Compensation Cafe

The Other Side of the Coin

It seems that everyone and their brother-in-law has something to say about how managers should behave in the workplace; how they should act, how they should deal with their employees, how to show leadership, integrity, etc.

And on the negative side, there's lots to read about as to how the bad practices of some managers are harming relations with employees and risking the business itself.  Bad managers!  Bad.

I've written on these subjects myself.  It's a "target rich" subject with a lot to talk about.

The Other Side of the Desk

But what about the other side of the employer - employee relationship?  It doesn't seem as if there's much being said on this score.  Does anyone talk about what the employees themselves should be doing to hold up their end of the relationship? 

That topic seems under-reported to me, as if all the employees have to do is to be there.  As if it's solely up to the managers by themselves to set things right and keep them that way.  There's got to be more here, don't you think?

Let's look at what management (IMHO) has a reasonable right of expectation from its employees - some do's and don'ts.  Feel free to post this on the break room wall.

• Do the Job:  This is the numero uno - giving the best of their ability in terms of job performance.  What they do at work becomes an employee's  statement of who they are as a person.

• Don't be a Clock Watcher: Whether it's showing up late or leaving early, or simply filling time until the day is over.  Clock watchers are not performers.  They take up space.

• Don't (Seriously) Bad Mouth the Company: Don't bite the hand that feeds you.  If you don't like the way things are you have good-faith options.  But simply damning the company at work or outside to friends and neighbors doesn't really accomplish anything.

• Don't take Short Cuts: Skipping a step here and there, playing fast and loose with quality, thoroughness and accuracy is not the way to do the job.   There's an old phrase, "Good enough for government work."  Your work should be better than "good enough."  Take a little pride in it.

• Do not Steal:  Don't take paper, pencils, staples, etc. from the office.  Even if you think that "everyone else is doing it."  It's petty and you should be above that.

• Play Well with Others: Be a team player, the fellow who helps out and collaborates with others.  Becoming part of something raises everyone involved.

• Have the Right Attitude:  Feeling or acting like "it's just a job" is usually the first step toward becoming a minimalist employee, which means doing the least that you can get away with without criticism.

• Don't Act as though They Owe You: Most of us are not doing our employers a favor by working there.  The "I work - you pay" relationship presumes that you did the work first.  The company doesn't owe you pay increases  just because it's been 12 months.  Focus on getting what you deserve for what you have contributed.

Not a long list, is it?  Not too demanding; offers a bit of common sense and isn't unreasonable.  If you're a manager, wouldn't you want your team to be comprised of employees who subscribe to this list?

This list could continue, of course.  Reflecting on your own organization you might drop a few of these and add others.  The point is, management has a right of reasonable expectation when they employ someone and pay them a fair wage.

This is not to say that managers won't continue to face criticism and constructive suggestions about how to do a better job.  They should.  But they're not alone at work.

If both parties in the employer - employee relationship take their respective responsibilities to heart the work environment will improve.  If instead you focus your attention on the behaviors of only one side of the coin it will not.

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, "Two Sides of the Same Coin," by Paul H

CEO Pay is a Problem, but not THE Problem

First, I want to make it clear that plenty of CEOs are paid way too much money, but most are probably paid in accordance with the value they deliver. But, that is a topic for another post.

Let’s talk about how much CEOs get paid. I took a quick look at the CEO pay for the 2013 Fortune 100. In 2013, these 100 individuals were paid cumulative compensation of $918M! That is a lot of money; in fact, it’s a smack in the face. They are paid so much obviously they must be the most heavy-hitting movers and shakers among the wealthiest people in our country. So, I checked the 2015 list of Fortune’s 400 wealthiest Americans*.

It turns out the $918M cumulative pay for the Fortune 100 CEOs, was little more than a rounding error on the list of the top 25 richest Americans. The top 25 (I stopped there because looking any further hurt my brain a bit) are worth around $490.8B. The .8 represents $800,000,000 or a bit more than 80% of the entire annual pay for the CEOs. And, only 5 of the CEOs showed up on the “wealthiest” list. Warren Buffet is the second wealthiest person and he’s on the CEO list. It should be noted that his CE0 pay is an understated $490K. Other CEOs who made both lists included: Larry Ellison, founder of Oracle (pay $14.9M), Larry Page, the cofounder of Google (pay $1.00), Michael Dell, founder of Dell Computers (pay 4.3M), Steven Ballmer, employee 30 at Microsoft (pay 1.4M).

