Compensation Cafe

The Holidays Are Over

The business year has ended, but managers everywhere are turning their thoughts to receiving one last Christmas present. The calculators are out and every eligible soul from Marketing to Manufacturing to Sales, IT, HR and the Executive Suite is trying to figure what their annual incentive check will look like. For some, it's still the gift receiving season.

Year upon year the same bad script repeats itself for this annual process: once again we'll see objectives created at the last minute, embellished accomplishments dutifully recorded, problems and shortcomings diminished or forgotten and the exercise of completing assessment forms treated with disdain.

More Than Mechanics Are Flawed

Most would agree that the process (performance + assessment = reward) is flawed not by design but by administration. Yet the foxes remain in charge of the chicken coup, offering little hope for reform. Because for those in charge the process works, and self-interest pays its own rewards. Every time.

As you approach the top of the organizational hierarchy true pay-for-performance can become an elusive concept best remembered from Compensation 101 textbooks, suitable only for life as it should be, not as it is. Sad to say, but senior management is often the worst offender. I’ve seen senior executives adjust the interpretation of financial results to ensure that their own incentive awards aren't reduced. Senior staff deserves to receive competitive incentive rewards, don’t they? How can you not provide them with what they need?

Entitlement can and does trump performance.

While studies suggest that the I-deserve-it mentality has been reduced by the effects of a still struggling economy I believe that it’s alive and well wherever rewards are viewed as payment due for time served, not for effort and results.

It can be an uphill climb trying to persuade leadership that it's primarily good performance that should provide rewards; that tenure isn’t a compensable factor, that incentive payments should be deserved, not simply an automatic gift of delayed compensation. Much is made of the principle that the rest of the organization is expected to earn their rewards; shouldn’t the same case be made for management?

End-of-Year Expectation

Have you ever suggested to an executive that their annual incentive award might be reduced because corporate or even individual performance didn't meet expectations? They'd look aghast at the possibility. I’ve heard from many an executive who became upset when reminded of the review process and that the Board of Directors had to approve awards. The common attitude was, times up! – where’s the money?

Will the situation be any different for the upcoming incentive cycle? How about in your organization? Because bucking the trend of human nature is far from a sure bet.

To change those dynamics, as well as the effectiveness of your incentive plans you need to push a bit of pro-active initiative. With a new cycle beginning it’s not too late to have an impact, to instill an actual management pay-for-performance philosophy in your organization - even if it's only taking one step at a time.

• The performance appraisal form shouldn’t be an activity list of what happened during the rating period ("I was very busy"), but a focused statement of achievement against quantifiable objectives.

• Let the assessment tell you the rating, not the other way around ("how do I fill out this form to give a 4 rating"?).

• Ensure that the assessment form language corresponds to the performance rating (Hmmm, doesn't read like a "4").

• Completed forms should be required before an incentive payment is made – negating a procrastination trick ("Just process the check. I'll get the form to you . . . soon").

• Have annual objectives established early in the year, not in an after-the-fact rush at the end.

Not exactly radical thinking here, but more like common sense tenets that should be remembered.

You'll need more than a steely look and a waving flashlight to stop a speeding freight train, so educate management about these ineffective and wasteful practices before the cycle restarts. Afterward is always too late; discipline as a learning tool is best used to prevent problems, not when hands are already reaching into the money bag.

 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,"Gifts," by stevendepolo

Point Factor Job Evaluation Concisely Summarized

Warning!  This is an advanced Point Factor Job Evaluation briefing. Proceed at your own risk.

Point factor job evaluation systems are always imperfect temporary mathematical models.  Point plans were originally created to apply internal equity to jobs that could not be appropriately matched to competitive market benchmarks.  Good survey data might exist for Widget Apprentice and Widget Expert while no other employer might have a job equivalent to your unique Widget Generalist.  Without reasonably precise survey matches, pay decisions must hinge on some other process.

“Pegging” is one such option, picking a spot between two others. A unique job might fall between two known benchmark values, but you still need another form of job evaluation to determine exactly how much between them. Interpolations create arbitrary guesstimates of exactly where an intermediate occupation should be inserted between its higher and lower occupational cousins. Point plans are popular with those who prefer a precise number suggesting exactly how much more or less.

