Compensation Cafe

Rethinking Pay in a New Performance Paradigm

Lots of experimentation going on in performance management -- and that's good.  The movement to non-scored performance conversations is a thing now, embraced for the right reasons (forward looking; emphasizing coaching, improvement and development) and some of the wrong ones (absolving managers from the sometimes difficult responsibility of communicating directly and honestly with employees about performance improvement needs).

My Café colleague Derek Irvine started a wonderful conversation with his recent post about the tough questions that some of these new performance management directions raise for compensation.  Probably-not-coincidentally, I've been having interesting conversations about the same question myself over the past week with a few colleagues. 

Some thoughts in that regard...

You Can't Rethink Performance Without Rethinking Performance Pay

I continue to get questions about how to do merit pay in the wake of a move to a ratingless performance process.  To be honest, I'm not sure you really can.  I'm not sure you should.  Oh there are workarounds, of course.  But what I'm seeing in my own work suggests that, for many organizations, merit increases decoupled from an appraisal score are tough to sustain.  The realities of this particular combination raise the bar for disciplined, careful, honest communication with employees in a way that many managers -- many organizations -- cannot meet.  Differentiated pay which is based on judgments or conclusions that are not explained clearly is neither motivating nor rewarding.

And so, when you find it necessary to rethink how you are managing and communicating about performance, you must also rethink (or at least revisit) how, where and even whether you should do performance-based pay.

And this is a good thing.  The winds of progress are tossing us up against a changing reality.  How many of us would deny that the performance rating/merit increase combo is delivering little value in most organizations?  We can blame the lack of managerial courage and candor, we can lament the stagnation in merit increase budgets, but our time is probably better spent figuring out what can and will work better for the organizations we serve.

Design Insights/The Right Plan is the One Your Managers Will Embrace and Use

Let's accept that its time to rethink and potentially redesign.  To step out, imagine and try out some new things.  Many of us are going to get the opportunity to redo rewards in our shops; some of us are going to have that opportunity forced upon us.  Maybe sooner than later.  With that in mind, let's finish with some design insights -- wisdom from one of the great thinkers at design firm GoKart Labs.  In the selections I've lifted/adapted from Jason Scherschligt's article and shared below, there are some great insights for those of us in the rewards field to take to heart.

Make small things first.  Get them into use quickly.  Measure relentlessly and listen intently.  Adapt based on what you learn.

You'll recognize that doneness happens constantly and never. 

You'll celebrate the value you've made -- not the program you've delivered.  More importantly, you'll shift your goals from inward to outward, from the success of your program to the satisfaction and delight of your users.

You'll edit your tale so that they, not you, are the heroes.

Get that?  Managers are the heroes of our reward programs.  Not us.  Design with this insight in mind and you will create programs that will be used and will generate results.  Because ultimately, the right plan - the one that delivers pay effectively in whatever paradigm you are facing is the one that your managers will embrace and use.

That's my thinking.  How about the rest of you?

Still trying to get your head around the people part of compensation?  First thing you have to know is that Everything You Do (in Compensation) is Communication. Ann Bares collaborated with Margaret O'Hanlon and Dan Walter on the ebook; find it at www.everythingiscommunication.com.  Ann 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 "Time For A Rethink Meaning Change Strategy" courtesy of Stuart Miles / FreeDigitalPhotos.net

What’s the Point? Decoupling Performance Reviews and Compensation

While I enjoy blogging here on the Compensation Café, my primary (selfish) benefit of doing so is the tremendous amount I learn every day from my fellow bloggers and readers who regularly share deeply insightful and thoughtful learnings, lessons and applications in the broad field of compensation.

Today, I’d like to tap into your collective knowledge on the subject of performance and compensation. A complex and nuanced topic, certainly, to many outside of our profession it seems as if it should be quite simple.

So my questions to the group today:

1. How does your organization approach performance management? Formal or informal? Annual, bi-annual, frequent? A combination?
2. Is the performance management process tied to compensation – merit increases, pay decisions, bonus awards, etc.?
3. If the performance appraisal process isn’t tied to raises directly, do employees understand this clearly? How is this communicated?