Four of the five CEOs among the 25 wealthiest Americans were founders of incredibly successful companies. The fifth started pretty darned early at Microsoft.

There is an idea that cutting CEO pay will somehow result in pay increases for the rest of the company. Even if you cut CEO pay down to the level of the median employee at most companies, the impact on staff pay would be immaterial. In one of the most incredible examples, cutting Michael Duke of Walmart’s approximately $20M pay down to $0, would result in every Walmart employee in the US (about 1.4M of them) getting a fantastic annual bonus of about $14.25.

Somehow the issues of high CEO pay and low employee pay has been placed on two sides of a balance as if there is a direct correlation between the two. Politicians claim that if we find a way to fix one we will also fix the other. Sadly, that is not how it works. There simply isn’t enough money being given to CEOs to redistribute it to their employees and make the problem go away. So, is there a solution?

If the money isn't going to the CEOs it may be going to shareholders. In fact, the CEOs on the list made their own fortunes from stock holdings. Nearly every other person in the top 25 built their wealth from owning shares. Perhaps shareholders would be willing to take lesser gains to increase the pay of broad-based staff, but that seems unlikely. Perhaps companies can once again move to a broader and more equal usage of equity compensation programs and allow everyone to enjoy the gains of a successful company (as long as people are also OK losing money if things fail.)

I don't have a perfect solution, but I hope people stop distracting the public with false solutions. If people stormed the gates and held companies hostage until CEO pay was cut, it would not result in raises. Implying otherwise isn't helping the situation.

*I know the years don't match, but the comparison was close enough to make a point.

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 Compensation? Dan’s new comprehensive issue brief is now in print. Dan has also contributed to “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And if you’re still not sick of 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.

19th Century Work Assumptions in the 21st Century

Continuing to pay wages according to 19^th century work assumptions makes no sense today.  Still the obsolete circumstances of the long past industrial revolution still haunt American pay laws.

Before knowledge work crept into the workplace, industrial output came from capital equipment tended by unskilled workers.  Carnegie’s steel mills and Ford’s assembly lines were places where quality, quantity, time and costs were all controlled by management.  Employees tended the machines and followed detailed procedures under close supervision.  Productivity, efficiency and profitability were the responsibility of top management.  Laborers just obeyed instructions.  In that environment, the length of time they served the equipment established their value as workers.  Hourly pay made sense. 

The basic concept behind labor agreements is that individual workers have little value, are relatively helpless alone and remain powerless unless banded together in a collective body.  A unified unionized group is required to force an indifferent management to yield more profit to the otherwise unappreciated workers. 

Those assumptions about work productivity and labor value do not fit in the modern world of offices filled with knowledge workers.  Today’s talent are usually more than machine tenders.

Most American 21^st Century workers are employed for individually controllable productivity contingent on their skills, knowledge and abilities… but lots of them still must be paid by time worked despite its frequent irrelevance to their work output. 

This is important because the FLSA status of many of those knowledge workers will change if the short test salary threshold is doubled.  Vaulting the short test salary threshold from $24K to $50K will dramatically expand the number receiving time and a half overtime for work beyond forty hours in a week.  Instead of being treated as professionals who work “off the clock”, they will be “demoted” to the hourly wage-earner lower class who must get time and a half overtime for work beyond forty hours in a week.  States with more generous rules will surely update their regulations, too. 

All those proposed changes to current pay laws will increase labor costs without adding any value to employee work output.  That is a recipe for trouble on both the macroeconomic and microeconomic levels. 

There is a powerful contradiction between what our society says about the nobility of labor and the antiquated laws that compel companies to depreciate their valued employees.  Maybe those are strong words, but government rules that require wages to be directly tied to the time spent in harness rather than some other output value seem almost insulting.  When exempt from those regulations, workers are entitled to full salary without reduction for time not worked.   Under the proposed changes, their pay can be cut if they miss work; they are no longer considered worthy of their full salary if absent from where they are chained while management flogs them.  A bit of hyperbole there, of course, but some employers will act that way.

Perhaps the variation in hourly base rates will suffice to compensate for those new circumstances.  More skilled workers will still get a higher wage… maybe.  How will past salaries will be converted to hourly equivalents?  Think about all the options that would either please or upset workers once they are paid by the hour rather than at a fixed salary rate like now.  The hours worked …an irrelevant non-issue now …will become critical to their incomes.  This will be a very complex challenge for employees, compensation people and their management. 

