Compensation Cafe

Cafe Classic: Life Cycles and Compensation

Editor's Note: This Classic post by Jacque Vilet features a key lesson on how organizational life cycle affects (or should) reward strategy and pay plan design.  Pay attention particularly if and when you're making a move (whether business unit to business unit or company to company) that places you in a different life cycle stage.

Life cycles exist everywhere.

Example: Countries have life cycles. Compare a developed country (U.S.) with an emerging country (Indonesia).   Products also experience life cycles.   Remember Atari?  Beanie Babies?  Pez?

Companies go through life cycles as well.  These cycles have stages:  start up, growth, maturity and decline.  Compensation programs need to adapt to these different stages as companies grow and evolve. For example, compensation plans needed for start-ups are very different compared to those needed for mature companies.

Let’s see how the various stages impact compensation.  

Start-Up

Company:  In this stage companies build capital and start developing their products or services. Much attention is focused on product demand and markets.  Each person wears many hats and there is a strong team orientation.

Compensation:  Salaries are limited as companies are not flush with cash.  People attracted to start-ups don’t usually come for a large salary.  They’re there for the adrenalin rush and for a potentially large payout when the company goes public.  There is no formal compensation program. Decisions on compensation-related issues are handled in a discretionary manner.  Equity is the elephant in the room.  Almost everyone has the promise of making it big time when the company goes public.

Growth

Company:  Companies experience explosive growth and begin building their support structure --- including employees --- as business opportunities are outpacing resources. Company revenues grow rapidly.  It is common to hire over-qualified outsiders for management positions --- specifically to take the company forward. Founders may decide to go public due to the need for more funds to take advantage of all the available growth opportunities.

Compensation:  There a rapid growth in the number of employees.  Hiring bonuses for  key talent may be used to keep the fixed cost of salaries down.  Informal bonus-type programs are based mostly on company profits. Not everyone will get stock at this stage --- mostly key talent.  Benefit plans are usually basic.

Maturity

Company:  A large amount of assets has been accrued and companies are well established in the market. They’re cash cows and have a large market share. They may gradually experience slower growth if products stagnate. In order to avoid decline, they may decide to diversify by acquiring other companies and/or creating new product lines.

Compensation:   Formal compensation programs are put in place including merit pay systems, job descriptions/grades, bonus plans with formal metrics and a full complement of benefits.  Employees in fast growing business units and those in critical positions may be paid at higher levels than those in units with minimal growth.  Stock eligibility is based on line of sight with higher levels given more options.

Decline

Company:  If efforts to re-charge the business fail, companies will decline or go out of business entirely.  Company sales, profit, product demand and hiring dramatically slow.  They can no longer afford to invest in the business.  Unprofitable business units are terminated.  A key focus is on cutting costs.

Compensation:  Compensation plans may be terminated --- profit-sharing, defined contribution retirement plans and all but basic benefits such as medical.  Layoffs are common with severance plans progressing from generous to bare bones.   Key people may be given retention bonuses for two reasons: 1) an effort to turn the company around or 2) to help maintain the company until a buyer can be found or to help with the company shut down.

Companies are always somewhere on the life cycle continuum, and  success depends on recognizing which stage they’re in and adopting strategies that best fit each stage.   The same goes for compensation.  Compensation professionals owe it to their companies to ensure programs are in sync at each stage.  To insist on keeping a full-fledged compensation program in a decline stage is as inappropriate as not including equity in a start-up stage.

Compensation professionals have a responsibility to recognize their companies’ life cycle stage and adapt programs accordingly.  Instead of keeping their eyes down on spreadsheets and clinging to best practices --- they need to look up and figure out how best to support their companies.

Capiche?

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.

COVID, Mission Critical Skills, the Haves and the Have Nots

It can be, in my experience, a tough-to-swallow fact that not all skill sets are equal in the eyes of the labor market.

