Compensation Cafe

Wow. That Data is Terrible!

Almost every compensation professional I know can guess the base pay of mid-level accountant or software engineer with near-perfect accuracy. Given regional variations and other factors, most guesses are within 5% of current market data. This consistency and predictability is a foundation of trust when we are pricing jobs that are less familiar or more volatile. If only it was always so easy.

Annual incentive plans add complexity and noise to pay data. Even when you have confidence in the target and actual levels in the survey data it takes real confidence (or ignorance) to make decisions on how the plan pays out in good and bad scenarios. Even with this uncertainty, most compensation professionals do a great job and getting these numbers within a reasonably accurate range.

Long-term incentives are a different animal altogether. In the best cases, the data is noisy or opaque. A good example of this is the pay packages for executives at publicly traded companies. The data seems like it is all there if you know how to dig through it. Once you get into the thick of things a talented executive compensation professional can make sense of it and provide real guidance. When you move from publicly traded to privately held companies things can go haywire.

I recently looked at two industry-leading data sets. They were for the same size companies. For the same industry. For the same region of the U.S. But that’s where the similarities ended. As I mentioned earlier, a good compensation professional can usually guess the base pay amount for a standard position within 5% of the market. Imagine thinking someone should be paid $100,000 and looking into the data to see they should be paid $853,000. It would probably make you question your abilities or the data. The differences in the two sets of equity data I was reviewing ranged from less than 5% to more than 800%!

I spoke to experts from both survey providers. Each expressed their absolute confidence in their data collection and analysis processes. Most disturbingly was neither thought that the differences were of great concern. Now, I work on equity compensation programs for all sorts of companies nearly every day and have done so for more than twenty years, but this nonchalance in the face of craziness reminded me how hard this can be for someone who only deals with this data once or twice a year.

In some cases, ignorance is bliss. If you had only ever seen one of the sets of data I reviewed, you may not have any idea how different it was from the other. Heaven forbid you saw both and decided to verify which was right by purchasing a third set. I can almost guarantee that the third set would raise just as many questions. We love to say our industry is a combination of art and science, but I think most of us were thinking of art a bit less like that of Jackson Pollack.

I love to wrap each post up with some type of solution, so here goes… When dealing with equity, especially at private companies, expect the data to be terrible. Get more than one set of data so you can have a reasonable range for the terribleness. Then do your process in reverse. Instead of looking at the market data and determining how to fit people in, look at your people and determine what you are trying to accomplish. Then determine what levels of equity and types of features will help you reach your goal. Finally, take a look at the market data and determine if you are, based on your needs, within the right range of accuracy.

I find this type of work to be the most fun and interesting part of my job, but I respect those who want a more solid foundation. I’d love to hear how you deal with this challenge (or not).

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He is passionately committed to aligning pay with company strategy and culture. Dan is also a leading expert on equity compensation issues and has written several industry resources including the one-of-a-kind Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.

A Smooth Sea

.... Never made a skillful sailor

I saw this phrase the other day and it really caught my attention.  Folks on LinkedIn, Facebook and other social media are always posting cute, profound or commonplace phrases that describe personal motivation, self-discipline or even the meaning of life, and I usually ignore them.   I can't figure out the point of highlighting the obvious. 

But this one gave me pause.

Think about it.  If you want to progress in your career, then you must show those who are higher up than you that you have what it takes.  That you're capable of rising to the occasion, making the tough decisions and by your knowledge, skill and experience getting the job done.  And how do you show that?  Fix something, improve a process, change behaviors, save money, make the act of change work for you and your organization.  Have an impact.

Conversely, those who only administer reward programs (sometimes known as treading water) don't do much of that change stuff and are often viewed as having reached a "career plateau," or as others might view it - they've reached a dead end.   Those trapped in administrator roles are not considered the cream of the profession and rarely will rise to the top. 

Is it time to look in the mirror?

Where Are We Going?

Of course, you must be in the right environment in order to have the opportunity to shine, to enact those wonderful change agent activities.  And while we would all like to be employed by smooth running operations, the heroes of our success story are those who created all that smoothness and efficiency.  Not those who came after, who benefit from it today by annually pushing the "continue" button.

