Compensation Cafe

Chill! Here Are Ideas for the 3 Tools You'll Need to Roll Out Your New Overtime Regs

This is Part 3 of a series about new DOL regulations, effective December 1, 2016. (Check out Part 1 and Part 2 for other practical tips and suggestions.)

Every company that is working on the new regs has to address the same three project management tools: 1. Project plan, 2. Announcement, 3. Implementation plan. Compare the following to a "chooseable path adventure book." Read only what's most interesting to you, or cover all three tools. (And if you've already gotten started, see if there are any ideas you can fold into your current work.)

One: A Project Plan  Your plan should include some or all of the following.

• Create a team: Consider them a steering committee. The members may do all the work, or they may be the key decision makers who designate individuals to do detail work and report back to the committee. Possible members in addition to Compensation include:
• Legal, CFO or member of her/his staff to act as liaison and/or other executive decision makers.
• Payroll, IT, HR Business partners, Benefits, Training, Career Development -- colleagues needed to provide input or whose work will be affected by your decisions. Be sure to include those responsible for the implementation plan for the decisions you will make.
• Lead managers of affected employees. Is there one manager who will be effective as a liaison with the other affected managers, or do you need broader representation?
• Define the problem: There is no reason to delay. The first presentation to the team should include a data analysis of who is affected and current differences in salary from the new guidelines.
• Gather data: Interview executives including the CFO about their concerns and suggestions and brief the team about their expectations. Interview a select group of supervisors. If you find out that your current OT practices are not effective, the December implementation will be a great time to refine any rough spots.
• Determine your recommendations and calculate the financials: Do not label your work as final until your team has analyzed how the changes will affect employees and how they will react. Remember that you have at least three audiences because of their different perspectives on the changes: Those whose employment status will change, those who will remain hourly and everyone else in the company.
• Share your proposal with the executive team: (Of course, you've updated them on your progress up to this time.) A draft proposal  will help you identify any objections early and let the execs provide additional input or recommendations before your formal presentation.

Two: Announcement  This step overlaps Step 1. If you haven't sent your announcement yet, here is a sequence of information that is typically well received. It's not recommending wording but a working outline.

• Begin with a summary of the regulations and their impact: DOL changed regs that affect overtime eligibility. The salary guideline has increased from $23,660 to $47,476, effective Dec. 1. We believe this change will affect about X number of employees and involve changes to our pay practices, overtime policies and salary-based benefit costs.
• Because this an important change for our employees and the way we work together, we have created a team to help us determine how we will proceed. Together, we will determine how to make the most of these new regulations while we keep our culture and operations running smoothly. [And/or discuss link with impending business goal.]
• The team includes [Insert names and titles]. It includes the functions that must implement the changes, when they are determined, as well as leaders whose employee teams will be most affected.
• Here is the team's project plan [insert]. We expect to update you when we hit important deadlines in [name months]. (Emphasize the team's executive sponsor.)
• We understand you have questions -- you may have heard a lot about this in the media -- but we think you can understand that we are working on the answers and will [insert your communication plans] We will announce our decisions in November.

Recommendation: Also provide managers with talking points or FAQs, so they are ready to answer questions about your announcement. Commit to at least one update to employees between now and November. In it, you can explain whether you have  identified all the policies that need to be revised, addressed IT issues and other milestones. You won't be able to answer employee questions yet, but they'll want to know that you are still working on them.

Three: Implementation Plan Your implementation plan is probably going to be complex, so someone on the committee should be given that assignment from the first meeting. S/he will need to organize team members to address needed deliverables. A common, combined timeline should be created from critical due dates for all of the projects, for example:

• HR team -- Develop new policies or revise existing ones. Republish the employee handbook or online content.
• Payroll -- Schedule the changeover so payroll dates are met.
• IT -- Change coding in employee records and perhaps expand employee access to recording time on job, permission for overtime, etc.
• Benefits -- Notify carriers and administrators of new plan participants, perhaps update contracts.
• Communication -- Develop presentation of changes for execs, customize for employee briefing [perhaps in two or three versions, since employees/departments not affected by the changes just need a short briefing]. Create training and tools that managers can use like: talking points, FAQs, salary statements, and so on.
• Executives -- Determine how to assist them with 2017 budgeting using the new parameters.

Everything you do in compensation is communication, so why not do everything better? Prepare yourself for explaining the DOL overtime changes by getting yourself a copy of the popular ebook, Everything You Do (in Compensation) Is Communication @ https://gumroad.com/l/everythingiscommunication. 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 Willis Towers Watson. 

