk of pay is deferred, raising the question of whether performance actually relates to reward. 

With size of the organization the process tends to become more impersonal, forms-centric, process controlled, and standardized.  Is that better than before?

How did the organization evolve into something potentially less helpful, less effective?  Perhaps the poking and prodding of systems and procedures in the name of improvement went too far, until they created a convoluted and twisted version of their desired state.

When the state of affairs has gone off the tracks, how many times have you heard - or used the phrase, "let's get back to basics"?

Perhaps that thought could be useful today, no matter what size organization you hail from.  Return to the fundamentals, the simple formula of performance = reward.

It doesn't have to be any more complicated than that.

K-I-S-S

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, "Piglet vs. Gamorrean Guard," by JD Hancock

The Intersection of Ideas, Inspiration and Innovation

Editor's Note: Today's post comes to us courtesy of guest contributor Chris Dobyns.

The WorldatWork 2015 Total Rewards Conference and Exhibition is now in the rearview mirror.  Thanks to some timely reporting from on-the-scene reporter (and Compensation Café editor and local Minneapolis resident), Ann Bares along with regular Café contributor Dan Walter, the readership has already benefited from one or two conference insights.

This year’s conference focused on the key theme of “Grow”, as a lifetime goal for total rewards professionals, with a sub-focus on the importance of new ideas, inspiration and innovation, for organizations to maintain their future competitive advantage.   

At Ann’s urging (and gracious shoutout) from last week, I thought I would summarize the key points from our presentation, Show Me The Money: The Case for Increasing STEM Pay Scales.  Our two key takeaways, which I’m not sure were too much of a “secret”, revolved around:

• Assembling and clearly articulating the case for a pay structure adjustment, ideally triangulated from multiple sources (employee perceptions, attrition, recruitment and market pay) – and the need to occasionally look at data a couple layers below the level of the obvious (in our case, non-STEM attrition vs. STEM attrition levels)
• Identifying the source of your competitive advantage, and then investing in that resource will be critical for organizations in the future, whether your organization is part of the private or public sector.  Admittedly, in government, these initiatives and obtaining the necessary approvals sometimes do take slightly longer, but continued persistence combined with proper program execution and workforce communication post-approval, will deliver the desired results

Other Conference Trends and Buzz

Local reporter, Ann Bares, noted a couple of conference trends, based on either workshop topics or the focus of the conference speakers. 

The new FLSA exemption standards generated some buzz among conference attendees.  I missed that session, but sat with a couple of attendees at lunch who were smart enough to read between the lines of simply the legal compliance aspects of the change alone.  My tablemates recognized that the change was maybe less focused on the increased overtime payment implications, but was a “re-run” of the goal behind the Fair Labor Standards Act when it was originally passed in 1938 – which was to expand employment in the U.S., and not to “protect” employees, by legally guaranteeing overtime payments at certain thresholds.  This round of revisions to the FLSA standards is probably less about employee protections also, and more about creating a greater economic incentive with U.S. employers to hire more workers.  This will ostensibly reduce excess labor supply, which is generally acknowledged by most armchair economists (and a few total rewards professionals), as the economic domino that must tip over before wage and salary growth will occur with any consistency.

Predicting The Future

Like many of my fellow conference participants, I found one of the remaining open seats at Steve Gross’s hugely popular session on Total Rewards 2020.  The session was quite good, and Steve is always an engaging and thought-provoking presenter.  I took more than a small amount of satisfaction in noting that many of the predictions for total rewards for 2020 (and beyond) had already been identified and expounded upon in this forum, under various titles, by the insightful and astute volunteer Café contributors.  Additionally, the uncanny audience accuracy in response to the “show of hands” exercise that Steve conducted in canvassing the attendees on future trends, had me wondering whether many of the audience members were in attendance simply to confirm their existing awareness of future trends for 2020.  Perhaps?

The Softer Side of Total Rewards

Both a cross section of workshop topics, along with the focus of the conference speakers underscored some other notable trends. 

