Compensation Cafe

Cafe Classic: The Break-Up - When Staffing and Compensation Practices Split

Editor's Note:  In this labor market, attracting and keeping the right talent depends on Staffing and Compensation working in sync.  What happens when they don't?  

What can you do when your compensation survey data is wrong?  When you create ranges at market median pay levels, but you are bleeding talent as competing offers for prospective and current employees come in well above your range maximums?

I hear this question at increasingly regular intervals.  Often as not, there is nothing wrong with the data per se -- assuming you are using credible, quality survey sources.  The problem often lies with your choice and use of data, and the fact that staffing and compensation practitioners no longer have a common understanding of what constitutes your talent pool.  And so when tension erupts between staffing and compensation, when each is seen as an obstacle to the other's success, I often find that there is a disconnect in their visions of the type of talent their practices are meant to attract and retain.

Let me share a few examples.

Your company has traditionally competed for technical talent in a mostly local labor pool.  As your strategy moves the business in new directions, you suddenly face the need to draw talent from the tech sector and from across the country.  Do your market benchmarking practices reflect this shift?

As a manufacturer, your company has historically drawn talent from your own industry.  Increasingly, however, because of the similarities in operational challenges, you are finding that some of the best candidates for key operations positions are coming from a particular sector of the energy industry -- a sector that pays at a significantly higher level.  Is there a need for different survey sources to benchmark pay practices in this sector?

Software engineers represent critical talent for your company.  You set pay levels for this job family using survey data for the general classification "software engineer."  The position, however, demands experience and expertise in a highly specialized sub-field of software engineering, requiring your staffing compatriots to find and entice the proverbial "needle in the haystack."  And plenty of other employers are chasing this hard-to-find skillset.  Will you be able to attract and retain them with the ranges your benchmarking choices have created?

Your company runs "fast, lean and mean."  Which is another way of saying that there isn't a lot of management support.  As a result, there is little assistance and a very short runway for new employees in key professional and managerial jobs to ramp up in their responsibilities.  Consequently, you have migrated to a preference for staffing these positions with very experienced people -- far more seasoned and credentialed than the "qualifications" stated in the job descriptions would suggest.  Does the benchmarking underlying your ranges allow this practice to succeed?  Should it?

What we are facing in these cases is not so much bad compensation survey data as data that is "divorced" from the reality of our staffing needs and practices.  The solution, of course, is to get staffing and compensation practices in alignment.  That requires not only effort to clearly identify where the disconnects lie but also to get agreement from the right people on where staffing and compensation must intersect.

And, not to dodge responsibility here, but this isn't always the fault of staffing and compensation professionals.  Sometimes organizational leaders create the disconnect (or allow it to continue) by setting an incompatible set of expectations.  They want the Silicon Valley high tech talent for the local general industry price.  Then our job becomes one of information gathering and education.  

There are other stories and examples of staffing and compensation break-ups out there.  Let's hear yours!

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.

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Where's the Fun in our Compensation Jobs?

We really don't spend much time studying the emotions we feel as we practice compensation. But I think that looking more closely can only make our work more satisfying. In the long run, chasing these insights will make us more aware of our own career satisfaction, and incorporating them into our decision making may lead to a shift in what we prize and prioritize for our career.

Some people find compensation basics boring -- job analysis, job definition, job pricing using surveys and so on.

But I think many more find it quite fulfilling. Even though there is no "correct" answer, organizing information and using survey data is a process of analysis and synthesis that is bound to feel rewarding if you pay attention.

In addition to these gratifying mind games, there are other dimensions that happen to touch on emotions. Have you considered the role your work has played in the employees' career? Once you've done a good job on job pricing, the employee has a solid foundation for all sorts of things that are crucial to their professional satisfaction: job title, eligibility for incentives, benefits coverage, access to training and so on.

In a way, you were appointed the employee's mentor during the first days of their career with your company, and you used your experience to create a work environment for the employee. It's quite an achievement, and some of our colleagues derive a lot of pleasure from looking at our work this way.

And how about one more technicality that we should celebrate -- meeting the budget. No small achievement in that a working budget is evidence that your insights plus financial skills are solid. Who said working with numbers is dry?

What about fun? Where does that EVER come in? You may have noticed that this type of pleasure is rarely experienced alone. I'd suggest that there's a lot of fun to be experienced by adjusting the singular priority of "All numbers, all the time" to "Are we making this work?"

