Compensation Cafe

Pushing a Car on a Hot Day

It’s 98 degrees and breezeless. Your car dies and coasts to a stop. Try as you might it doesn’t make it out of the street. The only gas station you know of is 15 blocks away. You get out of the car only to be mocked by the sun shining brightly overhead. You have run out of gas. It’s easy to see the solution, but not as easy to execute it.

It’s not the best neighborhood and your parents don’t know you’ve borrowed their expensive car. If you leave it on the street it might be gone by the time you get back. If you call your parents, you will be in real trouble.

You step out and put one hand on the steering wheel and the other on the door and push. You hadn’t even noticed that you were on a hill. Now the struggle is keeping the car from rolling back into the traffic from behind. You can’t do it by yourself.

Someone walks up and asks if you need help. You happily accept and even let them sit in the car while you begin to push. The car creeps forward. It’s hot and you know you won’t make it to the gas station, but you push for the curb. It’s hot.

Three more people walk up and offer to help. You have a few bucks in your pocket and a few more in the car, so you offer them one dollar for each block. They push with you.

You make it a block and it’s clear it’s too hot and too hard to get to the gas station. You offer your pushers twenty bucks more each when they get to the gas station (where there is an ATM). This inspires them to push another block and then they have a great idea. They call some friends and eight more people quickly show up to help.

You offer everyone the same deal. One buck a block and twenty more when you get to the gas station. They push. With twelve people the car is actually pretty light. It’s still hot and the hill isn’t fun, but you are moving pretty well. Three of the pushers decide it’s taking too long and it’s too hot and leave. They get to keep the few dollars you’ve given them for the blocks they’ve pushed and will give up any chance at the twenty waiting at your destination.

A few more people are called to replace the “leavers”, and you are now at fourteen pushers. The car is moving quickly, and the destination has appeared on the horizon. Three blocks from the station the road flattens, and it almost feels like you are going downhill. You get there and stop the car in the shade of the awning. Everyone is happy, hot, tired… and waiting for you to pay them their bonus, which you happily do. You even buy everyone a cold drink while the gas tank fills up.

You achieved the goal that seemed impossible an hour earlier. You’ve made some friends and told some stories while building the foundation for a completely new one. It cost you a few bucks, but far less than having your parents find out. You still have to help people get home and then get the car back in your own garage, but those things seem easy after reaching your goal.

And that, my friends, is how equity compensation works when done well. It brings people together to push in the same direction. It focuses people on a faraway goal and keeps them engaged until they reach it. The people who leave along the way were paid a bit, but give up the big opportunity, so it can be used to inspire the people who replace them. The people who are the at the end celebrate, get paid and become part of a group that will tell the story for the ages.

Dan Walter is a CECP and CEP and works as Managing Consultant for FutureSense. He is passionately committed to aligning pay with company strategy and culture and is considered a leading expert on equity compensation issues. Dan has written several industry resources including an issue brief on Performance-Based Equity Compensation than Dan refers to as informative written Ambien. 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 (soon to be updated!)

Of Course, You Pay for Performance

My business career has spanned a long time and working from both sides of the desk.  First as a compensation practitioner filling out survey questionnaires and working my way up the ladder, and then (much) later as a global compensation consultant.  In my experience, I have NEVER come across an employer or a client who didn’t loudly proclaim that “Yes, we have a pay-for-performance” program.

So, I would ask them, “What percentage of your employees have received a merit increase in the past year?”

The answer I’d receive, and always given with a straight face, was every time in the high 90’s.  In other words, everyone but those about to be fired would receive a pay increase.  Is that your definition of an employer paying its employees based on their job performance?

It isn’t mine.

Try this definition instead.  When you have a limited amount of merit increase monies available you make sure that your higher performers are properly rewarded for their contributions.  Those reward funds that remain are then distributed to those delivering lesser performance, in descending amounts based on degrees of individual contribution.

Now, here’s the hard part.  Some employees who are performing “ok,” or whatever your terminology of Joe Average is in your organization, should not receive a merit/pay increase.  That’s right, some average employees shouldn’t receive an increase because you don’t have enough money to spread around like peanut butter.  There isn’t enough for everybody.