Breaking Out Of The 'Best Practices' Ant Farm

Have you ever thought about why do do things the way that you do them? I mean, why you really do them?

All too often the given answer is "because it's best practice," but if we're honest, the real answer is "I don't know." A more correct answer may be "because I'm an ant."

In a series of experiments back in the mid-1980s, entomologists observed that when faced with two identical "paths" from a nest to a single food source, ants tended to concentrate themselves on one path. 80% of the colony "chose" Path A, while only 20% of the colony "chose" Path B. 

Ants exhibit this behavior because of recruiting, either by returning to the nest and stimulating other ants to follow it back to the food source or by laying a chemical trail that attracts other ants. 

If we think about our own behavior, we're not that different. While we don't follow a chemical trail of secreted pheromones, we do exhibit herding behavior and follow a trail - a trail of reputation preservation tactics and beauty contests known as "best practices." 

We love the safety and security of best practices: "it is better to be conventionally wrong than unconventionally right" (Keynes, 1936). We, as humans, suffer from cognitive biases that cause us to herd and follow the decisions (right or wrong) of a group. We see this played out time and again in history: bank runs associated with the Great Depression, football hooliganism in Europe in the 1980s, and even the behavior exhibited at some of the 2016 presidential campaign rallies.

To see herding in the context of compensation, we need to look no further than our own professional literature. Payscale's 2016 Best Practices Survey welcomes readers to a magical place called Comptopia:

In 2016, cast your compensation cares away and escape to an idyllic island known as Comptopia. In this sparkling land, your pay struggles melt away like an ice cream cone in a sizzling tropical locale. Candidates accept your first offer and don't try to use you as leverage against a competitor's offer. Hiring managers nod agreeably when you recommend a salary. Market rate is no longer a hazy mirage, but an accessible metric that appears magically at your fingertips, on command. With this insider's guide, you'll get a step-by-step map of what it takes to join the Comptopians, carefree natives whose top performing practices make every day of their lives a pay paradise. (p. 5, emphasis added)

This is an appealing trail to follow: if every day could be a pay paradise simply by following a best practices map, wouldn't you do it? But it's also a trail full of reputation preservation tactics and beauty contests. For example, one of the key findings of the survey is that "44% of respondents cited replacing traditional annual performance reviews with ongoing, real-time feedback as the hottest HR trend for 2016" (p 6).

I think we can agree that most organizations struggle, at least from time to time, with their performance appraisal system. Let's say you are assigned to "fix" your performance appraisal system. Following the "best practice" approach, you consider blowing up your performance review system. If you do, you'll be in good company - Adobe did it, IBM did it, GE did it, and even Microsoft did it. If it doesn't work, you can be "conventionally wrong," right? It IS the hottest HR trend for 2016 (i.e., the winner of a Keynesian beauty contest).

Don't get me wrong - I think the kind of information contained in "best practices" resources like Payscale's can be incredibly useful, if it's used the right way. We have to separate the hype from the results (see Gerry Ledford's 6/6 Cafe post for just such a separation as it relates to cutting edge performance management) and consider whether this really is something that could work for you.

When it comes to figuring out what will work best for your organization at this particular moment in time, there is no simple step-by-step map or one-size-fits-all solution. I urge you to think critically about whether you want to follow the best practices trail, loaded with feel-good pheromones and plenty of opportunities to be conventionally wrong, or whether you want to break ground on your own and explore off the beaten best practices trail. After all, it's the trailblazers that create revolutionary change... 

Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University and 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 media outlets such as The New York Times, CBC, and NPR, and has published papers in a variety of journals. 

Education Over Experience

Experience is frequently cited as a proxy for education when credentials are evaluated, but I recently encountered a question about turning the equivalency logic the other way around.  Someone sought ideas for the number of work experience years that should be credited for scholastic degrees. Like, “if you have an Associates degree, you don't need any work experience.” I have have rarely seen that occur. Education tends to establish minimum primary boundaries for a hire qualification or states the entry threshold job evaluation element which is slightly modified by work experience requirement parameters: e.g.,

• High school diploma and six years experience or
• Associates degree plus four years experience or
• Bachelors degree and two years experience or
• Masters degree and no experience

In those illustrations, education is the fundamental prerequisite and the amount of work experience varies by the level of education possessed beyond the minimum schooling required.  But how about generally assuming that a Master's degree equals two years of work experience? That is implied in my prior example. The education and experience must be relevant to be comparable, of course. Nevertheless, I would hesitate before decreeing that education may displace experience in hiring entry standards and compensation classifications.