Point factor plans convert scalar information (above or below) to interval status (i.e., -8 or +5) with precise numbers.  A mathematical language is created to rank job characteristics in terms of levels tied to weighted numbers that translate into pay.  Numeric points are accumulated across a number of evaluation factor dimensions with both scalar and interval values and are applied to administer compensation. This permits the interval-based interleaving of unique jobs with benchmark jobs sharing similar overall value scores. 

When any specific plan was first created is usually easy to discover. The lowest number of "points" you can establish for any job will generally be the minimum wage of the year it was initially designed.  Bringing old point values up to date for modern use is more complex.  Simple flat (or polynomial) formula increases applied to outdated weighted score numbers will never accurately capture true changes in those underlying factor values over the years.  But the marketing lifetime of off-the-shelf prepackaged job evaluation plans is greatly extended by skipping factor revalidation steps. Also, it is much cheaper and easier to train sales people and support consultants on a relatively static uniform version of a point-factor plan. If the product being sold is substantially different for each client, its cost will be higher. In addition, any plan requiring an advanced mathematical vocabulary for explanation or maintenance will encounter resistance from all parties. It's much easier just to make and resell a cookie-cutter standard model rather than customize each system for optimal statistical precision. Obviously, those are arcane “secrets” generally hidden from the end users who usually don't care about it, anyway.

That said, most point factor systems survive because they overpay the jobs.  No one will ever complain about being overpaid. The moment an evaluated job's internally equitable pay falls too far below the market-clearing rate, it generally gets re-evaluated upwards, reclassified by a content/title tweak or artificially promoted.  Occasionally, it will be green-circled, placed in a superior range structure or given a higher-paying conversion formula.  Without those accommodations, the company would hemorrhage workers and close down for lack of competent personnel.  Underpaying brings obvious penalties while overpaying is universally embraced.

Other job evaluation systems that are less precise for interval positioning also exist: whole job, internal benchmarking, paired comparison, slotting, factor comparison, committee rankings, tabular classifications and variants. 

It is important to recognize that "market pricing" (where dollars are the points) remains the simplest form of point-factor job evaluation.  Ranking work by current market value is problematic, however, when no market match exists.  Point plans that add unique rationales, standardize work valuation language and apply terms used as "cutters" can justify further differentiation and permit peer match refinements.  Essential point-factor job evaluation system elements usually cover comprehensive work content details along dimensions of the skill, effort, responsibility and working conditions required for each incumbent.

I better stop, because this is probably already far more than anyone wanted to know about this topic.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution. After corporate HR jobs in chemical and 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 returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook) and speaker, Jim gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service and also serves on the Advisory Board of the Compensation and Benefits Review.

Image of Counting Scale by Yulius Adrianto, courtesy of Creative Commons

Disruptive Performance Management Models--Reality or Rumor?

Was 2015 the year of disruptive performance management models? Or will it be 2016? The HR media has certainly been talking as if there is widespread transformation underway.

If your company is not on the bandwagon, don't feel like you've been left behind. The rumors of performance management's death are premature. According to a global pulse survey conducted just months ago by Willis Towers Watson, only 11% of their participants are considering scrapping the program and only 26% are considering eliminating performance ratings. As we all know from experience, "considering" is not a reliable predictor of future change.

So much for the bracing chill of numbers. We're going to look at some descriptive research today. Instead of debunking the potential for improvement in performance management, I want to share a case study of impressive innovation underway at Juniper Networks.  At the most recent meeting of the Bay Area Compensation Association, Charlie Franklin, Juniper Network's Director of Total Rewards, and Jeff Jacobs, their Director of Leadership & Organization Effectiveness, provided a close look at a performance management program that eliminated traditional ratings as far back as 2009 and continues to adapt to the Company's collaborative culture.

What makes their mindset so different? A commitment to create and sustain an approach that achieves business outcomes. In case I'm hearing anyone out there saying, "so what's new?" let me assure you that the approach that Juniper Networks is using has minimal overlap with our more familiar practice of designing performance management to achieve effective administration (of ratings, merit increases, performance plans, etc.). 

Because, of course, the iceberg lurking in any performance management flow is, "why?" "Why do I have to do performance plans when I already know what my job is?" "Why does HR claim that we'll update my objectives during the year, when we'll have no time to do it?" "Why does HR spend so much time telling us that the complicated new HCM system puts employees at the center when I still don't hear anything from my manager about my performance until we talk about my increase at the end of the year?" "Why don't I know what jobs I'm qualified to do in this company?"

