Compensation Cafe

Cafe Classic: How Do You Spend Your Day?

Editor's Note:  Evidence suggests we don't spend our days exactly the way we think we do.  How's that?  Stephanie Thomas shares the research and a hypothesis as to why we might be kidding ourselves in this Cafe Classic.

Are you overworked? Do you feel like there's never enough hours in the day to get everything done? 

Most people would probably answer "yes" to these questions. But recent data from the Bureau of Labor Statistics says that you, like most people, are probably overestimating the number of hours you spend working each day.

Data from the American Time Use Survey (ATUS) indicates that when asked to estimate the number of hours they work per day, employees tend to overestimate their work hours by five to ten percent, relative to the hours they report in their time diaries.

The American Time Use Survey asks participants to keep a time diary, and record how much time they spend doing the things they do during the day, such as sleeping, personal care, eating and drinking, housework, shopping, working, caring for household members, going to church, and watching television. When these time entries are compared to verbal responses about work hours, there's a five to ten percent gap.

Here's what we know about the gap:

• Estimates across all activities ultimately sum to more than 168 hours per week;
• The gap in work hours is found in several other countries;
• The gap was smaller in the 1960s and has varied over time;
• Even larger overestimates have been found for time spent on housework.

The figure below summarizes the gap by gender and number of hours typically worked during the week. (click on the figure to see a larger version)

How can we explain this gap? A paper by John Robinson, Steven Martin, Ignace Glorieux and Joeri Minnen offers some hypotheses on why the gap exists. Respondents may include time spent on commuting or on lunch or other breaks in their estimates. Respondents may also fail to subtract time lost from work to household crises or other sudden non-work demands (e.g., picking up a sick child from school, repairing a car, etc.).

But I think their most plausible hypothesis relates to "social desirability". Respondents may believe that low estimates of time spent on paid work or housework could be taken as a sign of being lazy or irresponsible. So in an effort to not be perceived as lazy or irresponsible, we overestimate the time spent on these activities, consciously or subconsciously.

The social desirability argument also fits with the observed underestimates for sleeping and leisure activities. The average time spent on sleep reported in the time diaries is about 8.35 hours per day, but other surveys report an average of 7 hours. When asked to estimate the amount of free time they have during the week, respondents report less than 20 hours per week, while their ATUS diaries indicate at least 35 hours.

So, how do you feel about your work load now? How do you really spend your day?

Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University. She teaches undergraduate and graduate courses on economic theory and labor economics in the College of Arts and Sciences and in 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.

The Case for Recognizing Potential and Creativity

Even as “the changing world of work” has become a de facto part of most of our lives, a challenge remains in this seemingly frenetic pace. Rather than becoming more accustomed, a majority of organizations find themselves still struggling to keep up with the acceleration and the complexity.

Keeping up requires a change in mindset, balancing performance with potential, and balancing results with creativity. Changing the status quo requires more strategic approaches to the ways in which individuals are both rewarded and recognized, alongside changes to other traditional HR structures and processes.

The forces of change aren’t surprising to many. What has changed, however, is the way in which these changes are now interacting and overlapping. According to Gallup, the increasing mobility and flexibility of the workforce, alongside emerging technologies and more collaborative yet asynchronous work are prime examples. The imperative for leaders is in the creation of a compelling vision and how to motivate employees around that vision.

Unfortunately, those seem to be the skills that are lacking among high-potential (HiPo) employees in leadership pipelines. Recent research published in the Harvard Business Review found that nearly half of participants in HiPo programs are below average when measured on leadership effectiveness.

Instead, these employees seem to be recognized for qualities more related to past performance, like honoring commitments, delivering individual results, and cultural fit. Lacking were critical skills related to the employee’s leadership potential: chiefly strategic vision and the ability to motivate others.

A portion of these findings might be explained by a “how/best” mindset that has traditionally guided organizational decision-making. Leaders seek out which decisions are the best and then how to implement them. Where data from past performance or best practice exists, that mindset is both effective and efficient. However, that same mindset presents a barrier in response to situations that are novel or uncertain, situations that require creativity in response to change.