It may not be a happy reality, it may not seem "fair" to some, but it's a reality we have to acknowledge and navigate through in defining and executing on our reward strategies.  Organizational success in our fast moving, knowledge based, technology driven and disruptive world will require and become more dependent on certain types of human talent and competencies.  Those who invest in attaining and developing those capabilities will command a premium price for their skills.

Related to this is a concept that is pushing to the forefront of base salary management.  It is the idea that base salary decisions can no longer hang simply on the traditional merit matrix variables of individual performance and position in range, but must increasingly reflect the need to invest in talent that is critical to the success of the organization's mission.

My discussions on the concept of mission critical skill in presentations and client meetings usually generate a lot of questions.  Some of these focus on the approach and process for figuring out which skills are critical for a particular organization; others reflect concern about the impact of this delineation on the workforce.  What about the "have nots" who still do important work for the organization?  Won't they be demotivated to learn they've been excluded from a category defined as "mission critical"?

I think this is an important talent management question going forward, particularly in the wake of our collective COVID experience.  The market is going to keep doing what the market does: acting as our arena of exchange where supply and demand work to drive up the price of skills and competencies that are the most critical to the most organizations.  We must figure out how best to respond to this from the standpoint of our organizations' talent needs, but we must do so in a truthful, forward-thinking and compassionate manner.

I believe we owe our employees an education in how the talent marketplace works, and the impact it has on compensation practices and opportunities.  Employees need this information and understanding to make the best possible decisions about their own careers and livelihoods. 

But more than that - wouldn't it be in everyone's best interest if we took it a step further?

What if we not only identified and tracked the skills and competencies critical to our organizations - today and into the future, but also communicated this regularly to our employees?  What if we regularly shared specific information on the kinds of education and certification steps it would take for employees to retool in these areas?  What if we tailored our tuition reimbursement and even flexible work options to support an employee's pursuit of these credentials?  Offered internal apprenticeship or mentoring connections to help them along that path? And made this a part of every performance management discussion?

This so that every employee who complains about the unfairness of not having and being paid for mission critical skills could be pointed to a coordinated set of resources to help them make the necessary investment in themselves to get there.

Wouldn't that, in fact, be a very smart investment for the employer as well?

I'm certain that there are forward-thinking organizations out there already on the cutting edge of this practice.  We'd all love to hear from and about them!

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.

I'm With Stupid

I suspect that you’ve heard this phrase before. Probably you’ve seen the phrase emblazoned across colorful t-shirts, and usually worn by one or other of a couple. It suggests to those passing by that the wearer is “ok,” but that the other person within that couple is . . not. In fact, the phrase says it all about what you should think about the other person in this couple.

How would you feel if you were that other person? Or if you felt like you were treated like them?

Towing the Company Line

If you are in management, you’re expected to follow the lead of senior leadership and support their agenda of policies, procedures and messaging. It’s part of your role as a member of the management team, no matter your level. And it’s what you had better do if you want a career with this employer.

Decisions are made at the top of the house and managers are expected to not only follow along, but to actively and visibly support those decisions when talking to employees. Often you may be the first person that your employees ask about new policies and procedures. You’re expected to agree with the plan (the memo that came down from 30,000 ft, full of vagueness, platitudes and confusion) and be the good soldier who will “make it happen.”

But what if, in your gut, you believe that the decision is wrong, that the impact may be harmful for employees or even goes against your core professional (or even personal) beliefs? What if you think the idea is stupid? Doomed to fail?  You can see the cliff ahead and you’re heading straight toward it.

How would that “towing the company line” work for you then?

Defending the Indefensible

I’ve been in that position more than once over the course of my career, and chances are you have too.  Or you will be at some point in your career. Defending the indefensible is like trying to sell 2 + 2 = 5.

Yes, you can argue the point with higher ups, but we all know how that usually ends.  But go ahead and try and see if you can soften the blow a bit. The endgame will always be the same; you will have to swallow a bitter pill, put on your game face, and try to sell snake oil potions to your employees.

Oh yes, and the employees will likely see straight through the “corporate speak” that you’re trying to persuade them isn’t bad news. However, they won’t buy what you’re selling, so how does that make you feel?