Compensation success isn't holed up in the HR office, it's live tested out there between managers and employees. When you act as a coach for a manager or supervisor, answering their questions and building their confidence, isn't that pleasing -- especially when you think about how far into the future your work will pay off? Plus, there's always the intellectual stimulation of engaging managers when it comes to tricky topics like promotions or performance levels.

For me, the best fun is working on career development projects. With them, I feel like I am looking forward to a promising future for all employees. I get to interact with managers and employees on a topic that is very important to them. And when it's all over, I know I've fulfilled the hopes of many ambitious contributors to the company's future, as well as alerted the less savvy to new opportunities.

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.

Cafe Classic: Executive Pay Can’t Be Fixed! But….Here Are 3 Things To Consider

Editor's Note: Dan Walter shares some Classic insights and advice for those in search of the silver bullet that will right all the wrongs of executive pay.

Several times a year, I see articles and presentations discussing how to “fix executive compensation”. This presumes that executive compensation is some sort of monolithic thing. In fact, executive compensation is simply a topic linked to a wide range of purposes, data, facts and opinions. You can no more fix executive compensation than you can fix sports or music. It is simply too broad and varied for any fix or fixes to apply universally.

Executive pay is effective and problematic because every company and executive is different. Yet, somehow, every magical fix for executive compensation includes a set of rules that will work for the tens of thousands of unique companies and individuals that will be impacted. Let’s set the facts down clearly. No one “solution” will work for the majority of companies. There is no “silver bullet”. Heck, there isn’t even a box of silver bullets that can fix executive pay. So, if executive pay is broken, but it can’t be fixed, what should we do?

1) The secret is there is no secret.

Focus on you. There is no special sauce that will fix executive compensation. No secret formula, no wish upon a star. The only way executive compensation can be fixed is for each and every company to understand their business strategy and how their compensation philosophy and programs can support the delivery of that strategy.

2) It’s not only about how much is paid or how it is delivered, it’s about both.

In an attempt to gain instant acceptance from the compensation community, academics, consultants, shareholders, politicians and the media frequently frame their “solutions” as either being about the volume of pay or the structure of pay. Any credible compensation professional will admit that any solution must deal with both (and many other things). Any solution that claims it can fix things on one side without impact to the other, simply doesn’t understand the complexity of compensation.

3) The solutions provided are usually solving THEIR problems, not yours.

Until Copernicus, it was generally believed that the sun revolved around the Earth. People saw the world from their perspective and created an answer that met their expectations. Executive compensation is similar. When you see an article discussing fixing pay, you probably read the first paragraph and decide if you can relate to the writer’s point of view. You won’t read much farther if you determine they don’t understand your issues.

Each company must do their best to look at executive compensation from two perspectives. First, from their unique internal perspective with the personalities, idiosyncrasies, politics and budgets that comes along with that. Second, look at it from a global perspective. This is harder since you must step back from the problem far enough to see the issue from everyone else’s perspective. You may also need to make decisions on who needs to be marginalized, or even ignored, to meet your current goals. As long as you have considered everything thoroughly, you will have a reasonable defense (or offense) for the decisions you make.

There is no “fix” to executive compensation that isn’t specific and unique to each company. Like any compromise, a good solution will leave every party a little less than 100% happy. If any stakeholder is perfectly happy, it means that another was probably too marginalized, or simply ignored, in the final solution. As every compensation professional knows, it’s never about one thing, it always about everything.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He has three metaphors for every occasion and is a leading expert on incentive plan and equity compensation issues. He has written several industry resources including the only resource dedicated to 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.

When Global Standards Becomes a "Catchphrase"

. . . . When a phrase or expression is recognized by its repeated utterance

As U.S. based organizations grow and begin to spread their wings overseas, they will find themselves having to deal with local employee populations in a diversity of countries.  For most, the first steps taken would likely involve initially a small number of employees, though questions of how to integrate these new employees will quickly become a challenge.

Note: if you suddenly acquire a business with a large employee footprint the concerns raised below will be staring you in the face from the start of the due diligence process.