Isn’t it encouraging to realize that we face a lot more work in the future?

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.

Creative Commons image 1028264 by Biblioteca General Antonio

What Do Dutch Windows Have To Do With Transparency?

Have you ever been to Amsterdam?   The windows on the old buildings are huge!  Once a tourist asked his Dutch guide why they're so large.  The guide responded by giving all the obvious reasons like letting in light and enjoying the view of the canal, but then offered a much more interesting answer.  They keep the houses clean.  The bigger the windows, the more glass there is, and the more visible the dirt inside the houses is to everyone who passes by.  So people make sure their houses are clean.

In other words:  If you can see the dirt, you will be much more likely to get rid of it.  So it goes with companies. If they’re serious about transparency, they have to get serious about cleaning house.

So why the big hoopla about transparency now?

One reason is that there has been a huge amount of information available on the Internet in the last few years, including third-party websites such as Glassdoor.com, PayScale.com and Salary.com.

Gen Y, which is accustomed to sharing personal information through social networks, is also shaping the trend. Transparency ties into some of the idealism underlying the sharing economy, with people crowdsourcing information on all sorts of things.

Many tech start-ups are into radical transparency --- laying out basic company information for their typically Gen Y workforce --- how much money investors have provided, how much everyone earns --- all the nuts and bolts of the business.  “An important democratic value is transparency”, Blake Jones the CEO of Namaste Solar says. “It builds trust. It instills a sense of ownership. When everyone understands what’s going on in the company, they ultimately will do a better job.”

What happens if a company isn’t transparent?

Employees can come up with some devious ways of getting pay information if a company keeps it secret.  They’re using social media to share information.   There are very real risks that come from sharing it without context.  Without knowing how pay is determined employee morale can be seriously damaged.

Google recently faced this issue when a former employee created an internal spreadsheet collecting colleagues' salaries --- and then tweeted about it. She claimed it had a positive impact in that some people were able to use the information to negotiate higher pay.

Laszlo Bock , head of HR at Google, argues that keeping the veil of secrecy over salaries is prudent at a big firm like Google, which has more than 50,000 employees.   Revealing salaries "doesn't seem to make anyone happier," he says. "People end up focusing too much on the final number rather than what goes into it."

Somehow his stance surprises me as Google has been the leader in many new HR practices.

What’s necessary to make it work?

The implementation challenge is having to clarify differences to prevent perceptions of unfairness. Pay can vary widely, and for reasons that may be difficult to explain.

Some employees may be startled by how much their colleagues earn.  Examples:

1) A company may have to explain to a design engineer who went to Harvard why a salesperson who went to Iowa State University is making the same pay s/he is.

2) Why a “walk on water” Administrative Assistant who has worked at the company for 25 years earns more than an experienced IT professional.

It behooves Compensation to do a thorough analysis of all employees’ pay and:

1) Correct the true problems and

2) Have an explanation ready for employees whose pay, although seemingly “out of whack”, is actually appropriate.

In the end

Companies will have some “bumps” along the way in implementing transparency, but after a while it will begin to feel natural.  The increasing numbers of Gen Y in the workforce will also make the transition easier with their voracious appetite for open-source information.

The concept of transparency argues that if you can look at someone’s Instagram and see what s/he has for dinner, if his/her Facebook shows the number of expensive trips made, if you can review his/her profile on LinkedIn and see the career progression --- what exactly is left to wonder about?

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 speaks at conferences in the U.S. and overseas, contributes to various HR and talent management publications and conducts frequent webinars. 

Cannot Be Rushed, Cannot Be Avoided*

We're all curious how the CEO pay ratio disclosure's going to work out. Who's going to be transparent and who's going to do that other thing?

As we learn how to interpret the inputs and calculate the outputs, let's also keep something in mind. It's not just the C-Suite, the Board and the shareholders who have skin in this game. In some companies, employees are already snickering.

The picture's pretty clear when you look at the headline, "Wages Remain Stagnant with No Relief in Sight" right below the the headline, "Pay-Ratio Rule Spotlights CEO Compensation" on SHRM's compensation landing page. 

Now, I'm not saying that you should expect a flash mob of employees singing, "I Dreamed A Dream" from Les Mis anytime soon. Nor do I think you should say or do anything this very second.

