Compensation Cafe

Cafe Classic: Truth, Clarity & Alignment = A Successful Annual Bonus

Editor's Note:  With today's Classic serves up a call to walk the talk - or at least honestly talk the walk - when it comes to annual bonus awards.

It's a common lament this time of year.  In organizations with annual bonus "plans", whether paid out at year-end or early in the new year, leaders are beginning their conversations about whether and how much should be paid out.  Invariably, one of them will ask: "But what are we getting for this money?"

Many business owners and top executives have a strong preference for discretionary rewards - which often amounts to simply doling out cash in a manner that "feels right", based on available information about profits, growth, performance, etc.  It's not hard to understand why.  This gets them out of the admittedly difficult (particularly these days) task of pre-defining goals and bonus parameters.  It may help them avoid the need to share and explain complex, sensitive company information.  It leaves them in a position of complete control, relative to bonus expenditures.  What's not to love?

Unfortunately, it also doesn't drive performance.  It doesn't focus people's discretionary efforts or make priorities clear.  It doesn't communicate a path to success for motivated employees to follow.  It can create the impression, especially with any employees who receive less than others and aren't clear on the reasons why, that the program is more a popularity contest than anything else.  It produces a sense of entitlement among the recipients.  And it is nearly impossible to assess the return on the dollars spent - what the organization is indeed getting for its money.

I'm not sure there's a right way or a wrong way to do bonuses, really.  But it is important, ultimately, to be truthful about what you intend to accomplish with a bonus program.  If your objective is to express gratitude to employees - in an economic way - for their work during the course of the year, that is an admirable goal and a discretionary program could be just the ticket.  Just make sure, however, that you allocate and communicate awards accordingly.  Don't call it what it isn't and temper your ROI expectations accordingly.

As with any other reward, the recipe for bonus plan success relies heavily on truth, clarity and alignment!

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at 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 hiking, reading and hanging out with family in any spare time.

Creative Commons image "Truth" by Tim Abbott

Cafe Classic: Checks on the Chalkboard

Editor's Note:  Compensation and HR staff are spread mighty thin these days.  In today's Classic post, Dan Walter asks: Is everything you do necessary?  Is everything you do making it easier to get important work done?  

Is everything you do necessary? Perhaps, I should ask the question differently. Is everything you do making it easier to get everything done? Today’s post is about the practical. It’s so practical that it applies to just about everything, including compensation.

I was working with a client recently, and a lesson from a long-ago teacher came to mind. She called it “Check on the Chalkboard.” She had each student do a series of basic math problems. She then created a team of the fastest students and a team of the slowest.

The teams raced each other in a relay-style format. You got up from your chair, did a math problem and went back to your chair. In the first race the “fast team” won easily. It seemed patently unfair. The rules changed for the second race.

In the second race, the “fast team” was asked to put a check mark on the chalkboard after they correctly answered each question. The checkmark had to be placed in a numbered box (I believe there were ten boxes, representing the members of the team).

The fast team answered questions like lightning. They sprinted to the green chalkboard (it was a LONG time ago) and made a messy check in their assigned box. It seemed to take very little time even as it added an element of excitement and chaos to the race.

When the dust settled, the “slow team” was the clear winner. Burdening the “fast team” with a simple additional task slowed them enough to lose the race. The checkmarks had no purpose other than to change the outcome of the race. Each checkmark was insignificant. When they were combined, they changed the game.

After I remembered this lesson from my youth, I started seeing checkmarks in the processes followed by nearly every company. Most of the checkmarks are tiny things. Many are performed because the supporting systems have not been set up to their full capabilities. Some are a result of out-of-the-box features. Most are unique to a specific company and have no known origin. They are done, simply because “things have always been done that way.” They offer no upside. They support no known purpose. They seem to exist simply to slow things down.

In our haste, we often forget to ask why we do things. We are so consumed with getting things done; we do more than we need to. All of this can keep us from doing more important tasks, like evaluating the strengths and weaknesses of our programs and making improvements where needed.

Compensation departments are increasingly asked to do more with less. Our jobs can be complicated and our customers are every person in the company, and often many people outside it. All of those people are going to add checkmarks to our processes. It is essential that we do our best to avoid any of our making.

The best way to police your processes is to ask yourself why twice. The first thing you need to ask is: “Why am I doing this?”. If you have an answer, the next question you should ask is: “Why is it important?” If both answers make you feel warm and fuzzy, then carry on. If not, you may have just identified a “checkmark” on your chalkboard.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a 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: Are You Adding Value?

Editor's Note:  Chuck Csizmar raises this Classic question and urges us to take an honest look in the mirror to discover the real answer.

Have you ever been asked this question at work? Or perhaps looked at yourself in the mirror one morning and asked yourself? My belief is that we don't consider this question enough, for ourselves and for the employees who work for us. We dance all around it.