Why the challenge?  Not every U.S. organization deals with foreigners well, because they’re viewed as different.  Because those differences create a layer of administrative, policy and procedural difficulty that the U.S headquarters hasn’t experienced before.  And which they may wish to avoid, if possible.  One of the last vestiges of consolidated Human Resource practices that would be given up is the effort to instill policies and practices that mirror activities and attitudes at home in the U.S. - because they work here.  Because we're comfortable with what we know.

And because we don't know any better. We don’t know what we don’t know about Human Resources on the international stage.

That ignorance can hurt you the longer you fail to deal with it.

Why So Different?

Here are a few of the basic country-specific elements that you would be dealing with while sitting in your U.S. office:

• Inflation: Higher or lower than the U.S., and is it stable or subject to fluctuation?
• Unemployment: What does the labor market look like; how available are qualified candidates?
• Labor laws: Do the country employment laws favor employees or the employer? Some countries are more difficult for Human Resources policies, practices, and legislation.
• Average pay increase: What are current and projected pay practices that you would be expected to adhere to?
• Health of economy: Does the environment present a robust economy, pockets of success/failure or an economic climate on a downward slope?
• Competitiveness: Are you paying below, even with or above market rates?  Do you know?
• Holidays and vacations: The U.S. is notoriously conservative with PTO. You should know the local common practice.
• Statutory requirements: Overseas a great of total reward provisions are mandated by the state, for which you will receive no credit for providing. Know where you’re granting only minimum coverage.
• Representation: Works Councils, unions and similar employee representative groups (national and local) are more common overseas than in the U.S., and the restrictions they can place on your freedom of action could be a real eye-opener.

The Cookie-Cutter Doesn’t Work

Trying to overlay country-specific issues with a global, everyone-does-it-the-same-way strategy (typically based on U.S. practice) creates problems in every country where the “answer” doesn’t fit.

• One client based international benefit coverage on U.S. practice and included USD language in the coverage
• U.S. based incentive programs do not account for the “guaranteed” portion often found within international programs
• Another organization wanted a standard global annual merit spend percentage (2%), while subordinate country practices varied from 0.5% to 12%.
• “What is that in USD?” is a common mistake in trying to equate rewards across borders
• The U.S has a “Live to work” attitude, while overseas it’s more “Work to live.”

There will also be pressure to “globalize” reward programs, which is a good thing for a balanced and fair treatment of all employees.  But what that becomes “standardization” can in practice transform into a cookie-cutter strategy that supplants country-specific realities with a corporate mandate. This is especially true when the employee footprint is small.

Employees in countries adversely affected by standardization will grow resentful, feeling as if they’re being treated as second class employees – an afterthought.  From that perception, it’s a short step to reduced morale and higher turnover. Which may be coupled with increased difficulty in recruiting necessary talent.

An organization’s growth can be traced from domestic U.S operations to domestic policies/practices with international operations (U.S. based) to a truly global organization, where individual countries are treated as separate entities for Human Resource operations.

It is not an easy path to take, but one that will effectively and efficiently acknowledge and empower local HR operations in support of the success of each country’s business.  

Chuck Csizmar CCP is the 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.

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Cafe Classic: Rethinking Compensation Training

Editor's Note: Is your manager training on compensation failing to get the job done?  Read on, for some Classic advice from Margaret O'Hanlon.

The inadequacy or ineffectiveness of manager training is a concern for most of us -- and if it's not, it probably should be. In Towers Watson's Change and Communications ROI Study, for example, 69% of companies that were labelled "low communication effectiveness" trained managers how to support the organization's vision and values through their actions -- but only 19% of those companies reported that their training was effective. (Yikes! What an opportunity for improvement.)

Since many of those working in the compensation business would rank our companies similarly when it comes to compensation training for managers, I thought I'd share a piece I just ran into on the McKinsey Quarterly aptly titled, "Why leadership-development programs fail."

Now, before you tell me manager training and executive development are two entirely different animals and you don't need to read on, let me assure you that McKinsey has given us a few nuggets to learn from. And I feel I can stand confident on this, since sometime earlier in the wayback machine, I got a few graduate degrees in adult learning.

One more thing that I want to make clear. I believe that managers who talk with employees about their performance, pay and career need to be doing so in the framework of their organization's vision and values -- don't you? After all, that's what all the work that we've been doing on pay-for-performance and total rewards strategy is meant to accomplish.

Here's a look at a few ways compensation training could become far more effective.

