Three Ways Average Companies Pay Their Employees

I just watched a great TED talk from a few years ago. In it, Todd Rose discusses the “average” in the context of creating learning environments. He provides a fascinating story about the U.S. Air Force and their path to creating effective fighter jets. Just a quick summary: The first cockpits built were based on a series of measurements for the average pilot. But, even as the jets became better and better, the Air Force experienced worse and worse accidents. In the meantime, someone decided to measure a whole bunch of pilots. Surprise! Not a single pilot matched the set of average measurements.

You probably see where I am going with this.

The Air Force took this new information and created new cockpit guidelines that allowed pilots at the extremes to be comfortable. Of course, manufacturers protested, but in the end they built to the new requirements. This necessitated innovations like moveable seats and adjustable controls (where do you think your car got these innovations.) In the end, the new planes had far fewer accidents and much happier pilots. And, everyone lived happily ever after. The end.

At least 50% of those that reach out to me start the conversation by asking, “what does everyone else do.” We all know that the vast majority of companies target the 50^th percentile..for almost every position. Companies want to build simple vanilla pay programs even when they know they won’t meet all of their objectives.  “People don’t understand anything else,” lament compensation leaders who then tell me they spend little or no time and money on communication.

Average is a myth perpetuated by those looking for a shortcut. It is a dangerous myth that makes people believe that following the average is safe and being an outlier is dangerous. It is a pernicious myth (hats off to word master Jim Brennan) that skillfully undermines our ability to make our hard work successful.  But, let’s get back on point.

So, how does the average company actually pay its employees?

1. There is no such thing as a company that actually matches the parameters of average. Because the average company doesn’t exist, any data you see on average compensation levels, average compensation practices or anything at all that focuses on averages, does not apply to you. Average is a myth.
2. Please read number 1 again.  You don’t need to worry yourself with average companies.
3. Your intent is to be great, not average. It turns out that you couldn’t be average even if you wanted to be.

Now that we are on the same page, let’s talk about what effective and successful companies really do. They determine the critical pieces of information that make them who they are and pay accordingly. They pay differently than the company across the street.  They pay differently than at least some of what survey data tells them to. They explore the fringes and embrace their employees at the extremes. They build pay programs that have room to grow and adapt. The companies that don’t do this fail (or get new compensation professionals.)

If your company and employees are average, declare your averageness now! If not, stop trying to force your pay programs to conform to a standard that simply does not exist. Enjoy being extraordinary and celebrate the success that comes with it.

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.

Comments

[E. K. Torkornoo]

Thanks Dan.

We also need to watch out for instances where modal pay levels and practices are suggested to be 'best practices' in order to keep bosses and stakeholders 'happy'. The two - mode and best- are NOT the same. Worse, we need to beware of the unstable and dangerous habits of averages (means) to swing up or down, pulled along by artifactual noise in the data, and opt instead for using medians as more stable measures of the 'middle' or center against which we determine our position or policy line for each employee segment and selected rewards variable.

No country or company ever becomes great by aiming to just do what most 'others are doing.' We know that oft asked question from bosses and stakeholders about what others are doing.

Thanks once again, Dan.

[E. James (Jim) Brennan]

Right on, Dan!

[Iola]

"Average is a myth perpetuated by those looking for a shortcut"

A statement that has wider implications than compensation, and therefore worth remembering.

Thanks for the post, and the reminder. We are not average.

[E. James (Jim) Brennan]

"Be yourself. Everyone else is taken."

(Catchy saying by some anonymous bright marketing writer... NOT by W. Rogers, O. Wilde, or S. Clemens.)

[Dan Walter]

I am so glad this post resonated with people. It can be hard to fight the pull of the middle. The edges can seem scary.

Maybe we should look approach pay more like we approach flying on a commercial flight. The aisle gets the quickest access to food and bathrooms. The window gets the view and best sleeping position. The middle gets elbows and dirty looks. No one wants to be the middle on a flight.