In a practical sense though, how many smooth-running businesses are out there?  It's a fair statement to make that just about every organization has some program, policy or procedure that isn't working right.  They all have some aspect of their reward programs that might not be broken but could be seriously bent or considered charitably as less than effective.

Not sure of your environment?  Try this.

• Ask questions:  Become the "Curious George" of your organization and learn all there is to know about your current reward programs.  You'll need to understand the "why" as well as the "what" and "how."
• Talk to management:  Gain from their perspective as to business conditions, expectations, their comfort level with the status quo and their willingness to accept change.
• Set up metric milestones:  Set up a series of baseline statistics that describe current elements of your reward programs.  From there you can measure progress toward specific goals. And you'll also have a graphic story to show management.  Numbers often trump words.

Change for the Sake of Change

On the other hand, have a care that you don't try to force an issue.  I've seen compensation practitioners push hard to inject new policies, procedures and even cultural initiatives where they simply would not work.  Something they should have known from the start.  We've likely all experienced some form of the "round hole, square peg" scenario - where certain ideas are doomed to fail due to management bias, a deeply entrenched culture, employee demographics or a host of other reasons unique to that organization. 

But some practitioners will still push an aggressive agenda, more for their own betterment (resume enhancement, improving their personal experience, career checkmarks, etc.) than for the improvement of their organization.

I've seen it done.

So have a care; using your organization as a personal experiment or Petri dish to try out the latest trends can be a problem for you.  And for your organization.

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, "Sailing," by Bruce Tulen

Take Five: Connecting Reward Practitioners & Research - #1 Why & How Reward Satisfaction Matters

Take Five is a new feature at the Compensation Cafe, in partnership with the Compensation & Benefits Review.  The goal of our partnership is to connect and open opportunities for collaboration between reward practitioners and academics doing research in the rewards field.  Each Take Five will highlight recent rewards research via a Five Question Interview with a  member of the academic research team on key takeaways and practical lessons from their findings.  In Take Five #1 we spotlight research conducted by Anais Thibault Landry and Ashley Whillans, featured recently in a Compensation & Benefits Review article titled The Power of Workplace Rewards: Using Self-Determination Theory to Understand Why Reward Satisfaction Matters for Workers Around the World (link is time limited, active 2 months from publication of this post). 

Research Overview Paragraph

Ashley Whillans of Harvard Business School and Anais Thibault Landry of the University of Quebec in Montreal (brief bios below) have undertaken and published research aimed at understanding how reward satisfaction drives not only employee well-being and engagement but also important organizational outcomes.  They investigate the role of three universal psychological needs – autonomy, competence and relatedness – in illuminating whether and why reward satisfaction matters for employees as well as the organizations in which they work.  Data to test their hypothesis was drawn from over 5,000 full-time employees in different professions and industries and across six global regions encompassing twelve different countries. 

Note to practitioners: The researchers have defined rewards here to include cash (incentives, stock ownership), cash-like (gift cards), non-cash (merchandise, redeemable points) and development opportunities – and to exclude base salaries and benefits.

Our special thanks to Ashley Whillans for taking time from her busy schedule for this Five Question Interview! 

Question 1:  You and your colleague write that the results of this research “emphasize the importance of looking beyond the compensation that employees receive to understand what these rewards signal to employees and how rewards make them feel.”  Can you elaborate on this key point?

Ashley: Rewards are not just about money.  It’s easy to get stuck in a transactional mindset.  A reward is not just what the employee receives, a financial transaction, but also what that reward signals to the employee.  What we found is that the sentiment of the reward matters more than the content of the reward.  It’s less important what the reward is and more important how the reward makes the employee feel.

Question 2:  You collected data from workers around the globe. What conclusions did you draw from your cross-cultural findings?  In what ways do we seem to be similar relative to reward satisfaction around the globe?  Did you observe any interesting difference across the global regions?

Ashley: We expected and really looked for differences across cultures – and did not find them.  There were no significant differences across the global regions.  What impacts reward satisfaction and best predicts the positive organizational outcomes is receiving rewards that satisfy the universal psychological needs of autonomy, competence and relatedness for diverse employees worldwide.

