The Death Spiral of Your Compensation Programs

Have you ever asked yourself, how effective are the Compensation programs in your organization?  Are they still doing what they were intended for, still delivering the right bang for your bucks, the proper ROI?  Do you give them a thumb’s up?

Or don’t you know?  Have you reviewed the programs, or conducted an effectiveness audit in recent memory?  Or is your role simply to keep your reward programs afloat and running?  Kind of like an administrator.

“If it’s not broken then don’t fix it” is a commonly used phrase for a reason, especially if the house isn’t on fire.  Perhaps “letting sleeping dogs lie” is a philosophy built into your DNA – or in that of your leaders.

You may be comfortable playing the couch potato.  All is well.  But then again, how would you know when damaging storm clouds start to form on the horizon?  When they’re coming your way.  Would you know when trouble is brewing, when the death spiral has begun for those compensation programs?

Would you know what to look for?

Continuing our house analogy, I suggest that you should look for telltale signs of the rot that may be forming behind the wall or under the floor, because when it becomes visible (obvious) and the wall/floor is stained – at that point it’s much harder to fix.  It’s more painful and costly to remedy.  And by then the pealing alarm bells will have the attention of senior management – and not in a good way for you.

This looking for trouble tactic is much the same at work. You should look for warning signs that your compensation programs may be coming off the tracks.

Warning Signs

Here are some examples of what could be going wrong.

• When you catch yourself routinely saying that you “pay competitively,” but in fact, the salary range midpoints of your structure(s) are less than prevailing market rates.  When were they last updated?
• When you repeat to everyone that, yes you do pay competitively, and your midpoints do reflect the external marketplace, but what is actually paid to employees is instead much less than the market.  Sort of like not walking the talk.
• When you discover that payments from your variable pay programs (annual incentives, sales compensation, etc.) reward less for performance and more based on entitlement and administrative ease of processing. “It’s been twelve months; where’s my check?”
• When you believe the recruiting brochures that you have a Pay-For-Performance program, yet 98% of employees still receive an annual increase.
• When flexibility of decision-making often trumps established guidelines, best practices, and potentially even the application of fair and equitable treatment.  This is when managers play “Let’s make a deal” or “I am the boss.”  And if you let it happen, more skeletons will go into the closet.
• When new or revised compensation programs are rolled out lacking appropriate communication, training or even monitoring devices. “Send out the announcement memo and let’s go to lunch.  We’re done.”
• When title inflation has become such a worrisome issue for the HR database that titling anomalies have permeated the organization with confusing and inconsistent labels.  It may seem like you have as many job titles as you have employees.  Don’t believe that “special” titles are a no-cost gift.
• When you find yourself with a plethora of “senior, lead, coordinator and assistant-type” titles that confuse more than clarify the hierarchy of job roles.  Promotions become an almost automatic step, based more on the length of service or job performance than substantial differences in job descriptions.
• When you consistently defer decisions on pay increases and/or program design or administration to the outside consultants; when you use the terms “Hay” grades or “Mercer” salary ranges.  When your consultant contacts are on speed dial.

Or the problem(s) could be something else.  Check your compensation metrics to see what’s working and what isn’t.  Where you are going in the right direction, and where perhaps you’re not.

Saving the Patient

Like any other “patient” being treated for an illness, the evidence of individual symptoms – warning signs - may not be the endgame for you.  Most everything can be fixed.  But if you find multiple symptoms, that could signal a real problem for you and your organization.  Problems that affect your payroll costs, employee morale and engagement, retention and even your organization’s bottom line.

If your single largest expense, employee pay, is not working, or even working against you with counter-productive compensation programs, it is up to you to be on the front line of defense.

So, you had better be looking. And you had better be prepared to sound the alarm.  You’ll need to catch damaging policies, practices or procedures in time, before too much damage is done, before the pain incurred has reached the attention of senior management – or at least your boss.

The deeper the hole of problems you’re facing, the longer and harder may be the cure.  If you find that you’re in that sort of hole, throw away the shovel!

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, "Chaos Rodeo," by Jurvetson

Comments

[E. K. Torkorno]

Right on the money, Chuck. Thank you.