But maybe some of those Joe Averages will get mad?  Maybe some will quit.  And maybe that’s ok if that’s what it takes to enable you to reward and motivate those who’re making the greatest individual contribution to your organization.

Nay Sayers Revolt

“Off with their heads!” will scream advocates of the status quo.  “You can’t do that!” will shout those who believe that everyone deserves to get an annual raise.  “How unfair!” will complain those who champion rewarding the average among your employees.

But look past the emotional rhetoric to consider what you should be paying for.

Job performance is not a commodity with a fixed value, like groceries, movie tickets or a pair of shoes. Its value can be shown as a sliding scale, with those providing higher levels of performance deserving more, and those providing lower levels of performance deserving less, or even none.  The kicker is that you don’t have an endless amount of money to pass around. So, you had better first take care of those who are taking care of you.

Reality vs. Concept

I’ll be the first to admit that my idea won’t be acceptable to most organizations.  Many leaders and even some compensation practitioners believe in the equivalent of a silent social contract, where if an employee performs well enough to keep their job they should get something for their efforts at the end of a performance measurement period.

Is that what you believe?  Do you also subscribe to the excuses that usually follow, when there’s not enough reward money to retain Bob the Superstar? When the difference in reward between levels of performance is so narrow that the higher performers start to think, “Why bother?”

Is that how your reward program is designed?

Higher performing employees will always have an option, in that eventually the phone will ring, and a recruiter will say, “Come to work for us.  You’re a high performer and we’ll take care of you.”

Have a care that your pay-for-performance program doesn’t focus too much on rewarding Joe Average.  Because that usually means that you’re pushing Bob the Superstar away.  Take care of Bob first, not as an afterthought with whatever monies you have left.

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, "Appearances," by Bark

Cafe Classic: Newton’s Three Laws of Compensation Motion

Editor's Note: What can Sir Isaac Newton teach us about people and their pay?  Plenty, it turns out.  Dan Walter explores what Newton's three laws of motion can teach us about doing employee compensation right (and wrong) in this Classic post. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dan Walter just changed his bio and is checking to see if you are reading this. Dan is a CECP and CEP and is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and is considered a leading expert on equity compensation issues. Dan has written several industry resources including an issue brief on Performance-Based Equity Compensation than Dan refers to as informative written Ambien. 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.

Winning through Losing with Character

As the World Cup nears its conclusion, it’s impossible to avoid news coverage of the event – especially from my home base in Europe. Most stories are merely game recaps, nothing unusual or unexpected. And then, one of the classiest acts comes out of a story of loss.

Japan captured the hearts of the world when it lost to Belgium. Its fans didn’t respond by trashing the stadium, but instead by cleaning up the trash in the stadium. The Japan players didn’t just pack up and leave, but took the extra time to clean up their locker room to spotless condition, then leaving a “thank you” note in Russian for their hosts.

What we do when we’re on top is one marker of our character. But how we respond – and the actions we take – when we’re on the bottom is a much stronger indicator of how we may react under pressure or in difficult circumstances.

Japan’s actions at the World Cup offer many lessons to us in business, including:

1. Winning isn’t the marker of success. No individual or team will always be the winner. Whether determining the path for project delivery, identifying the “next big thing” for product development, or modifying long-held processes, one approach will rise to the top while others fall to the bottom and are ignored. Wise “winners,” however, will look to other ideas to build up and strengthen their own approach.
2. Character should be rewarded as much as winning. It takes a good deal of character to set aside personal disappointment and belief to support the “winner” in achieving ultimate success - even saying "thank you" for lessons learned during the process. Those who realign their own dreams and ideas to pitch in and help the overall idea succeed deserve recognition for their contributions as much as the lead “winning” team.
3. Always remember, others are watching. In today’s always-on, always-connected world, someone is always watching. How we behave and take action out of personal disappointment will color how others perceive us and influence the opportunities we are given for future success.

How have you been disappointed in your career, yet rose above to help others win? How did this ultimately influence your own success?

Photo by Tom Grimbert on Unsplash

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: Employee Rewards - What Do They Want, Anyway?