The keynote address by Dr. JP Pawliw-Fry, and its focus on pressure and stress and the accompanying neuroscience research, dovetailed nicely with the closing talk by Shawn Achor, which focused on the benefits of creating an optimal environment to enhance the emotional (happiness) state in employees. Other sessions also reflected an accelerated focus on behavioral economics/cognitive psychology and social neuroscience influences in pay and compensation, along with the continued importance of big data analytics, predictive analysis, data visualization and simply good data to provide "decision advantage" – particularly in the area of total rewards. 

Everyone probably has a different perspective.  What’s yours?

Chris Dobyns, CCP, CBP, is Manager of the Office of Human Resource Strategies for one of the largest U.S. intelligence agencies. The Office of Human Resource Strategies is responsible for compensation and incentives, occupational structure, recognition and rewards, HR policy, and human capital program evaluation and assessment for his Agency. Chris has worked in the area of compensation for more than 30 years, and has been employed in various compensation-related positions by a number of large, private sector companies including, Sears, Roebuck, Arizona Public Service and Westinghouse Savannah River Company.

Justified Anti-Transparency Rules... When Your Past Pay is None of My Business

Asking the salary history of job applicants may become a banned question but employers could be required to publish hiring rates and stick to them.  This innovative intended regulatory intervention in recruiting practices is a pay equity initiative by (of course) California.   AB 1017 (Campos), the pay equity law proposed in February 2015, would ban employment advertising that demands salary history from job applicants; and it would require the minimum applicable hiring rate to be both published and paid or exceeded.  At first, I didn’t dream this idea would survive for long.  But the bill is advancing successfully right now.  This may be serious stuff, with broad implications for HR. 

I really don't expect it to pass, but it clarifies the growing public annoyance at the systemically discriminatory effects of low-ball offer rates that have disproportionate adverse effects on protected classes.  Women are particularly vulnerable to the negative consequences of modest pay histories.  Initial comments about the implications have have barely scratched the surface. 

It could discomfit recruiters but would please applicants.  Requiring the employer to share its pay promises should not bother comp types at all. 

Employment Recruiters:  Searches may become more laborious when past pay history can no longer be used to swiftly discard applicants.  Recruiters will have to work harder, interview more applicants and apply fewer heuristic exclusion tools… the process of elimination will become more difficult.  Fewer people will offer themselves as candidates when the real pay rates are no longer hidden.  It will end the status quo that now favors recruiters:  they can tailor their referrals towards those applicants with the highest earnings expectations, hoping to pressure the hiring managers to force HR to raise the offer rates, making their searches easier… winning more acceptances and generating higher rewards for headhunters.  It’s harder to recruit people when dangling a low offer than with a generous one, and this rule would hang your dirty laundry out for all to see.

Applicants:  Clear actual (rather than unrealistic theoretical) pay expectations will be published.  Job seekers can search more efficiently, without wasting time or having their hopes dashed unnecessarily and painfully.  Better to quickly learn that job is not worth landing rather than suffer a constant drain of your enthusiasm as you dedicate precious time and money in a losing cause.  If a job opening won’t pay enough to be minimally acceptable, there is no sense in pursuing it.  The sooner job-seekers stop chasing worthless openings, the more effectively they can preserve their dwindling optimism. 

Compensation Managers:  For a change, government becomes your ally!  The external law will force the enterprise to abide by your internal rules.  Compensation need not engage in endless contentious battles with recruiters and powerful hiring managers.  No longer will others be able to override your carefully crafted entry hiring rates.  The legal requirement to play fair according to your own rules will also strengthen the rigor of your policy standards, giving greater import to careful studies of external competitiveness and internal equity.  Any change to hiring rates will be publicized, thus becoming transparent to current incumbents and easing the otherwise frequently deferred pay reclassification and adjustment procedures.  Hiring at any “new higher rate” will compel immediate group adjustments.  Yes, it will cost more money in the short term, but it will save all the inevitable long term costs from lost morale and diminished motivation when companies drag their heels doing what is right.  Instead of peers being disgruntled over the hire of a new associate at a higher pay rate, they will rejoice at the ripple effect that raises the grade floor for all of them.

