Compensation Cafe

The Muse On My Shoulder

Periodically I've been approached by colleagues, clients and casual acquaintances, who ask about my compensation writing; why I do what I do, what's the inspiration for my subject matter (my muse) and whether I have a "message" for the compensation and Human Resource practitioners out there.

And the best question of all is, "how do you get people to read what you write"?

So I thought I'd try to answer.

Why Do I Write?

This is an easy one.  It's because I have something to say, and God has given me a modest ability to connect sentences into coherent thoughts and tell an engaging story.  But there's more.  While I was stepping on all kinds on nasty stuff in the minefield I called a career, I had no one to rely on for practical advice.   No one sitting on my shoulder to whisper good thoughts.  Most of the self-help books, recordings and even conference speakers I experienced seemed to drone on over conceptual blue-sky ideas and (for me) unrealistic initiatives.  Stuff that I knew the boss would have nothing to do with.  Ideas that I wouldn't be allowed to convert into actions, or even plans for action.

The reality of the workplace seemed very distant from the idealistic preaching of the self-helpers.

Call it a form of giving back, or of simply sharing the benefits of my experience, but I believe that there's a lot to be learned from someone who has walked the path ahead of you.  The intent of my ramblings is to help the practitioner with down-to-earth common sense suggestions in straightforward language, with an added flair for understanding what the reader is facing in their own workplace.

Am I always right?  Probably not, considering the wide audience I'm talking to.  But the "right" wine isn't right for everyone, is it?

And the writing is fun too.

What's My Inspiration?

I start with mistakes.  I've made them, and hopefully have learned from the resulting bruises and headaches.  Over the years my bosses made mistakes; some learned a valuable lesson over time, while others repeated their judgment errors ad infinitum.  And then you have the experiences of my global consulting clients who have suggested constructive ideas to improve the daily lives of compensation practitioners.    All have served up a cornucopia of story lines.

Ideas come to me in the shower, while working outside, or even when driving the car.

Often it's the use of flawed policies, procedures and every day practices that encourage me to say, "Wait a minute.  Maybe there's a better way."

Why Do They Read?

This is the hardest of all, and perhaps I'm not the one to ask.  Why are you reading this right now? would be my counter question.  I've been told many times that (for some) my writing is enjoyable, informative, thought provoking and down-to-earth.

That's not to say that everyone agrees with me, certainly not, but if what I have to says gets the reader thinking, that's all to the good.

I prefer to think that I ramble on for the practitioner out there, not the theorist or conceptualist.  I have something to say to those with dirt under their fingernails, who live in the trenches, struggling to do the best they can.  I write to suggest timely advice, something you can start or stop doing right now.

People have said that my thoughts have made a difference, that it was good advice that they could implement  right away.  The best compliment of all.

So that's my epitaph; I write to help. 

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Caveat: No matter the length and breadth of my compensation experience I am neither all-seeing nor all-knowing.  I am but a product of my training and experiences, and those experiences likely differ to some extent from many of you out there.  Different industries, different companies, different bosses and different working environments, when blended together provide different perspectives to similar challenges.

Which is why I don't present myself as the "answer man," but rather as someone who has seen a lot, done a lot, and experienced a multitude of different scenarios.  So I "suggest" what you might find behind Door # 1 and Door # 2 when you have a decision to make, but rarely would I say that "this is the way it has to be."  Because it doesn't have to be, and it's your decision to make, not mine. 

I want to make sure that your eyes are open.

And maybe suggest a better way in the process.

So now you know.

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, "Friday Cat Photo," by jim_mcculloch

An Elegant Solution for Performance Reviews

60% of companies are in the process of rethinking their approach to performance reviews @Forbes

This percentage is high, even though this anti-performance review impulse to "burn it to the ground" becomes popular on a regular basis in our industry. There are a couple of new reasons why change makes sense this time through.

We are working differently now than we did ten, or even five, years ago. As the Forbes article mentions: " . . . in today's fast-paced knowledge economy--with clients and employees alike expecting things in real time--a once-a-year check-in just doesn't get the job done."