Editor's Note:  Reward fails abound; I'm certain most of those reading have encountered one or more head-slapping doozies along the way. Hopefully we learn from them, as Derek Irvine encourages us to do here.

Occasionally, I like to share with you the horrible stories I hear of employee recognition and rewards gone wrong. While my cache of stories is, sadly, fairly limitless, today I’ll share just this one.

If the Employee Has to Wait 30 Years to Be Appreciated, It’s not Rewarding

In a recent issue of Human Resource Executive online, Susan Meisinger related her husband’s story of a potential “early retirement” scenario. After 30 years with his organization, her husband was offered early retirement or the potential of downsizing in the near future. When he chose early retirement, he was surprised to find out the company deemed him a “key employee” and would delay his early retirement by another year. As Susan says in the article:

“My husband's first comment when he discovered the company wanted him to stay: 'Gee, it only took 30 years for them to tell me I'm indispensable.'”

Susan goes on to tell another story of a senior leader calling out her husband in a meeting to publicly thank him – for the first time – for his valuable service.

This is the problem of the annual review writ large and another common failing in organizations – assuming employees know they and their efforts are valued because, after all, they’re still employed.

Think how much more this conscientious employee could potentially have given over the years if just a few words of appreciation had come his way.

What Is Rewarding? Simple Appreciation, Frequently and Specifically Given

What do employees want, then? Cathy Missildine put it quite well in her blog:

“What I hear from the employees is the need to feel valued.  Employees want to hear, ‘I appreciate your hard work and you hanging in here through our tough times.’  As a manager, recognition is easy and doesn't cost a thing.  Yet, we get so busy we forget to acknowledge our rockstars.  I also believe those employees that are trying and are making progress need recognition too. (future rockstars)  So, I am not of the camp that only rockstars need the love.  I am of the camp that if rockstars don't get the love they will go get it from your competition.”

It really is that simple:

1. Tell employees they and their work is noticed, valued and appreciated.
2. Recognize and reward employees for those efforts in ways that matter to the employee, not to you.
3. Do so regularly. Don’t wait for an annual review, a milestone anniversary, or retirement!

What’s the worst rewards or recognition story you’ve heard or experienced yourself?

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 WorkHumanmovement 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.

When "Exceeds Expectations" Is "Meets Expectations"

You think performance management is difficult in your neck of the woods, let me tell you it could get even dicier. Imagine if your organization included jobs like tax attorney, firefighter, radio announcer, oncologist or pilot. All of these incumbents have to be experts when they perform their jobs. In most cases, if your business needs someone in a job category like this, you can't afford for them to "get up to speed" or "attain mastery," they have to walk in the door that way. And you can't afford mediocre performance on their part, either.

So, for a certain subset of jobs, knowledge and skills MUST be at mastery when you hire, and these individuals may be paid that way, too. How do you define what's better than great? But they have a "performance" dimension to their job, don't they?

The answer is yes and that performance dimension typically falls into the realm of competencies. If they work with others, how do they go about it? If they have to keep records, do they do it reliably and well? Plus, of course, the basics, do they keep their license or certifications up to date? These are some options. And yet organizations who manage these individuals struggle much more than most at defining performance expectations and reviewing performance. (Notice that I didn't mention rewards, right?)

For example, if you are a radio announcer, a goal would be to build listenership in certain time slots. But is there a reliable way of doing that? And how much control does the announcer have? I remember working with the host of a major daily morning news program on performance management. He wanted to know how management was going to measure his creativity. I have a feeling that network is still struggling with how to answer his question.

If a tax attorney, firefighter, radio announcer, oncologist or pilot make a mistake, you can name and evaluate it. So here's one of the ways of tackling this problem -- identify serious mistakes these superstars can make and back off into positive actions/competencies they must take to avoid each problem, then track these aspects of their performance.

Here's a tougher question. Anybody out there have success defining the "building" side of performance for jobs like this? We would all benefit from your experience!

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 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: Your Pay Practices Get Lost in Translation

Editor's Note: In today's Classic, Margaret O'Hanlon reminds us that when we don't communicate clearly and truthfully with employees about the how and why of their pay, they will make up their own version of the story.  And it may not be pretty.  So listen up!