But what I want to point out is that this is the time to take employee communications seriously. Face it, you're going to have to achieve the paradoxical. You're going to tell the truth about the pay ratio, at the same time that you're going to explain to employees why they should persuade themselves that the number is OK. This one could make your head explode, and theirs, too.

What's my best advice? 

Do it differently this time. Don't think that what you will say on January 1, 2017 will get you by. Get yourself a multi-stage strategy. You don't need to know now exactly how your numbers will play out then to begin to make an assessment of the challenges you're going to face.

Start kicking things around when your 2015 merit budgets start to coalesce. Be truthful about messages that the numbers are sending.  Talk things over with advisors in the first three months of 2016 -- your executives, professional communicators, consultants and so on.

Find out what everyone is concerned about, in general terms, so you can begin to think this one through. You are going to benefit from a couple of turns around the block on this. In other words, your first impulses are probably not going to be all that helpful since they will be tinged by conflicting emotions. In fact, if you go with your first impulses, you will probably get yourself into trouble. Think of the pitfalls you can easily fall into -- fear of being candid with executives, fear of being candid with employees, whitewashing that leads to skepticism, oversimplifications that end up making your executives look shady, indifference to employee reactions that impacts morale, and so on.

Once you have a strategy (that involves building a context in some way before the announcement, and then following up with employees after it), step back and admire the strategy, then invite someone from outside your company to stop by and shoot some holes in it. Learn from what they bring to the table.

Do not kid yourself. You're not ready for this one. But putting enough thought and discussion into it over the next year can make you ready and turn this into a non-event.

If there ever were a time that HR has to be the trusted advisor to leadership, this is it.

*Thanks to Maureen Corrigan for inspiring the title.

Want to know where to start and how much to invest in communicating  the CEO pay ratio? Get yourself a copy of  Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com, the convenient website where you can download 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.

Asked and Answered * Decoupling Performance Reviews and Compensation

I expect deep, provocative and insightful thinking from the readers of this blog – and you do not disappoint. In my last post, I tackled the topic of decoupling the traditional formal performance review from compensation, asking why we hold onto old systems we are fairly confident do not work. I asked for your opinion, your experience, your knowledge. You certainly came through in the comments, making it clear to me this conversation is not anywhere near over.

If there is a through line in your comments, it is this:  There is a deep and pervasive desire to change what’s broken, but fear and uncertainty in how to do so. That fear seems tied to primarily to:

1. Legal concerns around how to defend performance terminations without the formal review as proof
2. Concern that managers won’t engage in any feedback exercise with employees without the review mechanism to force the issue

My stance (and that explained in far greater detail by Eric Mosley in his book The Crowdsourced Performance Review) is we need both informal and formal, manager-driven and employee-empowered. What we no longer need, however, is a decades old failed process simply grafted onto new technology. We need to serve our employees and our managers better.

Indeed, one commenter, Meagan Palatino, summarized the position quite well in her comment:

“Really interesting post. My team recently participated in a group discussion at the NYC HR Analytics Meet-up, and witnessed a live debate between HR professionals at companies ranging in sizes. The entire summary is here in a post I wrote after the debate. In a nutshell, this was our take on it:

“It is clear that no matter the size or experience level of your team, effectively evaluating performance and motivating employees is hard. Performance lacks a consistent definition among organizations and cultures. Humans are unpredictable and prone to bias, and these factors shape the experience of performing, and evaluating performance.

“While we agree with many of the points in the argument in favor of the annual performance review, we believe they should trend towards more frequent, real-time feedback. It is important to encourage employees to take risks. Managing that well requires more consistent discussions about performance. Employee reviews and feedback should be tied to near-term goals and objectives, where all too often we find these to be separate elements in an organization. An individual’s goals should be performance-focused and be measurable.

“While we feel that social data and peer recognition are a valuable source of informal feedback, we don’t see them as replacements for the performance review. This information can certainly augment a manager’s understanding of their team member. With the incorporation of this data, and an increase in review/feedback frequency, an organization moves closer to real-time recognition & professional development.”

One additional theme came through the comments – the need for courage. It takes courage to change a long-existing practice that seems to keep us out of potential legal trouble (regardless of the reality of that particular fear). It takes courage to not just think differently, but to step out and create new and different paths that serve ourselves, our employees, our managers, and our leaders better. It takes courage to look at the easy, that’s-how-we’ve-always-done-it approach and envision a new way, a better way.

