Compensation Cafe

Wish Your Job Were Easier?

Even though they are our daily bread and butter, recruiting and hiring remain very inefficient and time consuming processes. Because they take so much of our time and involve so many people, just the idea of making improvements feels stressful.  And so we push on and on, ducking "eleventh-hour" calls and wrangling with managers and recruiters about our salary recommendations.

Think you have the worst time of it? The Harvard Business Review reports, "Most companies react to hiring situations as emergencies; that might explain why so many do it so poorly." The HBR article goes on to provide great insights, so check it out.

In the meantime, want a quick, easy aid to simplify the situation TODAY? Here's where I'm going -- not a root cause analysis, but a tactic than anyone can benefit from. Short communications suited to the your three connection points with managers during hiring and/or repricings. The goal of these communications are PROCESS transparency, not training. If you use them consistently, especially in smaller companies, they'll not only help you avoid many misunderstandings that add extra time and confusion to the process, but they'll also build your reputation as a fair and reliable decision maker who treats employees/managers without favoritism.

When you receive a request

Follow-up with a (pre-written, off-the-shelf) email that summarizes the steps that you will follow. This will assure managers that you will take the time to follow a standardized process, involve him/her at key points and build trust in your expertise. Managers are often confused why "Compensation needs this information, isn't it just about numbers?" So preempt that reaction.

Cover the following points and make it no longer than two paragraphs or bullet lists. To be serious about building trust, don't forget to send it every time or choose occasions to skip this step.

•  Define the optimal outcome of the process, for example: "Pay that will attract, retain and reward high-performing employees throughout our organization and help us build a culture that rewards results through collaboration."
• Explain that the best salary insight comes from making distinctions between jobs as well as understanding their similarities. This may be a surprise to many managers.
• Identify the value of in-depth insight into the job, for example: "The job description is only the beginning. I need to understand the outcomes that you need the individual to contribute to your organization now, and in the next two years, so that our talent investment shows results."
• Learn what makes an optimal candidate, for example: The go/no go employee attributes/skills/experience you should work from; what your competitors look for and how your company description should differentiate from competitors.

What if the manager already has a candidate? Use this same communication since it covers the information you'll need to do a good pricing.

What if it really is a rush job, in spite of your best efforts? Send the same communication and use it to negotiate with the manager about the limitations you are facing.

When you move into job pricing

This email is similar in format, to reinforce the message that you have a standardized approach.

• Indicate that your approach will be to find data on a job that has a near-identical profile and you will match, to the extent possible, with industry practices; pay rates in your geographic area; pay rates for a company your size. No matter what survey you end up using, these factors go into the data analysis, so it's worth briefing the manager up front.
• Reflect on the way your company obtains survey data, for example if you have access to a national database.
• Remind them how you will use your current salary structure or internal equity practices.
• Add a few Qs and As that cover the questions that you typically get from managers about the data retrieval and analysis.

Before you propose a salary

Use the email approach to:

• Describe what you will present to the manager (e.g. target salary or salary range, or something else).
• Remind them of the approval process.
• Advise them about when they can mention salary figures to candidates.

Notice: The information you'll provide are process guidelines that keep managers aware of what is going on -- a solid strategy since the salary data means so much to them. These communications also demonstrate your belief in their leadership abilities and your commitment to giving their candidate/employee a fair deal. However, in no case do you have to (or should you) list proprietary information like the surveys used, competitor data or actual salary recommendations in these emails.

One standardized approach to each and every recruiting case--sounds easier to me.

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.

Do You Need A Compensation Strategy?

How many of you reading this article have a piece of paper that you can lay your hands on, one with the title, “Compensation Strategy”?  Do you know if such a document exists in your organization?

The common response at this point is usually a blank look.  But why is that?  If paying employees is the single largest expense item for most organizations, why don’t they have a plan to manage it?

That’s what a strategy is - a plan of action, a guideline or directional map that outlines down a series of principles to be acted upon.  It's a plan helps you avoid the “let’s try this and see what happens” tactic.

Look around you; if Marketing has a plan, as well as Manufacturing and Finance, then why not a plan that encompasses how to spend a lion's share of the organization’s money?  

When prodded a bit, most managers do seem to come up with an answer to my question - though they often sound reactionary, if not defensive.