Question 3:  You also collected data from different industries and organization sizes.  What do your findings suggest about the similarities and/or the differences in reward satisfaction across different organizational settings?

Ashley: Our findings relative to different industries and organization sizes were similar to those for global regions; for the constellation of factors that make up reward satisfaction there were no significant differences across organizational settings.    

Question 4:  You and your colleague highlighted several recommendations for future research and exploration relative to your findings.  What is the one question that you would put on the top of your list for future study?

Ashley: The data in this research is correlational, not causal.  There may, in fact, be reverse causality at play here.  For example, great workplaces may satisfy the universal psychological needs which then cause employees to view their rewards positively.  With that, our next step is to run experiments to test this, to seek causal evidence that sentiment associated with the reward matters more than the type of reward, that the sentiment drives the positive outcomes.  There have not been a lot of rigorous experiments done in this area.

Question 5:  In closing, is there a particular lesson or insight from your research that you would highlight for the practitioners who follow this blog, that they can take back to their own jobs and workplaces?

Ashley: I think the lesson for practitioners is that what really matters in the workplace is that employees feel appreciated and connected.  Rewards that signal to employees that they did a good job and that their manager cares about them will encourage employees to work even harder.  Remember that in designing and delivering rewards plans the reward is not just what the employee receives, but how it makes them feel.

Biographies

Anaïs Thibault Landry completed her PhD in industrial and organizational psychology at the Université du Québec à Montréal. Her research work aims to better understand the link between compensation, motivation, performance, and psychological health from a self-determination theory perspective. Specializing in psychometrics and statistics, Anaïs currently works as a consultant for consulting firms in Montreal.

Ashley Whillans obtained her PhD in Social Psychology at the University of British Columbia. Currently, she is an assistant professor in the Negotiation, Organizations & Markets Unit at the Harvard Business School. Her ongoing research investigates whether and how intangible incentives affect employee motivation and well-being. She consults for private and non-profit organizations.

Hey Readers - Interested in Being Involved? 

Take Five Interviews: We'd love to hear from interested Cafe readers who might wish to join in and take on a Five Question Interview featuring a piece of research that appeals to you personally or professionally.  A fun/easy way to exercise your writing chops and get exposed to new ideas in the field!  For more info, email Ann at [email protected]

Compensation & Benefits Review: CBR would love to hear from practitioners who are interested in learning more about authoring journal articles. Up front now is a Call for papers for an exciting special issue on the inadvertent consequences of dual-income households from Guest Editors: Ashley Whillans and Allan Schweyer.   Some great additional information is available here for Sage Publishing overall and here for information specific to CBR.  Finally, CBR Editor-in-Chief Dr. Phil Bryant is generously making himself available for questions and guidance - please reach out to him at [email protected].

Comments, questions, feedback, ideas?  Hit us up in the Comments below!

Value Driver? No, It's Not a Discount Store!

Do you know what value drivers are? In the world of business strategy, a value driver is an activity or input that drives financial and operational results. They are called value drivers to reflect their role in the value creation that your company wants to achieve: 1) Increasing the share price, thus creating more value for shareholders and ensuring your company funds future operations. 2) Creating more value for customers by customizing your product or service to their needs, thus ensuring sales growth.

Why bring up value drivers now? Because they should play the leading role in your efforts to address HR analytics. Value drivers identify what it takes to make your company successful (compared to what it takes to make the company run). Without the defined value drivers for your company, you run the risk of "garbage in, garbage out" in spite of your hard work on HR analytics.

Odds are the executives in many companies have identified the company's value drivers but haven't thought to share them because they don't understand the other, critical roles that value drivers can play beyond pure finance. So if you ask the right people, I bet you can find out what your company's value drivers are.

Then what? Redesign key HR practices to truly impact the bottom line. For example, track where the value drivers are executed in the company to identify key jobs. The answers shouldn't be the same old list. It should go beyond the most senior titles since you're looking for the select jobs that make a disproportionate contribution to the value that the company is working to create. If you can identify these jobs, you'll know where to most profitably target your work of attracting, recruiting, orienting, developing and rewarding.