Are you courageous? Is your organizational leadership courageous? Have you proposed a new or better way in your organization? What was the reaction?

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.

Passing Through the Beaded Curtain

For those who have spent the majority of their career in the Compensation arena your upward pathway likely started at the bottom of the ladder, writing job descriptions, completing survey questionnaires and evaluating jobs.

Eventually you worked your way up the food chain into survey analysis, market pricing, structure design, incentives and program development. You mastered the various formulae, charts and graphs, could make Excel dance on a dime and you could debate complex technicalities that would befuddle your HR generalist colleagues. You became a master technician for the "hard" side of Compensation.

 You carried a calculator everywhere.

 The Hard Side

 The “hard” side?  This designation represents the body of knowledge and experience surrounding the traditional view of compensation practitioners - from the outside looking in.  Such are those who manage the technical analysis of impersonal data bites – that black & white world that only deals with neutral and impersonal facts. 

 Subjectivity is not allowed here.  We are usually placed in a small cubicle and left to our own devices - with our computer and survey sources.    No one stops by to chat.

 At Christmas we don’t receive any cards.

Then it happens; one day you're asked to walk through the beaded curtain into a new world, toward a new career in something called Compensation Management. This is exciting, because on the other side is increased pay, a loftier title and finally recognition as a “player” within the HR community.

 The Soft Side

 You're assigned internal clients who aren't interested in your formulae, charts & graphs or technical babble. They want you to solve problems, provide solutions, talk with them about how Compensation can help them achieve their business objectives.   You're expected to become an advisor, enmeshed in “what do we do now?" scenarios.

This is the "softer" side of Compensation, where rules become guidelines, policies become politics and the proper answer to most everything is "it depends."

Not everyone makes it safely through that beaded curtain.  That's because, besides the cool new business card the job also requires a mindset change, into a place where your comfortable analytical tools aren't as much in demand and instead you need something called "relationship competencies" to succeed. I've seen many people falter at the curtain; some don't want to pass through - and others have stumbled through, only to eventually burn out and fail.

 Why do some fail to succeed once through the curtain?     

• Non-Exempt mindset: Some aren't comfortable becoming part of management, continuing to identify themselves with their former colleagues and finding it difficult being labeled “management” and required to support the company view.

• Comfortable with technical analysis: Figures don’t lie, they just are.  Can’t argue with that.  Can't be blamed for that. There’s a comfort in dealing with the neutral, just reporting the facts.  Some prefer to stay in this “safety zone.”

• Uncomfortable with multiple answers for the same question: A common problem where differing circumstances can result in differing answers.  Like the ground shifting beneath your feet, the certainty of sameness is replaced by “it depends.” Life isn't all black and white anymore.

• Preference to let policies and procedures make the decisions:  Some folks don’t like to stick their neck out, to face being challenged and having to defend their recommendations.

Back when you were an analyst you weren't expected to develop tactical strategies and recommendations; you read the surveys, tabulated the spreadsheets and reported your findings.  That's it.  Then you went home.  Sound harsh?  Not at all, as proper analysis remains a critical component for the making of informed business decisions.  But if that's all you do . . . ?

To be an effective practitioner of compensation management is to straddle both sides of the Compensation function;  you must understand the technical aspects of where the numbers come from and what they mean, but you must also adapt and thrive within a new environment where your role becomes an influencer of management decisions.  To be successful you need to breathe the crisp air of business realities and when dealing with internal clients be able to shake up those technical rules you learned so many years ago; don't let them rule you.

 Or you could sit back and let established policies and procedures do the talking, though that’s probably not the intent of your increased salary and important new title.

 But sorry, you still won’t get Christmas cards. They go to the HR generalists.

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, "L1005944," by Brooklyn Museum Cafe

Cafe Classic - The P90X Workout and Effective Performance Compensation

Editor's Note: Today's Café Classic post was first published on June 22, 2011.  Who knew that a home workout app could teach us such valuable lessons about making variable pay successful?  Dan Walter -- that's who!  And as we continue to seek ways to use and improve our variable pay plans, these lessons still resonate.