• “We already have a Mission Statement.”  But broad, aspirational phrases like "market leader," "shareholder value," "supplier of choice," etc. are little more than a series of vague terms and buzz phrases meant to capture media attention.  There is no meat here.
• “We know what we want to do.”  As if the plan for effectively and efficiently spending the organization’s money is somehow intuitive – that everybody knows it.  Sort of like a secret plan.
• “We use our annual objectives.”  A claim that annual organization or department objectives are in fact the strategy – offers little more than short-sighted thinking often vulnerable to swings in corporate focus.

So what we're often left with are excuses, not effective responses.

The Importance of Strategy

Then what should be the focus of a compensation strategy?  And why is it helpful for an organization to lay down a tactical, well-considered outline for present and future action? 

• It provides specific, motivating direction.  Having a plan establishes a pathway for action – for what you intend to do – and it helps point everyone in the same direction
• It helps guide and engages the workforce.  Telling employees what you believe in, and how you intend to convert those beliefs into concrete action always pays dividends in the court of employee opinion.
• It identifies the focal points.  It focuses attention on key program design elements (i.e.,  competitiveness, specific marketplace, pay-for-performance, cost sharing, etc.)
• It helps leverage the company investment in people.  It makes a commitment to employees regarding how they will be treated, thus elevating their worth as a true asset important to organization success.
• It brands the company in a positive light and helps recruit talent. A compensation plan provides an opportunity for the organization to identify itself in a way that attracts potential employees.

If one accepts the importance of a plan for controlling costs and managing the effective and efficient use of payroll dollars, what are the barriers that stand in the way?

• Senior leadership disagreement.  Lack of consensus over what to say (broad vs. focused, basic Compensation vs. Total Rewards, commitments vs. aspiration, etc.) stymies progress as the debate could take on a life of its own.
• Vaguely worded messages.  Using generic phrases that are vague and meaningless, which don’t differentiate you from any other organization, or puffery and “mom and apple pie” phrases that sound great but mean little.
• Ineffective communications.  Fears of raising employee expectations, high brow corporate-speak messages that employees ignore and cultural insensitivities on a global playing field all serve as minefields for the unwary.  These are usually compounded when the message is prepared by professional writers little versed in the subject matter.

What If You Do Without?

Sounds like a lot of trouble, doesn’t it?  So why not do without?  Others have; so could you.

Which would then leave your single largest expense – employee pay – without a guiding principle, without a plan to ensure that such a large amount of money is spent in an effective and efficient manner.  Money would be wasted, like a steadily dripping faucet  – day in and day out.

Without a standard universal message the risk of multiple messages increases.  The information being communicated gets confused, blurred and often at odds between the messengers themselves.  Plenty of room then for inconsistent and inequitable treatment.

You would see your employee costs rise as a direct result of a no-plan environment.  Because the vacuum left by not having a plan will be filled by multiple pay practices that lack consistency, standards and internal equity.  Squeaky wheels and political insiders will be favored.

Not For the Faint of Heart

Developing a compensation strategy isn't an easy process, and even the strongest advocate would acknowledge the challenges.

First, building a consensus philosophy among senior management is a difficult, often time-consuming endeavor.

You should expect a degree of passive resistance from naysayers and supporters of the status quo.  Or from anyone else who would benefit from your failure.

In order to push the project across the finish line, you'll need the active support of senior management.  This doesn’t mean the lip service memo authored by professional writers, or even a brief appearance at a kick-off project meeting.  Organization leadership needs to be seen as effectively leading, pushing this initiative, walking the talk, so to speak.  The strategy needs to have a highly placed sponsor, one whose support is visible and easily heard.

And you will have to keep at it, too.  Monitoring adherence, updating as necessary and constantly reviewing that policies, procedures, and practices remain in sync, mutually supportive and offering employees a consistent message is no small task.

It's a lot of work, but worth it for the organization and the employees.

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, "Money," by borman818

Career, Community, Cause – Growth, Relationships, Meaning

Facebook people leaders and Wharton professor and author Adam Grant recently collaborated on analysis of surveys of Facebook employees and their thoughts on what really matters to them – at work and in life. Presented in this HBR article, the findings illustrated how Maslow’s Hierarchy of Human Needs isn’t so much a rigid hierarchy but a very fluid dynamic of how we perceive and process what we need to realize our full humanity, in and outside work.

In Facebook, that translates to “three big buckets of motivators: career, community, and cause,” which translates to (quoting HBR):

Career is about work: having a job that provides autonomy, allows you to use your strengths, and promotes your learning and development. It’s at the heart of intrinsic motivation.

Community is about people: feeling respected, cared about, and recognized by others. It drives our sense of connection and belongingness.

Cause is about purpose: feeling that you make a meaningful impact, identifying with the organization’s mission, and believing that it does some good in the world. It’s a source of pride.