"Connect everything and empower everyone" -- a minor feat that Juniper Networks has set up for themselves as the major competitor to Cisco. They believe that Mission applies to employees as much as it does to customers, so their first and most obvious change was to eliminate forced rankings since, by definition, they only empowered the few.

Instead of building their new approach using MBOs to answer the question, "what have you done for me lately?" Juniper Networks built it to empower everyone to use their talents and then evaluate how well they went about it. Instead of annual results and future development, managers talk with employees about their capabilities, connections, contributions and careers.

Even in the tough years of the Recession, layoffs and frequent executive changes, they hung in with their emphasis on outcomes over activities, career over year-to-year focus, HR as consultative advisor rather than HR as enforcer. And they've achieved enviable measures of success with their approach -- 80% to 90% employee favorable responses to the traditional survey questions, "I know what's expected of me" and "I know how I'm doing." How many of you, dear readers, get those survey results?

I hope to add more details to the Juniper Networks case study in the near future, but for the time being let me assure you that they still share some of your own challenges: Increasing frequency of feedback between manager and employee, improving effectiveness of one-on-one employee/manager discussions, building the support of executives newly arrived from other companies and so on. But instead of thinking (and staffing) as if the performance management program should only need updates when it's clear that something is broken, they treat it as the business process it is and work to improve its effectiveness and impact every year.

Planning to make a name for yourself in 2016? Base your strategy on the popular ebook, Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, communications and leadership to topics like the CEO Pay Ratio and performance management discussions at the Café. Before founding re:Think Consulting, Margaret was a Principal at Towers Watson.

Is Employee Engagement Moot in Today's High Stress Environments?

Have you heard the management joke: "The beatings will continue until morale improves?" Sadly, according to much recent research, it seems this approach is no longer a joke. 

Research reported in Huffington Post points out:

"Americans are working longer and harder hours than ever before. Eighty-three percent of workers say they’re stressed about their jobs, nearly 50 percent say work-related stress is interfering with their sleep, and 60 percent use their smartphones to check in with work outside of normal working hours. It’s no wonder that only 13 percent of employees worldwide feel engaged in their occupation...

"The modern work world is a 'broken and antiquated system,' according to Anne-Marie Slaughter, author of Unfinished Business: Men Women Work Family. 'For many Americans, life has become all competition all the time,' Slaughter wrote in a September New York Times opinion piece, “A Toxic Work World. 'Workers across the socioeconomic spectrum … have stories about toiling 12- to 16-hour days (often without overtime pay) and experiencing anxiety attacks and exhaustion. Public health experts have begun talking about stress as an epidemic.'"

And Gallup's latest employee engagement numbers remain stagnant:

Engaged employees are involved in, enthusiastic about and committed to their work. Gallup's extensive research shows that employee engagement is strongly connected to business outcomes essential to an organization's financial success, such as productivity, profitability and customer engagement. Engaged employees support the innovation, growth and revenue that their companies need.

Yet, most U.S. workers continue to fall into the not engaged category. These employees are not hostile or disruptive. They show up and kill time, doing the minimum required with little extra effort to go out of their way for customers. They are less vigilant, more likely to miss work and change jobs when new opportunities arise. They are thinking about lunch or their next break. Not engaged employees are either "checked out" or attempting to get their job done with little or no management support.

This stagnation of employee engagement is not an error of research or an implication that pursuing increased employee engagement is pointless, as some have implicated in recent months. No, the error lies in how we are pursuing employee engagement. Yes, employee engagement is a two-way street. Employees must themselves choose to engage in the work, but employers must also offer conditions in which employees would want to engage. That's where we've fallen down. Even the article I just referenced in opposition to engagement efforts shared a story of employees being told to "engage with the company mission" while in the midst of repeated layoffs and a CEO under investigation for malfeasance.

What must change? It's time to go back to basics. Why should employees choose to engage in the organization's greater mission, purpose, and goals and give additional discretionary effort to achieve them if:

1. Compensation is not equal to market rates or is insufficient to cover basic living needs. Returning to Maslow, base needs for safety, security and sustenance must be met first. Appropriate and fair compensation must be the solid foundation upon which further engagement efforts are built.
   
   
2. The work environment is itself unsupportive or downright abusive. Employees are not cogs in a machine. They are humans. And humans over time tend to give back on the order that they are given. (See Adam Grant's excellent work, Give and Take.) Supportive work environments led by people of integrity with their own personal sense of mission engender the desire to give more, too.
   