Avoid the one-size-fits-all training mindset if you actually want behaviors to change

Most of our training programs assume that the same set of skills will serve all managers. But that ignores the training goal of improving both the business and the managers' business skills. The McKinsey research indicates that   ' . . . the best programs explicitly tailor a "from-to" path for each participant.' 

In our world of performance management and compensation, each department or division has different employee performance and talent management demands. The from-to path that compensation training addresses should be tailored accordingly. After all, you don't talk with research scientists about compensation the same way that you talk with business operations managers. Nor do you coach employees to meet research deadlines the same way you coach employees who need to find new ways to acquire customers. Preparing managers to build business literacy and manage performance for these two employee groups should involve training customized to the business and talent demands they are facing.

Make every major project a manager-development opportunity

Who says that compensation training has to happen in a meeting room in front of PowerPoint? Why not take a pressing business issue -- staffing up, staffing down, introducing a new product, reducing margins -- and turn it into a talent management case study? Work together on how to define the new behaviors you need from employees, how to talk with them, how to measure their performance, how to talk about incentives. If it were done well, don't you think managers might be relieved to get the help?  (And notice how much more impact Compensation or HR could have as a business partner?)

Don't understimate mind-sets

We're all very savvy about what we can expect from one department or another. We shouldn't be surprised, then, if our training has little impact unless we get managers out of their comfort zone. (They have mind-sets and so do we.) Instead of presenting, listen to the way managers think about reward and recognition. Assess whether their behaviors or values are helping them manage performance or creating obstacles. Then make it possible to have deeper discussions that involve their peers, not just an HR facilitator.

Figure out how to measure results

I'm not talking about training evaluations, that's not worth our time. But the type of training described here should have some business impact, and that can be monitored. One of the great suggestions in the McKinsey Quarterly article is to monitor participants' career development after the training. Is their department functioning better because of improved leadership? How many of those who go through the training become "high potential" and so on. (And, how many of their employees do, too?)

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.

This Isn’t Jeopardy. Using Loss Aversion to Your Benefit

A recent Inc.com article analyzed what makes the three grand champions of the game show Jeopardy so special. The article boils down the things that make these champions the best. The quick list includes: Physical Skills (you’ve gotta push that button fast.) Strategy. Mental Approach. Success. All of these are hallmarks of great executives and leaders, but the details on the mental approach caught my eye.

The author suggests that the top players have figured out how to avoid or ignore, the effects of loss aversion. Loss aversion is the human tendency to apply higher value to things they have than things they might have. Basically it is the reason a bird in the hand is better than two in the bush. It’s also why many people will give up a chance for equity upside for immediate cash payment. That’s great if your company has a pile of cash lying around, but what if you don’t?

Restricted Stock is the OG* of equity compensation. It is a fairly simple tool, with incredible power to deliver results when other forms of equity may fail you. It is fundamentally different than its full-value cousin RSU. It is nearly the opposite of a stock option. With restricted stock you become an owner on day one. The company keeps the right to force the return of your shares until some type of time or performance-based vesting.

The key is real and immediate ownership.

For many people, real ownership that must vest has the same value as units that must vest. Economically the tools are very similar at a base level. They both have a big role in total rewards strategy, and one should not be completely shunned in lieu of the other.

Restricted stock is a great tool when you are looking for people to make smart, compliant decisions. They own real shares and those shares have a real value. If the company pays a dividend, they will almost always get paid a dividend. If the company’s stock is bought by an acquiring company, they almost always get to participate. Most importantly is it can lead to loss aversion.

Loss aversion is something you probably want to be careful about when you are an early-stage company looking for extreme growth. Alternately, it can be a safe haven for companies with a more conservative outlook, or those going through troubled times. The palpable feeling of having something you “own” taken away by the company you are leaving can be far different than the annoying “forfeiture” of a virtual unit or an underwater stock option.

Restricted also has other unique benefits. It is exempt from 409A. It allows for tax planning via an 83(B) election. It is something that you can sell, at full value or a discount. It generally has less esoteric features than other kinds of equity compensation. It may be time to refamiliarize yourself with this old school tool.

If you are looking for something to get executives focused on the bottom line (rather than always focusing on the top line) throwing a bit of restricted stock into your pay mix may be just the loss aversion strategy you need.