I like finding unique training tools for compensation professionals. My newest addition is the P90X training system.  For those of you who have not tried it, or seen the infomercials, I should describe the program. An individual works out at home using a series of DVDs that guide them through varying daily exercise programs. The sessions are lead by a dynamic leader named Tony Horton. Tony is in great shape and has very high energy. The program is very intense and requires a level of personal commitment from the individual. It is not easy, but those who complete the program seem to overwhelmingly recommend it. There are a few keys to the success of this system that can be applied to any variable compensation program.

1. Ensure that people are “ready” for the program. Prior to starting P90X you are asked a series of questions and put through regimen of tests that must be passed at a minimum level before you are allowed to start the actual program. Make sure that you take the time and effort to ensure that staff members understand the program and are fully prepared and equipped to attain the goals.
2. Show varying levels of achievement. Each session has three or four individuals performing the exercises at different difficulty levels or simple variations that keep you from getting bored. The easiest examples are realistic, but challenging. The most difficult levels are unlikely to ever be met by anyone but those in the very of best shape. They provide a goal regardless of the level of the participant.
3. Give people some room to fail. The instructor constantly reminds that you can stop and rest at any time. The goal is to complete the entire program, not to make a big splash on the first couple of days. You are given room to learn and grow, while being constantly motivated to join back in and achieve. Autonomy must work hand in hand with safety. In the end, people must be held accountable, but as they learn the process they must be allowed wiggle room to find their own way.
4. Make milestones and deadlines clear. A secret to the success of the program is the clock counting down for each day’s session. Some sessions are 15 minutes.  Some are 90 minutes. Most make you want to stop long before the time is up, but seeing the clock counting down reminds you that there is a clear end to the process. This allows you to push through when you can and take short breaks when you have to.  Seldom do you find yourself stopping in the middle (or beginning, or just prior to the end). People need to know how far they need to go and how close they are to the goal.
5. Track progress and measure success. Throughout that P90X programs you are reminded to write down the number of repetitions and amount of weight used for key exercises. This process allows you to quickly see progress over time. It’s very difficult to measure success if there is no clear starting line and no understanding of the path taken to reach the finish.
6. COACH! COACH! COACH! The instructor provides guidance to the people watching on TV and to those doing the exercises on the video.  This makes it clear that even the best occasionally need instruction. It also allows you to adjust your own technique on a real-time basis. Instead of waiting until after the program to provide a critique, the frequent reminders increase the speed of improvement and reduce the impact of doing something wrong.

I wonder how many companies utilize all of these lessons consistently. I believe that more variable pay programs would succeed if we followed these six steps. Let me know how you have implemented some or all of these steps into your own programs. What impact have they had?

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 Compensation? Dan’s new 20,000 word issue brief is now in print. Dan has also contributed to “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And if you’re still not sick of 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.

Boston and Reasonable Expectations

Boston and the phrase “reasonable expectations” go together for me.  Not because of any current news story, but because of an old story by a deceased reporter.  A sports newsman delivered what I consider the absolutely best description of  reasonable performance expectations, in connection with the Boston Marathon.  That should not be strange, because compensation involves competitions for prizes, too, in a fundamental ways.  

Long before the modern trauma of terrorism struck the Boston Marathon, Heywood Hale Broun regularly covered that annual race for the CBS television network sports department.  Known by his trademark mustache and renowned for aggressively garish sports coats, he wrote articles and provided TV color commentary at many sports events.  As the main speaker at a SHRM chapter meeting, he claimed that his sports news reporting experience qualified him to deliver some words of wisdom to human resources and compensation professionals.  Broun confidently asserted that he witnessed the perfect example of reasonable performance expectations at one of those Boston Marathon competitions, saying: 

Only a few runners really have any hope of winning, but way back in the pack of contestants assembled before the start you find two middle aged doctors kneeling down to tie their shoelaces.  One looks up at the other and says, “You know, Dale, I think that this year, you’ll throw up before I do.”  Now, THAT’s what I call reasonable expectations.

Good point, well made.  Whatever is likely to happen makes for a reasonable expectation. Extraordinary hopes are long shots.  Best case scenarios will not come true just because you believe.  Unless accompanied by special behaviors, wild dreams remain unrealistic hopes.  Just as reasonable efforts should produce reasonable results, extraordinary efforts are usually required to generate extraordinary output results. 