To be future-proofed, organizations need to move away from the types of processes and structures that reward a “how/best” mindset and past performance. Instead, they will need to place more emphasis on how to identify and develop a broader range of employee attributes, including potential and creativity.

One way that business and HR leaders can shift the emphasis is through the strategic use of rewards and recognition. Not only will that contribute to a more positive employee experience overall, but social recognition can also provide leaders with the data on which individuals are being recognized for their innovation, their curiosity in solving challenging problems, and for experimenting with new processes.

Alongside an integrated approach that includes more coaching and continuous conversations, an organization can develop the potential of its employees and demonstrate on a day-to-day basis how creative approaches are contributing to organization success.

How does your organization reward potential and creativity?

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.

Learn to Be Disruptive--It's a Great Career Move

Every year we hear about "talent trends" that are supposed to become our priorities. Often, if the research behind the claims is strong, these trends are informative. But if you hang around the profession for a few years, you'll find that the same issues are listed again and again and again.

Does that mean we should ignore this kind of research, put our heads down and keep a laser focus on our project goals? I don't think that's enough. Let's face it, if the same issues keep coming up over years, let alone decades, we're the ones to blame.

If you shake your head when you hear about talent scarcity or manager inadequacy AGAIN, the feeling that should follow is not boredom but a craving for creative disruption. Most organizations can -- and should -- make headway on productivity-draining institutionalized obstacles, and Human Resources can lead the way if we learn how.

Have we made big strides over the past ten years in our various specialties: Compensation, benefits, training, recruitment and so on? You bet. But if you look closely, you'll notice that the most striking changes have been in administrative efficiency. Important to financials and time management, but of limited strategic impact on your business. Sticking to "low hanging fruit" has come at an accumulating cost over the years--Human Resources is still not expected at the table when business issues are being addressed.

But we would be if we learned how to become influential upstarts. Big ideas can overcome longstanding, ingrained practices. The 2016 Mercer Global Talent Trends Study announced three Human Resource trends to understand and address sooner rather than later: Competition from emerging markets is rising (reducing talent access); talent demand continues to outstrip supply (in spite of increased mobility and worldwide talent sourcing); the labor pool is increasingly diverse, multi-generational and global (with reliably damning things to say about their managers).

If your immediate reaction is: a) Heard it all before; or b)These issues don't apply to my company or my responsibilities, it's a shame because if that's your impulse, it's likely to be your managers', too. And the last thing you want in this economy is a group of managers who are insular and shortsighted while change keeps accelerating at such an uncomfortable pace.

Employees are living in a highly complex work environment. They read about these trends and the changing job market every day. They need managers who not only help them perform better in their skill domain, but also help them understand how to look ahead to where your industry and their career potential is evolving.

Everyone, including Human Resources, is longing for compelling careers. Of course, that means career development programs, but it also means disruptive "new think" on the part of Human Resources. Each and every one of us has the power to help make work more compelling and relevant for our managers, employees and ourselves.

Mercer found that only 15% of their participant companies have a systematic curriculum for developing Human Resource professionals -- otherwise known as you and me. Here's an easy kickoff to your new disruptive mindset. It took me 20 minutes to find out that Mercer, Willis Towers Watson, the Cornell ILR School, Wharton and the University of California, Berkeley have Human Resource curricula. Much of it goes beyond the technical focus of WorldatWork and SHRM certifications into areas of leadership, diversity and inclusion, change management and so on. There are on-line courses as well as seminars. There are more options in your neighborhood.

Make two upstart decisions in 2017. Find the most sophisticated and demanding course(s) to challenge yourself -- rather than just the most convenient -- and create a strategy to overcome push back when the question of course fees come up. The market has improved for most of our businesses over the last few years, so the money's there somewhere. If it helps you develop the right attitude to break down barriers -- those dollars are an investment in your career as well as the future of your company.

Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. Margaret is a Board member of the Bay Area Compensation Association (BACA). She coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.

Startup Equity: But Can’t I Pay Less Cash? (Part 12 in an n part series)

This series of articles* has covered a lot of ground, but this particular article touches on a critical component that we have not really discussed. When equity first began to be used in Silicon Valley, prior to the boom of the late-1980’s, the goal was getting senior players to have some skin in the game. This is still a major objective of equity.

