Compensation Cafe

Cafe Classic: Can't Ask Don't Say: The Stigma of Compensation Conversations

Editor's Note:  Although this Classic was first published over five years ago, I'm not sure much has changed.  Are organizations creating better forums and opportunities for constructive conversations about compensation?  Have you made progress at your employer with this issue, tried out new practices and approaches, moved the needle to a better place?  If so, let's hear from you!

In talking to young professionals, as I've had lots of opportunities to do in the past few months, both in focus group sessions as well as individual conversations, I often hear a particular theme repeated.

They have many questions about their compensation. They wish both that the topic could be more openly discussed and that it could be more acceptable to ask what's on their minds.  They are frustrated with what one young technology professional called the "hush hush" nature of the subject.

They believe that there is a stigma attached to asking questions about their pay, that the mere act of bringing up the subject will brand them as a troublemaker, a malcontent, someone who is only there for a paycheck and not interested in the work or the organization.

In an effort to bend to propriety and expectations, they stockpile their questions and concerns for the annual salary review conversation.  But this works about as well as having managers collect performance feedback throughout the year and then dump the entire load on the unsuspecting subordinate in one conversation.  Not the best timing, process or set-up to ensure employees are clear about their pay opportunities.

And we are squandering the chance to pass along and reinforce the story of our reward programs - to shine a light on the path we want interested and motivated employees to follow in order to maximize both their earnings and the success of the organization?

 Is it a training thing?  An accountability thing?  Who is falling down on the job here - is it us ... or the managers?  (I suspect it is probably both, in all likelihood.)

Do we need to create stigma-free pay conversation zones?  A quarterly Pay Armistice Day? 

Just some Friday thoughts and questions.

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.

Creative Commons image "Quiet Please" by ell brown

Proxy Advisors Lose the Gift of Power

September 13, 2018, was an important date in the world of executive compensation. On this date, the SEC withdrew two critical letters written in 2004. The letters have basically allowed investment advisers to vote however proxy advisors recommended they should vote. This may not seem like a big deal to those outside of executive compensation, but it is a potential game changer.

Proxy advisory firms like ISS and Glass Lewis have built much of their influence on these two letters. This influence has chaffed Boards and executive teams, it has been shown to often have questionable shareholder value and has brought some of these firms millions of dollars in consulting fees. With one simple statement, the SEC may have changed all of that.

Here’s the skinny. Investment advisers have a fiduciary responsibility to their clients. This means they have an obligation to act, and vote, in their clients best interests. The letters let advisers meet this responsibility by blindly voting as the proxy advisers recommended. It was easy. It was fast. It was protected (kind of). Most of all it was generic and required no real thought or research. The advisers may have put some time into the big, media worthy companies, but the smaller companies were often voted along “party lines.” This often resulted in confusion and angst on the part of companies and poor results for clients.

Before this letter, even small companies could effectively engage the investment advisers for their stock. After these letters and the rise of the proxy advisory firms, this outreach was often less effective, and sometimes a complete waste of time.

So, what does this mean in an already turbulent time for executive compensation? I don’t know, but I will make some guesses.

1. Proxy advisory firms may provide more information about some of their “black box” (secret and almost impossible to reverse engineer) calculations.
2. Companies with unique and defensible differences from the norm may get more traction when making their case.
3. Some investment advisers will become more focused on fewer companies and remove the burden of learning so much about so many.
4. Past generic approaches to executive compensation will see more color (at least around the edges). There will be less focus on lock-step compliance to ISS and Glass Lewis rules that will allow different decisions, both good and bad.
5. Mostly nothing. At least not in 2019. While this is fun to discuss, most companies will not be challenging the status quo. They will let a few brave peers test the waters and see if they are destroyed by some sort of Kraken.

I have also provided some links below to other thoughts on this issue. (Cooley, The Corporate Counsel, World at Work.) I am sure there will be more to come after the SECs November 15, 2018 Roundtable on the Proxy Process. Come back and visit sometime around Thanksgiving to another update!