   
3. Essential human needs of rest, restoration and the ability to meet the needs of the whole person are ignored. Coming full circle to the first article referenced, we can all give great effort in spurts. But we are also built to need periods of recuperation. Today's work seems built more for a constant high level of stress. We must now work to ensure full rest is taken (in the form of vacation) as well as less stressful but equally important job assignments are interwoven into the overall work world.

These steps can help us not only engage our employees but avoid the workplace recently parodied in The Onion: "Boss Wants Friendly, Relaxed Company Culture in Place by Friday."

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.

 

Turtles Confirm that Incentive Pay Works!

The discussion regarding the efficacy of incentive compensation is ongoing. So many questions, seemingly so many answers! Does it focus people on things that you find important? Does it trump autonomy, mastery and purpose? Does it make a difference even when it isn’t the main component of pay? Will people jump through a few hoops if there is a reasonable prize at the end?

A group of turtles answered yes to all of these questions.

We tend to think of incentives as based on job descriptions and tasks people normally perform. In this case an incentive was created to get people to perform a task that was nowhere near their job description and something that no one normally does. Instead of the incentive being pushed on recipients it was only available via request. Less than half who went through the request process were even accepted to the incentive program.

Stop and think about that for a minute. Imagine if your employees had to request to participate in your incentive plan. Now imagine if you turned down more than 50% of their requests!

Back to the turtles…

The program was designed to motivate ranchers in an area with a threatened turtle species to change their processes and facilities to be more conducive to helping the turtle population grow.

You had to apply for the incentive and prove you were worthy. You had to show that your area was compatible with and inhabited by the turtles. You had to ensure the products you used to fertilize, feed and treat your area were not poisonous to the turtles. You had to change dates for critical tasks like calving to ensure they would not interfere with the turtles. You had to have an area big enough to make it worth the time, effort and money of the individual offering the incentive. And you had to build turtle ramps that allowed the amphibians easy access to raised water tanks. All of this for an incentive that was capped at a small percentage of the income produced by the rancher.

And here’s the great thing. It worked. People made the effort to apply. They followed the rules and they got paid. Turtles were born and were able to grow. And people were generally a combination of bemused and happy with the program.

If incentives can motivate ranchers to make real changes to make the lives of turtles easier then your employees can be motivated to make real changes to make their careers and your company better. Or, at least that’s what the turtles told me.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture. Do you want to know more about, Performance-Based Equity Compensation? Dan also cowrote “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And believe it or not, 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: Newton’s Three Laws of Compensation Motion

Editor's Note: Science holds a lot of lessons for those of us who toil in the field of employee rewards, as Cafe contributors have shown us repeatedly over the years.  In this Cafe Classic, originally published in July of 2012, our own "mad scientist" Dan Walter shares an important physics lesson from no less than Sir Isaac Newton. 

Earlier this week, fellow Comp Café-er Stephanie Thomas, wrote an article titled The ‘God Particle’ of Total Rewards. In it, she discusses the Higgs boson particle that seemingly holds the key to why things have mass and the secret ingredient in compensation programs - people - and how they hold things together. This got me thinking about how some of the most basic laws of physics control some of the most profound aspects of life. Given the fact that my last physics class was almost 30 years ago, I thought I’d take us back to basics. Sir Isaac Newton was a pretty smart guy. He developed three laws of motion that have historically worked well for most humans. With a little (OK, a lot) of poetic license I reframed these three laws below.

I. Every compensation program in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.

Basically, this says that once something is moving it will continue moving in the same manner unless, of course, something acts to stop or change that movement. Consider your average compensation program implementation.  Even the best implementation and roll-out has a few flaws, but it would be great if whatever movement we created at kickoff would remain constant for a while. However, nearly everything that happens at a company and to each individual directly impacts the movement of your program. Changes in goals scrape off a little of your speed. Strife with a boss pushes back against your well-designed program. Little and typically unnoticed distractions slowly drain away even more speed.

Handling this Law requires always being behind your plan pushing, or in front of your plan clearing a path. The push comes from understanding your program goals and being able to translate that into the goals of each key stakeholder and influencer. Clearing the path is mainly about communication.

Law I states: things will not change unless you make them change. In other words, don’t expect change to happen just because you want it to.