When it comes to compensation, everything you do sends a message.  Whether you distribute total compensation highlights brochures or limit pay communications to the annual review, every paycheck sends messages to employees that they hear loud and clear. 

Employees are expert translators.  And when leadership is not straightforward, they feel they are expert at reading the writing on the wall.   They will not hesitate to make guesses - because it is better than feeling like something is happening to them that they don’t understand.   And, when the information hasn’t been provided on the up and up, their guesses are likely to be negative and sap morale.

That’s why I advocate candid, direct communications with employees on base pay, covering how the salary structure was built, how pay ranges work and where management has discretion (and why).   If leadership isn’t straight with employees about these topics, employees’ translations will be off, and you’ll be stuck with complaints like, “I’ve worked here long enough to be paid as much as he is.”

A recent Management Tip from the Harvard Business Press tells us “Don’t Assume They Won’t Understand.”  It is addressing business strategy, but the same warning applies to compensation.  So often, companies limit pay communications to current salary and annual increase percentage because they assume employees won’t understand the balancing act that is involved in designing compensation practices. 

In my experience, most employees are ready to learn more about the company’s pay practices and are more than willing to support them . . . when they have a chance to talk them over with people who understand how things work and who will give them straight answers.

Employees are itching to know why things like midpoints work the way they do.  Frankly, companies should be itching to have employees who can link their job performance with their pay and feel recognized for their work.  Respect goes hand in hand with productivity, especially in these business conditions.

How much information is enough? Almost as important, how much is too much?  Do pay communications imply that we have to have an open book?

Much depends on the relationship between your managers and Human Resources.  Emails and brochures have their place in pay communications, but managers are your primary communication channel.  How do they feel about the difficult issues related to compensation?

Assess their readiness as well as their skill level to determine how effective they can be as total compensation communicators.  If you can’t rely on them today, that will tell you where you have to start.  Get going on improving their leadership and communication skills, so you can build from there. (I’ll cover detailed suggestions for next steps in future posts.)

In a recent Cafe post, “Do the Right Thing, Be Fair,” we were reminded that “cost saving measures” like watering down separation pay can influence a company’s reputation – separated employees will talk. 

Active employees have even more to say.  Trust them to get it right.

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 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: Vari-phobia

Editor's Note:  Are you suffering from vari-phobia?  Jim Brennan notes the symptoms, provides his diagnosis of this widespread affliction and makes the case on why its important to challenge our innate preference for predictability and sameness and our desire to inflict our own version of order where it may not belong.

We should openly discuss the fear of variety that seems to permeate our field.  Many seem to feel that everyone should be paid identically, for example.

Consider this recent exchange in the LinkedIn network for compensation professionals.  It has been lightly edited and restated for those who don't subscribe:

Question:  One of my regions has salaries all over the place within a particular range.  Any ideas on closing the gaps? The challenge is that none are outside of range and all will be receiving some % merit this year.

Answer:  Why are you planning a fix without first auditing to confirm a problem?  Diagnosis should precede any prescription.  If you have a normally distributed mix of young and old, junior and senior, experienced and inexperienced, long-service and newbie, high-performers and barely-scraping-bys, your distribution properly should be "all over the place."   If your people are all different, then the pay may well be all different, if that is where the appropriate salaries fall.  Midpoints are arbitrary modal norms for an entire class and every deviation from the middle figure does not necessarily constitute a "gap."

People are not clones but individuals.  Of course, current PC-ness requires sanctimonious platitudes about embracing diversity… but come on, now.  That’s simply not natural.  Compensation professionals therefore continue to act like normal human beings.  We tend to exhibit extreme aversions to variety.  Certainty is preferred to ambiguity.

During my exciting but stressful decades heading  a consulting firm, this “due to a shortage of robots…”  sign was my favorite office poster.  It underlined the hazards and risks of human nature.  When we as a race exhibit variable behavior, that tends to trigger something negative in all of us.
  