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 @DanFutureSense.

Cafe Classic: Can Your Compensation Plan Tell Time?

Editor's Note: In this wonderful Classic, Dan Walter reveals how great compensation plans share characteristics with the analog clock, one of the oldest and most amazing of human inventions.  Intrigued?  Read on!

How much are your compensation programs like an analog clock? Analog clocks are some of the most perfect devices ever created. They provide a sense of order and clarity to the world through the use of only two or three lines. This simplicity allows them to be understood by people regardless of language. They can be understood by young and old. They provide an exact or relative reference for wide-ranging and global needs. They have stood the test of time (no pun intended) and will continue to do so.

But, the simplicity of these amazing devices belies their underlying complexity. Underneath the simple face and minimalist lines that keep order of our lives is a quiet and durable set of gears, a power source and something that is tuned to a fine degree of accuracy. Hundreds of years ago clockmakers were some of the most skilled and respected craftsmen of their communities. Clocks were expensive and many relied on a centralized tower that was the only timekeeper for miles. As technology improved and became smaller and cheaper nearly everyone could actually wear one of these amazing devices on their wrist.

Every great compensation plan is simple on its face. Teaching someone to understand these programs requires little effort on the trainer’s part and little knowledge on the user’s part. The components that are visible are limited: instrument used, currency, timing and reason for payment. The program can be applied across many disciplines and uses and adapt and evolve as needs require. The trick is what is underneath the surface.

Too often “simple” compensation programs means simple for the practitioner as well as the user. We must realize we are the master craftsmen of our industry. We must understand that removing a difficult gear in our program will also result in reduced accuracy or preciseness. Depending on the need of our plans this limited accuracy may be fine (in fact, it quite often is).  We must also be aware of which gears must be close to perfect to ensure ongoing usefulness. Knowing our craft and the impact of each and every piece of compensation is the difference between programs that work and those that don’t.

I think this is often where we fail. We remove the wrong gear through a lack of understanding consequences, proper systems, or confidence in our expertise. When challenged by someone outside our craft (think CEO or BOD member) we sometimes remove or change components to make them happy. When planning for the management of our plans we often use tools poorly suited to the task. We must be confident in both our own knowledge and in the tools we use.

When we put this all together, we must understand which elements must be displayed on the face of our clock. Does your program need to be a simple alarm clock or a precise diving chronograph? Too simple and you are dependent on relative results. (Is “a quarter to nine” accurate enough for your needs?) Too specific and you may distract from the purpose of the plan. (Are your requirements specific enough to need to know barometric pressure or thousands of a second?) In the end, every element must be understood, or should probably be removed. For this metaphor to work the compensation plan and compensation professional must work together as the inner-workings of the “clock”. While the surface must remain as clear as that of a watch, remember that simple does not necessarily mean simple for those planning, building and managing every piece of the program.

P.S. A bit of trivia for you. When you see advertising photos of analog clocks the time is usually set to 10:10. This is because it makes the clock face look “happy.”

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 @DanFutureSense.

Who Wants to be Paid The Minimum Rate?

Did anybody raise their hand?  Of course not; no one wants to be paid at the minimum rate of anything.

It’s one thing to hold down a minimum wage job and paid the government-mandated rate, but it’s another matter entirely to be higher placed in the organization but only paid the lowest available rate for your job.

How would it make you feel?  Not a warm, fuzzy moment, is it?

Minimum Value

When you pay employees the minimum rate for a position you’re telling them that their value to you is just that, the least payable for the position – which is not exactly a strong statement of recognition or encouragement.  Quite the opposite.

Of course, there may be several legitimate reasons to pay at the bottom:

• A newly hired employee only meets the minimum qualifications for the position.
• The promoted employee had a salary low in their former salary range, and it would take too large an increase to raise them into the new range.
• Other, more experienced employees in the same or similar job are paid low in the same salary range. Thus internal equity becomes an inhibitor of higher pay.