Interestingly, there was no significantly measurable difference in the importance of these three factors by age/generation, global location, or job function.

This mirrors findings of 23,000 employees from more than 15 industries and 45 countries around the world in research conducted by the IBM Smarter Workforce Institute and the Globoforce WorkHuman Research Institute. A positive experience at work is reliant on three factors:

1. The Environment – combining a strong sense of organizational trust and enabling supportive co-worker relationships

2. The Work – emphasizing the meaningfulness of the work and providing continuous feedback, recognition, and growth

3. The Person – acknowledging the importance of empowerment and voice, as well as opportunities to disconnect and recharge from work

Within that are the specific drivers of meaningful work (the top driver of a positive experience regardless of global location); co-worker relationships (critical for building belonging, which is itself a defining factor of a positive experience at work); and recognition, feedback and growth (acknowledgement that we need to know when we do well, where we can improve, and a path forward in our careers).

This research, too, found little difference in the importance of these factors based on age/generation, global location or job function. Humans – all humans – need to know the deeper impact and purpose of our work in community and collaboration with others.

More and more research, within individual companies such as Facebook as well as across organizations and industries, is showing where the emphasis needs to be – on helping our employees understand that deeper meaning while strengthening the relationships they have with each other, not on what generation or job function people belong to.

It’s time we put the emphasis and our energy where it belongs. That’s how we help fulfil the psychological contract with our employees. And never forget, the psychological contract is very different from (if as important as) the employment contract – payment for services rendered in line with the job description. The base level of Maslow’s Hierarchy still needs to be fulfilled, as it is through the employment contract and compensation. As compensation and total rewards professionals, it is imperative we focus as strongly on the psychological contract, too.

How does your organization address the psychological needs of employees?

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 a leader in the WorkHuman movement and 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.

Cafe Classic: A Look at Self-Directed, Social Network-Leveraging Performance Management

Editor's Note: Interest in re-imagining performance management has only increased since this Classic post was originally posted.  See what one organization has done in order to create a better process - and check out the updated information at the end of the post.  Their success with this approach led Morning Star to create its own Self-Management Institute, which provides a lot of information and a suite of webinars on topics related to employee self-management.  Enjoy... and learn!

What would performance management look like if it was bottom-up, employee directed and socially connected?  An intriguing case study comes our way from The Morning Star Company, a 40-year-old tomato processing company and one of the winners of the Management 2.0 Challenge, the first phase of the HBR/McKinsey M-Prize for Management Innovation.

Chris Rufer, founder of Morning Star, had his own ideas about organizations and built the company as a fully self-managed organization - one that, to this day, has never instituted a formal hierarchy.  And in his view, the strength of a self-managed organizations "depends on the degree to which each colleague clearly defines his commitments to his colleagues--and the degree to which he lives up to those commitments."  So, Chris created a document which he called the Colleague Letter of Understanding (or CLOU), which became the primary tool by which Morning Star colleagues coordinated and organized themselves.  Everyone within the enterprise has a CLOU, which they have personal responsibility for crafting in collaboration with their most important colleagues. 

The key elements of the CLOU include:

Personal Commercial Mission: each colleague within Morning Star is responsible for crafting a Mission that represents their fundamental purpose wtihin the enterprise.  This is intended to be their primary guiding light, the statement that should be the direction for all of their commercial activity within the enterprise.

Activities: the key activities that the colleague agrees to accomplish in pursuit of their Personal Commercial Mission.

Steppingstones: identifying the key measures (Morning Star lingo: "Steppingstones") by which the colleague gauges their performance in accomplishing those activities that they commit to, as well as the accomplishment of their mission. 

Time commitment: the amount of time the colleague agrees to commit to the accomplishment of their Mission.

CLOU Colleagues: those colleagues to whom you are making these commitments.  Your CLOU colleagues were to sign off on the CLOU indicating their agreement with all of the representations therein.

In the beginning, the CLOU was a paper document, updated and reviewed with CLOU colleagues on at least an annual basis.  As the company grew, the paper process became unwieldy, so in 2007 Morning Star rolled out a digital version of the CLOU, which enabled the document to be updated in real time.  It also allowed all colleagues easy access to each others' CLOUs, making it much easier to figure out who was responsible for what.