Practical experience reduces the need for education more often than schooling trumps real-life application experience, I suspect. Positions that demand formal academic certifications or official licenses (i.e., MD, LLB, PE, CPA, RN) usually require passing a combination of essential qualification tests and demonstrated practical proficiency in addition to the established minimal educational foundation.

Perhaps replacing experience with relevant equivalent education is usually not emphasized or envisioned in company policies because it is so swiftly dismissed as illogical by top management.  Most executives have learned the hard way that academic courses rarely do more than scratch the surface of actual work applications in certain fields. They are quick to squash any impulse to consider a PhD in Industrial Relations equivalent to six or eight years of experience negotiating labor union contracts.  They might, however, hire a Finance PhD as a senior bookkeeper, even though most of that advanced education would not apply to enhance the PhD's value on that job as much as equal years of bookkeeping experience. If they gave the clerk with a doctorate a data entry job, s/he would have no right to expect to earn as much as a veteran peer who had performed that same job for a decade.

Conventional compensation practice says you pay according to the value of the output permitted by the work activity, not the skills of the incumbent. That typically means a wage based on the job assigned rather than the person's theoretical potential.

Once upon a time, I dealt with an inexperienced accounts receivable correspondence clerk who was denied pay status equivalent to someone with four years work experience writing collections letters.  The new employee insisted that since she was hired out of college after completing a BA in English, that was worth 4 years of job-related experience writing collection letters. When I pointed out that her boss had already found her writing skills deficient, she indignantly replied that she got her degree for reading rather than for writing but her logic still applied.  In her opinion, that degree automatically earned her 4 years of work experience equivalency.  Enough said.

Schooling proves you can learn something well enough to pass a classroom test.  Work demonstrates you can apply knowledge in a practical way.  Some trade schools or Junior Colleges do offer useful courses similar to apprenticeships, but not many.  I'm curious about what jobs might exist where experience considered necessary could possibly be waived by college education.  It is usually the other way around precisely because academic knowledge does not become fully potent until leavened by actual work experience.  Universities don't generally teach the frequently boring and generally narrow applications performed on jobs. No BSME can operate a computerized milling machine as well as a 5-year veteran CNC milling machine operator, for example. 

But I could be wrong. What important exceptions am I missing?

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 manufacturing, he consulted to various industries throughout North America, became Senior Associate of pay survey software publisher ERI and returnied 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 and also serves on the Advisory Board of the Compensation and Benefits Review.

"Job Education Buttons" image courtesy of  Stuart Miles at FreeDigitalPhotos.net

You Can Lead a Horse to Water, But . . . .

Do you remember hearing this phrase, about how you can lead a horse to a water source, but you can't actually make them drink from it?  The thinking is in the same vein as the adage about how teaching a person to fish goes a lot farther than simply handing them a fish.

In other words, you can only go so far in helping someone before they have to take ownership of the task themselves.  Otherwise you really haven't helped them get past a single point in time, a single challenge.

You Make Your Own Guarantees

I'm a compensation consultant, and clients usually reach out to me when they have a compensation challenge that needs a solution.  And that challenge usually revolves around how best to spend the almighty dollar.  Here's what I tell them:

"I can promise to show you how to save money (or in general fix your problem), but I cannot guarantee to personally save you a dime.  You have to do that yourself."

What I'm saying is that, while I can study your situation, gather reams of data and present recommendations for you to consider based on my considerable experience, until you make the decision yourself to take action (change behavior, adopt new policies / procedures, adjust your perspective, etc.) improvement will not actually happen.  You have to be willing to change.  You have to be willing make the sort of tactical and strategic decisions that will solve your problems.  You have to be willing to step up and stand for the right kind of change.

Stepping Up

And that is where things start to break down, as some of those decisions can be hard to make.  Many managers and even senior leaders can be loathe to shake things up.

• We pontificate about our pay-for-performance programs, but still want to give everyone a raise

• We don't want variable pay to really be "at risk," as what we practice is actually a form of delayed compensation.  "Don't worry, you'll get something."

• Someone might get mad at these changes and decide to quit

• We've never done that before (uncomfortable with stepping outside the comfort zone)

• Not everyone is going to agree with this approach (we believe in consensus thinking)

• How much is this going to cost me?  "Oh, I don't want to spend that much."