I’m asking because of recent research from BambooHR showing that few non-managers find the performance review “very valuable”:

• 34% of non-managers
• 58% of management (non-HR)
• 70% of HR

A quick search of Twitter reveals similar results in more colorful terms. The image below is from my session at SHRM last month:

Why is the traditional annual performance review such a failure? Because few prefer to receive feedback in such a format. And because this formal process exists, too many managers defer feedback to the formal, scheduled session. The BambooHR research cited above showed the very low percentages of respondents who preferred to receive feedback in a scheduled performance review:

• 18% of non-managers
• 16% of managers
• 16% of HR

That’s a primary reason why more and more companies are moving away from the traditional review process. The Washington Post recently reported:

“[Accenture] will disband rankings and the once-a-year evaluation process starting in fiscal year 2016, which for Accenture begins this September. It will implement a more fluid system, in which employees receive timely feedback from their managers on an ongoing basis following assignments…

“[Accenture’s] answer was that performance management had to change from trying to measure the value of employees’ contribution after the fact. It needed instead to regularly support and position workers to perform better in the future.”

Indeed, going back to the BambooHR research, “Only 4% of all respondents feel that performance reviews are the best way to motivate and engage employees… They prefer to motivated through:

• Open, informal conversations (24%)
• Getting raises (18%)
• One-on-ones more geared toward career path (17%)
• Managers listening to their ideas and using them (15%)
• Getting more employee recognition (13%)”

So why do we keep doing formal reviews? An easy argument is that the review process is a good way to assess and compare performance to assign raises or merit increases. But in the last decade or so, it seems many organizations are moving away from this traditional linking of review and compensation.

I argue it’s time for a more human approach to providing continuing recognition, feedback and compensation adjustments.  A blend of formal and informal, annual and frequent, manager feedback and peer-based praise – a truly crowdsourced performance review.

In addition to my three questions at the beginning of this post, let me ask another. Why do we stick with a century-old process we know doesn’t work well? From a compensation perspective, what’s a better way to determine those deserving of increases?

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.

Quitting with Grace While Gritting Your Teeth

Ever think about just clearing out your workspace one night and leaving forever, simply abandoning a rotten job and disappearing?  Suffering under a vicious boss or enduring a sweatshop environment with an unappreciative employer can tempt you to retaliate like that.  Well, dreaming about dumping a bad situation without warning is fine, as long as you keep it imaginary and act more sensibly. 

The idea may give you some silent satisfaction, but there are many reasons not to carry though on such a self-destructive course of action.  Considering the consequences of behavior is central to the total rewards profession, so compensation types should definitely know better.  Right?  Let’s talk about it.

After a recent article about a creative and positive bittersweet resignation, one online reader stated a preference for a more hostile job departure.  Obviously less happy with their job than the person in the story, their comment showed more of a desire to figuratively give their employer the finger:  “My resignation would consist of cleaning out my desk and cubicle while no one is around and splitting the scene.” 

Bad idea.  Abandoning a job with a midnight flight could haunt you the rest of your working life.  The factually negative report of your actual behavior would undercut any positive references from other employers.  You could never live it down.  One hasty careless blunder can erase any goodwill earned from years of faithful service.  Trust built up over a long time can be lost in a moment.  Destroying all future career prospects simply to satisfy a hostile urge shows a terrible lack of judgment.  It is not necessary, either.  A much more temperate positive response can be far more satisfying in the long run. 

Instead, by simply "regretfully" resigning "for a better title with higher pay at a bigger place with superior career options," you wouldn't burn any bridges.  That popular reason is usually true, too.

Furthermore, the place you are leaving would probably pay you off immediately.  Smart firms voluntarily offer pay in lieu of notice just to get happy quitters off the premises where you can't steal clients, shame management or gloat.  No boss wants a departing worker who has nothing to lose hanging around disillusioning co-workers with the many superior features of your new better employer which you just can’t wait to join.  Smart bosses realize that a nightmare scenario of dangerous subversion can be easily avoided by sending you home with pay for the remainder of your notice period. 

Announcing your intention to leave well in advance can be a very effective strategy, especially if your old evil employer pays off deserters that way.  By giving so much notice that they are forced to pay you for or a month or more, you might become free to also earn your new salary simultaneously.  If you are forced you to leave earlier without pay, your separation status changes from voluntary resignation to discharge without cause, which also entitles the victim to unemployment compensation and earlier acceptance of the new position.  I’ve done it.