In his winning submission article on the CLOU, Morning Star's Paul Green Jr. relays a story that illustrates how it works at the company:

... a colleague recently was telling me about an email he received that, initially, made him a little angry.  It referred to problem the sender was having, and the sender was seeking his help in rectifying the particular problem.  His initial response was to write a terse email in response that basically said, "this is YOUR job; figure it out and stop trying to pass the buck."  But before he hit send, he decided to take a look at the senders CLOU; he was surprised to learn that the issue the sender had sent him wasn't any part of that colleague's Personal Mission.  In fact, the sender had taken initiative to try to recruit my colleague, who they felt had the requisite expertise, to take care of the issue--a pretty important customer issue.  My colleague spent some time looking through the CLOU system, and was able to identify someone whose mission the issue was somewhat related to; he approached them, outlined the issue and the needed change.  That colleague ended up modifying his CLOU to incorporate the necessary process change.

Morning Star is now in the process of moving from the current static system to a new vision for the CLOU, where colleague CLOU content is directly mapped to the company's web-based enterprise reporting system, providing a graphic view of enterprise performance and the colleague responsible for each area.  And, as Green notes:

...when a colleague takes responsibility for activities by selecting them into his CLOU (in the forthcoming version) the corresponding Steppingstone measures will come along with those activities--as well as the relevant reports.  This incorporates live (or close to real-time) reporting directly into the colleague's CLOU.  Our vision is that the "home page" of the CLOU will turn into a sort of scrolling "feed" of information.  Your home page will update to show updates to key Steppingstones, as well as a running feed of Steppingstone information for your CLOU Colleagues.

More information about the CLOU, including a sample CLOU and an interview with Morning Star's Paul Green, Jr. can be found here.

UPDATE:

As noted above, Morning Star's Self-Management Institute has a lot of information and resources on the concept of self-management and how they've implemented it at their company.

In addition to the webinar on the CLOU embedded below (or find it online here), there is a whole Research & Publications section with suite of webinars on the topic of self-management.

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time. Follow her on Twitter at @annbares.

Image courtesy of relenet.com

Cafe Classic: Do Generational Differences Matter For Total Rewards Strategies? Part 2

Editor's Note: Earlier this month, we published as a Classic post Part 1 of Stephanie Thomas's examination of generational differences and their impact on rewards effectiveness and satisfaction.  Today we bring you Part 2 of that series, where Stephanie looks more deeply at whether and how these differences should be considered in reward strategy and design.   

Do you think that generational differences don't matter when it comes to total rewards strategies? Think again...

Differences in core values between generations influence our view of ourselves, the work we perform, and how we expect to be compensated for that work. Part 1 of this series focused on how generational differences in these core values impact base salaries and pay increases. In this post, we'll talk about the implications of those differences for incentives and benefits, and how to incorporate these differences in a comprehensive total rewards strategy.

To give you a quick recap, CEO Magazine's article "Meeting the Challenges of Tomorrow's Workplace" summarized the differences in core values as follows:

Because each generation has different core values, the types of incentives that are most effective differ by generation: 

Traditionalists crave appreciation, and they like memorabilia. For this group, plaques and trophies and conventional "employee of the month" programs can be successful. Other groups - particularly the Gen Xers - view these kinds of incentives as cliche and would be turned off. But for the Traditionalists, getting a gold watch upon retirement still means something. "Old school" incentive programs can be quite effective.

Boomers crave recognition, and status symbols are effective. They tend to be concerned with personal rewards, and anything that differentiates them from others - from a corner office to being asked to present the company's strategy at a trade show - is likely to be effective.

For Gen Xers, it's all about performance. Incentives tied to results tend to be most effective. Xers are unique in that they like better technology, and having access to the best office tech is high on their list. Being an Xer, I can personally attest to this! Results-based incentives tied to technology can be very effective - Xers would rather have the best computer than the corner office. When thinking about incentives for Xers, think "tech", rather than "employee of the month" or status symbols, and be sure that the incentives are tied to performance and results.

Gen Y employees crave constant feedback. Because of this, spot bonuses are very effective within this group. And staying true to their collaborative nature, non-financial incentives such as group outings can ben very effective. Taking the sales team on a group zip-line adventure works for Gen Y. It won't work for Traditionalists, and Boomers won't see what's in it for them. Xers are likely to view it as lame, and just want to get back to work.

When it comes to benefits, different groups prefer different benefits structures and kinds of benefits offered:

Not surprisingly, Traditionalists prefer traditional benefits packages. Defined benefit retirement plans, conventional vacation and time off policies, and typical kinds of benefits are most appealing to this group.