One year my employer mandated a 2% average merit spend for all its global operations. I was then responsible for European Compensation, where looking forward local competitive practice ranged from 0.5% to 12%. But I had to tell employees that everyone would be dealing with a 2% cap. Because that what was happening in the U.S. and my boss wanted a global standard. Which leads us to the hardest part of this sad story.  You see, management rarely helps support your challenge by providing a rational explanation for employees. You’re simply given orders with no effective story to tell.

You have no answers for the questions that you’ll be peppered with. You can’t tell the truth (bad idea, harmful to employees, creating more problems, etc.), so you’re stuck in an untenable position. All you can do is try to most of it by emphasizing whatever slivers of good or even neutral news that you can find.

In my case I asked, “How am I supposed to explain to the 12% country employees that their cap is going to be 2%?”  But I only received silence.  Talking about being out there on a limb, by yourself, with the branch already cracking!

So yes, sometimes the stupid one is your boss or senior leadership, but you don’t get to wear that silly t-shirt.  You just get to know that you feel that way. That all eyes will be on you, not on the higher ups.  That your credibility, reputation, and your staff morale will soon be under fire, though through no fault of your own.

Not that it matters.

The buck truly stops with you.  To do the best that you can.

Good luck out there.

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.

Creative Commons image "2008 Spa-Fr . . . .," by Dave Jenson

Cafe Classic: Develop Grow Achieve - 3 Tiers for P4P

Editor's Note: Three cheers for Dan Walter's cogent and Classic advice on how to make pay for performance more successful in your organization.

Pay for performance continues to rise. However, the failure of pay for performance is rising almost as fast. As the discussion about best practices continues, I thought I would provide a few thoughts about an approach that may work for your employees.

Usually the drive for pay for performance comes from the top of the company. “We need to have people be more productive.” “I don't want to have to pay people that much, unless they are REALLY doing a great job.” While these are valid concerns, we must be able to better define what people do that makes a company successful.

1. DEVELOP  In the early stages with your company, an employee needs to focus on development. They need to learn who your company is and how it does things. They need to fill the gaps in their professional knowledge with the things that make your company’s approach special and different. They need to build a foundation that can support them as they grow their career and excel at their job. Metrics for development can be tricky when looking for direct alignment to pay.

For these people the goal is to keep things simple. Identify a few key foundational elements that your best employees have told you are essential. Rather than focusing on the results of these elements, focus on people learning or growing these skills, talents or ideas. These are the kind of goals that work well for regular coaching sessions and a loose link to pay.

2. GROW  The bulk of your staff should be focused on growth. In broad terms we are usually talking about the growth of the business. In individual terms we should focus on those metrics that drive growth, rather than the end result of growth. Focusing on the drivers allows leaders to continue regular coaching. It is fine to include some aspect of the DEVELOP metrics for those newer to this level. And for those who have the potential to transition to more senior positions, you may consider adding a few ACHIEVE metrics so they can learn how to be accountable for results that may not be directly related to the work they do.

P4P for this group can be challenging, especially if a company is growing quickly. If you focus on the things that drive your company’s success, you can then sprinkle in a metric or two, that is based on a unique time frame, location, project, or other specific, but is perhaps a temporary  area of focus. Grow metrics and goals work especially well for short-term-incentive programs and as interim measurements in long-term incentive programs.

3. ACHIEVE  This is what your CEO or other “boss-like figure” means by performance-based pay. They only want to pay people incentives if they have proven results. It’s understandable, but not always the best approach. Most companies are successful with ACHIEVE metrics when they are applied to the top tier of the company. When these can obviously be communicated and driven deep into an organization (they may already be part of your company’s cultural approach to management) they can be used at any level. But, let’s face it. Communication of an individual’s impact on these types of metrics requires a long-term and consistent effort. It’s the type of effort that most companies won’t fund, and for which most compensation departments cannot get support.