In case you're worrying whether any HR jobs would qualify, the strategy powerhouse, McKinsey, specifies three categories of value driving functions: Value creators, value enablers (where HR would sit) and value protectors. And if you want a "deep dive" on the potential role of value drivers in HR work, check out McKinsey's podcast, "Matching Talent to Value."

By the way, value drivers also answer the question, "Where should my objectives come from?" You can use them to build an accurate line-of-sight so you can finally measure how well MBOs are impacting your company's bottom-line. (And wouldn't that would be value creation?)

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. A former Board member for the Bay Area Compensation Association (BACA), 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.

Introducing "Take Five: Connecting Reward Practitioners & Research"

There's something new brewing at the Compensation Cafe!

This Friday, we kick off a new feature, as part of our partnership with the Compensation & Benefits Review, the leading journal for executives and professionals who design, implement, evaluate and communicate compensation and benefits policies and programs. The goal of our partnership is to connect and open opportunities for collaboration between reward practitioners and academics doing research in the rewards field.

Here's a preview of what's to come - including ways for you to get involved!

"Take Five" Research posts. On Friday we will feature our first "Take Five: Connecting Reward Practitioners & Research" post, where we will highlight recently published research on rewards and a Five Question Interview with a member of the academic research team on key takeaways and practical lessons from their findings.

Call for Interested Cafe Readers #1. While the first "Take Five" interview was completed by yours truly, we would welcome hearing from any interested Cafe readers who might wish to take on a Five Question Interview featuring a piece of research that appeals to them personally or professionally.  A low key/low pressure way to exercise your writing chops and get exposed to new ideas in the field!

Call for Interested Cafe Readers #2. We will also highlight opportunities for interested practitioners to be involved in this collaboration by featuring CBR's Calls for Submission, along with resources and tips for anyone interested in authoring a journal article. CBR would love to hear from you!

More on Friday! Feel free to hit me in the comments with any questions in the meantime!

Special props to frequent Cafe guest contributor Joe Thompson, from whom we took the tagline for this new Cafe feature ("Take Five" for tackling a research paper in Five quick Questions).  Thanks Joe!

USWNT – Enough Already, This IS RIDICULOUS!

As an American, I am incredibly proud that our Women’s National Team has, once again, won the World Cup. As a compensation professional, I have had enough. When our country’s (and the world’s) best team in one of the truly international sports cannot be remunerated at least equal to a less-accomplished men’s team, we have the foundation of a problem that seemingly only compensation pros can fix. This article is not about facts and figures (there are links to those at the end).  This is about what it takes to accomplish gender equity (and what that actually means) even after you have the facts.

As I have written before, equity is not about being equal. And as I have covered many, many times before, I am a true proponent of performance-based pay. Call it variable, call it personalized, call it incentive pay. Whatever you call it, I have made the argument that some people should get paid far more than others. This is not about women getting paid "80% of men.” This is not about politics. This is about just rewards being delivered when earned.

We have heard Sheryl Sandberg tell women to Lean In. We have heard Sallie Krawcheck talk about women “owning it” and working hard. We have heard about CEOs who have spent time and money fixing this problem at their companies. Psychologists have opined that women are less aggressive negotiators. Pundits in the media have told women they need to demand better pay. But what happens when you do all of these things and imbalance still exists?

One of the current excuses focuses on the men’s bringing in more revenue. This is true if the period of measurement is properly cherry-picked. It is also not true if the date range is shorter (like an annual incentive plan or salary). But revenue is not the point of a national team. Representing the country honorably and winning as many games as possible is the goal of any national team. So, revenue is out.

Some argue the men receive greater viewership. This cannot be measured without including the fact that many are watching the OTHER team. South American, Asian, European African and even Oceanic teams all have fans around the world.  How many are watching “ours” and how many are watching “theirs?” So, viewing ratings are out.

Lastly, some argue that the gap “isn’t that big.” The size of the gap is not the issue, the existence of the gap is an issue.