Boomers place the most emphasis on benefits, and often make employment decisions based on benefits. They're willing to make some salary concessions to get a better benefits package. Like the Traditionalists, Boomers are more comfortable with conventional vacation, time off and retirement plans.

Gen Xers, on the other hand, want options. One-size-fits-all benefits packages don't work for this group. They want the freedom to choose and the option to be self-reliant when it comes to benefits. This self-reliance is consistent with the "hired gun" perception; because they may move from employer to employer, Xers are more comfortable taking responsibility for their own benefits and developing their own plan that can move with them.

Gen Yers are more interested in creative benefits. Flex time, cafeteria benefits plans, company-provided gym memberships, tuition reimbursement, on-site medical care, and free meals and beverages appeal to this group. The more creative the benefit, the more it will appeal to Gen Yers.

So, what does all of this mean for your total rewards strategy?

All of these differences with respect to base salary, pay increases, incentives and benefits may make you feel like there's no chance of developing a total rewards strategy that works for everyone. The truth is, you can't make 100% of your employees 100% happy 100% of the time. There is no "perfect" strategy. But there are three things you can do to move your total rewards strategy closer to that "perfect" point:

1. Be flexible. Offer your employees choices. Give Gen Y employees constant informal feedback, but make sure that you still have a formal performance evaluation in place that covers everyone. Consider offering, for example, a health benefits plan with options. Employees can choose one of a variety of employer-sponsored plans depending on their needs, the size and makeup of their families, etc., or they can receive an "employer subsidy" if they choose to purchase private insurance on their own. It's easier to be flexible with incentives and benefits than with base salaries and pay increases. Use this to your advantage, and offer incentives and benefits options that are likely to appeal to all of your employees, regardless of generation.
2. Be transparent. Take the time to craft well-written policies and procedures, and ensure that your workforce understands how the total rewards strategy works. It may not be possible to completely reconcile the differences between Boomers who think pay increases should be tied to seniority and Xers who think pay increases should be tied to performance. Some employees may not love the policy, but if they understand it, they can make an informed decision about whether it's something they can live with, or whether they should explore other employment options.
3. Be equitable. Remember that all employees, regardless of generation, are concerned about equity. If there are disparities in base salaries and pay increases, or incentives and benefits are offered to some employees and not to others, you're setting yourself up for trouble. You can't restrict who's eligible to participate in an incentive or benefit program because you think a particular age demographic of your workforce won't be interested. You need to offer it equitably, and let the employees make the choice whether to participate or not. An equitable total rewards strategy can lead to increased employee engagement, reduced turnover, increased productivity, and a lower risk of compliance investigations and discrimination litigation. All of these things lead to a healthier organization and an improved bottom line.

When thinking about your total rewards strategy, keep these generational differences in mind. But also remember that there are some common themes that transcend generation. Everyone wants to be respected in the workplace. Everyone wants to be valued - and rewarded - for the contributions they make.

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.

Fixed Pay, Variable People

Variable compensation has a lot of benefits, but they don’t always come easy. Incentives, both Short-Term and Long-Term, are harder to design, require more effort to communicate, and have a higher risk of administrative error than more consistent pay elements like base pay. In fact, variable pay is troublesome enough that many companies use it poorly or half-heartedly and others not at all. This can work when things are growing and fixed pay is dragged up by the rising tide (however so slightly). But in a world of volatile markets and unpredictable futures, fixed pay can mean variable people.

When things are going well, we tend to focus mainly on the upside of incentive pay. The potential of high payouts can be motivational. Group rewards can unite staff and engage them in the new big goal. Pushing attractive payouts into the future can help fend off potential poachers and assist in the retention of valuable staff members. We look at the loss of all of the above as flaws in these plans. Most of the people we pay look at things the same way.

A hidden benefit of variable compensation is its ability to help you weather the occasional storm. For many companies using incentives poorly, the “variable” aspect is really just a delay. Employees rightfully expect to receive their annual bonus or other incentives. They budget for it and are angry when they don’t receive it. This may as well be fixed pay. It provides very little linkage to success (company or individual) and very little room for variance.

At the companies who eschew variable altogether, the problem can be worse. Many of these companies pay base above the median. Over the year, the compounding growth in base pay outpaces the market, their needs, and the companies’ budget. High base pay can be a great approach, but it must be managed and explicitly communicated. Errors in this philosophy can be hard to correct.

This brings us to our current situation. Tax reform has potentially given companies a bigger budget. Market volatility has created more risk. Even if stock prices for your company, or industry, aren’t particularly volatile, the swings and uncertainty tend to impact everyone. Budgets get tighter as the demands for productivity and performance increase. Compensation budgets stagnate or shrink.