II. The relationship between an object's mass m, its acceleration a, and the applied force F is F = ma. Acceleration and force are vectors (as indicated by their symbols being displayed in slant bold font); in this law the direction of the force vector is the same as the direction of the acceleration vector.

This Law explains how velocities change when forces are applied. The greater the mass, the greater the force needed to create acceleration. Also, a greater mass requires more force to slow it down. This is the argument for both rigorous testing before any plan change and small pilot programs when the final number of people involved will be large. It is fairly easy to redirect, speed up or slow down a small group. Large groups, on the other hand, take enormous amounts of effort to get moving, to change direction or to slow down or stop. It is easier to stop a toddler on a trike than a fully loaded locomotive.

Often people wonder why compensation programs at very large companies tend to remain fairly constant regardless of popular trends. This law explains this.  While it is possible to make fairly quick movements with even the largest plans, the force (staff size and budget) required to execute and control the movement is seldom within the range of what compensation departments are allocated. The only hope for achieving quick movements here is to show how the quick movement of the compensation program can lead to an equally quick movement in company success.

Law II states: making changes becomes harder the bigger the group or issue gets.  In other words, don’t wait to make changes and when you do make changes make sure they work small before you try them big.

III. For every action there is an equal and opposite reaction.

This law is the tricky one for compensation professionals. Basically, it translates into: “Every time you do something great, expect to deal with something bad. I often hear this referred to as the “Law of Unintended Consequences.” In truth, if the action taken was deliberate, the opposite reaction should also have been fully expected.

The place I see this happen most often is in pay for performance programs. The performance award goal says to maximize revenue, but there is no mention of controlling costs or risks. The sales commission programs says you get paid a bonus on what you close in Q3, but does not specify that the deals need to stay closed through a given date in the future. The raise is given to keep an important person who would have been happy with half as much had they just not been “forced” to go interview somewhere else.

Law III states: that there should be no unintended consequences if you plan and design with forethought. In other words, every time you work to motivate an action or feeling, determine exactly how that motivation may also result in exactly what you don’t want.

While the ‘God particle” may still up be for debate, these basic laws are proven. Use them to your advantage or spend most of your time dealing with their consequences.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture. Do you want to know more about, Performance-Based Equity Compensation? Dan also cowrote “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And believe it or not, 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.

The Ides Of March

Some might think I'm a bit early for this topic, but I figure better early than late. Early gives you time to think and react. Later on, if trying to seize on an idea that's dropped back into your rear view mirror (coulda, shoulda, woulda), that tactic would rarely work.

Why point at the Ides (15th) of March? Because during a normal fiscal year / calendar year compensation practitioners usually have from approximately March to September (6 months) to work on something new, before their automatic pilot season starts again.

Right now (January and February) most compensation folks are in the midst of incentive payout calculations, annual performance appraisal processes and the implementation / communication of the new year's reward program(s). They're up to their eyeballs with work, wrapping up the old year and getting ready for the new. Fresh ideas are going to have to wait.

Have you ever tried to talk with an Accountant during the first quarter of the year? They'll have no time to talk about new systems, or processes or simply new ways of doing their job. "Talk to me after tax time" is a common response.

Automatic Pilot

Later in the year, usually commencing after Labor Day in September, for most of us the automatic pilot season of annual activities will begin: competitive job market analysis, tweaking the annual compensation plan recommendations, developing communication strategies, launching the annual merit review cycle and multiple variable pay (STI) plan assessment and payment processes. And of course what follows is the busy season of January and February already mentioned.

Each of these processes and projects occur every year, and cumulatively they take all the air out of your schedule, especially in the fourth quarter and cusp of the new year. Those exciting fresh ideas percolating in your head are going to have to wait.

What Are You Gonna Do?

So when March finally does roll around and you have more (or less committed) time on your hands, what are you going to do? Some thoughts from a potentially long list.

• Redesign the (management) incentive plan: And / or other variable pay programs may need a tweak or an overhaul.

• Develop a compensation strategy: Do you have one? You should have one, or at least a well thought out strategy for how the organization plans to get the most out of that huge payroll expense.

• Reassess the organization's performance management program: Another favorite HR kicking boy, but one that deserves your attention. Are you properly assessing performance, and how does that process link to individual employee rewards?

• Correcting a problem: What are your dashboard metrics telling you? Are the numbers going in the wrong direction for one or more elements of your reward programs? Perhaps it's time to investigate and recommend solutions.