• "Really?  That sounds difficult to implement.  Can't we just tweak what we do now?"

• "How long are these changes going to take to implement?  I don't have that kind of time."

• Etc, etc, etc.

Now the above are just examples - excuses really - that suggest it would really be a better approach for some to simply stay the course.  I'm sure that each reader can quote a few similar examples from their own organization.  The point is that the sort of change that really impacts the organization, that can actually solve many of the compensation challenges you face, are often hard to make.  That's why you haven't undertaken them before.  There are going to be winners and losers, and too often management worries more about the losers (Joe average performers) than in taking care of the winners (your star performers).

As a consultant I not only make recommendations but also try to show the client what is likely behind door #1, door #2 and door #3 of their options.  What is going to happen.  But I can't make the decision for them.  Nor should I.

Always remember that many managers put being liked at or near the top of their personal agenda, and often times the kind of changes an organization requires is not going to win popularity contests.  Hence the tendency in some quarters toward inaction or half-hearted lip service.

So while I can lead a client to the water source, sometimes they just sit there with a blank look.

I hope that isn't 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,"You Can Lead a Horse to Water," by jjsala

Cafe Classic: The Importance of "Why?"

Want to know the top reasons that people who love their job feel as they do?  In this Café Classic, Derek Irvine shares research, insights and the importance of the "why?" question.

Why do your employees do what they do every day? Though some may think it’s as simple as “for the paycheck” the truth is far more complex. Yes, some employees have been pushed so close to the edge by their work environment, their honest answer to “Why do I go to work everyday?” would be “For the money.”

But I think we can all agree, the goal is to ensure employees never reach that stage. Doing so means understanding the same six questions that matter in nearly every situation – the who, what, where, when, why and how of their work.

Think of it this way. Employees want:

•    Direction on where to go
•    Priorities on what to focus on
•    Deadlines on when to complete those priorities
•    Coaching and training on how to do what needs to be done
•    Customer knowledge on who they’re working for
•    Insight into why this work is important

Out of these six questions, the “Why” is the one that managers cannot control and deliver, but only influence. The “Why” is also the one that inspires employees to truly engage with their work and not just their paycheck.

What are you doing to answer the “Why” for yourself or influence the answer for your team members?

This is the critical question and the answers may be as varied as the number of people on your team. But you’ll likely begin to see patterns. CNNMoney recently published the profiles of 10 employees in “I have the best job in America!” Though the jobs were as varied as software architect to physical therapist to sales executive, the answer to “Why they love their job” boiled down to two main answers. I’ve added their statements below each answer.

1) I see the bigger picture – People want context. They want to know that what they’re doing has greater meaning, that it’s contributing to something greater than themselves.

• I create something people use.
• I create solutions.
• I work with people, improve their lives, and leave the world a better place.
• I prove the impossible is possible.
• I’m passionate about what I do.

2) I see results – People want purpose. They want to know, at the end of the day, they achieved something. Someone else benefited from what they did in a tangible way.

• Getting feedback every day that you’re helping people.
• I get the satisfaction of seeing patients return to an active lifestyle.
• I solve the difficult puzzles.
• I set my own path and see the benefit of it.
• Variety leads to new solutions.

If you make it possible for your employees to get what they want, you’ll also be giving them what they need.

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.

Creative Commons image "Why" by Bart Everson

7 Tips for Talking with Employees about the New Overtime Regs

This is Part 2 of a series about new DOL regulations, effective December 1, 2016. Here's Part 1 which will also help you prepare.

Did your call center staff find out about the new regulations from the Today Show? And did your distribution center find out from CNN? USA Today? NPR? The news was reported via such a wide range of media and so quickly after the DOL announcement, odds are many of us got blindsided by excited questions from employees who couldn't believe their luck.

Now that we know (from this recent experience) why it's important to get out in front of a change with your communications, it's time to get better at talking about the new regs. If you had employees calling pumped up with excitement, it must have been very difficult to get them to listen to your more everyday facts. Here are some tips that will help you put your best foot forward from now on.

Recognize that the May 18 announcement was "then" and this is "now." It's been a few weeks and you have a better sense of how your company is going to handle the new regs. It's a good time to pivot, as they say in politics. Quit winging it and put together a communication plan by the end of June that will take you step-by-step until December 1.