This, my friends, is where fixed pay equals variable people. When your incentive programs function as entitlements, or your base pay levels are designed to lead a growing market, pay adjustments can be almost impossible. Without an effective variable element, the only way to reduce your pay budget is to reduce your headcount. Rather than variable pay, you now have variable people. This dilemma immediately impacts culture and morale while also acting as lead weight when you can finally start growing again.

We haven’t seen the impact of this issue in the age of social media. Will Glassdoor and similar sites be swamped with negative reviews? Will industries’ message boards be filled with posts from good performers who had to be cut because of bad conditions? My guess is that it will be worse than we expect.

Complaints will be amplified. Companies who were able to avoid cutting staff by adjusting variable pay will become the darlings of their industry (and of reporters looking for “good news” stories). All of this is, of course, avoidable by doing some heavy lifting now and following it with some exceptional communications. Variable pay may be hard, but variable people is a nightmare. How is your company preparing for the inevitability of uncertainty?

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 has written several industry resources including an issue brief on Performance-Based Equity Compensation. 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.

A Word to the Wise, Once Again!

"Employee pay has become a trending topic in media and online." That was the first sentence in the April 15, 2014 Compensation Cafe article. Back then the media's favorite topic was executive pay, plus the minimum wage was picking up steam as a national issue.

Now, in early 2018, broad-based employee pay is in the news, with media outlets regularly providing employees with information that they used to get through your internal communications.

As I said back in 2014, when your company's internal practices become a topic for public discussion, you need to be alert. With the current degree of dissatisfaction about employee pay, odds are that the information in these articles will seep into your internal conversations sooner or later. You can say, "So what?" or you can use the links below and spend time getting up-to-date on what is growing into another national discussion that has broad implications for our profession. I've been impressed by the writers' grasp of the compensation field and their ability to help their readers (your employees) navigate your compensation practices better. 

How do you feel about this? Granted the following articles are from The New York Times and The New Yorker, media sources that may not be read by many of your employees. But because these information providers are influential, their articles and themes are often picked up by a range of media sources. Plus, these publications are putting our practices into public view -- the very practices that haven't been oh-so-transparent to employees, as employees (and now the outside world) feel free to tell us.

Have a look at what the outside world says about our work -- at a minimum, you're bound to learn some things about Glassdoor that will come in handy:

"Where Did Your Pay Raise Go? It May Have Become a Bonus" We all know about this trend, we've helped to create it. With Aon Hewitt's assistance, The New York Times has laid it on the line. Especially informative is the Aon Hewitt visual about the share of companies' payrolls devoted to bonuses vs. the share devoted to salary increases.

"If a Law Bars Asking Your Past Salary, Does It Help or Hurt?" You'll find real insights on the new practices here, both pro and con. I particularly like this quote because you're left wide-eyed when it pulls the tablecloth off the table, leaving the place settings in their familiar positions:

"Standard economic theory holds that workers are paid in line with their productivity, so a higher salary should imply a better worker. In effect, employers may also be using salary on the front end of the hiring process--to help determine whom they want to interview--rather than solely on the back end, when preparing an offer."

"Improving Workplace Culture, One Review at a Time" It turns out that whistle-blowers and Glassdoor share a common goal: exposing hitherto secret stuff. The thing is, it's often our very own secret stuff and the current statistic is that 50% of all job seekers use the site. As an aggregator, Glassdoor believes they are in the business of transparency, but that doesn't mean that they are "finders of fact." This article will help you understand how they wriggle through that one.

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.

Cafe Classic: Do You Know What Your Salary Ranges Mean?

Editor's Note:  In today's Classic, Margaret O'Hanlon asks an important question about one of the central elements of most organization's compensation program.  Do you know?

've been worrying about salary ranges lately. It's not an OCD fixation but it may be an existential crisis. I keep thinking the tremors from the recession may have damaged our Compensation foundation, but no one has taken the flashlight and gotten under the house to find out.

Here's what I mean. Salary ranges communicate the deal we offer employees.

• Opportunity to earn more as we perform and learn.
• Recognition for skill development and job mastery.
• Faster earnings growth for better performance.
• Increased status for having earned repeated high performance awards.

Salary ranges are the finish work of our compensation structure. But can we claim they still perform the way they have in the past? I think that salary ranges in most companies could benefit from an inspection -- and that employees may have cottoned on to the problems already. 

Below is the industry-wide model explaining what position-in-range means. We've all agreed that the employees' current pay, in relation to the market, should represent their level of mastery of their job through their position-in-range.