*OG – Original Gangster for those of you not as cool as me.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He has three metaphors for every occasion and is a leading expert on incentive plan and equity compensation issues. He has written several industry resources including the only resource dedicated to 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: The Micro and Macro of Compensation

Editor's Note:  Are we seeing the big picture in getting snarled up in the (often more familiar) details?  Jacque Vilet brings some perspective and advice to help us avoid this Classic pitfall.

“Ignoring the whole to get to the point many times can cause one to miss the point.”  --- Unknown

Let me tell you a story. When I was just starting out in “international” HR I made a trip with my manager to Japan. (Keep in mind that I was a cultural neophyte.)  

In a discussion with the Japanese HR Manager I asked him a question.  He talked and talked and from my perspective nothing he said had anything to do with my question.   Finally he stopped and I looked at him and said, “So what’s your point?”   I immediately felt my manager’s shoe gently (?) pressing down on my foot and knew I had committed a faux pas.

My story illustrates one of the key differences between the cultural norms of East Asia and the West. Eastern Asian cultures tend to think holistically, seeing an entire situation and how its parts are connected. In contrast, Western cultures tend to think specifically, removing a subject from its environment and analyzing it as a single entity separate from the whole.

My question to the Japanese HR manager had focused on an issue specifically.  He, in turn, was providing background context holistically.

OK now hang on because I’m going to make a big leap.  What if we think about our company’s business representing the macro level --- subject to all the contextual issues in the world of business.  Issues such as external environmental impacts, financial turmoil, globalization, political upheaval, etc.  And HR/Compensation representing the micro level?   Meaning, do we as Compensation pros really stop and consider our decisions in context --- or do we make decisions based solely on our Compensation theories, rules, best practices, etc. at the micro level?

We’ve all heard/read more than we want to about how HR/Compensation pros need more business acumen.   I believe it means not just taking a course in Accounting or Finance.  It’s not just learning how to calculate the ROI of HR programs.  It’s not just about applying metrics.  It’s broader in context.   It means understanding the company’s business.  Sounds so fundamental doesn’t it?

HR/Compensation pros need to check their mind-set. The key question is not "does the rest of the business ‘get us' --- it’s do we ‘get the business’ ”?

As far as Compensation goes, it doesn’t mean:

•giving managers Comp 101 responses to their questions
•doing a “cracking good” analysis of a compensation problem and then making a decision based on that alone --- without taking a broader look at how that affects the business 
•designing an incentive plan that’s a “work of art” and that makes us positively giddy, but not checking to see if really makes sense for the company
•refusing to bend “the rules” when business reality says we need to
•identifying the risks we don’t want to take --- it’s about identifying the risks we need  to take. --- just like all the other company functions do

Ed Holton says it best:

"As disappointing as it may seem to some, HR(Comp) is just a means to an end.  So is Sales, Marketing, Engineering, Manufacturing, etc.   The real end goal is to make the company more successful.  The only tools and tactics we should be implementing are those that drive the company toward its strategic goals.”

So let’s make sure we are looking at the “whole” --- looking at things in context --- before we get to the “point.”  Or . . .  we may just miss “the point.”

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, Texas Instruments and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology plus an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.

CEOs Still Cool to HR as Strategic Partner

Yep, this became an issue at least ten years ago. The thing is, CEOs still have misgivings about HR's ability to design and execute a strategic talent strategy, according to McKinsey's research. The recent findings target "senior HR individuals who counsel managers on talent issues." While there are many different HR titles that fit in this umbrella description, one thing is certain, they mean you. After all, those who handle compensation influence most talent strategy components including recruiting, performance management, development and staffing. 

Why is HR's ability still in question? The reality is, most HR people have to administer something, and the tight staffing levels in HR just force that reality. Also, even if we introduce a new, strategic solution, that program needs to be implemented. This involves many time-sucking activities that executives see as administrative -- planning, scheduling, meetings, emails and so on -- in spite of the fact that they are in service of that strategic solution. Apparently the executives are either not aware or not impressed with the scope of the strategic design needed to visualize and execute new programs, they just notice the lengthy set of implementation steps.

That's not to say that CEOs are wrong. Apparently we are neither available enough nor able to clearly and crisply deliver the talent management value that the CEO is expecting. I think timing is everything here, with HR neither asked to participate in, nor often available for, the kinds of conversations that address the future. Our eyes tend to focus on fixing today's pot holes unless invited to do otherwise (notice the word "invited," chosen because we don't often brazenly position ourselves as change leaders). And we also don't have much practice in earning the role often described as "trusted day-to-day advisor," either.