Don't delay formal communications any longer. It's a mistake to decide you are going to keep mum until you have every detail of your implementation planned. The dead air will worry employees and they will fill it with their own stories -- like you're cutting jobs to cover the cost of the change or the ever-reliable complaint that HR doesn't know what it's doing (again). Instead of holding out for all the answers, recognize that communications can first be about how you are going to reach decisions. Employees will appreciate being "in" on your process and won't mind quite as much having to wait for answers. Explain the project steps that you are following to resolve implementation issues, be clear about how you will keep employees up-to-date on your progress and explain that the announcement will come during November, to be effective December 1.

Give managers talking points as well as a briefing. Their explanations should match your own.

Include information for exempts who are not affected by the new regs. They will want to know what's going on in the cubicle next door.

Don't over-explain or over-emphasize eligibility for overtime pay if you don't plan to approve overtime. It is crucial to be candid and detailed about this issue since employees will be imagining that their income will automatically rise as a result of the regs.

Face the communication complications you've created if you raise salaries to the cutoff. For example, you'll need to show examples of how the adjusted salaries are equivalent to, or more than, what could have been made through overtime. It's a rare employee who will just take your word for it. Also, you'll need a plan to handle the resentment of exempt colleagues who are ineligible for an adjustment. Remember that your managers are going to bear the brunt of that decision, so open discussions with them will be crucial.

Don't politicize your explanations. Whether or not you agree with the rationale for the regulations, your affected employees probably do. Nothing constructive will be accomplished by sharing your (CEO's/CFO's) resentment.

Everything you do in compensation is communication, so why not do everything better? Prepare yourself for explaining the DOL overtime changes by getting yourself a copy of the popular ebook, Everything You Do (in Compensation) Is Communication @ https://gumroad.com/l/everythingiscommunication. 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 Willis Towers Watson. 

Are We Ready for Basic Income?

This past weekend, Swiss voters made a strong stance against the idea of basic income, with the BBC reporting that nearly 77% opposed the plan for an unconditional monthly income. This was one of the first large-scale tests of an idea that has been gaining traction in recent months, with smaller studies being considered in Oakland, California, Ontario, Canada, and Finland, among others.

These studies, along with the Swiss vote, all point to a lot of uncertainty around the potential impact of providing a basic income. Would it actually make a difference in how and when people work? Would it improve inequality and outcomes such as happiness and satisfaction? If it does, how should it be funded? Mostly, what will jobs and companies of the future look like?

Today, there are no clear answers to these questions, and probably will not be for some time to come. Still, it is interesting to think about how work itself may need to be rethought should a basic income become the norm (assuming people will still plan on working, of course).

Basic income is fascinating because it reshapes the core ideas that many of us hold about work, ideas that began largely with the Industrial Revolution. Barry Schwartz succinctly captured this very dynamic in his TED talk: “we created a factory system consistent with the false idea of human nature [of inherent laziness and the need for incentives in the form of pay]” and once in place, “there was really no other way for people to operate except in a way that was consistent with [that] vision.”

In a perfect world, it’s possible to contemplate a different idea of the organization, in which basic needs are met through a guaranteed income, and work is pursued for much more intrinsic and meaningful reasons. It may be an optimistic viewpoint of the motivation of people to want to work, but perhaps it is less of a stretch to make the case that people want to spend their time in pursuit of worthwhile activities.

In short, work can become a much more human experience, designed in such a way that offers employees the ability to see and strive for meaning and value in the contributions they make. Perhaps even to follow their passion.

Within this new paradigm, an interesting question is whether a basic income encourages innovative compensation practices across the board. For example, employees rather than employers tend to be in a more powerful position, negotiating and crafting meaning in work that they choose, no longer in the position to have to settle for a paycheck. With that shift in power, employees may emerge as a source of crowdsourced compensation for their colleagues; not only seeking meaning for themselves, but giving meaning by recognizing the contributions that make a difference in their work.

Another point of intersection is the capability of technology to take over the mundane or repetitive tasks, as we have seen in manufacturing and may soon see in the knowledge economy. This represents yet another point of freedom to design work that is meaningful and aligned with one’s own values and mission.

To close with a lofty quotation from that same TED talk: “We design human nature by designing the institutions within which people live and work.” But it can be a difficult cycle to change once it’s rolling.

Where do you stand on the notion of basic income and its ability to change work for the better?

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.

A Small Problem for Compensation Professionals

This is not the article I intended to post today. I had something else ready to go, but realized this was more important. I am sitting in my hotel room in San Diego, California getting ready to head over for the second day of the annual WorldatWork Total Rewards Conference. Total Rewards is a BIG category.  In three days it is not possible to dive into every type and flavor of “reward”. But one important family of compensation, equity, is almost completely missing from this year’s event.