A new State law could (in this case, at least) shift the responsibility for compensation policy enforcement.  It would make compensation administration much more important and a lot easier. 

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.

Image "Confidential Rubber Stamp" courtesy of Stuart Miles/FreeDigitalPhotos.net

8 Ways the Minneapolis Skyway is Like Incentive Compensation

Those of you who regularly read my articles know I often view the world from a different perspective. This is one of those posts. WorldatWork is the main professional association for total reward professionals. Each year they put on an excellent conference and this year was no exception. The theme for the event was “Grow.” The setting was Minneapolis, MN. The weather, as one might expect, was capricious. The conference had tons of great sessions and speakers, but the most important lesson I learned was from Minneapolis’ famous Skyway.

If you have ever been to Minneapolis, the Skyway is sort of a hamster “Habitrail” for humans. It is a system of above ground tunnels that provide shelter from the extreme weather conditions that residents call “seasons.”

After using the Skyway to get from my hotel to the conference site, I realized that the system was exactly like incentive compensation. OK, maybe not exactly, but close enough.

1. The Skyway is critical to the success of both the city and its users.
2. The Skyway requires significant amounts of planning, design and construction and was more expensive than a traditional sidewalk.
3. For those unfamiliar to the local conditions, the Skyway may seem unnecessary or even excessive.
4. The Skyway requires you to trust the paths will get you where you want to go, because often you cannot see the final destination.
5. The Skyway can be confusing to new users.  Consequently, they tend move slower and ask for directions more often than those who have mastered the system.
6. The Skyway often takes longer than the sidewalks, but in many cases, a bit longer is totally worth the benefits of making it to your goal when the environment is at its worst.
7. While the Skyway may not be perfect and requires both ongoing maintenance and communication, without it downtown Minneapolis would often be unable to function.
8. When the weather is great the system provides little other than an interesting thing to discuss with out-of-towners.

Simply replace the word “Skyway” with “Incentive Plan” and you’ll easily see the lesson learned. Pay for performance can be hard and sometimes confusing, but when designed and executed correctly, it is better than the alternative for specific circumstances. Often conditions are great and no incentives are needed. Expecting them to stay this way is just silly. Building a system that will support your needs even when the world throws its worst at you, costs time and money, but thriving in any condition is the hallmark of a truly successful company.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. Become a better business leader. “Everything You Do in COMPENSATION IS COMMUNICATION” was written by Comp Café writers, Dan Walter, Ann Bares and Margaret O’Hanlon. It lays out a practical approach to communications (with helpful worksheets for each step). Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

Are Your Sales Compensation Plans Just Experiments?

Recently I saw a question on a forum from a CEO:

"One of our sales reps is blowing out his sales numbers - and is set to earn commissions that far exceed any other rep and puts his pay higher than mine.  Is it ever wise to put a cap on commissions?" 

In my opinion it’s a big NO. Capping commissions when salespeople are hot may keep their pay lower than the CEO, but it also encourages superstars to quit selling.

If the commission plan is well designed and a salesperson hits it out of the ballpark, what's the problem?  Pay him/her what you promised and hope s/he'll just keep on doing it.  If the CEO has a problem then s/he needs to get over it. (I fully understand no one would actually tell him/her this!).

A recent study examined the impact of capping salespeople’s pay.  It looked at the compensation plan of a large U.S. contact-lens manufacturer. This company capped  commissions at quota. As a result, the salespeople weren’t motivated to exceed them. By eliminating the cap the company increased motivation and revenue increased by 9%.

One way to address a CEO’s concern is by including a “ramp rate”.  A ramp rate is used in many different ways, but in this case it can be used to pay commissions at a higher rate once quota is achieved.  For example, a salesperson may earn at 1X rate until quota is reached, but earn at 1.5X rate on all sales above that.  Quotas can be set as high as possible.  By doing so, typically only the superstars will exceed them and get commission at the higher rate. Even though most of the salespeople won’t exceed quota, the fact that a ramp rate exists still makes the plan motivating.

There are other issues with quota-setting.  Sometimes companies overpay salespeople with good territories and/or underpay salespeople with poor territories.  In other words, quotas are set for every territory as if they all have the same potential. 