I once had a boss who taught me an important phrase: “That’s a great excuse, but a terrible reason.” And excuses are all we have for the pay inequity of the most accomplished international sports team the US has delivered in the past 40 or 50 years. Who cares if they are paid “equally?” There are no legitimate reasons they aren’t paid MORE than the men’s team. And, that’s the real issue for compensation professional. This isn’t about soccer, it’s about pay.

If we cannot expect this team to be paid for their performance, how convincing can we possibly be when we claim that ANYONE is being paid for their performance? (I know, I know, some of you work at companies that have fixed this problem, but you are still the minority.) More importantly, if this is such a difficult thing to fix for a group of fewer than 30 women, how can most companies expect to fix pay issues for much, much larger groups?

OK. Rant over. I recommend fixing this tomorrow and moving forward quickly to ensure it isn’t a problem again. There are no reasons that can’t happen, only excuses.

Some related articles for your reading pleasure:

https://www-marketwatch-com.cdn.ampproject.org/c/s/www.marketwatch.com/amp/story/guid/E22022A0-A180-11E9-A212-0CC1E6F570D9

https://www.youtube.com/watch?v=FvFYQ2sz2pw

https://www.washingtonpost.com/politics/2019/07/08/are-us-womens-soccer-players-really-earning-less-than-men/?utm_term=.646296623c6f

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He is passionately committed to aligning pay with company strategy and culture. Dan is also a leading expert on equity compensation issues and has written several industry resources including the one-of-a-kind Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.

Cafe Classic: 3 Lessons for Truly Global Employee Recognition & Rewards Programs

Editor's Note:  Going global with your recognition and rewards programs?  Derek Irvine offers some Classic lessons on making your move a successful one!

This post is inspired by Jim Brennan’s “Travel, Currency Issues and Compensation” post last week. In his post, Jim shared:

“A recent story shows a differenttype of travel/comp relationship.  Currency problems in some nations have made travel an occasion for some people to ‘make money’ by acquiring U.S. dollars and converting them on the black market upon their return.”

This is a very broad example of unintended consequences from artificially controlling currency, but there are lessons we can learn about globalization of programs, especially those that impact compensation, recognition and rewards. I’ll leave compensation impacts to my Café colleagues who are true compensation professionals, but I’ll dive into three clear lessons for employee recognition and rewards.

1) Recognition and rewards are not compensation.

Poorly designed programs can be too easily gamed, even by well-intentioned mangers, to make up for perceived deficits in employee compensation. The conversation often sounds something like this: “John, I’m sorry I couldn’t give you a big enough raise this year, but here’s a $1,000 recognition bonus to show you how much we value you and your contributions.” Recognition (and any related rewards) are always the icing on the cake of compensation. As I’ve said before, if base compensation is not appropriate, no amount of recognition can make up for the deficit.

2) Equitable awards ≠ currency conversion.

Many companies make the mistake of applying simple currency conversion to award amounts when expanding a recognition and rewards program globally. This, however, gives a very inequitable rewards experience. In the US, for example, a $100 award might buy a very nice dinner for two, but with only currency conversion applied, could buy the restaurant in India. This is another classic example of employees in some geographic regions “making money” off of employee rewards.

3) Standard of living is relative.

Seeking to get closer to actual purchasing power, too many companies will apply a simplistic tool such as the “Big Mac Index” or a more complex Purchasing Power Parity Index (PPPI). Neither works well for employee recognition and rewards, however, as few employees would choose a Big Mac as a reward. PPPI itself is too broad as it also includes the costs of doctor visits, rent, gasoline, groceries and the like – again, not rewards someone would choose in a recognition program. A true, global standard of living index should be used that removes these elements in appropriate for rewards when considering equitable award comparisons.

In what other ways have you seen recognition and rewards misapplied, misinterpreted or misused globally?

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.

Cafe Classic: Do You Ignore Behavior?

Editor's Note: Who and what really gets rewarded in your organization?  Do nice guys finish last?  Chuck Csizmar addresses this Classic question.

Nice guys finish last.  We've all heard that phrase before.  Which probably means that there's something to it. 

Now why is that?

Because we've seen it happen, haven't we?  Again and again.