Talk about alignment with your culture! Talk about bringing your brand inside! If your performance management practice is a text-heavy once-a-year process, look around while you're passing out the self-appraisal forms, because you are in some historical period drama where you'll find people talking about their favorite CDs and how cool Hummers are.

Plus, there is growing social science research that indicates our traditional approach to rating, ranking and performance feedback squelches the impulse to learn and grow in the people who might benefit the most--those in the middle, who I wrote about in my last blog. People can and will give more, research suggests, if they have the mindset to do it. But just like in school when you thought of yourself as a "B" student, thinking of yourself as a "meets expectation" sort of team member means that you will likely self-limit your performance.

In short, the way we have been going about performance management is often blunt, baseless and counterproductive, when what we should be shooting for is elegance. An elegant solution is one in which, "the maximum desired effect is achieved with the smallest or simplest effort."

We need a new mindset, if you ask me, and an elegant one. Recognize, an elegant solution will rarely involve revolution -- even though the press on Accenture, the Gap, and so on says that everyone should fall in line. And an elegant solution will rarely involve finding the "right" online system, either. But, it will involve the patience to find out where real change will have a real impact that delivers what your company and employees' need.

As we move into the performance review season for many organizations, why not shoot for beginning to develop a new mindset? Instead of obsessing about deadlines, why not calm down, look around and find out what parts of the company seem to be profiting in any way from the performance review process. Go over, take a look at what's going on. What are they doing, how and why? How are employees and managers talking together? What do you learn that you can you build on?

Employees want, expect and need feedback. Your company will do better when employees understand how to do their best. If, psychologically, a "meets expectations" rating coupled with a 2% increase freezes people up--but that's the system you have right now--figure out what you (via your managers) can do differently once all the end-of-year hoopla is over. Start innovating in January and don't let yourself stop innovating until you've found your, your employees' and your company's elegant solution.

And here's a great hint to get you started, from a Deloitte manager who is working with a "new era" process: '"In effect, we are asking our team leaders what they would do with each team member rather than what they think of that individual."'

2016 compensation communications getting you down? Want to get organized, prioritize and create a workable schedule! 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.

Speed, Velocity and Acceleration in Pay

I was reading a Facebook message a parent posted about their kid’s physics homework and it resonated as a reminder for the compensation world. The question was how do you explain the differences between speed, velocity and acceleration. A few years ago, I wrote an article about Newton’s Three Laws of Compensation Motion and I guess it’s time for another physics lesson.

Speed is a point on a graph. It tells you a whole bunch about an instant. Much of the data we use in compensation is like this.  We know exactly the amount or percentage, but we have little information regarding the path to that point. We feel like we somehow already have this information, but in most cases it’s a deception. Most pay data provides as little information as the speed of a car in a race.

Velocity combines an amount and time to provide a snap shot of direction and movement over a given period. Over long periods, velocity communicates far more than speed. It gives us a better idea of the current path and some indication of where we are going. But, again, velocity can be deceptive. While your average velocity on the highway may be 65 mph, your instantaneous velocity at any given point is likely slower or faster. This is why you need to occasionally press or release the accelerator while you work to stay the posted speed limit. Velocity also does not provide any insight into whether things are speeding up or slowing down. It is like some of what the compensation industry considers to be “better” pay data. Whether you are looking at survey data or “industry trends”, most of what we get is a velocity with no indication of the forces behind it.

Acceleration (and deceleration) is where the real action is (we will save kinetic energy for another day). Acceleration is the amount of change in velocity. This provides a more complete view of what has happened and what may occur in the future. Consider the following charts using the same data set. 

 

• The first chart shows the speed of two cars that are 75% through a race. Boring and not informative.
• The second chart illustrates the velocity of the same two cars at equal time and point in the race. Better, but no context for how they got here and how that may impact the finish.
• Chart three shows the acceleration of the cars at the same point. Now you know who will probably win and have an idea of how the race will progress.