Example 1:  If a salesperson selling office furniture has five big companies move into new facilities in his/her territory, quota may be reached very easily.  Success in this case may be more a matter of luck than sale’s talent.

Example 2: On the other hand, if a salesperson has some companies in his/her territory that are in bad shape financially, no amount of sales talent may be enough to enable a salesperson to reach quota.  

Setting appropriate quotas requires a fair amount of analysis.  It isn’t about automatically ratcheting everyone’s quota up a notch over last year.  And it’s not about force-fitting them based on needed revenue.  Sales must get a clear understanding of each territory’s potential.

1)     Who are the potential customers in each territory?

2)    What are their business needs?

3)    What is the estimated timeframe that they will be ready to buy?  

4)    What will it take to close the deal?  

• Is it better knowledge of their business?  
• Understanding the weakness of competitor products to capitalize on during sales pitches?
• Is technical support needed to provide demos?

5)    What will commissions total under various scenarios?

• How many salespeople will reach quota?
• How many will exceed quota and earn commission at the ramp rate?

Companies have gotten better at quota setting over the years partly because better data for measuring territory potential is available.  They’ve also improved commission plan design because they can use analytics to estimate the consequences of what will happen if certain variables change.

Quota setting is just one component of plan design.  But it can be the biggest motivator/de-motivator.   Design without analysis is guesswork.   Compensation professionals can and should have input. 

Is your company experimenting with its sales plan?  A little sulphur here --- a little ammonium nitrate there...     Watch out!  Your sales plans might just blow up!

What do you think?

Jacque Vilet, President of Vilet International, has over 25 years’ experience in Human Resources.  In her current role she works with start-ups and multinationals on both domestic and international HR issues including compensation, learning/development, talent acquisition, workforce planning and mergers and acquisitions.  Jacque has an M.S. in Psychology and an MBA from Southern Methodist University.  She has been a speaker at conferences in the U.S., Asia and Europe.  She is also a regular contributor to various HR and talent management publications and conducts frequent webinars. 

Being Busy vs. Having an Impact

Since we are in the business of measuring results, I thought it would be interesting to hear how others are doing, and what they're doing. After all, few of us can claim to be experts in this part of our work.

HBR.com recently revealed, "What Big Companies Get Wrong About Innovation Metrics."  You may be in the crowd of companies that have been trying to break the mold through in-house innovation teams. It seems that a number of industries have been shaken by the disruptors like Airbnb, Uber and Netflix, and are looking to cut their own path.

The thing is, innovation is really tough to measure. I remember discussing this very topic years ago with a radio broadcaster who has subsequently become a national presence. He was unshakeable then that traditional performance management schemes couldn't measure the contributions he was making to his station or the professional development he was achieving. I've always wondered how he won his argument, since he catapulted from a local public radio station to a longstanding national role. I think he'd have a few things to teach me.

My guess is, it has something to do with "the vision thing" as the reporter, Scott Kirsner, called it -- aka, gut instinct.

" . . . white-sheet-of-paper innovation efforts are fundamentally different from growing and optimizing existing lines of business. Apple founder Steve Jobs famously didn't believe in focus grouping new products, and when Starbucks founder Howard Schultz wanted to create a totally novel coffee-buying and drinking experience, he didn't order up market research. The result? Products like the iPad and Starbucks' new Reserve Roastery and Tasting Room in Seattle, a prototype for future Starbucks flagship stores."

Down here with the ever hopefuls, the news isn't remotely that innovative. It turns out the new innovator corps are using both activity and impact measures, with the activity metrics still winning for now. No need to explain why activity metrics are unimpressive. We've all had to teach the difference between being busy and having an impact. After all, it's a lot more important to gain market share than hold meetings.

Scott seems disappointed with the five most commonly used metrics he identified by surveying company innovation leaders:

1. Revenue generated by new products
2. Number of projects in the innovation pipeline
3. Stage-gate specific metrics, i.e. projects moving from one stage to the next
4. P&L impact or other financial impact
5. Number of ideas generated

Experience shows these workhorses can be helpful, but do they ever really feel satisfying? We're always hoping for more insight, greater traction from our measures. It's a gut feeling.