Now, doesn’t that sound much better than just sneaking off like a thief in the night?  Happily doing well is a much better revenge than spiteful sulking. 

E. James (Jim) Brennan is an independent consultant with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution.  After HR corporate jobs in chemical/pharmaceutical manufacturing, he consulted at retail, government, energy, IT, tax-exempt and other industries throughout North America before becoming Senior Associate of pay survey software publisher ERI until 2015.  A prolific writer (author of the Performance Management Workbook) and speaker, he gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service.  Jim also serves on the Advisory Board of the Compensation and Benefits Review.

Image "Adult Manager Grinding His Teeth" courtesy of imagerymajestic / FreeDigitalPhotos.net

5 Lessons for a Compensation Department of None

Over the last few years, we have seen a rise in attention to the all too common, “HR Department of One”. These jacks-and-jills-of-all-trades, (and master of many), must be the policy maker, recruiter, trainer, confidant and much more for many companies. Often, on this very site, we talk about “compensation departments and compensation professionals” as if every company has one or both. But, what if, as is often the case, a company has NO compensation professional on staff? Or, what if the company has a great compensation analyst with little or no training in executive compensation, sales compensation or some other important specialty?

Many successful companies operate with a compensation department of none. What do the people know at these companies that allow them to continue to move forward without internal compensation expertise?

1. They try and keep things simple. These companies seldom use a wide range of compensation elements. The elements they use usually refrain from a lot of bells and whistles. This allows them to manage the programs effectively, even when the programs may not fully support their needs. They know that a limited program that works is better than an amazing program that doesn’t.
2. They stick to a schedule. They have limited periods to think about and act on compensation issues. They intensely work on pay during these periods and put little focus on it during the rest of the year.
3. They delegate. They tend to ask (and trust) more of finance, managers and the employees themselves. There isn’t a lot of time for handholding. People from multiple areas of the company often perform analysis, communication and management of programs as a series of small projects.
4. They focus on the big things. Another compensation plan or a small tweak to an incentive program may make things better or more interesting, but getting salaries and bonuses right is the priority. Since compensation and HR are part of the same job at most of the companies, the approach is more holistic than at many larger companies.
5. They know when to ask for help. They have less of their ego involved in the pay programs. This means they reach out to colleagues and consultants earlier and more often. They are comfortable leaning on others’ expertise (and are usually willing to share their own in return.)

What should they know?

1. Survey data is useful, but it is not compensation consulting or compensation planning. Compensation departments of none may only have access to a single data source. Often that source is an aggregated or “scraped” data set. This data does not have the nuance and detail available from more comprehensive data sources. This may be fine for a while, but it can result in long-term pay policies that cannot be supported when better data or analysis expertise does become available.
2. Variable pay programs are harder than they seem. The ongoing management and communication required for these programs is often not possible. Poorly designed, managed or understood plans can result in actions, decisions or payouts that can irreparably damage a company.
3. Without a compensation philosophy and strategy, things will get very messy (but it may take a few years.) Operating without a set of rules is operating without a safety net. Even a simple list of two or three objectives is enough to help ensure consistency.
4. Payroll isn’t really the same thing as compensation. Payroll is a result of compensation. Many people confuse the two. Compensation is about everything that happens before someone gets paid. Payroll is about everything that happens because someone gets paid. It is absolutely essential both are done correctly, but each can exist and be performed to perfection even if the other is in disarray.
5. Pay usually eats up more company revenue than any other piece of your budget. Even small improvements can have a huge impact. That’s right, companies with no internal compensation expertise, often have the greatest need for expertise. Compensation can consume more than seventy cents of every dollar your company brings in. This leaves thirty cents for every other department and activity at your company. If you can increase compensation effectiveness even by 5%, it can be a game changer for the success of your company. In mist of budget discussions, you are the most important person in the room.  Respect that incredible responsibility.

It would be great if every company could have a team of compensation experts in the office, but that simply isn’t possible for many companies. The lack of internal compensation expertise does not need to result in a lack of compensation excellence. Are you, or have you been, in this situation? Is there anything you can share to help others succeed?