 

In the past most ranges delivered movement to the midpoint in three to five years, as performance warranted.

Here we are in January 2013. No matter how well behaved you and your managers have been about hiring into the first third -- or not -- most employees still expect to be paid at a point in the range that represents their demonstrated level of ability.

But given five years of lean merit budgets and limited distribution of increases, can we claim salary ranges still work this way? And if they don't, what does position-in-range mean in 2013? 

Can I still be hired in the first third of the range and expect my increases to land me in the second third of the range once I've developed a full skill set? Or will I have to wait in a part of the range that undervalues my professional growth and contribution over time? If I have to wait, how long will it go on? And how should I feel about recognition for my level of contribution?

I think we need to know the answers to these questions, and employees deserve our guidance if the ground has shifted under their feet. What if your fundamental compensation philosophy really has changed without you knowing it? To figure it out, organize your data and do the analysis.You won't know for sure until you replace the batteries in your flashlight, sort through your data and  check out your foundation.

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.

Yes, Boss

One of the most negative management stereotypes that we're all familiar with is the image of the "yes-man," that weak-kneed subordinate who is always quick to agree with the boss.   This is the empty suit having no other opinion than what's expected.  Can you picture the nodding head and vacant smile?

Perhaps you recall the old saying, "see no evil, hear no evil, speak no evil"?  The modern version of this adage describes one who willfully turns a blind eye, refusing to acknowledge and even feigning ignorance when confronted with activities they should otherwise say or do something about.

Do the compensation professionals you deal with, including the one looking at you from the mirror right now, do they provide objective and unbiased counsel to management, or do they/you simply offer support and justification for what management has already said they want to do?

Do You Stand Up?

There are always going to be opportunities for compensation professionals to turn a blind eye/closed mouth to improper practices taking place in their organization:

• Finance has lobbied Senior Management that the average merit increase next year should be x%, and you've been asked for your recommendation.
• The performance appraisal process is poorly handled and rewards are often granted without legitimate justification.
• A Vice President wants to create a bogus Office Manager title for a long-serving Secretary. This would also entail a higher grade and promotional increase.

Are you one to stand up and be counted, or do you let these events wash over you without voicing concern?

• Do you provide Senior Management with an objective recommendation, based on competitive research, a sense of workplace issues and an understanding of compensation strategy?
• Do you raise concerns with those managers who wish to grant increases/bonuses for the wrong reasons?
• Do you strive to hold the line on meaningless titles that increase costs, create employee equity issues and provide the company with little or no ROI?

What's The Worst That Can Happen?

Are you concerned that having an opinion out of step with senior management will damage your "team player" image?  That your career would suffer because you can't get along with others, that you "don't get it"?  Or do you simply find it easier to get along with everyone and ride the tide, wherever it takes you?

Professionals should give the best advice they're capable of providing, on the basis of technical knowledge, experience and seasoning with business operations.  Let management then make the decision.  They have a perspective that's wider than a singular compensation view, and it’s their company, budget, operations, etc.  Your responsibility is to provide the best objective advice possible, to ensure that decision-makers have their eyes open and understand the ramifications involved.

Life isn't a tableau of black-and-white images, but a series of swirling grays.  We should acknowledge that there are contingencies and alternative possibilities available.  But we should not temper either our judgment or our opinions solely on the basis of what the boss wants to hear.

Management tends to (usually) respect straightforward analysis and honest feedback.  However, they won’t respect your input if it’s been tainted by political maneuverings or a “how many ways are there to say yes”? mentality.  They will recognize when your position is based on what you think they want to hear.

Your Mantra: I Will Add Value

You don't have to fall on your sword career-wise to make a point, to stand up for yourself, to add value to the decision-making process.  Even though sometimes you just know that the direction management is taking is on the wrong track, that they're ignoring key factors that surround the issue.  While leadership may be plagued with personal biases that often trump rational analysis, that doesn't mean that you should step away from doing your job.

One of the best ways to establish yourself as a valuable contributor is to have an opinion, and not be afraid to voice it.  Even when the management steamroller is moving and you have to get out of the way or be run over, you should always provide your professional input.   You can do this by providing options and alternatives, multiple courses of action for management to consider.  That's where you'll be able to present your own recommendations alongside the favored management point-of-view.

Get them thinking; that's your responsibility and how you add professional value.  It's also how you build credibility and an invaluable personal awareness with Senior Management.