We can only hope that the company will keep an eye on these employees so that their status as “minimum paid” will be as brief as possible.

Given the above, what do you think it means to one of your employees when you pay them less than the minimum; less than the announced lowest value for the job?  It lets everyone know that to the employer the value of this person is even less than what you’ve announced you would pay for minimally qualified employees.  That message does not go unnoticed.

Studies have shown that low paid employees tend to perform as you reward/treat them.   If you keep someone low paid relative to their internal/external worth, you’ll receive a similar value from them (performance) in return.  What's that adage, "you get what you pay for"?

Paying less than the minimum

So why would employers do this?  What reasons would compel companies to pay employees at a rate below the minimum of the salary range?

• The employee is newly hired, with minimal qualifications for the position, so the company uses a temporary training rate.  When performance indicates the employee can do the job at the basic level they are raised to the minimum rate - usually in 3 to six months.
• For an internal promotion, where the employee is minimally qualified, and the company is giving them “a chance.”  Again, a quick increase to the minimum is warranted when performance is delivered.
• If a large increase is necessary to move an employee from one salary range to another, some managers resist granting so much money at once, preferring instead to grant installments that will eventually gain the minimum rate.
• Some managers want to see a “stretch” employee perform before they agree to pay them the minimum rate.  In this case, the manager puts the employee into the position, with full responsibilities – but without paying for it.
• In a weak economy that's coupled with a large labor pool to choose from, some short-sighted managers like to get new employees "on the cheap," simply because they can.

Given the above, the question becomes, do companies follow through and look to quickly raise such affected employees to the salary range minimum, and beyond? 

I’m afraid the track record there is a bit spotty.

A Bitter Harvest

Without off-cycle intervention, an employee at the minimum (or below) almost never reaches the midpoint of their salary range.  Consider this:  an average performing employee paid at 80% of the midpoint (a standard minimum rate for many salary ranges) will receive a series of ~3% annual merit increases, while the salary range itself will likely raise ~2% or more each year.  Under such circumstances how long will it take for the employee to move a net 25% of current base to reach the midpoint?  20 Years.  How long will it take an average performing employee to gain enough knowledge/experience in the job to warrant being paid the market rate?  A couple of years.

See the problem?

Low paid but satisfactorily performing employees will see their market value increase much faster than most employers are willing (or able) to raise their pay – thus making this group more susceptible to being lured away by competitors, or any employer willing to pay them what they're worth.

When you promote an employee whose resultant pay is near the bottom of their salary range, be careful to avoid creating problems for yourself in the new salary range; it will be very difficult to move a low compa-ratio employee to a higher ratio in their range – without providing an eyebrow-raising increase.  And who has the budget for that?

Please look to the bottom quartile of your salary ranges and find out who's there.  Marginal performers likely deserve no better, but you had better ensure that higher caliber employees are moved along and further into the salary range before soured morale and disengagement set in – or they simply quit.

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, "Angry Tiger," by Guyon Moree

Do You (Really) Know Why Wages Have Shrunk?

Why have wages stopped growing? We all have theories, but the Society for Human Resource Management (SHRM) has done a nice job of pulling the facts together. I encourage you to read this article to get a comprehensive understanding of the contributing factors. I'm sure you'll find surprises, or at least clarifications. Here are a few of mine:

A valid time perspective. The economic dynamics that have led us to severely restricted pay raises began before the recession. Economists had already been warning that issues like automation and outsourcing would increasingly affect lower- and middle-income workers. The recession certainly accelerated and exacerbated the situation, but it didn't start it off.

Some cold, hard facts. Step back and face the reality of the findings from the Hamilton Project, which provides an economic analysis of why wages have remained so flat. One of the contributors summarized, "There is a big disparity [in wage growth] between those roles considered 'hot' and a lot of roles that are not just entry level, but also tend to be middle management and the like. [Because]There has not been much pressure to increase pay for these roles as turnover for most companies has not been a significant risk and there is typically a supply of people to fill the roles when people leave or retire."