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. Do you want to know more about Performance-Base Equity. Dan was written a new comprehensive issue brief on the topic. Dan has also contributed to “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And if youp;re still not bored with Dan, he has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

Cafe Classic - Focus on Your Company’s “Sweet Spot” to get Performance Management Program Results!

Editor's Note:  Today's Café Classic post was first published on May 7, 2009.  Its lessons on creating value with the performance management process -- shared via a rather interesting analogy -- are still and particularly applicable today, given the bold steps many organizations are taking with their programs.

Enjoy!!

My refrigerator is a stainless steel, top-freezer Kitchen Aid, what about yours?  I’m working up to a crucial issue for performance management, so stick with me for a bit.

The romance of large appliances

Let’s say we put two companies that manufacture refrigerators side-by-side.  One is called Cold White Goods, the other Ace Refrigerators.  They both have R&D, Marketing, Sales, Customer Service and factories.  They both gauge their results in terms of measures like cost of labor, inventory, cost of goods sold and margin. 

Are the companies identical? Do their financial results seem interchangeable?  If they were, they would have pretty blasé shareholders.

In fact, Cold White Goods was the standard for middle class homeowners in the 1970s and 1980s, but Ace surpassed their market share in the U.S. and Europe recently.  Ace has also been working hard on costs.  If you take a look at the stock price, you’ll see that the market is noticing.

So what does this story have to do with performance management?  In the last few years, Ace’s overriding strategic goal has been to differentiate itself from Cold White Goods.  It’s shown customers many ways that Ace refrigerators are better suited to their lifestyle.  Of course, this is the external evidence of a range of internal operational changes that Ace has made. 

This “sweet spot” feels so good

Ace has become successful by making itself different from its competitor.  Its “sweet spot?”  All of the ways it’s successfully differentiated itself from Cold White Goods.

When your company cascades goals for performance management purposes, do employees’ MBOs address your company’s “sweet spot?”  If not, if employees are just getting the refrigerators built and shipped, you’ve lost track of performance management as a business tool.

Every refrigerator company has R&D, Marketing, Sales, Customer Service and factories.  These functions have work to get done that is quite similar from company to company.  At Ace, how do employees in these functions help drive the company’s success?  By focusing on outcomes that differentiate Ace from their competitor.

Make the first move

Measures like these start at the top.   Few companies can exist without them.  But somehow, they tend to get watered down and bogged down as the cascade proceeds. Most of the time it happens because no one is paying close attention. 

Does your company have a process that reviews objectives after they’re developed, to make sure that the plans will roll up to the results needed?  If HR doesn’t have the strategic chops to oversee the review, they sure have the chops to guide and coach it. 

Few companies commit to this due diligence.  And then, the annual frustration with performance management sets in.

Summer reading or influence building? Get yourself a copy of  Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com, the convenient website where you can grab our popular eBook. 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.

Pay Transparency Around The World

You’d have to be Rip Van Winkle not to know that pay transparency is an important issue today.   Compensation professionals are beginning to grapple with how to define “transparency” in their companies and to get their arms around the clean-up work that will be necessary to make transparency successful.

For those of you who have international responsibilities you may already know that the term “pay transparency” takes on different meanings in different countries.  Let’s look at a few and see just where they are in the process.

Russia

When you think about Russia, the word transparency in business is not the first thing that comes to mind.  Even years after the end of communism, corruption in state owned companies continues be a big problem. Transparency with respect to employee pay is nonexistent.

Local companies hide large portions of employee compensation.   Employees receive “white wages” ---- money that goes on the company books and is appropriately taxed.  They also receive “black wages” --- hidden/unreported income in the form of cash.   The benefit of black wages is that both companies and employees can avoid taxes.

Black wages are also used by management to reward or punish employees. This is part of the old culture of cronyism in the workplace --- a holdover from the days of communism.

Although the number of foreign-owned companies existing in Russia is very small, they are beginning to have an influence on local companies as employees begin to move back and forth between the two.

Brazil

According to the Brazilian constitution, no employee in the public sector can earn more than a Supreme Court Justice. Yet since the Freedom of Information Law was passed in 2013, it’s been discovered that many are paid far above that limit.  It’s the first time compensation has been made public, and it’s created quite an uproar.