Effectively linking pay to results requires a fairly tight connection between the actions or decisions of the individual, and the results that are likely to be a combination of many people’s efforts. These metrics include revenue, EBITA, TSR, profit margin, percentage of growth, stock price and similar big-picture measurements. These metrics also have the effect of frustrating someone at the end of almost every measurement period. Your shareholders are upset when overachievement results in big executive payments. Your executives are annoyed when big payouts to managers cut into their ability to spend money elsewhere. Every participant will become upset when success was denied. This is especially true when failure to meet the goal was due to outside market conditions. But in the end these programs, when layered with other good compensation practices, can help a company succeed in a competitive market.

Implementing this approach can take a few years at some companies. At smaller companies, with little prior pay for performance and a strong initiative to create a P4P program, this tiered approach can immediately become the foundation of your program. Of course, there is not a magic formula and I am always excited to hear from readers about how they have approached this issue.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans 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.

Can You Depend on Solid ROI for Expensive Elite University Hires?

If you were hiring for an entry-level position, how much more would you pay for someone who had graduated from Harvard? How about Cornell? Would you be willing to pay as much for that candidate as the one from Harvard for the same job?

These are useful questions to ask yourself if your recruiters and execs are fond of hiring from the top universities in the country. Though a more important question is, "Do you get your return on investment for these hires?" Or, "Are you overpaying them for their full tenure with your company -- and spending more than necessary?" Employment discussions involve Compensation, front and center, so insights into the impact and cost of these employment decisions would be worthwhile.

Is there predictive data that can guide us? If the most recent research published in Harvard Business Review (HBR) is any indication, the answer continues to be not so much. This report talks about "nominal" differences in groups, but that word just helps them communicate what they've found and sidesteps the fact that the data may not be either robust or predictive. Nonetheless, the data does suggest a few valuable analytic opportunities if you read between the lines.

1. What do you want the candidate to do? Sounds like the perfect no-brainer, but there are opinion leaders who believe that college performance doesn't translate to company performance. One thing the HBR data points out is that there IS a performance difference in the following new hire competencies, with the elite university grads coming out on top: Knowledge in field; technical and business writing; team leadership and coordination. So if the position that you are sourcing prioritizes any or all of these, an investment in an elite university hire should pay off. On the other hand, what if you're hiring for an entry-level position with a tall career ladder over it? You may be in danger of overpaying if you consistently seek out elite university hires and pay them a premium.
2. Who are you hiring? It's likely, given the small number of new graduates from elite schools, that you will hire an "average" student from a top school. Will her/his performance be better than a top student from an "average" school? Face it, you risk missing out on real talent (at a lower salary) if you keep your recruiting pools too restricted. While bleeding-edge technical knowledge may be critical to some organizations, knowledge and skills customized to the company -- and thus, only learned on the job -- are becoming more and more important to companies that differentiate on product knowledge and/or customer service.
3. How good are you at this? Does your company have a reliable career development infrastructure? Do you use career levels to price jobs? If the answers are no, there will be few ways to rebalance total compensation as employees move up in the organization. If you are under pressure to over pay, study your practices to see if they hold up. Did those highly paid recruits of the past reliably provide exceptional performance? How did their performance trend over time? Most importantly, how does the trend line compare with other new hires in comparable positions? These metrics will provide useful insights into your practices, as well as discussion points when the time comes for the next expensive hire.

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.

The Lessons of a Dog's Breakfast

Editor's Note: Today's post comes to us courtesy of guest contributor Chris Dobyns.

The phrase, A Dog’s Breakfast, is probably unfamiliar to most Americans, as its use and origin is probably better recognized and understood throughout the United Kingdom. The exact source and the predominance of the phrase’s use in our workplace is a mystery, except for a widely held belief that it may have been “carried over” by staff members who have served in expatriate assignments with one of our British “subsidiaries.” 