In other words, we have to stop waiting to be invited to the table, and (and literally learn how to) step out with much more confidence in our ability to develop and hold these more strategic roles.

What can we do to break the stalemate and make some progress? Here are some recommendations from me and from McKinsey. Don't worry about finding the best time to get started. It's always a good time to do something dramatic to improve HR's communication with the CEO, which will lead to increased regard for HR's role in driving strategic value.

Become expert at the strategic plan. Most companies have three- or five-year plans. It may take some negotiating, but get HR a copy of it -- or because it is often kept under wraps, ask to review the presentation of findings in a confidential setting. If you get nowhere with those steps, ask one of the C-suite to take you through it. Keep at it until you find a way in. Reality is, HR cannot help achieve it if we don't know what it is!

Adjust a key HR position, eliminating its operational responsibilities. This is a crucial move, but only feasible if the change leads to an active role on the leadership team -- either of the company or a division (in bigger companies).

Become involved in recruiting and interviewing key executives as well as other strategic appointments. In this case, your interview questions should address their views on building talent value. Because of the interviews, you will be in a position to a) team up with these new hires when they are staffed and b) act as an advisor to the hiring committee, helping them focus on a candidate's fit for the next few years, not just the current week.

Create an HR pipeline of strategic talent advisors. The key is to grow HR practitioners who can blend talent, business and financial experience to provide ideas and counsel to executives. Compensation, of course, is in a better position than most of HR to develop financial insights. Since this ability is not common in HR staffers, anyone who shows promise should be encouraged, trained and optimally staffed to assignments where their ability to provide insight can be developed.

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.

Cafe Classic: Excessive Overpayment vs. the Real Solution

Editor's Note:  A Classic challenge that many readers have faced:  The urge of leaders to resist any fact-finding efforts and simply "buy" their way out of morale and turnover problems that have little to do with money (although who is going to say no?) and often lots to do with poor structure, stupid policies and toxic management practices.  Jim Brennan provides a good primer.

Excessive compensation is one of the most popular options used to persuade people to stay in terrible jobs.  Rather than redesign the function or improve the support system to make the work more palatable, it is much easier to just offer fantastic pay.  More money is often seen as a universal cure for all ills, even though it may be the wrong solution. 

The fixation on cash as the consistant culprit is a cop-out.  It conveniently transfers responsibility for the issue from operational managers to the compensation specialists.  Assuming that a problem can be solved with money proposes a quick solution by payroll action before fully investigating the cause of the problem.  Jumping straight to prescription without ever entering the diagnostic phase is a recipe for disaster, but it offers the extra advantage of essentially changing the way the challenge is viewed:  if can be solved by money, it is not a management question but simply an expense cost item. 

When morale is low or turnover is high, granting big money might make a difference.  Or it might not.  Of course, the amount of remuneration is usually not a long term solution to any problem, but no one will turn it down.  Besides, attributing the issue to low pay suggests that a quick fix is possible.

Whenever turnover becomes a problem, someone always immediately concludes everyone needs more money. The continuous popularity of that frequently misguided approach fix shows up all the time. 

Best example of that inappropriate attribution situation was many years ago at the highest paying software department in Southern California.  Outside consultants were brought in to solve their continual IT turnover issue by finding the right pay level.  But the problem was not turnover, it was the manager. 

The IT head didn't do COBOL, FORTRAN, C+ or any other "modern" software languages of that era; but he was a long-time close friend of the CEO.  Backed by that power, he  bribed overqualified MIS PhDs to program in early Autocode, which he did know quite well.  That ancient computer language preceded machine assembly language and was so antiquated that these highly paid experts lined up outside the managers office every morning for help as they struggled to reconvert modern operating programs into ancient formats the manager understood.  The job was so frustrating that immense sums were required to hire and retain these experts.  Heightened qualifications were required to support the high salaries; and the more qualified the personnel, the more they earned even as they resented the waste of their highly developed credentials.  The exasperated programmers confidentially vented to the consultants that they knew they would have to take a pay cut to go anywhere else, but the situation was professionally frustrating.  Eventually each would reach the point where they finally quit before their advanced skills atrophied too much for other employment elsewhere.