Business as usual, no? Well, sure, but the implications are real. Check out the map that illustrates how income stagnation plays out state-by-state.

A factor I wasn't expecting is the impact of productivity. You'll be surprised as well. Although productivity continues to grow, CEOs have been told by economists that's it's grown at a surprisingly low rate for close to 40 years, leading companies to experience more pressure on profit margins than they'd prefer. CEOs are less likely to turn what they consider moderate profit growth into salary increases, especially since no one seems to be coming up with the magic bullet to improve productivity.

Even though I've only touched on the first part of the article, I think you can see there is much food for thought here. In fact the article is one of SHRM's four-part series on the "The Death of the Pay Raise." This title's got a real grasp on our reality, don't you think?

If you're doubtful, read this well-researched piece to see if it illuminates the current reality of your Company's practices as well as our profession's.

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: 3 Ways to Meet – and Exceed – Expectations

Editor's Note:  In today's Classic, Margaret O'Hanlon uses the saga of Toyota's sticking gas pedal recall (circa 2009-2011), which became a case study for (some would say how not to do) crisis management, to examine the intersection of crisis response and performance.  

I was linking my way through some of the recent posting on Harvard Business Review’s Blog Network, wondering if there were any references there that could help me tell my story today. I want to talk about Toyota’s woes and what they can teach us about our job in compensation. 

I was pleased when I ran into the sentence, “What is it about a crisis that causes people and organizations to step up to new levels of performance?” The sentence comes from a piece written by Ron Ashkenas called, “Using Crisis Response Factors in the Absence of a Crisis.” I think it comprises the essence of pay for performance, so it deserves close attention.

Many of our companies have been hit with serious crises in the last two years that have required people to step up to new levels of performance. Have we tried to distill what we have learned so we can use it to help us in the future? Let’s see if Ron's ideas fit your experience.

Three factors that bring out the best in all of us

Ron tells us that there are three factors that are always present in human response to crises:

1. “Urgency is the realization that time matters – there are clear goals and even clearer consequences if they are not achieved quickly.”

2. “Empathy is the identification that people feel with the crisis, the sense that we are connected  . . .”

3. “Innovation, of course is the freedom to respond in ways that are out of the ordinary, that don’t get caught up in red tape, approvals, and complex decision making.”

What would our companies be like if our employees could deal with everyday challenges not as a crisis, of course, but as a way to apply these three factors? As we all know -- intuitively and through recent experience -- they bring out the best in all of us.

What can we learn from Toyota?

Think about their performance on each of these three factors. Notice how confused and ineffective actions can be if they are executed without sober consideration of the human reaction or the larger consequences. Notice how quickly misunderstanding grow and trust erode if you aren’t willing to jump in and deal with the reality of a difficult situation -- even if you start from a position of "unassailable" strength. Years of carefully honed customer relations can be overrun via Twitter and then the Media in just a few hours.

I hope you're not thinking NIMBY at this point (Not In My Backyard!)

Crises happen inside companies, too, and the same kind of disastrous consequences would emerge.  What would have happened if you had handled a bad news announcement in the way that Toyota has? Let’s say, a year when there will be layoffs and no bonuses.

1.  Would your company communicate as if time mattered to the outcomes of the crisis? Would they face up to the consequences if the communication strategy didn't meet its goals? Would they circle back quickly and fix the problems?

2.  Would your managers tell you that you had treated them and their employees in a balanced way? Would they feel like you were trying to connect with their experiences?

3.  Would your company immediately adapt your processes to make things simpler, more open to new approaches?
 
If you have faced real communication crises like these in the last two years, do your employees say that your company has done its best in each of the three factors? As I mentioned, for me at least, urgency, empathy and innovation represent the essence of pay for performance -- and the essence of the design and communication roles for executives, managers, employees and human resources. What do you think?