 

SPEED

VELOCITY

ACCELERATION

The data on all three charts is accurate, but it may not be correct. Information must be simple, visual, compelling…and useful. The first chart shows almost nothing useful.  With the second chart, it can be easy to jump to the wrong conclusions. The third chart finally provides insight and understanding into where each car will potentially finish the race.

Compensation planning and communication require the third chart. We are not simply dealing with a point in time or an estimate of consistent movement. Pay is moving constantly and we should be able to make that crystal clear for everyone involved. If you don't understand the acceleration or deceleration of your pay programs then you don't really understand them at all. What are your thoughts?

Dan Walter is the President and CEO of Performensation and is committed to aligning pay with company strategy and culture. Grab a copy of Dan’s new comprehensive issue brief, Performance-Base Equity Compensation. 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.

Cafe Classic - Keeping Employees in Sync with Recognition

Editor's Note:  Today's Cafe Classic was first published on November 15, 2011.  This post has always been a favorite of mine, not just for the surprising beauty of the featured video but for the way Derek Irvine uses it -- and the supporting scientific explanation of the phenomenon shown -- so brilliantly to make his critical point about recognition as a tool for synchronization. 

Take it away, Derek!

Have you seen this viral video of a starling “murmuration?”

Murmuration from Islands & Rivers on Vimeo.

Filmed on the River Shannon in my home country of Ireland, two independent filmmakers captured thousands – yes, thousands – of starlings moving in unison across the sky. Creating beautiful abstract images as they twist and turn, never once do individual birds bump into each other, even when patterns flow and merge together.

How is this possible? The science tells us:

“Starling flocks, it turns out, are best described with equations of “critical transitions” — systems that are poised to tip, to be almost instantly and completely transformed, like metals becoming magnetized or liquid turning to gas. Each starling in a flock is connected to every other. When a flock turns in unison, it’s a phase transition.

“At the individual level, the rules guiding this are relatively simple. When a neighbor moves, so do you. Depending on the flock’s size and speed and its members’ flight physiologies, the large-scale pattern changes.”

Think about that. Each starling is so in tune with its immediate neighbors, the entire flock – of thousands – moves in unison. How in tune are you with your teammates – your neighbors – at work? How in tune do you think teams and departments are organization wide? Do you know intimately what your colleague is doing so you can move in unison with him or her?

How does this apply to the workplace?

That kind of synchronized movement in the workplace requires us to lift our heads out of our own work to notice and appreciate the important contributions and efforts of those around us. It requires deep relationships of trust and accountability between team members.

Building those kinds of relationships has become more difficult as teams have become far more distributed in today’s global workplace. Employee recognition can play a powerful role in helping to build those relationships, but only if we abandon the traditional form of manager-to-employee recognition given infrequently to the elite employees only.

Instead we should encourage all employees to notice and appreciate the efforts of their colleagues through true peer-to-peer recognition – laterally as well as up and down the chain of management. Such recognition from peers, frequently given in a timely way, lets colleagues know you their efforts are valuable to the team as whole. In the most positive way possible, you’ve powerfully communicated what is important to you personally as well as to the group as a whole (the flock, if you will).

Can you picture your team or organization moving as one as this starling murmuration does? What do you think makes it possible?

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.

When Irrational Humans Make Good Decisions

News flash. Humans aren’t rational. We often don’t make decisions based on what would be determined as “optimal” or in our own best interests.

Case in point – this Harvard Business Review article by Harvard Business school professor Francesca Gino in which she points out, “Public policy has often relied on assumptions of rationality when accounting for human behavior, which has led to suboptimal policies in the past.”

That statement alone could fuel many long conversations, but the simple truth of it is often something we ignore when thinking about how best to support our employees in bringing their own best selves to work every day. Gino goes on to say:

“Organizations can identify more effective management practices through a better understanding of human behavior. The implications could be wide ranging, from helping employees adopt healthier habits to increasing their happiness and productivity at work.”