The underlying meaning of the phrase will quickly become apparent to anyone who has ever owned a dog.  For you cat lovers, the fact is that most dogs eat every meal with a level of single-minded enthusiasm that would force you to conclude that the dog genuinely believes that, “. . . this may be my last meal”.  Consequently, a post-meal overhead view would prompt the uninitiated into thinking that a small explosive device had been detonated somewhere deep beneath the “kibble” – evidenced by the ring of uneaten dog food fanned out around the dog’s bowl in a nearly perfect concentric circle. With that mental picture established, you’ll understand that, A Dog’s Breakfast = A Complete Mess. 

All interesting you might say, but what’s the linkage between canine eating habits and anything related to compensation and total rewards?

Let’s assume that on rare occasions, “things” don’t always go quite as planned at work.  Whether that’s in the planning and development of a new incentive plan or the rollout of a change to medical benefits, or when the execution of the tools or communications to support one of these initiatives is a little rough. And sometimes, the outcomes simply aren’t quite what had been hoped for. Depending on the organizational impact, these imperfect results will occasionally warrant being characterized as A Dog’s Breakfast (a complete mess).

What Comes After Breakfast

Organizational reactions to A Dog’s Breakfast vary. Punitive organizations will often hold individual(s) accountable for these failures, imposing a range of penalties, in order serve as an object lesson to forestall similar failures by others in the future. 

More constructive-minded organizations recognize and treasure the value of experience in its employees.  And where does that experience come from?  Experience is most typically a cumulative by-product of exercising good judgment, in evaluating choices and making decisions. And as part of the iterative learning process, good judgment in evaluating choices and making decisions is usually the product of past instances of exercising bad judgment, and making less-good choices. 

Sound Choices Produce Superior Results

It is through this iterative process of positive and negative reinforcement, that human beings learn, gain experience, and regularly make good choices.  And while most people, especially children, learn equally well from a mix of both positive and negative reinforcement, adults appear to integrate and learn best from positive reinforcement. 

To be optimally effective, experiential learning ideally needs to encompass all employees.  Perhaps more importantly, senior management must empower workers to exercise good judgment in a variety of scenarios they may encounter. 

Empowerment is best operationalized when management establishes an easy-to-understand framework or context that helps guide employees and enable good choices in specific situations.  One such industry framework provided to employees by management is The Golden Rule, used by the Four Seasons Hotels and Resorts.  Beyond the simple lesson drawn from childhood of treating others as you would want to be treated, The Golden Rule also includes the following to further help employees make good choices on behalf of its guests:

• Explain the desired choice that has been made, and the rationale behind it, in order to ensure better understanding and acceptance
• Immediately begin to identify the next choice or decision required, by you or others, in order better inform the subsequent choice hierarchy
• Management should assist in making downstream choices, if needed
• Be willing to assess and modify the choices made, based on the feedback received, to make better decisions in the future

Consequently, organizations which encourage taking balanced risks, treat employee mistakes as opportunities for learning, and empower their workforces, will end up with employees who have greater experience, are more predisposed to exercise good judgment and make better choices – and who will be more likely to avoid A Dog’s Breakfast.

Everyone probably has a different perspective.  What's yours?

Chris Dobyns, CCP, CBP, is currently employed as a Human Capital Strategic Consultant for the Office of Human Resource Strategy and Program Design for one of the largest U.S. intelligence agencies.  The Office of Human Resource Strategy and Program Design is responsible for organizational effectiveness, personnel assessment, compensation and incentives, occupational structure, recognition and rewards, HR policy, human capital program design, implementation, evaluation and assessment and internal consulting.  Chris has worked in the area of compensation for more than 35 years, and has been employed in various compensation-related positions by a number of large, private sector companies including Sears, Roebuck, Arizona Public Service and Westinghouse Savannah River Company.

Image courtesy of fotolia, "Eating With Gusto" by Paulo Saludo

The Squeak of the Hamster Wheel

Round and round it goes, where it stops, everyone knows. Lately, I have been wondering what it will really take to change things in the world of compensation. It would seem that we have more than enough motivation to result in real changes to compensation practices that have been ineffective, or worse, seemingly forever. There seem to be enough incentives to create more successful companies and pay people in a way that allows them to have better lives. A large number of Human Resources and Compensation professionals seem engaged enough to give them the push to make materials improvements. But the hamster wheel keeps squeaking.