Everyone prefers practices that are consistent and even identical.  Many compensation professionals act as though equal = equitable, which it don’t.  It is natural to have a fear of differences because variations create oscillations, changes, challenges, threats, outliers, abnormalities, etc.  There is a progression of negative meanings that flow and escalate from the very concept of different.  But that is a basic characteristic of human beings and an inescapable condition of life itself. 

Same, identical, familiar = safe, reliable, predictable, native and normal.  On the other hand, not-same, different, unfamiliar  = dangerous, unreliable, unpredictable alien and abnormal.   So our lizard-brains operate.  When confronted by variation, we react accordingly, by emotion and instinct, without conscious thought.  The nail that sticks up will be hammered down is a Japanese expression of the same theme:  that conformity is good and individualism is bad.

The tradecraft of our profession teaches us otherwise, but it conflicts with our basic instincts honed by millenia of evolution.  In this most “objective” of trades, we must retain consciously self-aware of our subjectivity born of simple human nature.  Compensation professionals must constantly be aware of their feelings and remain prepared to battle against their animal instincts.
  
Perhaps this is simply another aspect of another of my favorite phrases:  Compensation would be a great profession, if it weren’t for the people. 

What else can we do to improve our ability to deal effectively with this natural human tendency?

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in most industries.  After corporate HR posts and consulting CEO roles, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), 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 courtesy of miqel.com

Cafe Classic: It's Not Fair!

Editor's Note: What does it mean to be fair?  It's a concept and question that comes up often in the lives of compensation and HR professionals - and for which Stephanie Thomas provides some Classic and useful guidance to help us understand and navigate the minefield.

"Mom!!! She has more marshmallows than I do - that's not fair!!!"

It's the classic complaint we've heard over and over. We've all been there - sometimes we're "Mom", sometimes we're "she" and sometimes we're the one whining.

We've scooped up half-melted marshmallows from "her" cup of cocoa in an effort to redistribute them "fairly" between the two cups (this often leads to more complaints and whining). We've ignored the complaint. We've been ignored when making the complaint. Sometimes we pout, and sometimes we relish in our self-justification that we got more because we deserve more.

Whether it's "Mom and marshmallows" or "Manager and money" the argument - and the underlying feeling - is the same. It's about being fair. But what does it really mean to be fair?

According to organizational justice theorists, at its core fairness has four dimensions:

1. Distributive Justice
2. Procedural Justice
3. Interactional Justice
4. Informational Justice

Distributive justice is our perceived fairness of the actual outcome - the number of marshmallows in our cup of cocoa, the amount of our bonus check, the percentage increase in our base salary, and the size of our promotional increases. Distributive justice focuses on the outcome and addresses the question "did I end up with what I should have gotten?" When we talk about internal pay equity and disparate treatment, we're typically referring to distributive justice: are the dollars distributed among the employees equitably, given our policies and procedures?

Procedural justice is our percieved fairness of procedures used to arrive at the outcomes - how did Mom decide how many marshmallows to give in each cup, what criteria were used to determine my bonus payment, how was the percentage increase in base salary determined, and so forth. Procedural justice focuses on the processes and procedures that led up to the outcome. "Fair" processes and procedures are free from bias and are applied consistently. Procedural justice addresses the question "was what I got fairly determined?" When we talk about adverse impact, we're typically referring to procedural justice: do the rules we use to distribute dollars affect different groups of employees differently?

Interactional Justice is our perceived fairness of the treatment we receive in the application of the actual outcome. It refers to that "warm fuzzy / cold prickly" feeling we get based on the way the outcome is presented to us. It's all about presentation. Did Mom roughly throw the marshmallows into the cocoa and shove the cup across the table to us? Or did she take care in preparing it, gently presenting the cup to us on a saucer so we didn't burn our fingers or spill it in our lap? Interactional justice addresses the question "was I treated with politeness, dignity and respect?" It's a critical, yet often overlooked, aspect of fairness.