As the stock market took off in the late 1980’s and flew through the 1990’s, equity became a cheap replacement for cash. The accounting rules ensured equity barely touched companies’ books. The stock market ensured that equity delivered far more, far faster that any form cash compensation. These high growth companies were able to keep cash pay low. This allowed the to easily compete for talent against large mature companies. This is no longer the case.

Many things have changed since the 1990’s. When it comes to equity compensation, the biggest change is that you only see lower cash pay at the earliest of startups. Far more Angel and Venture Capital money is being spent on staff than in the past. This means that less is going to research and development, or larger investments are required to build companies with no better potential than those in the past.

Remember that the accepted “value” of startups is based on recent investment rounds. Very few consider that a far great percentage of these investment rounds is being spent on staff than ever before. In fact, below the very top roles, we see very little differentiation in pay between public and private companies. The startup discount no longer exists for most industries.

What does this mean if you are an executive, HR leader of compensation professional? First, you need to budget the essentially the same base pay, and perhaps cash short-term incentives regardless of whether you have just finished your B-Round or your IPO. Second it means you need to be far better at using equity intelligently and efficiently. You can no longer throw a basic equity plan out there and expect to also get away with sub-par salaries.

Add to all of this the rapidly changing workplace and experience. Companies are spreading out more quickly. Employees at all levels are looking for more workplace (and time) flexibility. Housing prices are skyrocketing in nearly every location where equity compensation is a strong component of total rewards. The fundamental equation has changed and companies, and their leaders, must learn and adapt. They must understand that the bargain garage-based startup is far different when a garage now costs $1 Million.

So, in answer to the question: “How much less can I may my employees if I also give them reasonable equity?” If you are a typical startup, equity will not give you any direct cash savings. Of course, if you are in any industry where equity is uncommon it may still have some capability to reduce cash pay, but those industries are becoming increasingly rare.

The next pieces of this series will touch upon some of the most technical equity issues that are often not included in terms of compensation. These include: Call and Put Rights, Drag Along and Tag Along Rights and Rights of First Refusal. Let me know what else interests you in the space as I am wrapping up this series in the not so distant future.

*Other articles in the “Startup Equity” Series (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11) 

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and considered a leading expert on equity compensation issues. Dan will be presenting at the NCEO “Staying Private” conference 3/7/17 in Santa Clara, CA. Dan has written several industry resources including a recent Performance-Based Equity Compensation issue brief. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation.

Robby the Robot is the Real Job Killer

Automation is the biggest threat to job creation efforts.  Technology can displace humanity.

Employers must consider the most economical method of providing the goods and services they exist to supply. Yes, human talent remains more versatile than any machine, but people can be the most expensive resource, even when you can find ones whose abilities match your work needs. At present, America has an excess supply of unskilled labor but suffers a shortage of skilled workers.

In our current service economy environment, unskilled laborers will not find many jobs that pay well, especially when simple repetitive tasks can be handled better and more cheaply by machines. Think about it. To be hired, the new workers' productivity must immediately cover their wage cost, the value of their benefits, the burden rate (including costs for infrastructure, supervisors, the administrative costs of processing payroll, customizing deductions, filing government reports and such), plus a profit margin. As minimum wage levels increase, employers find more economic incentives to automate or transfer work out of the country.

Shortages of skilled workers in America can drive labor prices sky-high, particularly if the right talent is not available locally. Rather than consciously lose global competitive advantage by making "uneconomic decisions," organizations may instead decide to offshore or apply technology to automate.

You can't blame employers for turning to metallic minions. Consider a few more advantages of Robby over Ronnie besides immediate availability: robots don't take time off, get sick, talk back, require constant attention or file lawsuits.  Error-prone humans can be replaced by automated technical equipment that works around the clock and earns more favorable tax treatments, too.    

Massive capitalistic corporations are not the only ones benefiting from automation. Rather than automatically demonizing big companies for mechanization of the workplace, think of a small mom and pop homegrown operation run by a single family ... should they refuse to operate in the 21st Century? Should a family farm be operated by manual laborers, without tractors, pickup trucks or milking machines? Should all planting and harvesting be done by hand, employing scores of laborers to do piece-work stoop labor? How many farms like that still exist today?