In appreciation for his story, I offered him a similar observation from my past.  Watching a team of little boys practicing baseball under the supervision of their adult coach, I smiled at the way the kids were enjoying themselves with typical horseplay and jostling while the coach hit fly balls to them.  When a ball literally bounced off the head of one of the children (who happened to be the coach’s son), he threw down his fungo bat in anger, shouting, “Stop fooling around!  What do you think this is? …some kind of GAME?”

The reporter’s eyes flashed as he immediately requested and was granted permission to use my story.  I wanted to share it with him because we all can learn from observations by others.

Compensation professionals are constantly challenged to create a combination of circumstances and environments that empower and inspire people to exceed those nominal expectations.  The need to encourage workers to stretch their productive talents lies at the heart of our trade.  Like the way coaches train athletes to push their bodies, expand their physical limits and enhance their abilities, we design or administer methods and procedures to maximize the productive talents of the work force.  Mutual objectives like that help us to learn from experiences in other fields.

What other professions have taught you some valuable HR lessons?

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 courtesy of www.paulickreport.com

Paying Everyone Equally is a Terrible Idea

Many of you may have read about Gravity Payments, the company in Seattle, Washington with the magnanimous CEO who decided to do the right thing. In April the CEO, Dan Price (great name for a comp article), decided to cut his own pay from $1Miliion to $70,000 annually and use the difference to provide raises in base pay to nearly the entire company. His goal was a minimum base pay of $70,000 for everyone. How could this possible go wrong? And, the media asked, “Why can't everyone see how wonderful this is and do the same thing.”

Compensation professionals may immediately see some holes in this logic, but let’s list some of big items so we are on the same page.

1. Math is not forgiving. $1,000,000 – $70,000 = $930,000. The math is simple but the impact is not always obvious. Gravity Payments had 120 employees at the time of the big change. This budget enhancement created an average raise of only $7,750 per person. If there were even 20 people making Seattle’s nation-leading minimum wage of $15/hr ($31,250/yr), each of them would need a raise of about $39,000 to get to the new company minimum (20 x $39,000 = $780,000).  The company had $150,000 to spread to the remaining 100 employees ($1,500/person). Even if the remaining employees made “almost” $70,000 (let’s say they made $68,000 on average), there would not be enough left to get everyone to the new minimum. Ouch!
2. Everyone may be created equal, but not everyone delivers equally. If you pay your least valuable employee $70,000, your most valuable employees will expect some reasonable level of differentiation. Without this you will end up with disgruntled or disappearing key talent.
3. Base pay is expensive and even big raises carry limited long-term impact. The money may have been better spent in another way. The big change was a surprise to the employees. While I am sure some of them were very happy, I bet many others could have listed better ways to spend $930,000 on the success of the company and its individuals. The company might have wanted to start this project by talking to its valued employees. They may have found that other solutions were simply more viable.

So, a few months have gone by and the program has had some time to have an impact. Gravity Payments is once again in the news.

There are reports that the CEO is struggling to pay his personal bills (in part due to fighting a lawsuit filed after the raise was announced). The company has lost a couple of key staff members who believed that the new system benefited the less ambitious while penalizing those who contributed more. Clients have even opined on the program. One influential business owner in Seattle has publicly stated that the program has made things “harder for the rest of us” in the area. A clear reference to the fact that many companies can't even begin to do something similar.

The truth is that the Gravity’s $1 Million CEO salary was probably far too high for a company with only 120 employees and $2.2 Million in profits for the prior year. It is likely that a good compensation expert could have pointed this out very early in the process (probably before the pay was even approved). But, a more important basic truth is that even the highest paid CEOs cannot single-handedly “fix” pay at their company by taking a pay cut. While the inequality between the top and the bottom is often far too wide, the math between a direct cut in CEO pay and an appropriate increase in broad-based pay seldom works. The shareholders are the ones who will need to absorb most of a broad-based increase of any substantial amount.

These are the same shareholders who are given a chance to vote on CEO pay and find that 98% of the time it is just fine. The real question, is there any appetite for lower shareholder returns (even temporarily) in order to fund better pay equity? All the pay ratio data, executive pay cuts and pay limitations in the world are not enough to fix pay inequity without a contribution from the shareholders themselves. And that, quite simply, seems unlikely to happen any time soon.

For reference, here are a couple of recent articles on the Gravity Payments topic.

NY Times

The Straits Times

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 Compensation? Dan’s new 20,000 word issue brief is now in print. Dan has also contributed to “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And if you’re still not sick of 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.