What does that potentially look like? It’s not the easy answer you might expect of free food and nap pods. Gino continues:

“Consider how simple interventions can increase employee happiness and productivity. Lalin Anik, Lara Aknin, Michael Norton, Elizabeth Dunn, and Jordi Quoidbach conducted a series of field experiments in which they found that when employees share their bonuses with coworkers and charities, they are more satisfied and perform at a higher level than those who don’t. Giving employees opportunities to spend money on others increases happiness, job satisfaction, and team performance, their research discovered.”

We are happier and perform better when we’re able to give our hard-earned bonuses away. That finding makes me want to give three cheers for humanity as it shows we, on average, tend to understand two important truths:

1. We succeed through the efforts, help and support of others.
2. There’s always someone else in more need than we are.

While bonus structures might be considered sacrosanct, we should consider making it much easier for our employees to do what they seem to want to do anyway, namely:

1. Enable easy peer-to-peer recognition in a form with economic value. Empower employees to notice the good work and contributions of their colleagues and then recognize and reward them for it in meaningful ways.
2. Make a very wide variety of global charities far more accessible as reward option for employees who wish to redeem their own recognition awards by giving them away to others.

Humans might not be rational, but on the whole, we tend to be generous and altruistic. That’s the kind of behavior we should foster and encourage more in the workplace, often simply by removing barriers to what’s in our nature to want to do anyway.

In what ways are your employees or colleagues positively irrational?

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.

Forget Average. Escape the Middle. Lead.

Compensation people should inspire leaders to supply achievement objectives beyond simple imitation and blind followership.  To succeed, we need to capture the imagination with catchy phrases.  

Total rewards practitioners in most organizations are still compelled to imitate rather than create.  “What are our competitors doing?” is constantly asked by top management.  Then, orders to copy that consensus prevalent practice follow.  No one is surprised by unexceptional results because the guidance was likewise the product of modest conservative expectations. 

True innovators are hard to find.  Those who gain media attention and conduct profitable speaking tours as innovators tend to be opportunistic exploiters from outside our profession.  Entertaining profiteers hijack tradecraft terms and frame their frequently trite messages in overly simplistic prescriptions that are are easily swallowed by an uninformed public.  Complex issues rarely have easy solutions.  Slogans that sell books and make headlines don’t always translate well into real practice with real people in real organizations.

A major part of the problem may come from the apparent inability of compensation experts to communicate valid needs for variations in concise terms simple enough for senior executives to grasp and understand.  We must come up with better short memorable phrases that create head-slap moments of revelation.  If commercial speechwriters can successfully sell misleading (or at least partially defective) concepts, why can’t we sell superior ideas?  Let’s work together to fight the desire to huddle together in mediocrity!  Create better catchphrases. 

The typical targets involve dull statistical terms.  The mean is the average, the sum of all values divided by the number of observations.  The mode is the most common case.  The median is the precise middle.  An average or central value defines what is mediocre.  We can do better than that!  Now, let’s build on those concepts…

Average is an insult when applied in performance ratings because it means “nothing special.”  Most common is never used to describe the best.  The median is neither high nor low but simply the center… precisely routine.  So-so gets a shrug while great earns admiration.  Which phrases reflect your aspirations?  How many organizations strive to be undistinguished barely-noticed members of a crowded cluster group?  Who wants to work at a boring mediocre organization?

The real action is at the outliers.  Extremes are the exceptions.  Do you want to excel at the top or settle in comfortably with the mass in the middle?  Distinction requires contrast. 

Leaders precede the rest, showing new directions for followers.  Trailblazers go ahead of the pack.  The best don’t meekly fall in at the rear to crawl up towards the crowded center.  The path most taken eventually gets muddy and nearly impassible in bad weather.  That sure doesn’t sound like “the safest” course to follow all the time, unless you want to  end up where everyone else went, arriving long after they beat you there. 

The optimal outcome from imitating others is only a tie.  Winners act smartest first, define what is best and initiate the methods others scramble to copy.  Leaders don't depend on others to guide them.  No one ever got ahead by following the group. 