In contrast, Brazilian executives in the private sector are fighting to keep their pay secret.  They claim that to disclose pay details would violate their privacy and put them at risk for kidnapping, which is a very real possibility.

The Institutional Shareholder Services (ISS), an advisory firm, is urging company shareholders to vote against pay increases for top management in an attempt to force more openness.

China

Lack of transparency has long been the norm with executive pay at State Owned Enterprises (SOEs).   Since SOEs are owned by taxpayers, the public has been highly critical of the fact that executive pay structures have not been open.   A new law for reforming the pay system is to take place by the end of 2015.

Similar to Russia, executives are partly paid “off the books”.  In addition, some executives take a second position at parent company subsidiaries which entitles them to another paycheck which is, of course, not made public.

Post-reform pay levels of senior executives will not be allowed to be more than eight times higher than the average income of employees.  Executives whose current pay is higher than this will have their pay cut up to a maximum of about 1 million yuan (US$163,340).  Currently executives earn, on average, twelve times that of employees.

Scandinavia

Sweden, Norway and Finland are operating light years ahead of the rest of the world.

Each year Sweden, Finland and Norway publish everyone's income tax returns. Pay transparency has been a practice since the 18^th century and is actually part of Sweden’s constitution.  For Scandinavians it’s a non-event.  It’s just part of their egalitarian culture.

Imagine the howl if the IRS put tax returns online, so co-workers, neighbors and in-laws could see what you earn!

With the exception of the Scandinavian countries, the focus on transparency has been on executive pay.   By contrast, publicly held companies in the U.S. have long been required by the SEC to show compensation paid to CEOs, CFOs and other senior executives.  In the U.S., the focus on transparency has moved to employee pay.

We can congratulate ourselves for having progressed as far as we have, but we still have a long way to go.  Maybe one day the U.S. will attain the same level of transparency as the Scandinavian countries, and it will be non-event for everyone.

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. 

The Job Evaluation Conundrum

Throughout my Compensation career I have never enjoyed job evaluation.  As soon as I progressed high enough in my organization I delegated responsibility to a subordinate and washed my hands of it.  Job evaluation is a thankless task, with the evaluator subject to criticism from all sides.

• If you agree with an evaluation request, you're only admitting to the obvious.

• If you disagree and value the job differently, you clearly don't understand the job.

• The subjective nature of the process is viewed as suspicious.

• Job evaluators don't receive Christmas cards.

In spite of my disdain for the process the act of evaluating jobs has been found useful by companies since the 1930's.

• As a method to establish a hierarchy of job importance (A is bigger than B, B is bigger than C, etc.).

• To explain the relationship of jobs, one to another (A is how much bigger than B?).

• To set employee expectations and manage the Reward process (price the jobs).

Job Evaluation does have other purposes as well.  The internal assessment sets career progression steps and assists with organizational development.

Despite these worthy contributions the criticism of the process continues from several directions:

• Job descriptions are often poorly written, with content manipulated by managers to gain advantage.

• Pressure is often brought to bear on the Evaluator to increase a rating.

• Evaluation language, forms  and procedures are often complicated and confusing to employees and managers alike.

• Senior management support for the integrity of the process is often limited.

• Employees are skeptical of an inherently subjective process where decisions are made by someone from outside their functional area.

For those who use a job evaluation process, a further step of valuation is to place a price tag on each position - and to do that you need to conduct a study of the competitive marketplace.

Market Pricing

Here is the one process that gets you straight to the core of the matter - placing a monetary value on your jobs.  Some of its advantages as an evaluation process are:

• It's more objective, especially if using multiple survey sources.

• It's easier for management to accept, vs. the judgment of “some analyst in HR.”

• It's easier to defend results to otherwise biased managers.

• The evaluator is subject to less criticism.

Most companies follow both processes, job evaluation and then market pricing.  Does that two-phased effort add value?  I have my doubts, especially if the prime goal is to establish a salary structure.

What if the marketplace indicates a job is worth ~$50,000, but as a result of your evaluation process the current midpoint is either much higher or much lower?  Ignoring the market could prove costly, in terms of either dollars or employee disengagement.  But if you follow competitive practice – then what's the point of your internal, job content-based evaluation process?