• Clean up the job descriptions (ugh): Everyone's distasteful task, but as a foundation document for multiple HR programs maintaining accuracy and completeness is a must. I put this near the end because, let's face it, it's one of the last projects that anyone in HR wants to deal with.

• Focus on some other hot button of discontent, friction or out-of-control expenses: Maybe it's something your boss wants you to focus on, or it's a new buzz phrase program that being talked about at all the conferences and webinars, or simply something you've always wanted to flesh out and experiment with.

If you don't start working on new stuff (improvements, efficiencies, and even new ideas) soon after the Ides of March, your window of opportunity will slam shut on you all too soon. Your available time will be up. And then you'll be looking at 2017.

 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,"Compact Calendar," by Joe Lanman

Competitive Market Surveys Rarely Produce Identical Pay

Compensation professionals love to cite “the open market,” while being less eager to admit that every market is different. Despite continual references to reliance on the free labor market, the competitive pay values established between and among employers almost never match. The reasons may be seem obscure to outsiders, but they are clear to those who follow the arcane practices of the wage and salary management field. There is no one single competitive market for pay, even though that phrase is frequently used justify recommendations that are almost always unique.

Organizations follow the competitive market the same the way people heed the outside weather. After considering the weather, you dress as you please. What is considered proper, comfortable and affordable by one is not the same for another. A glance at any sample of people walking by shows how others are dressed, allowing you to adjust accordingly. Examination of the official weather report offers more refined data with greater credibility. Once you check the more precise meteorological details, then you still get to decide what you want to wear. Of course, if you are running a marathon race, you will dress differently than a scuba driver, despite identical conditions of ambient temperature, wind speeds, amount and type of cloud cover, etc., in the area.

The behaviors are parallel: reference information supplies guidance for your informed decision in each situation. But your final decision on how to dress is not based on just “the weather” any more than how you pay people is based on “the market.” There is no one weather report that applies equally well to all employers in all locations in all circumstances. In the same way, there is no one absolutely open competitive market for pay, just as there is not one single street address for “the competition.”

Even when peer organizations share details about their wages and salaries, each enterprise ends up applying the information differently. Each employer using an identical survey published by a reputable professional analytical organization ends up with its own unique number as the appropriate target. One would think that open market exchange of wage and salary information would produce fairly identical equilibrium points … but it doesn't.

Identical pay is highly unlikely. No two enterprises have exactly the same pay rates for any two jobs. Each firm has different reasons for its totally unique value systems. Steel mills don’t place a particularly high value on a mail room supervisor job, for example, while that position can be a critical profit contributor in a direct mail distribution center. Even if the pay planners at the steel mill and the mailing center referenced the exact same pay survey, they would probably draw different inferences from the reported figures and select different market reference points for internal use.

In addition, an employer may select different peer comparison groups for each work group and address them differently. Some set a policy line vector: to lead, lag or match their peers, frequently with refined definitions like “above average” or targeting the 70th percentile. Human organizations also have their own personal internal value structures. Job evaluation can then be applied for discounts or premium variances structured to reflect special priorities set by top management, created by historical precedent or required for internal equity.

Cash compensation supplies a number for comparison but it is still only part of the employee value proposition. Non-cash reward elements can't be reduced to simple numbers. Peer relationships, fringe benefits, perquisites, career progression prospects, working conditions and other circumstances like location also complicate the “total rewards” picture.

Starting with the same input information, each user can and will still come up with a different conclusion about what is right, proper, affordable and persuasive for their organization. The more we try to imitate each other, the more we vary in actual practice. No matter how identical the world we inhabit, we all live it differently. Vive la difference!

Don't hesitate to share this with someone who needs to know the reality.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution. After corporate HR jobs in chemical and 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 returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook) and speaker, Jim gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service and also serves on the Advisory Board of the Compensation and Benefits Review.

Image "Colourful Shopping Bags" courtesy of Hywards at FreeDigitalPhotos.net

Are You Cultivating Superchickens?

Productivity. Every organization is interested in it, and nearly every manager is searching for ways to improve it.

Popular business books are full of advice on how to attract and retain "superstar" employees, control turnover by managing out the "deadwood", and design financial and non-financial incentives to drive productivity. I myself spend a great deal of time thinking about - and writing about - the relationship between incentive pay and productivity. But I recently came across a TED talk that has me questioning what I thought I knew.