In the work environment all too often the steady and reliable performers, those who follow the policies and procedures, who stay on the right side of ethical dilemmas and controversy, the "nice guys" that every manager would like to have on their team - they can come up short when recognition and rewards are being passed about.  They may not fall into last place as the adage goes, but they often don't gain the credit, the respect and recognition, and financial rewards to the extent that the "bad boys" do.

Bad boys?  You know them.  Those who at first glance seem to deliver results; however, there always seems to be a "but" or an asterisk that accompanies their success.  Annoying little behavioral caveats that tend to be pushed aside and ignored - because "they're doing so well."

You've seen this scene play out before - where these "Golden Ones," "Favored Sons" or "Teflon Jacks" are recognized, and even admired by senior leadership, even though their pedestal may be built on a shifting pile of sand.

Life isn't fair, the pundits say - but come on!  Are they blind out there?  How many times have you seen this happen?

• Troublesome personal behavior is ignored while only the bottom line results are recognized.  We could be talking about arrogance, or unprofessionalism, taking questionable short cuts or even worse. Employees in this category think of themselves first and foremost, president-for-life of their own fan club.  They are not team players.

• Management beats the drum of "results, not effort" so hard that soon few employees (or their managers) seem to care how results were achieved.  Just make the sale - or else tomorrow you'll be history.

• Quantifiable metrics (add up the numbers) outweigh an individual's style, leadership, ethics, and professionalism.  The focus is more on quarterly results than building for long term success.  Do we have the numbers?

• Those who are "connected" (who you know, not what you know or how you conducted yourself) don't seem to receive the same scrutiny of their efforts as the rest of us.

Do employees see you turn a blind eye to how results were achieved?  They do notice.

Does your management really care if an employee leaves bodies strewn across the corridor on the way to their own personal success?  What does that say about the priorities of the organization, and how leadership values people?  Does that culture become visible outside the company?  Does that environment become an impediment to attracting the right caliber of people?

Yes, it does - on all counts.  And over time the organization will slowly evolve in a manner that's ultimately harmful to the business.

• External recruiters may change their mind about recommending the organization to otherwise qualified candidates.  When the whispers on the street begin, recruiters take notice.

• As your bread-and-butter contributors see how the organization's behavior-blindness hampers their own career progress, engagement and productivity start to slacken.

• A natural corollary to lower engagement is higher turnover.  The first to go would be those with the most options, those whose performance record of behavior and results would be appreciated elsewhere.

All this is avoidable.  But it takes a certain amount of courage to challenge one of the favored sons.  Especially if your plan is to instead recognize one of the less flashy, steady-eddies you may have in abundance.

So take off the blindfolds and recognize those who are day in and day out helping to move the company forward.  They are the team players.  They are the ones who say "we" instead of "I."  Your employees know who these winners are.  It would help your organization if you did too.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.

Creative Commons image courtesy of allyaubry

Cafe Classic: Prejudice Perpetuated by Prior Pay Pattern

Editor's Note: With today's Classic, Jim Brennan reminds us that little is more satisfying to an HR/comp professional exhausted by dealing with the constant ambiguity of human nature than being able to think (but not say) "I told you so!"  Six American states have already enacted bans on requirements that pay history must be disclosed by applicants.  Many other states, provinces, counties and cites plan to follow.  Change is here.  Read, consider and prepare! 

Legislative initiatives to ban questions about past salary during the employment application screening process keep popping up. I've been deluged recently with interview requests from writers seeking pungent quotes for articles on the topic, so it must be time for us to step back into that fray where others are already tussling.

Here are some salient summary points we should kick around before the politicians determine our practices for us.

For Management: Why ask for prior pay history in the recruiting process? For the most effective/efficient screening, of course, to weed out "the obviously unqualified" candidates. Strong prejudice emerges against anyone paid outside the income band acceptable to the hiring manager.

Recruiters suspect that those who earned much less than the expected amount have not risen to an adequate level of proficiency to earn the minimum of this open position's value. At least, that is the quick assumption. Since recruitersare usually under time pressures and expense limits, deluged with piles of applications while totally unqualified to make deep examinations of applicant credentials, they instinctively press the “easy” button. They presume facts not in evidence. Candidates who earned much more than the employer's normal offer rate are expected to become dissatisfied if hired within the appropriate job pay range, whether overqualified or not. Plus, they create pressure to make hiring offers above the normal entry rate, closer to the central position value, thus potentially creating pay compression with senior peers and inviting other invidious internal equity comparisons when word gets out. Lazy logic argues: why ask for trouble you can easily avoid?