Recently released data and articles imply that 2021 compensation budgets will look much like 2020 budgets (and those from 2019 and 2018). Those same sources indicate the mix of pay elements at most companies is not expected to change. This is true even though there is plenty of evidence that most of what we have been doing with the basics of base pay, short-term incentives, and equity compensation have had limited impact on employee attraction, motivation, retention, and engagement.

Topics like Diversity, Equity, and Inclusion have been concerns for at least a couple of decades. We still regularly see unintentional bias in both base pay and incentives. Pay data may be generic, but its application continues to be unequal. And yet, the majority of companies have either no plans or no funding to make the often easy changes that would truly improve these problems.

Our new focus on remote-work has given rise to questions about long-held practices regarding the productivity of employees when working away from the office. Evolving remote-work practices have also directly impacted the breadth and depth of talent markets and legacy assumptions about the cost of labor. We continue to apply old school recruiting tactics to an already-changed modern workforce. Companies also apply oddly local geographic differentials to employees who can be hired by companies anywhere while delivering their effort and expertise from anyplace.

The use of equity compensation plans at most companies remains much the same as it was decades ago. This is despite the fact that companies are far larger than ever, and retention has fallen in industries that use equity heavily as a “retention” tool. Most plans have the same vesting, termination, and expiration periods that have existed forever. Nearly all pre-IPO companies still grant early equity as if they plan on going public with 250 employees in five or six years, despite many IPOs having a thousand or more employees. Most investors control pre-IPO dilution like they are aiming to get 20% of a $250-$500 Million company, even though the average tech IPO is north of $1 billion dollars.

I can, of course, go on, but I will stop and offer a few potential solutions.

• What if we started our decision making process by determining what we wanted to accomplish, rather than what the “market data” says?
• What if we acknowledged our past limitations and created approaches to pay that took a path less-traveled, and perhaps more likely to provide better results?
• What if we stopped applying “what we already know” and started figuring out what we should know?

Correcting things will not be easy, but it’s got to be easier than looking back in a few years and realizing we are squeaking along on the same old hamster wheel. In the comments please tell anything you believe compensation does so well that there is no room for real improvement. Also list anything that you passionately believe we can, or must, address in the upcoming year.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans 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.

Avoiding Analysis Paralysis

In order to effectively manage reward programs compensation practitioners and their senior management leaders need to understand how competitive those programs are.  In making that determination, though, just how precise does the analysis have to be?  To what lengths should one go to increase the level of perceived exactitude in the analysis, and is that effort worthwhile?  Does the effort to squeeze out greater precision bring more meaningful results?

In other words, what's the additional value of dotting the "I's" and crossing the "T's"?

As compensation professionals will tell you, the competitive “marketplace” for reward program surveys is an imprecise animal, subject to numerous variations and interpretations.

• One survey doesn’t use the same company participants as the next survey.  Who do you believe?
• The ability to match job descriptions varies from precise to broadly similar roles.  Strange titles are a constant challenge
• Surveys provide different mixes of industries, geographies, and revenue, and always exclude many non-participating organizations
• The use of weighted Average/Mean/Median/50^th percentile formats isn't standardized
• International surveys often fail to provide enough information
• The process of completing survey questionnaires is often not followed as carefully conducted as one would hope

In addition, the market is a moving target as population changes, organization shifts and adjustments in employee pay are considered.  This means that you’ll need to be careful of “aging” factors, such as adjusting data from date of collection to the current or some future date.  Also, do you "round" figures to the nearest 100 units of annual currency?  Is that distorting data?

Pick a Number?

Do you think that a market rate of $47,570 for a job is an accurate reflection of current trends, or simply an arithmetic average of data that looks precise?  Would you fall on your sword over that figure? 