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.

I was pleased when I ran into the sentence, “What is it about a crisis that causes people and organizations to step up to new levels of performance?” The sentence comes from a piece written by Ron Ashkenas called, “Using Crisis Response Factors in the Absence of a Crisis.” I think it comprises the essence of pay for performance, so it deserves close attention.

Many of our companies have been hit with serious crises in the last two years that have required people to step up to new levels of performance. Have we tried to distill what we have learned so we can use it to help us in the future? Let’s see if Ron's ideas fit your experience.

Three factors that bring out the best in all of us

Ron tells us that there are three factors that are always present in human response to crises:

1. “Urgency is the realization that time matters – there are clear goals and even clearer consequences if they are not achieved quickly.”

2. “Empathy is the identification that people feel with the crisis, the sense that we are connected  . . .”

3. “Innovation, of course is the freedom to respond in ways that are out of the ordinary, that don’t get caught up in red tape, approvals, and complex decision making.”

What would our companies be like if our employees could deal with everyday challenges not as a crisis, of course, but as a way to apply these three factors? As we all know -- intuitively and through recent experience -- they bring out the best in all of us.

What can we learn from Toyota?

Think about their performance on each of these three factors. Notice how confused and ineffective actions can be if they are executed without sober consideration of the human reaction or the larger consequences. Notice how quickly misunderstanding grow and trust erode if you aren’t willing to jump in and deal with the reality of a difficult situation -- even if you start from a position of "unassailable" strength. Years of carefully honed customer relations can be overrun via Twitter and then the Media in just a few hours.

I hope you're not thinking NIMBY at this point (Not In My Backyard!)

Crises happen inside companies, too, and the same kind of disastrous consequences would emerge.  What would have happened if you had handled a bad news announcement in the way that Toyota has? Let’s say, a year when there will be layoffs and no bonuses.

1.  Would your company communicate as if time mattered to the outcomes of the crisis? Would they face up to the consequences if the communication strategy didn't meet its goals? Would they circle back quickly and fix the problems?

2.  Would your managers tell you that you had treated them and their employees in a balanced way? Would they feel like you were trying to connect with their experiences?

3.  Would your company immediately adapt your processes to make things simpler, more open to new approaches?
 
If you have faced real communication crises like these in the last two years, do your employees say that your company has done its best in each of the three factors? As I mentioned, for me at least, urgency, empathy and innovation represent the essence of pay for performance -- and the essence of the design and communication roles for executives, managers, employees and human resources. What do you think?

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.

Incentives and The Rule of Three

Designing an effective incentive plan is always a challenge. There are many moving parts and assumptions. There are the “big” things you want or need people to accomplish and the smaller things that simply cannot be ignored. There is the math behind the modeling and payout expectations. (Yep, that’s three.)

Huey, Dewey and Louie

Over many years I have come to rely on what I call the Incentive Plan Rule of Three. No more than three metrics (KPI), no more than three defined goal levels, no more than three incentive plans for any one individual. This rule can be broken or ignored, but only after I have determined there is simply no way to apply the Rule of Three. Many disciplines have their own Rule of Three, it’s time the compensation industry had a cool magic rule.

Reuse. Reduce. Recycle.

Why do I always start with this rule? The restrictions force stakeholders to put real effort into determining the most important aspects of the program. Goal levels generally work best with a target in the middle, a floor at the bottom and exceptionalism at the top. Most people will focus on the two or three things most likely to benefit them, and let other programs sit on a back burner. (See I did it again.)

Friends, Romans and Countrymen

Three metrics gives enough room for differentiation, while also providing enough weight to each metric to ensure it has a measurable impact. With five or more metrics, none of them will have a weighting of more than 20%, or at least one will be so low that it is designed to be ignored. One or two metrics can work well, but it can be difficult to get agreement on that type of focus.

Most incentive plans use three-level goal setting. Nothing revolutionary here. Very few employees get excited when you layout ten different levels of performance with various payout percentages.