For Applicants, a prohibition against demanding salary history would level the competitive playing field. Unfortunately, their equity would come at the cost of inconvenience to those who process the applications. Recruiters and hiring managers would have to work harder, sifting through more candidates to focus on potential deliverables from the performers, rather than seize upon proxy elements like their prior pay level that have no real relationship to their value to this hiring organization. The only thing that would be worse for recruiters would be a requirement to exclude race, gender and age in resumes submitted for screening protocols short of personal interviews.

Society could benefit by the enhanced opportunities for nondiscriminatory hiring and pay equity that would open up if irrelevant factors were prohibited from scrutiny by prospective employers. Then "diamonds in the rough" would be discovered at an unprecedented pace. Job seekers who would have been passed over could rise through the screening process as their knowledge, skills and abilities justify.  For the first time, candidates would be permitted to compete on their merits alone, without regard for the size of their prior paychecks. Compensation professionals could supply more flexibility in job pay classification and entry rates, too, as employers learn the true full range of talent qualified for their work. Hiring offers will become more variable and creative, rather than rigid. It would mean more work but better results for employment reps whose hiring managers who could improve their talent acquisitions.

Historical pay discrimination is perpetuated when past pay sets future pay. Systemic discrimination will continue forever until the apparently neutral practices that have disparate negative impact on protected classes are ended. If applicants were not required to reveal prior salaries, they would be less likely to be unfairly eliminated as candidates.

Prospective employers currently demand past income history from job-seekers while frequently withholding any details about the relevant pay range they offer. Why waste their time and yours? Don't ask what they used to make.  Just tell them the entry rate. Applicants could then freely decide whether to pursue the opportunity or not.

If human resource professionals can't come up with a valid reason for keeping prior pay as a sorting tool, it should be banned as inappropriately prejudicial ... and probably will be.

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.

Cafe Classic: Enthusiasm Can Trump the Details

Editor's Note: Dan Walter provides a Classic reminder that if we aren't excited about the compensation plans we create, little chance anyone else will be either - no matter how flashy our colorful newsletters or powerpoint presentations.

We discuss communication a lot here at the Compensation Café. We know that if people do not understand their compensation they are unlikely to be attracted, motivated or retained by it. But, recently I was reminded of a simple lesson that is often missed in the rush of deliverables and priorities. When you’re enthusiastic about something people listen.

I went to dinner with some colleagues two nights in a row. The first night our server was effective, but sullen. We talked more about why she seemed upset than we did about our food. Everything was delivered in a timely fashion. The food tasted fine. I cannot remember what I ate. The second night our server was effusive and bubbly. She described the food in ways that made me want to order far for than I could eat (which I did). She not only used adjectives like marvelous and amazing, it felt like she really meant them.

As our group discussed different items on the menu we also used more excited language. We talked about the lamb bolognese and branzeno and compared the trumpet mushrooms to the brussel sprouts. In the end we even placed one order for a halibut cheek appetizer, based solely on the servers passionate recommendation (“I wait all year for the chef to put these back on the menu!”)

Most of the people at the table were involved in compensation (I lead an exciting life) and this meal got us talking about compensation presentations. New plan rollouts, discussions about benefits and meetings about performance results can all use a little joy. We often get bogged down explaining the details and miss the point. If people are excited and interested they will often explore the details on their own and come back with important questions. If we can’t muster up the enthusiasm to engage people at the very beginning of the process how can we ever expect them to be engaged in the future?

Before your next meeting with a group, or even an individual, ask yourself if you would be more interested after the discussion than at the start. If not, it may be time to change your approach. Just remember than a little enthusiasm isn't really enthusiasm. As our server showed us, if you embrace the concept you may be able to get people to try things they would have never otherwise imagined.

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. Dan is also a leading expert on equity compensation issues and has written several industry resources including the one-of-a-kind Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.