Don't get me wrong. There are some very good presentations on executive pay that touch upon equity. But broad-based equity is basically nonexistent on the schedule. There are no sessions on specific types of equity (all Comp Café readers know by now that they have different rules, purposes etc.) It is easy to see why so many compensation professionals struggle with better use of equity when one of the few industry events provides so little in the way of information. 

When it comes to equity compensation, there are two kinds of pay professionals: Those who don’t use it at all, and those for whom equity is, was, or will be a major component of pay. If you are one of the first, then the lack of attention on this topic is not bothersome. If you are one of the second you may need to make it clear that more information and data would be appreciated.

Stock options are still a very popular form of compensation. In many cases they end up delivering the majority of the total pay (or all the pay) received by an employee (and this doesn’t even account for executive pay.)

Restricted Stock Units (RSUs) have become increasingly popular over the past five years. If the next few years include a downturn in the market, we will see even greater use of them.

Performance-equity is still mainly used for executives, but there are very good reasons why it should be pushed farther down into organizations.

Employee Stock Purchase Plans (ESPPs) are a very effective way to build alignment between individuals, the company and shareholders. They allow for incredible flexibility in design and a variety of tax advantages for individuals and companies.

Which should you use? When should you use them? Why should you use them? How should you design them, communicate them, optimize them? All of these are fantastic questions that generally require a compensation professional to do a ton of individual research or hire an expensive consultant. I am one of the expensive consultants so this benefits me, but most of you are the internal compensation professionals who must slog through a bunch of bad information to find a few nuggets of good.

Perhaps the data is wrong and less companies use equity as a tool than it appears. Perhaps everyone using equity is doing so well that additional information is not needed. But, maybe, just maybe, people want to learn to use the plans better. I’d love to hear your thoughts on this.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and has been deeply involved in equity compensation for a long, long time. Dan has written several inustry respurces including the recent Performance-Based Equity Compensation. He has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives” and a few other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

 

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and has been deeply involved in equity compensation for a long, long time. Dan has written several inustry respurces including the recent Performance-Based Equity Compensation. He has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives” and a few other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

New Research on Cutting-Edge Performance Management: What Are We Learning?

Editor's Note:  Last summer we posted an announcement from Gerry Ledford (one of our profession's leading scholars) introducing a new academic study focused on leading edge performance management practices and an invitation for any qualified organizations to participate.  Today, we're very excited to showcase this post from Gerry, where he shares the results and insights from that study (also the topic of a special WorldatWork Journal edition, as our image indicates), along with his thoughts on where its all going!

For the past year, I have been leading research on cutting-edge performance management practices at the Center for Effective Organizations (CEO), University of Southern California. We define cutting-edge practices as ratingless performance reviews, ongoing performance feedback, and crowd-sourced feedback. Ratingless reviews eliminate the use of any grade or score of performance; ongoing performance feedback involves at least four meetings per year between managers and subordinates; and crowd-sourced feedback uses social media to provide 24/7 feedback from peers and others about performance. These practices have received tremendous attention from the business press in the past two years. Every major business publication has run at least one article on cutting-edge performance management practices. The Harvard Business Review alone published four articles in 2015 (one in print, three online) on cutting-edge performance management – this from a journal that has published only a few articles on performance management in its entire history. However, there has been almost no research that can guide the design and implementation of these practices. We are working to remedy that.

One very visible stream of our research is based on a survey of 244 organizations that use one or more cutting-edge practices, which I have done with George Benson and Ed Lawler from CEO. The study, supported by WorldatWork, is the first to analyze data from a large sample of users of these practices.   We have reported results from this study in an article in Workspan (April) and an article in the current issue of the WorldatWork Journal. Also in preparation is a monograph that provides very detailed and complete findings from the study. We have finished the content, and WorldatWork is preparing the work for publication. Look for it this summer. Finally, we are conducting research on a field experiment in a major health insurer that is adopting ratingless appraisal in four pilot units, and we are collected before-and-after data in pilot and comparison units. We will collect the final data next month and will begin producing a set of academic publications that will be available later this year from CEO.