Seems like in the business world we don't learn enough from our gut feelings. We so rarely trust them. We sure are busy, but are we getting any closer to having an impact? That's what you're paying lots of your employees to do, remember?

If anyone's doing something novel, mind bending or just really cool, could you pass it on? We sure could use some inspiration. My gut feeling is that we could learn a lot from each other, too.

Eager for inspiration? There's more to learn about having an impact 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.

Snippets From #wawlive: The Big Reward Show

So the big show finally made it to my hometown: WorldatWork's 2015 Conference and Exposition kicked off yesterday in the Minneapolis Convention Center.  In customary form, Minnesota welcomed the out-of-towners with a brisk 40 degree May day.

A few outtakes to share.

Dr. JP Pawliw-Fry -- author (Performing Under Pressure), lecturer and renowned thought leader -- led the opening general session with a great presentation on performing under pressure.  He shared research on the neuroscience of pressure and how, contrary to myths about how it forces us to "rise to the occasion," pressure can acutely diminish our performance.  He presented the idea of a COTE of armour against pressure; the acronym stands for Confidence, Optimism, Tenacity and Enthusiasm.  I found his message very encouraging, that our most effective responses (for ourselves and particularly as leaders) to pressure situations are grounded in honesty and humility.  Be vulnerable.  Take risks.  Admit to mistakes. 

And this: be open to the moment.

In fact, just the act of standing with your arms open -- according to Dr. Pawliw-Fry -- can change your body's response to and in the moment.  And perhaps even change your personal performance trajectory.  High performers extract 2 to 3 times the information from an opportunity than an average performer, something that only happens if you're vulnerable and open to the moment.  That's an important lesson, particularly for us in the HR and rewards space.

In other news, there was a lot of interest and buzz around the sesion on the new FLSA overtime exemptions standards co-conducted by Helms & Green LLC and Deloitte Consulting.  A sign of the times, I suppose: while we aspire to engage employees and generate business results, we cannot afford to lose track of our compliance obligations.

Another session that generated a lot of interest and discussion was the Mercer session titled "Total Rewards 2020: What to Expect in the Next 5 Years."  Hoping to catch the rerun of that one today.

And finally, frequent Cafe guest contributor Chris Dobyns and his colleague John Yelnosky (both from the National Security Agency) shared the secrets of their own success story around STEM (science, technology, engineering and math) compensation in their session "Show Me the Money: The Case for Increasing STEM Pay Scales."  Hoping we can talk Chris into doing a recap in the near future for Cafe readers!

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.

What's That In Dollars?

It's human nature to look for simple solutions to perplexing problems.  Simple avoids confusion, keeps you “on message” and helps (you think) create greater employee awareness and an appreciation of reward programs and policies.   However, when you're dealing with the diversity and complexity of international compensation it's just not that easy – nor should it be.   For those seeking the simple life it can be difficult to understand and accept that each country operates in a different environment from the next. 

There's no cookie cutter out there.

Perhaps because of its long history of isolationist tendencies, or a bit of Yankee arrogance, but U.S. managers tend to struggle with the challenge of this "no, we're not all the same" concept more than many other players on the global scene.

For the most part U.S. managers don't want to hear that pay levels in Finland, or Argentina or Tunisia are different from the U.S. - even for identical jobs.  Instead, they would rather treat everyone the same, call it globalization and with a pat on their shoulder consider themselves a one-world player.  But those who push such an agenda of simplicity foment and spread a misleading distortion of the facts, a twisted sense of reality that they'll find very costly to implement, and its inevitable results will more than likely irritate key talent within their workforce.

Consider the senior manager who simply wants to convert a foreign national’s salary into U.S. dollars – based on a concern over what they call “internal equity.”  The assumption the manager is under is that everyone pays approximately the same for an “XYZ Manager” - or should.

"We pay USD60,000 for the job; what's that in Euros"?  Or worse . . . .

"When we convert our UK employee 's pay to dollars the amount is less than their U.S. counterpart.  We have to do something."