Automation is the salvation of the typical small business. Tiny shops sanctified in Hollywood hype (big corporations are always villains) simply don't make economic sense in modern society. The corner bakery can only survive if its higher-priced home-made hand-crafted goods produced in necessarily limited quantities at higher unit costs are purchased as luxury goods by buyers totally insensitive to price considerations. Every other kind of enterprise struggles to stay in business by relying on the most cost-efficient production resource ... and that is not always a person who receives a payroll check. Only rich people can afford handmade products today, unless the crafted materials were created as a hobby without any intention of economic justification.

Even the politically correct CEOs bragging of their intention to "create new jobs" clarify that they expect automation and electronic technology to provide most of the innovation. Inhuman resources give a better return on investment than the more troublesome human resources. Instead of more people earning money, the future may involve fewer workers but more technical equipment earning tax credits. THAT is scary. 

E. James (Jim) Brennan is an independent total rewards advisor with extensive multi-industry corporate HR and consulting experience.  Past Compensation Editor of the Personnel Journal and Senior Associate of pay surveyor ERI, he returned to consulting in 2015. Author of the Performance Management Workbook, popular speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review..  

Image:  "Twilight Zone - Robby the Robot by Hytam2" courtesy of Creative Commons

Get Over Yourself

Over the span of my career I've interacted with any number of Compensation practitioners, but also with a host of wannabes, career transients and dabblers, along with more than my share of HR generalists thinking that "Anyone can do this."  But the hardest profile I've had to rub shoulders with is the self-proclaimed expert who thinks that they know all and have seen all.

They have the right answers.  Even if they're not a Compensation pro.

You've seen this type of individual before; they're the "answer man" for every challenge that an organization can throw at them.  They always seem to know what needs to be done, and how it should be done, and their supreme confidence in themselves allows no reluctance in letting you know how proficient they are.  To put an icing on the cake they typically compound their arrogance by insisting that their approach, answer, stratagem is the right way. The only way. And that other suggestions or perspectives are simply . . . wrong.

These people can be technically effective at what they do, but they often think too much of themselves and want to make sure that everyone else knows how effective they are as well.  Which irritates, doesn't it?   These are the types you see at professional conferences, blog sites and association gatherings, arguing over issues like the Cost of Living vs. the Cost of Labor, lamenting over the death of the performance appraisal process and debating the right steps to solve the latest hot topic compensation issue.  They are also convinced that the solutions they used in the past are definitely the right course to take with today's problems. 

They're not the personality type I'd like to have a drink with.

But I can forgive all of that (ok, most of that), if only they would show a bit of humility. If only they would get over themselves.

Management Come-Uppance

Presenting a personality of arrogant expertise in the face of any and all challenges can sometimes blind you to the particular realities of the situation being faced.  To the point where you start to force fit so-called solutions in order to match the problem.  These folks forget that when you're dealing with people, not simply with figures, formulae and spreadsheets, what the correct solution is becomes less of a cookie cutter "let's do this again" strategy and more how to handle a unique manifestation of specific challenges grown out of the organization, the culture, the demographics and even the management biases within their business.

So that what worked somewhere else yesterday may not work here, today.

Long term, the problems faced by these self-proclaimed experts are that;

• They alienate lesser mortals (staff and colleagues) with their arrogance, self-righteousness, stubbornness and know-it-all demeanor.  Which is not a good recipe for building an effective team effort.
• They tend to lecture senior management on what is the (only) right course of action.  Which can be a career limiting move.
• They are not good losers, believing that a decision going against them is a major mistake.  They can then become passive resistors.

Take a Lesson

No one likes to be lectured, to always be told that their ideas fall short of the proper way to do things.  If that behavior describes how you approach working with others, stop it!

When you were young and first started school your mother likely told you, "Play nice with the other kids," or words to that effect.  In other words, don't place yourself apart but become part of the group.   In later years, by the time you gained a leadership role that admonition can be converted into "Learn the environment and listen to the employees - only then should you speak."