When faced with a choice most companies would make the change.   Dealing with reality, they would say.  So at the end of the day the true indicator of the value placed on your hierarchy is through market pricing.

Another concern is that while Job Evaluation can be a tedious process it isn’t a sufficient end in itself.  You still have to price the jobs to create an effective salary structure.  Survey data needs to be “interpreted” by an analyst in order to ensure position matches are appropriate and the subsequent data properly integrated.  We call this “massaging the data.”

Some examples of how market data can be massaged between the survey source(s) and the salary structure:

• When you cluster diverse market data points into a graded salary structure.

• When you are not able to afford competitive rates you may lower the value of each position and create a below market salary structure.

• When you move jobs into certain grades to reflect the organizational realities of your company (the senior analyst must be either one or two grades higher than the core analyst).

• There will always be “favored sons,” positions that must be slotted a certain way in your hierarchy, regardless of market data.

If your goal is to price the internal and external value of your positions you don't need a job evaluation process, but you do need market pricing.   I would suggest a market pricing effort first, to establish competitive pay levels, and then if desired for other purposes follow up with some form of whole job evaluation process (keep it simple).  Finally, the evaluator(s) should recommend a degree of massaging to ensure that the final results “make sense,” both from an internal as well as external viewpoint.

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, "Complexity 3," by michael.heiss

Solving Pay Differentials between Executives and Staff; Men and Women

It seems lately stories on pay differentials have been popping up more and more. In the UK press, Glassdoor’s UK Employment Confidence survey has been much in the news pointing to the varying expectations of men vs. women for pay rises.

These are topics that tend to drive great passion.  UK-based HR Strategist Jon Ingham is an example (from his Strategic HCM blog):

“The issue is the wide variety in expectations of male and female employees.  In particular whilst 40% of men believe they’ll receive a pay rise within the next year the figure falls to just 27% for women.  That’s a problem - for women, businesses and the UK economy…

“If women don’t think they’re going to receive a pay rise, and particularly if they believe that their male colleagues will, then this is going to reduce their engagement, discretionary behaviours, and reduce the impact of Britain’s pay rise on business and national productivity.”

Of course, this isn’t a UK-only phenomenon. Perhaps the most reported gender-based pay differential story to hit the news in recent months came as a result of the Sony hacking scandal in Hollywood where female superstars were revealed to consistently be paid less than their mail co-stars.

“Jennifer Lawrence was paid less than her male costars in the Oscar-nominated ‘American Hustle.’ … For her coming Universal movie ‘The Huntsman’ ... [Charlize Theron] demanded to be paid the same as her male costar, Chris Hemsworth… An insider added: ‘One knock-on effect from the Sony hacking scandal is that there will be more sensitivity about equal pay for actresses and hiring practices at movie studios.’”

And the challenge of excessive pay differentials is certainly not limited to the gender gap. In a post on LinkedIn, Jon Ingham dug into the challenges of excessive executive pay at the expense of employees, highlighting the impact to employee engagement.

“I believe escalating pay differentials are causing many employees look at their employment as a simple necessity rather than as an opportunity to contribute some value. When this happens people do the minimum they can to get paid, stay employed, and ideally keep progressing. But they treat talk about engagement as a joke: why should they put in additional discretionary effort when it's their CEO that seems to benefit the most? - If he (still most probably) is so important, let him sort the organisation out!

“Too high differentials destroy the social fabric of our organisations and stop people performing. Smaller differentials increase organisational performance - and provide a bit more money to give the people who need it a pay rise as well.”

Jon makes an impassioned plea with which I tend to agree. There are many factors that contribute to employee disengagement, and a perceived lack of fairness surely rises to the top of that list.

Solutions certainly aren't easy.I’d like to hear from the compensation experts. How might we tackle these important issues? Importantly, why should these challenges be a priority?

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.

What Wyatt Earp Said and What It Has to Do with Compensation

What is the sentence we all use every day, no matter where we work?

"We design our compensation practices to be competitive with the external market and to maintain internal equity."

In fact, we might as well start the sentence with, "We hold these truths to be self-evident . . ." since we believe in its essential truth. But as I got thinking about pay transparency this afternoon, I started questioning this statement's absolutism. 