For those of you who are attending the WorldatWork Total Rewards Conference in San Diego this week, you may be interested in seeing our innovative session on Tuesday afternoon (3-5 pm). This will be a session based on the work presented in the new issue of the WorldatWork Journal, for which I was guest editor. The first hour of the session will feature a summary of key findings from our survey study. The second hour will be a set of breakouts with people from the four companies that provided case studies in the special issue: Microsoft, Adobe, Cardinal Health, and Sears. The breakouts will be highly interactive and will give participants a chance to ask questions of practitioners who have been there before. Incidentally, the four cases are really excellent and I consider them to be among the best case studies ever published in the WorldatWork Journal. Anyone considering the adoption of cutting-edge practices needs to read them.

That brings us to an important question: what are learning about cutting-edge performance management? There has been a tremendous amount of hype in the business press. Do the data indicate that the hype is warranted? Here is a summary of some of the key findings from our study of 244 users of cutting-edge practices.

1. Ongoing feedback is the most prevalent practice. Although ratingless appraisal has gotten more ink than the other two practices, in fact ongoing feedback is the most widely adopted practice. Almost every company in the study (97%) uses ongoing feedback; 51% use ratingless reviews and 27% use crowd-sourced feedback. Clearly, companies are not adopting either ratingless reviews or crowd-sourced feedback without also adopting ongoing feedback.
2. Cutting-edge practices are being used in addition to, rather than in place of, many older performance management practices. There is a lot of talk of “blowing up performance management” and “ending performance management as we know it,” but that is not really happening. Almost all companies continue to use older practices such as pay for performance at the individual level, cascaded goals and assessment of goal achievement, competency assessment as the basis for assessment, calibration of assessments, and so on.
3. Adoption is widespread. Most press accounts are about the adoption of cutting-edge practices in very large high tech and professional service firms. However, our study found that organizations in every industry and sector – even government – are adopting these practices. Moreover, most adopters are small and mid-sized firms, not large ones.  
4. Why do they do it? Companies adopt cutting-edge practices for many different reasons that fall into three categories: alignment with company needs, the performance management process, or meeting reward system objectives. Reward system goals are less important for companies adopting ratingless reviews, and are more important for companies adopting crowd-sourced feedback.
5. Do these practices work? Our data suggest that cutting-edge practices are somewhat effective in meeting their goals. The results don’t live up to the most breathless hype in the press, yet the results are supportive of these practices. They are more effective in alignment with company needs and improving the performance management process than in reward system goals, but the effects are positive in almost all cases. (They do not help in attracting new employees, perhaps because they are so unfamiliar to most people at this point.) We also were able to compare the responses to the survey of cutting-edge practices to the responses from earlier surveys; those results suggest that cutting-edge practices are more effective than traditional practices. That, of course, is a key issue for adopters.
6. What works best?

• The combination of all three cutting-edge practices appears to be more effective than using any one or two practices. Thus, they are complementary and each covers the flat spots of others.
• Ratingless reviews plus ongoing feedback – one of the most common patterns of adoption - is less effective for strategic alignment and reward system objectives than other patterns of practice.
• Crowd-sourced feedback impressed and surprised us by the degree to which was associated with effectiveness. There is very little written about and almost no research on this growing area, but we think it may replace traditional 360 feedback over time. It uses a technology (social media) that most employees know, it is delivered in real time rather than annually, and the feedback is free form and therefore less artificial than a 360 rating form. This area of practice bears close watching.

7. The effects of cutting-edge practices on compensation are mostly positive, and these practices are not associated with an increase in compensation costs or with the abandonment of pay for performance.
8. There are opportunities to increase the involvement of rewards professionals in the design and implementation of cutting-edge practices. We think this will be important in improving the level of effectiveness of these practices in meeting reward system objectives.
9. Implementation matters – a lot. The change process is an important determinant of the effectiveness of cutting-edge practices. Success factors include leadership from the business and HR, widespread involvement of stakeholders in the design, a clear strategy that is based on business needs, training of both employees and managers, and the use of performance-oriented success metrics.
10. Expect more adoptions in the future. Given the many positive effects and the limited negative effects of cutting-edge practices, we predict that there will continue to be a rapid increase in the adoption of these practices as part of the performance management process.

Stay tuned – we will have a lot of research yet to publish on the topic of cutting-edge performance management practices.

Gerry Ledford is Senior Research Scientist at the Center for Effective Organizations, Marshall School of Business, University of Southern California.  Much of his professional work focuses on employee reward systems.  He returned to the Center for Effective Organizations in 2012; he was a key contributor there from 1982-1998.  From 1998 to 2003, he held leadership positions at Sibson Consulting. Since 2004, he has been President of Ledford Consulting Network LLC.  He received a Ph.D. and M.A. in Psychology from the University of Michigan.  Gerry has authored over 125 articles and ten books and he frequently speaks at professional events.