Show a little humility by listening to others, by planning for unintended consequences and by anticipating "gotcha" questions and the doubt of inevitable naysayers.  Try to understand that others, even subordinates can have effective ideas and possible solutions that are worth considering.  And that senior management may have a more complete view of an issue than simply the compensation perspective.

But most important - get over yourself.

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,"22017-077 red vs blue, by Robert Couse-Baker

Cafe Classic: Let’s See... Should it be Euros? Pesos? Yen? Rupees?

Editor's Note:  In today's Classic, contributor Jacque Vilet confronts  misunderstanding and misapplication of the notion of "consistency" in compensation -- including some of the interesting ways it is applied to international remuneration.  Bet a few (or more) of you have similar stories to tell!

Being consistent; that is usually the mantra of HR, especially when it comes to compensation.  Many managers understand “consistency”.    Which means that all that time you’ve spent on compensation training and communication with management has paid off, right?  

Has it?

There are occasions where the consistency mantra can get us into trouble.  Let me share an example that happened to me several years ago at Company X.    I was cruising along one day at work, putting the finishing touches on merit budget recommendations for all the company’s operations outside the U.S.    I had been working feverishly to finish in order to give the information to the CFO before he went ahead and plugged in the U.S. merit budget increase worldwide.   (We’ve all had that happen haven’t we!).

I received a phone call from a manager who sounded panicked.   He wanted to talk to me right away.   I recognized his name as an Engineering Manager who had recently been promoted to a position with responsibility for an entire product line --- including employees in 5 different countries.   This international “stuff” was all new to him.

When he arrived at my office he showed me a spreadsheet he had prepared with all his employees worldwide and their salaries.    In one column he had their local salaries in local currency.   In another column he had their salaries converted to U.S. dollars.

He was agitated and told me that we had to “fix” the salary problem immediately.    When I asked him what the problem was, he looked at me with disbelief and pointed out their pay was not “consistent”.    For example his employees’ salaries in Japan were averaging US$30,000; employees in Germany were averaging US$120,000 and his employees in the U.S. were averaging US$80,000.  He couldn’t believe that I couldn’t see the problem.

I blessed him silently for caring enough about his employees to at least review their compensation.   He was taking his new responsibilities seriously and trying to do the right thing.   I knew I could go into a lengthy explanation about why his issue was not relevant and even give a little economics lecture.  But realizing that he needed just a simple answer, I told him that his employees in every country were being paid competitively for their jobs.  If they transferred to another country permanently, then we would have to make adjustments.  But, for now, their salaries were very competitive in Japan, Germany, the U.S. and all the other countries where they happened to be working.

I showed him survey data for each country so he could see how his employees’ salaries compared to the same jobs in that market.   I told him that the issue of “consistency” does not mean that we pay employees in the same job the same salary worldwide.   It just means that we pay employees competitively in their own country.

After poring over the surveys he felt much better.    After all, as an engineer he couldn’t dispute “data” could he? 

I have had the same issue with C level management as well.   They just can’t seem to wrap their head around anything but US$.   From a cost to the company perspective they are right.   But when it comes to paying salaries, setting policies for vacation time, setting annual bonus targets ---- they need to understand the importance of local competitiveness and cultural impact.

The lesson I learned here was that as simple as we try to make compensation concepts for managers, there are still issues they don’t understand.   While these may be the things that are second nature to us as compensation professionals, we need to practice getting “outside” our own heads and trying to see the world as our managers see it.

Jacque Vilet has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She typically works with companies that are growing overseas either organically or through acquisitions. Her expertise encompasses many areas of HR --- compensation, benefits and wellness, labor law, learning/development, strategic workforce planning and mergers and acquisitions. Her true passion is studying globalization and its current/future impact on companies and jobs. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. She has certifications from HCRI, World at Work and Human Capital Institute as well as a B.S. and M.S. in Psychology and an MBA. Jacque has been a speaker in the U.S., Asia and Europe and is a regular contributor to various HR and talent management publications.

Creative Commons image "International Currency" by Warriorwriter

Is Your Talent as Effective as it Could Be?