The consultants immediately interviewed every employee in the department and followed up on recent quits so they could produce an undeniable consensus report where all source identities could remain anonymous.  Simultaneous technical audits and comprehensive pay surveys were also conducted, to confirm and document facts for a recommendation that could withstand CEO opposition.  Any report criticizing the chairman's poker buddy had to be bullet-proof.  

The solution was to replace the IT head with a competent MIS manager.  The consultants were fired, of course, because they uncovered an unwelcome truth. 

Watch out for those who  prescribe a fix without even doing a diagnosis and make lots of assumptions as they rush to judgment.  It’s impossible to close pay gaps that don’t exist.  Sometimes the gap is in our understanding, instead.

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.

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Are Your Reward Programs Your Own?

This may sound like an odd question to ask compensation practitioners, but some organizations have actually passed the buck to outsiders when it comes to developing and communicating their reward programs.

Several times during my career I have come across organizations that publicly referred to their “Hay Grades” or their “Mercer salary ranges” when communicating to employees.  Picture the compensation practitioner throwing their hands up when challenged, and stating “Hey, it wasn’t me.  Hay/Mercer/Towers etc. made that call.  But I’ll ask them.”  It’s like driving a rental car; you get to go where you want to go, but you don’t own the vehicle.  It’s a rental.

One client compensation leader I was introduced to had their consultants on speed dial in order to get questions answered.

These were not small companies.  One example was a €3B multimedia company in Europe.  So, it happens.

Finger Pointing

Talk about being risk-averse!  These organizations were content to pass the responsibility to paid outsiders for explaining to employees how company reward programs were designed, implemented and communicated.  No internal blame here.  Those outside guys (picture the wagging finger) did it.

What typically happens is that the consultant(s) is asked to research the competitive market and make recommendations.  These recommendations would include average market pay levels, the assignment of pay grades for jobs and the determination of pay ranges (minimum to maximum values).  All fine and good so far, as these are the types of projects I (consultant) regularly work on.  The problem occurs when the client accepts the recommendations without proper review or challenge.  It is what they say it is.  The market data becomes the Hay data, the grade assignments become fixed by Mercer and the pay ranges are set by Towers.  Meanwhile, the compensation practitioners who should own this process are sitting on the sideline, munching popcorn.

It’s at this point that the practitioners compound the error by assuming the recommended pay programs are 100% proper and they readily admit where the components of the program(s) came from.  After all, someone else did the work and all the insiders did was to blindly sign off on all the pieces.

Granted, there’s a comfort here in not having to face the traditional criticism that every effective compensation practitioner – at whatever level – must deal with.  And the consultants don’t mind saying NO to anyone, except perhaps those paying their invoices.  And they don’t mind the ongoing billable hours.

Chances are though, that if you asked senior management, the top of the house wouldn’t be aware of this buck-passing.  Instead, they would be expecting that their professional staff has taken accountability and responsibility (ownership) for developing the company’s reward programs.

Responsibility

I don’t suppose that I need to remind readers that, at some point compensation practitioners need to take eventual responsibility for their reward programs, raise their hand and admit, “Yes, I did that.  It was my call.”

Consultants, when used properly, can be a great source of information and recommendations.  But their role should stop at the decision line.

I always tell my clients that ultimately all decisions are theirs, whether it be individual pay levels, or grade assignments or even what the salary ranges should look like.  I can show them the landscape, suggest options and show them the likely outcome of their decisions, but that’s it.  The decisions should remain with the employee practitioner.  It’s their responsibility.

Consultants will have a difficult time factoring in subjective considerations like culture, management biases, past practices, and even politics into their recommendations.  To my mind, a compensation program should make sense for the organization I’m advising.  Not for my last client, or even my next.  This leaves open the opportunity, even desirability of doing things a little differently than the market, or as the consultants have suggested.

So, stand up and make your mark within your organization. Take some ownership and responsibility. While it’s perfectly reasonable to use consultants to provide you objective data and advice on how to use that data, it remains your JOB to decide what the next steps are.

Admitting to having Hay grades or Mercer pay ranges simply tells the world that you didn’t do your job.

Someone will eventually ask, “What are we paying you for?”

Chuck Csizmar CCP is the 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.

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