Run, Forrest. Run!

Restricting an individual to no more than three programs (that have performance-based goals) is also about ensuring enough value to deliver impact, but there is another practical side as well. Most people find it hard to remember more than three things for extended periods of time. If you have three plans and communicate them well, you may get most of the participants to remember the purpose, the most important metrics and the potential value of each. Any more than that and I find people start “misremembering” things pretty quickly.

Threshold. Target. Excellence.

I find that the Rule of Three works for nearly every incentive program, for nearly every company, and in nearly every industry. Like many good things, the process requires some additional thought and effort, but the results are effective, manageable and easy to communicate. Would the Rule of Three work for your company? If not, how would you improve it?

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 @DanFutureSense.

3 Ways to Encourage a Happier, Healthier Workforce

Each of us is given one life. What do we seek out of it? Is a meaningful life most important? Or is a happy one? That’s a debate for another post (and one that’s been the subject of much research over the years). Setting that discussion aside, if we were to focus on happiness, what is it that truly makes us happy?

The most comprehensive study on this topic tells us:

"Good relationships keep us happier and healthier. Period."

That’s a direct quote from Robert Waldinger, psychiatrist and current director of the Harvard study of Adult Development, the longest running study on emotional well-being in history. As reported in Inc. magazine, this 80-year Harvard study began during the Great Depression and tracked the same participants, and ultimately their children, to amass data on physical, mental and emotional health over time.

And it’s more than happiness, it’s health, too. Waldinger also said, “The people who were the most satisfied in their relationships at age 50 were the healthiest at age 80."

In the workplace, we can’t control the quality of relationships for our employees. But we can influence the ability for people to form better, deeper and more satisfying relationships with their colleagues.

Here are three tips to create an environment for better relationships at work.

1. Help alleviate unconscious bias.

Part of our human nature is the unconscious biases we carry with us. The biggest challenge with these biases is we are truly unaware of them – until they are called to our attention. The best way to reveal these biases to ourselves and then overcome them is through relationships with others we might hold those biases against. Structure teams to encourage a mix of skills, backgrounds and abilities, not teams of people that “look like me” in terms of education, etc. Collaborating together to achieve an important goal reveals the benefits of “other and different.”

2. Encourage interaction across boundaries.

The nature of work today – informal, somewhat temporary teams focused on a project – already breaks down the silos of geography, team, and department. Further encouraging interaction across those boundaries through virtual social activities or other mechanisms helps deepen and sustain relationships as teams break apart at project end.

3. Foster trust.

No relationship can last without trust. One of the most effective ways to foster trust is through simple expressions of gratitude. Knowing my work is seen, appreciated, and valued by others communicates the trust others have in me. Similarly, being able to share my gratitude and appreciation with others has similar impact.

How do you build relationships in the workplace? What methods do you use to help others build relationships with colleagues?

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.

What Makes Someone an Executive?

Editor's Note: Today's post comes to us courtesy of guest contributor Joe Thompson.

I was recently at a meeting at the White House Complex where I listened to a senior Federal executive bemoan Federal executive compensation.  He adamantly insisted that executives in the private-sector with the same titles and the “same responsibilities” [I’m using ‘air quotes’] earn compensation that is several fold higher than the salaries of Federal executives.  In his argument, he did not seem to recognize that he was comparing total compensation with salary.  However, such a distinction was only ancillary to his point, which was telling Administration officials that executive pay disparity was a major problem that had to be fixed to stem the exodus of executives from his organization. 

Now, as I listened to him, I couldn’t help but think of several arguably-compensable differences between a Federal executive and their non-Federal counterparts.  For one thing, I couldn’t help but think that a better, though still far from accurate, compensation comparison for Federal executives would be non-profit executives. 