Using three different surveys would likely provide three separate figures.  Let’s say your sources report $45,723, $47,612 and $49,375.  If cost, time and effort are not factors to consider, then you could keep going, searching for that common denominator.  Purchase another survey source.  Double and triple check your job matches.  But do you think that the extra source, the extra time and effort will substantially change your initial analysis, or are you simply looking to protect yourself?   Are you playing a defensive game to divert potential challenge?

For most of us a quick and straightforward analysis suggests that approximately $47,500 is reasonable enough.

While not advocating a sore thumb analysis I do suggest that you use a balance of time, effort and cost when conducting market analysis.  What you really need is to understand the market; that’s the key learning point.  Repetition is sometimes just that, more of the same with little increased value.

And what degree of precision are you being asked to provide?  Are your instructions to feel the pulse of the marketplace, to get a sense of what is being paid out there?  Or do you need a more precise result?  Is your audience demanding more?

Is the Market a Number?

What is that market?  Anything within +5% to -5% of a “market rate” figure is close enough for me.  Others believe that variable should be 10%, but in my view that leaves too wide a range that could distort your intent to provide the so-called “going rate” trend.

Caution:  You can find any number of analysis paralysis jockeys out there who advocate increasingly precise techniques to zero in on what they call your true market rate.  Just remember that many vendors have built a business around encouraging organizations to slice and dice whatever information is available, trying to define and refine exactly what a “market” is paying, what jobs are exact matches and after a fashion what numbers you can rely on.

Part of their marketing strategy is to use custom designed evaluation techniques and proprietary job matching systems.  Use of such a strategy effectively marries the organization to the vendor, as one often can’t use proprietary language and techniques (the system) with other survey providers - without the risk of comparing apples and oranges.

The Leadership Perspective

From a senior leadership perspective, do you really need that depth of precision to make a business decision?

I think you don’t.

There's a place for precision, and a place for trends - for a “feel of the pulse.”  Usually senior management wants to gauge the big picture - the overall strategy and its implementation status - letting professional specialists deal with tactical issues and details.

Have a care in your efforts to be precise, because when you give senior management too many details they tend to dive in almost as a defense mechanism, as if they are expected to ask questions. Where they might otherwise have nodded their heads at key points in your presentation, you can instead find yourself immersed in detailed analytics that can bog down the decision-making process.

Management wants your professional judgment.  They don’t want you to defer opinions to what a survey says.  Use survey data as a backup, as anecdotal information to assist the decision-making process.  Don’t feel that you always need to lead with it.

Standing back and pointing at figures is like leading with your chin in a fight. 

You won't like the results.

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.

Creative Commons image "Complexity3," by Michael Heiss

Cafe Classic: Min, Mid, Max

Editor's Note:  While a foundation of structure and rules (in this humble editor's opinion) can provide helpful ballast against paying by whim and fancy, many of the paradigms and methodologies that underly our pay programs have their roots in the 1960's and 1970's.  While it is good to begin with an understanding of the purpose and working of our traditional tools, we are also well served to examine and question their fit to our current needs and situation.  Margaret O'Hanlon addresses these Classic points in today's post.

oes a salary range really need a beginning, middle and end? I've run into this topic of conversation repeatedly in the last few months.

I've always had mixed feelings about naming the range midpoint, for example. It gives some immediate comfort to the listener because it is a nice, round, handsome number, but eventually it always seems to disappoint.  Sure it's the mathematical center of the range of numbers, but once we go much further than that in conversation (especially if the midpoint represents a job grouping) we sort of pull up short rather than having to explain the whole darn rigamarole. It often seems to me a range would be a more enlightened way to go than a single number, but nobody seems to like that approach, either. Once they've tasted midpoint wish fulfillment, they're hooked.

The minimum seems to stand up to closer scrutiny -- or does it? If you believe that your company should pay a market rate, then it just makes sense to pay new employees a salary that's in spitting distance of said market rate. Do we have guidelines to justify the length of time it takes before employees are paid at market? Can we stand up for these guidelines because they are based on something more than intuition? (Not very often.) And how freaked out are we if good performers don't get much closer to the midpoint as time and low merit budgets march on?