No, no, no.

Other considerations:

• If simple conversion was a viable approach, why don't we see such formulae prominently displayed by highly reputable salary survey providers?  Why are all figures reported in local currency?

• Local national employees will be skeptical of the simplistic approach, as in their mind too many local realities would be ignored in favor of what is perceived as Company standardization for the sake of administrative ease.  And that somehow they're saving money at the employee's expense.

• Lacking a strong correlation between country pay levels you will either needlessly increase your compensation costs, or under-value your employee talent and risk disengagement – or worse.

I once developed a formulaic approach that explained to a COO why he should not establish internal equity between the U.S. and the UK by simply converting GBP into USD.   I factored in a host of elements, including local taxation, competitive pay levels, incentive practices, cost of living, required social charges, benefit costs, etc. to make my case.   My point was that a simple conversion would be a distortion of the economic realities that drive pay levels in both countries.

Sad to say, but the explanation was ignored and the COO, though he acknowledged the logic of my argument, continued to prefer a simple conversion to establish relative values in his own mind.  So every time the conversion issue arose we had to rehash the myriad differences between countries in order to remind decision-makers that apples are not oranges.  That there is no universal fruit.

To operate successfully on a global basis management needs to understand, to truly believe that each country operates like a separate and sovereign national entity, with distinct economies, taxes, competitiveness, employment laws, culture, statutory benefit requirements, etc. that make a 1:1 comparison with any other country a distortion that will cause you to either over spend or under spend your reward dollars.  Either result should be avoided.

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, "Money Logo," by Ivan Walsh

Incentives to Force Turnover and Change Culture

In a bold move, one company has deliberately shed 14% of its employees by offering a cash buyout to those unwilling to embrace their CEO’s new direction for the future.  “As of 4/30/15, in order to eliminate the legacy management hierarchy, there will be effectively be no more people managers.” THAT warning certainly shook things up!

In an extremely long 5,000 word email memo, Zappos CEO Tony Hsieh issued an ultimatum confirming his commitment towards transforming Zappos into a business that doesn't need managers to grow and fix internal problems.  Promising strong steps towards achieving “our desired state of self-organization, self-management, increased autonomy, and increased efficiency,” he declared there would be no place for opponents of self-management and self-organization… and backed it up with a cash incentive for dissenters to leave.

The online retailer, a unit of Amazon, should survive the exit of the few hundred employees who accepted a three-month severance package rather than stay with a company without manager roles or job titles reflecting the traditional organizational hierarchies.  Not everything will change, as shown in a parenthetical statement: 

(On our backend HRIS system, employees will still have "reporting" relationships solely for the purposes of maintaining compliance (e.g. SOX) requirements because we are part of a public company. This compliance requirement will be largely invisible to most employees and should not be confused with legacy reporting structures which will no longer exist.) 

Regardless, the boss termed the action a “rip the bandaid” approach to stimulate faster progress towards his desired objective. 

Using compensation incentives to change the nature of an enterprise is not a new idea, but it is uncommon to see it attempted so openly. It is also impressive when the company clearly demonstrates such a commitment to comprehensive restructuring that they will pay cash to encourage dissenters to quit.  A few months severance seems an inadequate incentive to induce resignations by itself.  Those who opted for the buyout probably had other reasons for leaving, too.  But there are always some who consider their management roles so essential to their personal reward package that they would rather depart than remain in a diminished role.  That says something about their values, but I’m not sure exactly what.

It will be fascinating to see the end results from the courageous experiment in using compensation incentives to affect behavioral transformation.  Words paired with actions carry more powerful impacts.  Promises followed by payments are particularly effective reinforcements.  There can be no doubt that such dramatic changes in organizational dynamics will have very strong effects on future success.  As long as workplaces are populated by human beings, the manner in which they relate to each other will have immense consequences for output results.  Here we see intersections of reward systems and contextual structures for human interactions. 

Test the accuracy of your crystal ball.  What do you think will happen? 

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.

Image "Bye Key Shows Departing Or Leaving" courtesy of Stuart Miles/FreeDigitalPhotos.net