For another thing, Federal executives seem have considerably more job security than their counterparts.  The data I’ve seen suggests that, in any given year, only 0.07% of Federal executives will be fired for disciplinary or performance reasons.  In fact, the Federal government is probably one of the few institutions in which spectacular failure is often rewarded with large influxes of additional resources “to fix the problem.”   On second thought, that inverse relationship between success and reward could probably be expanded to include other public-sector enterprises and academia, too.  But, I suspect it is far less common in the private sector.

So, all of that got me to thinking.  What makes someone an executive who is thusly entitled to the prestigious (and sometimes toplofty) panoply of executive compensation? 

Surely it is not the title alone that makes one an executive.  If it were, I daresay that many more of us would label ourselves as executives of this-or-that.  And a great number of people would then have to immediately resort to the one-upmanship of labelling themselves as “senior executives.”  Before you knew it, there would be a flurry of hierarchical adjectives and compound adjectives vying for more and more compensation (such as the use of the moniker of Galactic Viceroy at Microsoft.)

So then what is it?

Is it the size of the budget that one is responsible for?  And if so, if the size of the budget matters, does it matter if you’re merely responsible for spending that budget (ala a Federal executive who has to ensure that all of their monies down to the penny are spent every fiscal year) or achieving a demonstrable return on investment for that budget? 

Is it the number of people in the hierarchical pyramids below a position that matter? If so, does what those people do for the broader organization matter, or merely the sheer quantity?  For example, I know of one Federal organization with 550 employees and 14 senior executives, roughly a 39:1 ratio.  So, if they were to hire an additional 40 employees, should they axiomatically accrete another “executive” to maintain proper executive spans of authority?

Rather than reinvent the compensation wheel, I thought I would pose the question to the wizened readers of this blog.  What compensable factors make one an “executive” for the purposes of making apples-to-apples comparisons of executive compensation?

Joe Thompson, CCP, CCMP, is currently employed as a Human Capital Strategic Consultant at Booz Allen Hamilton where he assists clients with a wide range of human capital challenges.  He has delivered human capital solutions across the talent management lifecycle including recruitment, job analysis, hiring, compensation and incentives, workforce planning, HR policy, attrition, performance management, change management, cyber human capital, and human capital program design, implementation, and evaluation.  Joe has worked in the area of compensation for 10 years and, prior to Booz Allen, he has worked in the U.S. Intelligence Community and in the U.S. Navy.

Image from: https://proswrite.com/2017/03/17/executive-summary/

An Evaluation of Job Evaluation

Job Evaluation:  an assessment of job tasks and responsibilities 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 my career progressed high enough 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’re only admitting to the obvious.
• If you disagree and value the job different (lower), you clearly don’t understand the key tasks and responsibilities.
• The subjective nature of the process is viewed with suspicion by everyone.
• Job evaluators do not receive Christmas cards.

Despite my criticism for the process, the art of evaluating jobs has been around since the Hay folks and the National Metal Trades Association (NMTA) in the 1930's.

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

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

Despite these worthy goals disdain for the process comes from many directions:

• Job descriptions are often poorly written, with content manipulated by managers seeking to gain an 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 and tentative.
• 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 procedural next step is to place a price tag on each position– and to do that you need to conduct a study of the competitive marketplace.  That's called Market Pricing.

Market Pricing

This 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 are:

• More objective, especially if using multiple sources.
• Easier for management to accept, vs. the judgment of “some analyst in HR."
• Easier to defend results to otherwise biased managers.
• The evaluator is subject to less criticism (my personal favorite).

Many companies follow both processes, first job evaluation and then market pricing, but does that two-phased time and 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 because 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 job evaluation process?

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

Another concern; while Job Evaluation can be a long and tedious process, it isn’t a sufficient end in itself.  You still must price the jobs to create an effective salary structure.  The external survey data needs to be “interpreted” by a skilled analyst 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 by creating 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 don't 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 results “make sense,” from both an internal as well as external viewpoint.

Maybe that way they'll receive a few Christmas cards this year.

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, " Bureaucrat," by Delmara Dealings