In her talk entitled "Why It's Time to Forget the Pecking Order at Work", Margaret Heffernan begins by describing a productivity experiment with chickens. "Productivity" (measured by the number of eggs laid) was compared between two groups of chickens. One group - a typical flock - was left alone to do what chickens do for six generations. The other group - a flock of "superchickens" - study group, was created from only the most individually productive chickens. Only the most productive among the superchickens were selected for breeding over the course of the six generations.

At the end of the six generations, the average flock was doing fine - plump and fully feathered - and egg production had increased dramatically. Within the superflock, however, all but three chickens were dead - the rest had been pecked to death:

The individually productive chickens had only achieved their success by suppressing the productivity of the rest.

This struck an emotional chord in me... In our efforts to succeed, are we killing the very thing upon which that success depends?

The implications of this question reach deeply into the workforce, and into our lives. Particularly evident are the implications for how we measure and reward performance. We all intuitively know that the whole is greater than the sum of its parts. This has never been more true than in our current economic structure. In order to thrive in today's world, we have to recognize that what happens between people matters. It is the social capital, not hoarded and siloed human capital, that drives business results. We need to actively encourage, through our policies and practices, what Heffernan calls "a culture of helpfulness."

How do we do this? For some organizations, it's second nature. Zappos has four different peer-to-peer recognition programs. My Cafe colleague Ann Bares wrote about IGN's viral rewards program back in 2011! For the rest of us, it requires a change in our thinking. Peer-to-peer recognition is one logical place to start, but certainly not the ending point. We need to look at all of the relationships in the workplace across all hierarchical levels and functions.

The truth is that not everyone can be (or even wants to be!) a superstar. There is a much-needed role for key talent: those folks who aren't superstars, but good performers with specific knowledge and skills who simply cannot be replaced and without whom our organizations would suffer. There is also a role for the garden-variety strong performers who aren't superstars or key talent but who contribute to the organization in meaningful ways every day. Everybody matters, and at some point - whether we are superstars or not - we all are going to need help from the non-superstars in our organization.

Cultivating a flock of super chickens in your workplace can be dangerous. Healthy competition should be encouraged, but I think we can all agree that the following example, describing how one information technology specialist received a promotion, crosses a line:

I managed to crack the network messaging system so that I could monitor all the memos. I also sabotaged the workgroup software and set back the careers of a few computer-naive souls who didn't realize someone was manipulating their appointment calendars. They would miss important meetings and be sent on wild goose-chases, only to look like complete buffoons when they showed up for appointments that were never made.

How are your chickens - plump, fully feathered and laying eggs, or pecking each other to death?

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.

From the Outside/In

  “I don’t get no respect.”
----------Rodney Dangerfield

What department of a company do you think I’m talking about here?

Top management's view:

• wonders how it spends its time
• wonders how it spends the company’s money
• thinks it’s not focused on the business
• doesn’t think it’s delivering competitive advantage
• doesn't think it's demonstrating ROI

Answer? Marketing Department. Surprised?

This was how many companies used to feel about Marketing 10+ years ago. At that point in time Marketing’s main function was advertising.

One of the most common complaints from Marketing professionals back then was the lack of respect they received from the rest of the company. The decisions made by the salespeople, engineers, finance/accounting people all seemed to carry more weight than Marketing. As a consequence, it was difficult for them to have much influence on strategy, product development, operations and other key business decisions.

But Marketing has come a long way since then. Now it’s almost the heartbeat of the company, defined holistically as product, price, place, and promotion.

Today it’s HR that “gets no respect”. Even Wikipedia rubs it in. Marketing is "the activity, set of institutions and processes for creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large". HR, meanwhile, is "the name of the function within an organization charged with the overall responsibility for implementing strategies and policies relating to the management of individuals".

There have been a gazillion articles written on what’s wrong with HR, asking should we even have it, what it will take to fix it, etc. I like what Dave Ulrich, professor at the University of Michigan, has to say: HR needs to follow an “outside/in” approach. It needs to shift from an internally focused function to one with a business agenda as its foundation.

By being plugged in to the external market, understanding stakeholder needs, macro-trends and creating solutions aligned with strategy, HR will play a large part in a company’s success.  Research shows the one consistent element once people reach the C-suite is the fact that technical and functional expertise matters less than leadership skills and a strong grasp of business fundamentals.

I've been talking about HR as a whole.  Do you think Compensation is guilty of any of the above?  If so, better start studying those balance sheets and income statements.

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. 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.