Turkeys flock together; eagles fly alone.  Your toughest rival appears in the mirror.  Don’t be a lemming; set your own course.  Imitators simply follow.  Although every compass points north, that is not always the right direction to go. 

While it is useful for context to know what the norm is, no enterprise seeks mediocrity.  The cry to action should be, “Now that we know where everyone stands, how can we leap over them?”  The standard course of action is the most common method and merely identifies the comfortable center location where all the unambitious copycats cluster.  Only insecure executives need reassurance that they can defend feeble actions by pointing to a large mass of fellow low-achievers who lack the courage and foresight to take a different path for leadership.  Make a choice to seek safety in the middle where mutual support and finger-pointing excuses abound or boldly stride into the lonely dangerous zones where better new ways produce breakthroughs. 

Too verbose?  Shrink them.  What other short pithy memorable phrases can you suggest? 

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.

Vancouver BC train station tulips photo by E. James (Jim) Brennan

What Citizen Scientists Can Teach Us About Incentives

If you've ever used anything powered by electricity, then you should thank Michael Faraday. He revolutionized our understanding of electricity.

Faraday invented the electric motor, the electric generator, the Bunsen burner, electrolysis and electroplating. He also discovered electromagnetic induction and metallic nano-particles (thought to be the birth of nano-science). He is considered one of the most influential scientists the world has ever seen.

The really interesting thing about Faraday? He was never taught science, and dropped out of school at age 14 to work as an apprentice in a book-binding shop. So what was it about Faraday that pushed him to read every chemistry book he could get his hands on, attend lectures, and correspond with Sir Humphrey Davy of the Royal Institution?

Intrinsic motivation.

He did these things because he loved doing them. He wasn't paid to attend lectures (in fact, he couldn't afford to purchase the tickets and relied on complimentary tickets from acquaintances). He initially received no monetary compensation whatsoever for his scientific work. As a result of his love for science, he paved the way for our modern understanding of electricity and magnetism.

Would Faraday have been as successful if he had been paid to be a scientist? Perhaps not. Some think that when we are paid to do something we would gladly do for free, our intrinsic motivation is "crowded out" by this external compensation (an extrinsic motivation). We cease to do think, create, or invent for the sheer joy of it, and begin to think, create or invent because we are paid to do it. Once we lose that joy, our thinking may be less clear, we encounter creativity blocks, and our inventions become incremental rather than ground-breaking.

This is a fundamental concern when thinking about performance-based pay for researchers, scientists and creatives. If we use performance pay to encourage and reward innovation, will it actually have the effect we want? Or will it crowd out the intrinsic motivation?

Many researchers and practitioners think that performance-based incentives can't work for these kinds of employees. Dan Pink has an interesting presentation in which he argues that monetary incentives really only work for routine tasks; once we move into those tasks requiring creativity, those monetary incentives backfire. People become hung up on the performance metrics and whether they are doing enough to earn the monetary reward, the creative tasks become cheapened because they are monetized, and become too uptight to have their best ideas come forth and flourish.

While there is certainly a risk of this occurring, I think that performance-based incentives can work for researchers, scientists and creatives. The key is finding a way to construct them so that the extrinsic motivation reinforces the intrinsic motivation. To do this, we need to think carefully about what drives these scientists to do what they do.

Faraday did science for the love of science. Thousands of "Citizen Scientists" do science in their basements and garages for the love of science. It gives them with a creative outlet, occupies their minds in new ways, and provides a sense of freedom. Freedom to work on the ideas they find interesting. Freedom from the constraints of micro-management, rigid drop-dead dates, and bureaucracy. Freedom from monotony. Freedom to be autonomous.

If we can find a way to structure performance-based incentives to increase autonomy (whether actual or perceived), these extrinsic motivators will reinforce the already-present intrinsic motivators, and we can help our R&D departments soar to new heights.

In my next post, I'll share some thoughts on how we have to become "Citizen Scientists" to solve the challenge of supporting intrinsic motivation with external rewards.

Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University and the Program Director for the Institute for Compensation Studies (ICS) at Cornell’s School of Industrial and Labor Relations. Throughout her career, Stephanie has completed research on a variety of topics including wage determination, pay gaps and inequality, and performance-based compensation systems. She frequently provides expert commentary in a media outlets such as The New York Times, CBC, and NPR, and has published papers in a variety of journals.

I Have The Number

Picture the scene: Someone is hurrying down the hallway at work.  Maybe it's someone you know, a client of yours, or one of your managers.  They're waving a piece of paper that's gripped in their hand.  "I have the number," you hear them shout excitedly.  "I know what we should be paying."  And off they go toward the executive suites to tell senior management "the answer."

A bit dramatic, you say?  Perhaps.  But that's the scene that plays in my head whenever someone I'm dealing with is more concerned about having a market priced number to show, more so than understanding the validity of that number.  Especially if that number fulfills a preconceived or desired expectation.

I've seen it happen again and again.  It's as if Moses came down from the Mount with the tablets, only this time he held eleven commandments, not ten.  That 11th directive from on high is the market figure you've been looking for.  The answer to your quest to discover "how much?"

Only, is it?

Market Pricing is Not an Exact Science

Repeat this after me.  Market pricing is not an exact science.  No matter what the vendors claim about their proprietary software, their point evaluation systems or their convoluted survey source documents.  No matter how much you paid for that survey.  Subjectivity still rules.

The question you want answered is, what is everyone else paying for the position I'm interested in?  Unfortunately, your survey sources almost never tell you that. It's not going to be that straight-forward.  There are too many variables at play.  Which is why relying on an attitude of "anyone can do this" often results in an arithmetic number, but rarely one that you can rely on.

Which is why you need compensation practitioners to sift the wheat from the chaff and to interpret the Rosetta Stone of survey data.

You have to listen to the qualifiers that every survey source presents.

• How many companies have matched the subject job? Is the job match 100%, is it close or are we talking about comparing similar competencies?

• Is the reported figure a good example of what your competitors are doing?  Or the universal everybody?

• Is the survey source(s) reliable, do they have a good reputation, or is the data self-reported off the internet for a few bucks per job?

• Is the data all-industries or segmented to your industry or SIC code

• Does the figure you've been given reflect national data, regional or is it localized?

• Your business has $100M in revenue.  Does the survey show you data from similar sized organizations?

• Is the data based on incumbent information, or on a series of formulae and algorithms that only projects a likely figure?  If job A pays X and job B pays Y, then job C (your job) likely pays Z.

• When you told senior management the source of your "answer," would they nod their head in agreement, or would they frown and ask, "who?"

• Finally, do you have the answers to the questions I've just posed?

So when you consider all the variables involved we're likely looking at the analysis of a marketplace that requires a bit of interpretation.  Are you up for that?  Or are you ready to grab any figure and start running?

Are You Willing to Fall on Your Sword?

How confidant are you with the market figure you've been given?  What if senior management starts asking even a few of the above questions?  Ask yourself, has the survey source(s) suggested any qualifiers to the data that could impact how the information is used?  Have I factored those qualifiers into my "answer?"

Because once you start waving that paper about you've become Moses to your leadership group.  They'll be looking at you to show confidence in what you've just presented.  You'll have to stand with that answer.

So have a care.  Sometimes a little extra analysis is necessary.  Sometimes the initial figure needs to be double checked.  Sometimes you need to qualify the data to better read how market subjectivity may suggest more of a range of figures than a precise $73,212.

And sometimes you don't really have an answer at all, but only someone's guesstimate.

Is that good enough for you?

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, "Curved Perspective," by Joel Kramer

Cafe Classic - Of Course, They Want Cost of Living Pay! (But Do You?)

Editor's Note:  Today's Cafe Classic was first published on June 7, 2010. The topic of cost of living pay (and the related question of paying cost of living versus cost of labor) is evergreen - one that compensation pros are constantly challenged to address.  Here with his classic take on the topic (and signature sense of humor) is Jim Brennan.