Informational Justice is our perceived fairness or adequacy of the information we're given about the actual outcomes. In compensation-speak, it refers to transparency. Without informational justice, there can be no fairness. Your pay decisions could be internally equitable, based on objective and well-defined factors, and communicated with the utmost courtesy and respect. But if you only communicate "your bonus is $X" or "your merit increase is Y%" and provide no supporting information, the decisions may be interpreted as unfair. Fairness doesn't reside in a black box; it's only revealed through the lens of transparency. Even if employees disagree with the ultimate decisions, they are more likely to see the decisions as "fair" if they understand how those decisions were made.

"Fairness" is both science and art. We can statistically test our policies and practices for adverse impact and our pay outcomes for disparate treatment. Only a true artist can incorporate just the right amount of transparency and communicate the decisions in just the right way, every time she drops marshmallows into cups of cocoa.

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.

Cafe Classic: A Case of Over Analysis?

Editor's Note: It's that time of year when salary planning surveys abound and we collect and report data on salary budgets and salary structure adjustments.  In today's Classic, Chuck Czismar raises some important questions about our use of this information at the expense of taking a careful read of our own competitive circumstances and imperatives.

I don't get it.  Can someone help me understand?  Why are some companies interested in what other organizations are planning to do next year with their midpoints?  I presume that's the case because compensation planning surveys compile and report such data.  But who really cares?  Aside from anecdotal information (presenting multiple data points) I have never understood the importance of this reporting.

To be fair, perhaps my career experience is the exception, as I've never used that data in program analysis, or even reported it.  Or even been asked about it.  But somebody must be using it.  Somebody.

Say what?

I can only guess that I've missed something ; maybe I should have taken another WorldatWork class, because the issue has never arisen from any employer I've dealt with, either as  an inside Compensation practitioner or as an outside consultant.  Which leads me to wonder, do some companies actually recommend raising their midpoints on the basis of a survey that projects what other companies might do?  Is that metric as important as what is being paid for particular positions, or what the average merit spend might be next year?  How does an average projected average salary structure movement relate to any company's particular situation?

Can you envision recommending to senior management that midpoints be raised by X% simply because a survey said that’s the projected average midpoint increase of other companies?  Surely there should be more to the decision.

For me the focal point of survey analysis has always been to determine the competitiveness of current pay practices and established midpoints.  In planning for next year we would adjust those midpoints to either remain competitive (midpoints are already there), to improve our standing (midpoints lag the market), or freeze them (midpoints already pegged above market rates), no matter what a survey reported as projected common practice.  Am I wrong here?  I’ve always thought that my company's salary structure should move in relation to our own competitive positioning, regardless of what anyone else is doing.  Otherwise we could be making improper adjustments - either too much or too little.

And what about the expense involved?  Contrary to what some pundits have assured me from time to time, midpoint growth can create costs.  There’s no free ride.

• When an employee's base pay drops below salary range minimum at the start of the fiscal year, do you cover that amount - or wait until the next scheduled employee review?  The fair thing to do would be to immediately raise the employee to minimum and then (or later) grant a merit increase on top of that.  There’s your extra cost.

• Higher midpoints push experienced employees further away from the internal "going rate" - creating pressure to restore the balance.  Have you ever explained to a long service employee why they weren't being paid at least the midpoint?  Awkward.

Practitioner consideration

When are the estimates for these midpoint movements made, and how accurate are they?  They're really only guesstimates, and many times the survey questionnaire is filled out without due consideration, just to get the form completed and submitted.  After all, most companies won't confirm their new structure commitment until about November (senior management signoff), while the structure movement questionnaires are completed in mid-summer.  How good a guess can you make in August?

Btw, a company's salary structure (grades and salary ranges) is usually segmented along the lines of hourly, non-exempt, exempt professional, and management employees.  To gain a clear picture of your competitive marketplace you should consider that each segment is moving at a different rate.  For example, it's likely that management pay is growing at a different rate than that for hourly employees.  Suggesting that only a single number would reflect your entire population would distort the reality of your multiple markets.

Now I suppose there may well be organizations out there that have changes to their reward programs contractually tied to "market movement" or even structure (midpoint) growth, but do you think there are that many so governed?  And is it a process that helps the organization?

Bottom line, can someone tell me why tracking other organization's guesstimated midpoint movement is a valuable analysis?  I'd really like to know.

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.