It's the range maximum that got me in this frame of mind, actually. An executive asked me recently whether his company really needed range maximums. "Now there's a great question for my consulting wisdom," I thought.  "Culturally, philosophically, strategically, there can be cases for making them disappear," I spoke up, "but what about responsibility to organizational finances? Where does that come in, especially when you're talking to stakeholders like the Board."

"Ah, optics," was his reply. See what I mean?

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: Incentives to Force Turnover and Change Culture

Editor's Note:  Back in 2015, Jim Brennan wrote this Classic post about Zappos' CEO Tony Hsieh's bold move to upend the company's culture and management approach and to introduce the idea of a holacracy.  How has that worked out?  Opinions appear to vary but offer many interesting insights in reflecting on the company's journey; after reading the post feel free to check out the brief list of articles and links at the end.

In a bold move, one company has deliberately shed 14% of its employees by offering a cash buyout to those unwilling to embrace their CEO’s new direction for the future.  “As of 4/30/15, in order to eliminate the legacy management hierarchy, there will be effectively be no more people managers.” THAT warning certainly shook things up!

In an extremely long 5,000 word email memo, Zappos CEO Tony Hsieh issued an ultimatum confirming his commitment towards transforming Zappos into a business that doesn't need managers to grow and fix internal problems.  Promising strong steps towards achieving “our desired state of self-organization, self-management, increased autonomy, and increased efficiency,” he declared there would be no place for opponents of self-management and self-organization… and backed it up with a cash incentive for dissenters to leave.

The online retailer, a unit of Amazon, should survive the exit of the few hundred employees who accepted a three-month severance package rather than stay with a company without manager roles or job titles reflecting the traditional organizational hierarchies.  Not everything will change, as shown in a parenthetical statement: 

(On our backend HRIS system, employees will still have "reporting" relationships solely for the purposes of maintaining compliance (e.g. SOX) requirements because we are part of a public company. This compliance requirement will be largely invisible to most employees and should not be confused with legacy reporting structures which will no longer exist.) 

Regardless, the boss termed the action a “rip the bandaid” approach to stimulate faster progress towards his desired objective. 

Using compensation incentives to change the nature of an enterprise is not a new idea, but it is uncommon to see it attempted so openly. It is also impressive when the company clearly demonstrates such a commitment to comprehensive restructuring that they will pay cash to encourage dissenters to quit.  A few months severance seems an inadequate incentive to induce resignations by itself.  Those who opted for the buyout probably had other reasons for leaving, too.  But there are always some who consider their management roles so essential to their personal reward package that they would rather depart than remain in a diminished role.  That says something about their values, but I’m not sure exactly what.

It will be fascinating to see the end results from the courageous experiment in using compensation incentives to affect behavioral transformation.  Words paired with actions carry more powerful impacts.  Promises followed by payments are particularly effective reinforcements.  There can be no doubt that such dramatic changes in organizational dynamics will have very strong effects on future success.  As long as workplaces are populated by human beings, the manner in which they relate to each other will have immense consequences for output results.  Here we see intersections of reward systems and contextual structures for human interactions. 

Test the accuracy of your crystal ball.  What do you think will happen? 

Editor:  So what did happen?  Opinions, immediately following Zappos' move, as well as more recent ones, vary.  Check out the sampling of articles and links below, and share your thoughts in the comments!

Harvard Business Review 2016: Beyond the Holacracy Hype

CNBC.com 2016: Zappos CEO Tony Hsieh on Getting Rid of Managers: What I Wished I'd Done Differently

Workforce.com 2019: Holacracy Helps Zappos Swing From Job Ladder to Job Jungle Gym

Financial Times 2019: Bossless Business is No Workers Paradise

Inc. 2020: Zappos CEO Tony Hsieh's Biggest Management Experiment is Evolving Again in a Very Intriguing Way

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.