 

After all, it's not really as exact in its meaning as, "The higher the P/E ratio, the more the market is willing to pay in stock price for each dollar of annual earnings." I'm sure that there are exceptions to this statement as there are exceptions to most rules, but you've got to admit that it is more exact than describing a company's compensation as competitive.

 

A big part of our job is understanding how to adjust our practices to the principle of external competitiveness and internal equity. But this boils down to working in nuances rather than scientific principles. And while we get the best data possible for each of the jobs we price, some jobs get a better match than others, a bigger data pool and better data collection.

 

Check out the concept of internal equity while you're at it. It is sort of puzzling in these times of throwing what small bits of money we have at our rising stars, and fixing the potholes in people's pay progression caused by the Recession. Yep, our intention is to give everyone the same opportunities but do we really put our money behind that. In reality, equity has never meant equality -- but don't we hold our breath and hope employees don't ask for clarification on that one?

 

I am a word person, so the way we use our words to describe compensation really matters to me. In that, I may not be in the majority since I look so deeply at the meanings. I hope I am not in the minority, though, when it comes to telling employees the truth.

 

I am not stamping my foot, but I do want to put an idea in your head that our professional standards should influence the explanations we give. Our favorite motto of, "paying competitively," holds a lot more water when you go on to explain what you do to make sure your decisions live up to that standard. Otherwise, it would seem that paying competitively and maintaining equity is an everyday, unwavering achievement. A fact than can stand on its own -- which it is not.

 

So don't leave it at that. Don't think it's ok to make it seem so simple, unqualified and invariable. Or at least, don't think you've given a responsible explanation when all you've delivered is headlines.

 

Now that's transparency.

 

And what did Wyatt Earp say, and what does it have to do with compensation?

 

"Fast is fine, but accuracy is everything." (Or so they say . . .)

 

Ready to say what you mean? Get yourself a copy of  Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com, the convenient website where you can grab our popular eBook. 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.

Compensation in the Human Workplace

Data is data. Humans are humans.

Let data work with its ilk – the computers.

Let humans work with theirs – other humans.

Want to be in human resources in 20 years – major in human beings today.

                                Paul Hebert

There is a conversation making its way (and Paul is, as usual, at its leading edge) through the HR interwebs and other forums of professional conversation.  Here's the question that seems to be at its core:  Have we in the people field become too enamored with technology, with analytics, with transactional efficiency, etc. and lost sight of the fact that we are in the business of human beings?

Not sure that this question is top of mind for those of us in the compensation space, though.  We pride ourselves on our statistical acumen, our spreadsheet modeling and manipulation capabilities, our ability to sift through and make sense out of the immense quantities of data required to manage and updated pay structures.  And that's not wrong.  The employment relationship may not be an entirely financial transaction, but that is a big piece of it for most people.  Getting the math in that financial transaction right is necessary and important.

But not sufficient.

Designing and implementing compensation programs that work -- that do the right things with the money used, for the organization and for the people -- will always require that the practitioner understand the humans at least as well as the data.  The art as well as the science.  The challenge is that many of us -- and I confess I was no exception -- are attracted to the field because of the "certainty" and the black-and-white aspect of working with data, compared to the messiness of dealing with humans.  (I lasted less than six months in my only-ever generalist role.  I couldn't WAIT to get back to my spreadsheets.)

Really, though, we are only kidding ourselves.

If we want to grow beyond the role of an analyst, earn the right to be considered (and not just titled) an advisor or consultant or business partner in our field, we will recognize that the data is just a tool and that we only bring real value to the table when learn to go above and beyond the data.  When we use it as a tool to make work work better for our organizations and the people who contribute to them. 

Spreadsheet acumen and data analysis are important, but these will be neither our distinguishing competency nor where our job security lies as the machine age marches forward.  Learning to interpret the data, tease out the interesting stories it tells, and then tell those stories in a way that helps your organization and its leaders make better people decisions -- that's where your sweet spot is.

That's what I'm thinking.  You?

Still trying to get your head around the people part of compensation?  First thing you have to know is that Everything You Do (in Compensation) is Communication. Ann Bares collaborated with Margaret O'Hanlon and Dan Walter on the ebook; find it at www.everythingiscommunication.com.  Ann 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 "Collage Of Business Exp" courtesy of stockimages / FreeDigitalPhotos.net