Sometimes I wish I could get cost of living pay. 

If my boss were to be so stupid as to pay me more if I spent more, … boy, would I go on a spending binge!  But it would make me feel guilty, flying in the face of my philosophical commitment to classic open market supply and demand economic principles.

Most employers are too smart to tie compensation to personal expenses.  Hard enough, to keep track of ever-changing competitive salaries and internal pay equity relationships, without making a separate pay rate for each worker based on their personal expenses.  Can’t even argue that work location controls pay, either, because most people don’t live within walking distance to work.  Instead, we work where pay is highest and live where our income goes the farthest.

Companies pay what they do because that’s what the open market requires… a decently competitive rate.  The “market” for most workers tends be geographically defined as commuting distance.  Mind you, no two enterprises pay exactly the same, even peers of the same size in the same industry in the same town.  Every employer places a distinctly unique value on each job, as well.  Nevertheless, there is always a middle range for market-clearing salaries that will attract, retain and motivate competent people.

There aren’t that many rules about pay beyond the legally required minimum wage.  Think of any employer.  If they don’t pay enough, they lose good people and can’t hire new ones.  If they pay too much, they can’t get rid of their bad workers and their operating costs spiral out of control. 

Setting pay according to personal family expenses is truly a recipe for disaster, because employers can’t control the lifestyle choices of their workers.  As long as everyone holding a particular job lived at the same level, had the same expenses and got the same pay, “cost of living pay“ would work fine; because COL pay would equal the market-surveyed pay.  However, if some decided to live way beyond the average level, it would become a problem and the surveyed “cost of living” pay would vary… just as pay surveys now show.

To reconcile market pay surveys with cost of living surveys, I need to find a way to make the two identical.  Guess that’s what I should do, then, if I wanted more income to support a higher cost of living.  Persuade everyone who holds my job to demand… indeed, insist… on enough money to support a rich lifestyle.  If everyone demanded the same higher rate, every employer would have to pay it or lose their workers and be forced to replace them with new ones at the same rate they just refused to offer.  Then, the “open market competitive” level measured by salary surveys would climb up to the level I want to support my living costs. 

It might work!  Until the employers are driven out of business by competitors with lower labor costs, of course.

Or is there another solution?

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.

The Other Side of the Coin--A New Look at Performance Management

Same merit budget as last year. Same increase guidelines, too, no doubt. Lest we find ourselves pulling out the materials from last year and changing the dates, here's a couple of thoughts to help you keep the process mindful.

Superstars own the best increases. We have evidence that they know what they're doing. They can innovate. They think obstacles are fun. They hit deadlines.

But what about the next tier down? Why are they still not doing much better than baseline? Do we have any insight into that?

Just think about what that insight could mean. If you knew the "meets expectations" majority didn't have the skills, the experience or enough knowledge of your business to improve at their jobs -- if you had that focus, you'd have a specific problem that you could solve and measure the results. In terms of performance management, you could really "manage" rather than just labeling the employees and paying them a "no pain, no gain" 2% increase. And, if you could get to the heart of the performance issues and succeed, imagine what it would do for your company's results.

The first step is easy. Just add some data gathering to the performance management process you already have. A couple of questions for the manager, a couple of questions for the employee, would give you more insight than you have now. Once you have issues to target -- skills development, experience and so on -- give managers some options and give employees motives for improvement.

Because of the consistent use of a 3% budget over the past few years, you can see trends in individual performance in a more straightforward way than you may have been able to in the past. If your company is truly serious about performance management, instead of spending all your time on spoiling the superstars, analyze how employees who have been inching along with 2% increases can improve and introduce intervention. Your investment of time and money will deliver results, which beats walking away and blindly starting the performance management process all over again.

Heads = Status quo. Tails = Innovation and ROI. Which side do you want to call for 2016 performance results?

PS: I'd love to give recognition to the blogger who got me thinking about this, but I can't remember that far back. You know who you are -- thanks!

Putting together a project plan with communications as the last step? Think again -- and find out why! 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.