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, "Repetition," by muffin

Cafe Classic: Slaying the Job Evaluation Dinosaur

Editor's Note:  Although you don't hear the term "job evaluation" as much in compensation conversations, the choice of methodology (or the often default choice of having no explicit methodology) for determining the relative value of jobs (pay-wise) still lies at the core of most compensation programs.  As Chuck Csizmar notes in this Classic post, it may not be the funnest part of a compensation or HR pro's responsibilities, there are ways to deal with the monster.

Job Evaluation:  an assessment of job tasks and responsibilities in order to create a top-to-bottom hierarchy reflective of the relative value that the company places upon its jobs.

Throughout my Compensation career I have never enjoyed having to evaluate jobs.  Quite the opposite.  As soon as I progressed high enough in my organization I delegated responsibility to a subordinate and washed my hands of it.  Job evaluation is a thankless task, with the evaluator subject to criticism from all sides.

• If you agree with an evaluation request, you are only admitting to the obvious.

• If you disagree and value the job different (lower), you clearly do not understand the key duties and responsibilities.

• The subjective nature of the process is viewed with suspicion byeveryone.

• Job evaluators do not receive Christmas cards.

In spite of my disdain for the process the act of evaluating jobs has been found useful by companies since the 1930's.

• They need a method to establish a hierarchy of job importance (A is bigger than B, B is bigger than C, etc.).

• They need to explain the relationship of jobs, one to another (A is how much bigger than B?).

• They want to set employee expectations and manage the Reward process (price the jobs).

Job Evaluation does have other purposes as well.  The internal assessment sets career progression steps and assists with organizational development (which jobs are necessary).  It also allows the company to avoid criticism that the competitive labor market (external forces) has dictated which jobs should be paid more or less than others.

Despite these worthy contributions the criticism of the process continues to come from many directions:

• Job descriptions are often poorly written, with content manipulated by managers to gain advantage.

• Pressure is often brought to bear on the Evaluator to increase (almost never the opposite) a rating.

• Evaluation language, forms  and procedures are often complicated and confusing to employees and managers alike.

• Senior management support for the integrity of the process is often limited.

• Employees are skeptical of an inherently subjective process where decisions are made by someone from outside their functional area.

For those who use a job evaluation process (whole job or quantitative), a further step of valuation is to place a price tag on each position - and to do that you need to conduct a study of the competitive marketplace.

Market Pricing

Here is the one process that gets you straight to the core of the matter - placing a monetary value on your jobs.  Some of its advantages as an evaluation process are:

• It is more objective, especially if using multiple survey sources.

• It is easier for management to accept, vs. the judgment of “some analyst in HR.”

• It is easier to defend results to otherwise biased managers.

• The evaluator is subject to less criticism (a personal favorite).

Most companies follow both processes, job evaluation and then market pricing.  Does that two-phased effort add value?  I have my doubts, especially if the prime goal is to establish a salary structure.

Sometimes the competitive market conflicts with your hierarchy.

What if the marketplace indicates a job is worth @$50,000, but as a result of your evaluation process the current midpoint is either much higher or much lower?  Ignoring the market could prove costly, in terms of either dollars or employee disengagement.  But if you follow competitive practice – then what is the point of your internal, job content-based evaluation process?

When faced with a choice most companies would make the change.   Dealing with reality, they would say.  So at the end of the day the true indicator of the value placed on your hierarchy is through market pricing.

Another concern is that, while Job Evaluation can be a long and tedious process it isn’t a sufficient end in itself.  You still have to price the jobs to create an effective salary structure.  The external survey data needs to be “interpreted” by a skilled analyst in order to ensure position matches are appropriate and the subsequent data properly integrated.  We call this “massaging the data.”

Some examples of how market data can be massaged between the survey source(s) and the salary structure:

• When you cluster diverse market data points into a graded salary structure.

• When you are not able to afford competitive rates you may lower the value of each position and create a below market salary structure.

• When you move jobs into certain grades to reflect the organizational realities of your company (the senior analyst must be either one or two grades higher than the core analyst).

• There will also be “favored sons,” positions that must be slotted a certain way in your hierarchy, regardless of market data.

If your goal is to price the internal and external value of your positions you do not need an involved job evaluation process, but you do need market pricing.   I would suggest a market pricing effort first, to establish competitive pay levels, and then if desired for other purposes follow up with some form of whole job evaluation process (keep it simple).  Finally, the evaluator(s) should recommend a degree of massaging to ensure that the final results “make sense,” both from an internal as well as external viewpoint.

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 courtesy of IvanWalsh