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Great presentation on the toxic effects of short-term thinking on a long-term issue, Chuck! You showed the nasty results of limited thinking about pay budgeting.

Those inexorable failures come from ignoring the pay progression needs detailed in the old article http://www.compensationcafe.com/2013/01/solving-the-pay-progression-dilemma.html. Afraid it involves more math than most HR people like, but it fully explains exactly why the disasters you described keep happening.


I can hear the rejoinder now: "But, developing a Ring Fence isn't 'fair' - that would mean that you are treating people differently!"

I jest, of course, but it is interesting to me that the mantra of fairness is so often used to defend demonstrably poor practices. It is not fair, some would argue, that those in the Ring get more than "Joe Average." The same people tend to argue against differentiating performance levels, too, in my experience. These are often the voices that ask "Why can't we all be rated as 'Significantly Above Average'?"

When did "fair" come to mean "the same"?

I would say that the market is finally changing to the point where even average performers have more choices. If there are external opportunities and these folks are not pleased with being left “outside the fence” they too may move on.

Maybe the next thought will be that budgeting for employee pay needs to be moved up the priority list.

Thanks, James, for perpetuating a myth that "most" HR people don't like math -- or whatever. You don't do any of us in this profession any favors with that comment. Why tear down a profession so closely linked (the same) as yours?

I've been in HR/comp/benefits long enough to know the problems of "merit pay" -- have known it since I was in college nearly 30 years ago. The issue, most often, is with senior leaders/business owners, who refuse to listen to the sound advice (which includes math examples) of their HR/comp leaders.

Good article outlining the mechanics of the issue - now we just need fearless HR people to confront it head-on.

Cheering Molly.

Yes, my experience has been with senior leadership. They want to control costs, after all labor is the most expensive line item. Then add in not all managers will review the same and throw in turf protection and you get a messed up comp plan.

On the flip side with the EEOC watching comp, folks go to the old stand by of the easy route, all get the same.

Aw, gimme a break, Molly! ;-) Doesn't HR typically attract a "people person" versus a "number-cruncher"? Ann Bares wrote http://www.compensationcafe.com/2011/10/what-hr-wants-to-do-not-compensation-benefits.html about career preferences, plus I've also published research results here about the different KSAs required in sub-fields of our profession. Recruiting, negotiating and employee relations do seem to be more popular choices than the actuarial, mathematical and statistical aspects of "personnel" work.

HR is a big wheel with many spokes, and I've worked in all of them; but I never completely understood all the subtle interactions until my compensation and total rewards years. It's all fun.

There's really only a few solutions to this age-old problem. 1) Hire higher - "easy" but costly, and maybe not always justifiable in terms of ROI. 2) Promote frequently - hard to do for a large group. 3) Build Chuck's ring around high performers and give very small or no increases to Joe Average. Choice #3 is fraught with peril in today's litigious society - document carefully and thoroughly. Plus, if a lot of your Joe Averages leave due to no increases, you'll put a lot of extra burden on those in the ring, and risk burning them out.

If you can't pay all your average or better performers at- or near-market, you'd better give them other reasons to stay. Some do this through company culture and/or through other areas of total rewards, like really cheap medical insurance, generous PTO plans or tuition reimbursement without claw-backs.

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