With the rise in HR analytics, there is more pressure than ever to understand how talented employees contribute to the organization’s success. It’s certainly a concern I hear from many of my clients.

Top of mind are some of the questions you might expect: How well are we identifying and growing talent, and once we do, how good a job are we doing retaining that talent?

The assumption has long been that amassing a pool of talented employees was a good path toward enhanced productivity and innovation. Some recent research has challenged parts of that assumption. Instead, the argument is for a more nuanced understanding of how talent is “deployed” and positioned for success.

Research, from a report by Bain & Company, compared top-performing organizations against average ones. The total amount of talent, hovering around 15% of the total workforce, was similar for both.

Where they diverged was in the specific distributions, or “people deployment,” of those talented employees. Successful companies clustered more of their talent around critical business functions and roles, while less successful companies emphasized a more even distribution across functions.

The report stopped short of fully explaining the mechanism behind why such clustering might work, but there are a few possibilities.

First, success might be a pure numbers game, where more is simply better. Having more talented employees contributing in core areas would naturally lead to greater output or creativity in those areas, and drive greater overall business performance. Somehow, this feels like only a slight improvement over the initial assumption. 

A second explanation suggests that teams and networks of talent drive success. When talented employees are clustered around critical areas, there are more opportunities for those networks to grow, for collaboration to occur, and for relational ties to strengthen. If one talented employee can have a large impact on a core area, then the impact of a team of talented employees might be exponentially greater.

As with all things, the likely explanation is a combination of both factors, the relative impact being a good question for future research. In the meantime, tools already available to organizations and their business leaders could provide some valuable insight.

Leaders can gain visibility into these talent networks in real time, through the analytics capabilities of a social recognition platform combined with insights from talent assessments and feedback conversations. They can pinpoint where interactions and collaborations are having impact, through existing teams as well as less formal collaborations that would otherwise be hidden from view.

Social recognition could be a powerful tool to help organizations more effectively leverage their existing talent and provide opportunities for growth and development.

How is your organization leveraging its talent to produce optimal results?

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.

Performance Pay's BFFs!

Image courtesy of Wikimedia Commons

In life, some things just go together - and nothing goes together better than best friends. Lucy was good on her own, but when she and Ethel were together, it was magical. Sometimes it takes a best friend to bring out the best in each of us. This is certainly true when it comes to performance pay.

One of performance pay's BFFs is motivational language. In a previous post I wrote about this special relationship: employees respond to motivational talk by increasing their performance only if they also receive performance pay, and performance pay decreases performance unless it is accompanied by motivational talk. 

But recent research suggests that performance pay have another BFF: a high-wage policy. An article by Uwe Jirjahn published in Managerial and Decision Economics suggests that performance pay - whether individual based, group based or profit sharing - increases productivity only when it is coupled with a high-wage policy.

The central issue addressed in this research is the interaction of pay level and pay method. The author explores the question of whether the effectiveness of performance pay in increasing productivity is strengthened when it is coupled with a high-wage policy. The hypothesis is that performance pay on its own does not automatically provide stronger incentives. Performance pay can lead to disincentives if it undermines intrinsic motivation or violates norms of fairness. Jirjahn posits that to truly be effective in increasing productivity, performance pay needs to be coupled with a high-wage policy to maintain intrinsic motivation.

What is a high-wage policy? According to Jirjahn, high-wage policies exist when management's view that "it is important or very important to motivate workers by paying wages above the level specified in collective agreements." The author notes that in Germany it is commonplace for "non-covered firms" (those without collective bargaining agreements) to use collective bargaining agreements when making decisions about their compensation policies. 

Using data from the Hanover Panel - a four-wage panel data set with representative data from manufacturing establishments in the federal state of Lower Saxony (in northwestern Germany) with more than 50 employees - the author finds no evidence that by themselves, neither performance pay nor a high-wage policy has any impact on productivity. However, combining performance pay with a high-wage policy significantly raises productivity. According to the author, this finding supports the view that:  

"Performance pay needs to be combined with a high-wage policy in order to involve positive incentive effects. Sufficiently high rewards may be required to foster perceptions of fairness and to offset the loss of intrinsic motivation so that workers positively respond to performance pay."