Does Qualified Equate to Quality?

Editor's Note:  Today's post comes to us courtesy of guest contributor Chris Dobyns.

Late last year I had a unfamiliar experience. I finally replaced my 20-year old vehicle and bought a new car. As with each prior car I’ve purchased over the years, to include the current one, I’m always impressed with the improvements car-makers have made in the quality of the vehicles in the intervening years – whether that’s in technology, handling, safety-related features, noise levels or just the precision fit of the body panels and trim.

The tie-in to compensation is coming – I promise.

Strengthening Federal Executives

Last week I attended a meeting on behalf of our HR Director, at a really big, five-sided building down in Washington, D.C. Among the topics for discussion was an overview of the Executive Order signed last year, targeted at strengthening the recruitment, hiring, and development of the Federal government's future senior executives.

The order includes a talent acquisition plan that would, among other things, establish a mechanism to track information about each future executive vacancy including, at a minimum, source of the recruitment, number, quality and diversity of applicants, source of applicants, and timeliness of the hiring process.

This Should Be Easy, Or Wait . . . Maybe Not

When I spotted the magic word quality in the presentation – I couldn’t resist the temptation to ask the speaker exactly how the quality of candidates for vacant executive positions would be reliably assessed? The response from the speaker and rest of the meeting participants could best be characterized as “the sound of crickets . . . .”

What Does Quality Have To Do With Anything?

My reason for asking was because quality has been a huge issue, since we recently instituted a much a higher pay structure, with one of the goals to make ourselves more attractive to a much higher quality of job applicants in a specific technical discipline. Two years later, I’m not sure we have much that tells us that the quality of the folks we’ve hired has changed substantially – except feedback from our hiring managers claiming that recent hires “are some of the very best we’ve ever gotten”. Realistically, what response did we expect to hear from the same managers who made the decision to hire these new employees in the first place? Worse yet are the lingering, yet unproven concerns that we’re obtaining the same quality of new hires, and we’ve simply made the recruiting effort that much easier – while simultaneously incurring substantially higher salary costs. That’s why quality is important.

If The Candidate is Qualified, They’re Quality, Right?        

Not necessarily. They might represent a quality candidate, but using minimum qualifications as an barometer to measure the quality of your job candidates seems highly problematic. After all, they’re called minimum qualifications for a reason – because they represent the lowest qualifications threshold a candidate should possess that would reasonably suggest their successful performance in the job. Assessing candidate qualifications (education, relevant experience, etc.) beyond the minimum threshold is at least one possible proxy for quality – and is typically, at least in part, one that is most often used by employers to establish a new hire salary offer.

Does Assessing Imperfect Subjects Require Imperfect Measures?

So, by what criterion (single) or criteria (multiple) should people quality be measured – either before making the hiring decision, or after? Focusing on pre-hiring quality would seem best, in order to minimize the negative return-on-investment proposition. However, existing pre-hire quality measures (hiring costs, time-to-fill, candidate assessment scores, and new-hire attrition) all seem hopelessly confounded in assessing the new hire candidate and the hiring process itself.

Post-hire measures are only a little better, and admittedly they’re all “after-the-fact”. These include, time-to-productivity, error rates, job performance, organizational “fit”, manager/employee satisfaction and turnover. These measures all include some level of imprecision and subjectivity – which makes them less-than-perfect.

Measuring Car Quality Is Definitely Easier

Whether the issue has to do with future federal executive candidates or the fit of the rocker panels on your new car, the concept of quality is intriguing. However, defining and measuring quality – at least when it comes to human capital issues, remains elusive. The recruiting process can select individuals that demand higher starting salaries, but it's critical to know if you are over-paying for new hires, because people quality . . . matters.

Everyone probably has a different perspective. What’s yours?

Chris Dobyns, CCP, CBP, is Manager of the Office of Human Resource Strategies for one of the largest U.S. intelligence agencies. The Office of Human Resource Strategies is responsible for compensation and incentives, occupational structure, recognition and rewards, HR policy, and human capital program evaluation and assessment for his Agency. Chris has worked in the area of compensation for more than 30 years, and has been employed in various compensation-related positions by a number of large, private sector companies including, Sears, Roebuck, Arizona Public Service and Westinghouse Savannah River Company.

Original image "People Quality Matters" courtesy of Chris Dobyns.