Regardless of the type of incentive pay studied - individual-based performance pay, group-based performance pay, and profit sharing - this pattern holds true.

This study has an important practical implication: using performance pay may not be an effective means of increasing worker productivity while simultaneously reducing labor costs. Some have argued that altering pay mix to emphasize incentive pay, minimize the role of base-building merit pay increases, and eliminate increases not tied to performance (i.e., increases based on seniority) can allow an organization to at least control labor costs, if not reduce them. The findings of this research indicate that to truly be effective in driving productivity, performance pay cannot take the place of a strong base pay policy. Both are necessary for the benefits of performance pay to be realized. 

If the findings of this study can be generalized to organizations outside of manufacturing firms in Lower Saxony with more than 50 employees, the message to employers is clear: if you want increased productivity, you have to pay for it - through performance pay coupled with a strong base pay program. 

Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University. She teaches undergraduate and graduate courses on economic theory and labor economics in the College of Arts and Sciences and in 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.

6 Simple Ways to Celebrate Valentine's Day in Your Cubicle

Every year Compensation Cafe gets an impressively spiked peak in readership for Becky Regan's 2010 Valentine's Day post, "5 Simple, Inexpensive Ways to Celebrate Valentine's Day at Work." Now it's time to have your own fun.

Why not give yourself the gift of trying out the top five proven ways to be happier, plus a tasty bonus, in the comfort of your own cubicle? Here we go:

Do things for others. Research has proven that when we make others happy, we feel good ourselves. Now that doesn't mean that you should become a slave to your colleagues' requests -- a proven path to misery. But it can mean a lot of simple things including chatting with a struggling team member or volunteering for an action item that has left the team silent in your latest meeting. Look at this strategically, too. What can you do for your managers and employees that you've been avoiding? Try eating lunch with a few to find out what they have in mind.

Connect with people. You're on your way up in your profession. It's satisfying to earn success through hard work. Recognize that research shows that the work you put into maintaining connections with other human beings offers even more probability of long-term happiness. You can reserve that insight for your family and friends, or you can notice that it applies to your work as well. Compensation professionals have a habit of huddling up with EXCEL for days at a time. You'll feel more satisfaction if you add the intentional goal of building strong and then stronger relationships with colleagues AND with your stakeholders.

Take a positive approach. Here's a proven, simple technique. No matter what your mood on a given day, act like an extrovert. Even if you are, or feel like, an introvert. The findings on this one come from research in five countries that have immensely different cultures -- the U.S., China, Japan, Venezuela and the Philippines. Across the board, they report that acting in an extroverted way gave them a boost of happiness.

Notice the world around you. At work that often translates into being intentional about using your time in the best way. Don't have the energy to go there? Take a short break every hour to refresh yourself. It's a habit that's proven to work and pay dividends. Also take on challenging projects or study up on new strategies -- your mind needs stretching as much as your body does.

Be part of something bigger. Your employees have been telling you this for years. They are longing to understand how they contribute to the company, so they can feel more useful and be creative. Your own happiness will benefit by listening to their requests and you'll become part of something bigger, too.

Chocolate. Harvard Health and the Mayo Clinic both say that the mood enhancing claims for dark chocolate are on the iffy side. Then they suggest if you eat your 1 oz. of dark chocolate, be sure to make it no less than 70% cacao -- a mixed message that can be anxiety producing to those of us who'd like straightforward permission to grab a brownie! Since the jury is still out, I say if it tastes great and may improve your mood after a soul crushing meeting (and possibly improve risk factors for heart disease and diabetes), have one square or two.  Another plus, the higher the cacao percentage in a chocolate, the lower the sugar content!

Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career paths and communications at the Café. Her firm, re:Think Consulting, provides services that include market pay information, base salary structures, incentive plan design, career paths and new plan implementation. Margaret is a Board member of the Bay Area Compensation Association (BACA). Earlier, she was a Principal at Willis Towers Watson. Margaret coauthored the popular ebook, Everything You Do (in Compensation) Is Communications, which can be found @ https://gumroad.com/l/everythingiscommunication.