In either case above the usual knee-jerk response most of us come up with tends to focus on job performance, on personal competencies and even on having shown a demonstrated loyalty to the organization by sticking around for years. But is that missing the critical point of the question, your value to others, and by missing that point you can mislead yourself - like a slick politician who talks a good game but fails to address core issues.

The Real Question

Shouldn't a more considered response relate closely to what the organization itself considers as to what your value should be, and less about how busy you've been, how knowledgeable you are in your field or even your impressive length of service? You could be a paper pushing administrator occupying the same chair for years and still give yourself a high personal score. "I'm doing a great job."

Chances are that many of us may not be honest with ourselves, and validating that sidestep are many performance appraisal processes that seem to gloss over the value question without zeroing in. Their "What have you done?" query often doesn't relate close enough to those actions, behaviors and achievements that should have been done to advance business interests.

Yes, you have a job to do, and perhaps even a job description that lays out your duties and responsibilities. If you perform as to what the description lays out, is that enough? Is that adding value or is that treading water? Just doing enough. It can go either way, but even the rare job descriptions that are accurate and up-to-date can be very inward focused - not considering the bigger picture of how a job performance relates to and can advance the department, never mind the business.

Or hold things back.

And what about those employees who report to you? Would you be satisfied if one of them told you, "I'm doing what the job description says. Isn't that enough?" Here the unstated follow-up thought is likely, "I'm getting by."

What Defines "Value"?

Your organization, whether you consider the entire business or even the smallest department, has likely laid out a series of objectives for the year. There are goals, there are definitions of success and very likely defined pathways toward the end zone. With that thought in mind it's easy to see that an employee adds value when, in the course of performing their job they assist the organization / department in achieving those goals - helping in even a small way to score the financial touchdown.

In that light, consider that your activity list - you know, the one that ticks off all the accomplishments you've achieved over the course of the year - may actually be aimed in the wrong direction. Being busy can be viewed as the same as walking on a treadmill. You can build up a sweat but you won't be getting anywhere.

So how much value are you adding?

Do You Have What It Takes?

Let's go back to the mirror with a revised question. What are you doing to help your organization / department achieve its goals? Are you playing a leadership role, a supportive role, an individual contributor role or has your train gone off the tracks and down some rabbit hole into clock watching and "just doing the job?"

Leadership would view adding value as being personified by the employee who not only does their job but does it in way that keeps organization objectives in mind. That employee doesn't waste time or resources, understands how their role impacts the business and is engaged in helping the business succeed. Examples are many when one seeks to do their job in a way that helps the greater good.

Is that you? Do you have what it takes to truly add value to your employer? Is that what your mirror says?

Because the "I'm following my job description" attitude is a short sighted response that helps neither your career or 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 "Value" by Mike Cohen

 

Cafe Classic: Reviving Your Compensation Plan

Editor's Note:  Jacque Vilet shares a Classic story and example for bringing new life to your compensation plan.

I’ve been reading a lot lately about what Compensation will look like in the future and I remembered a project that I had once worked on. It was in Hong Kong --- the Asia Pacific headquarters of a global company. 

Word was the employees were not happy with their pay package.  Some wanted more salary, some more medical, some more vacation, etc.

For example, one single man told me it wasn’t fair that the company decided everything about his package and didn’t ask him what he wanted/didn’t want. He wanted more vacation and would take less salary in order to get it.

I couldn’t see anything unreasonable about his request.  Yes, some companies offered flex benefits --- but this situation included cash compensation as well.

Most companies continue to design traditional programs based on a one-size-fits-all approach. Instead of this, what if companies changed their approach?  What if they handed over control to employees to configure the amount of their own benefits, perks, and cash compensation --- creating a package unique to their own personal situations.

I talked with a random sample of employees --- young, old, single, married with/without children.  This was a diverse group and I could see why their needs/wants might be different.  The recurring theme was that they would like to have some say in how their pay package was structured.

Long story short --- the regional Controller and I calculated the total cost of each employee’s current package.  Then to keep things simple, we gave each one a pie chart with sections apportioned for each pay component and its percentage of the whole pie as well as the cost of each one.

Employees then drew their own pie charts reconfigured to show components they wanted in the future as well as the percentages of each to the total package.   Since they had the total cost of their current package, the total of their new package had to match it. The company wanted employees to have at least some medical and life insurance coverage so there was a minimum level for these benefits that had to be included.  Everything else, the employee decided.

As we went through this process we saw several positives that we hadn’t anticipated.  Getting employees involved accomplished several things:

1)    Employees became aware of the total cost of their package --- not just the cash portion.  Traditional “benefits statements” are fine, but this was different.  Just seeing their package was not as good as knowing they could change it.

2)    They talked at length among themselves about the ramifications of choosing greater/lesser amounts of each available component they could “flex.”

3)    Compensation and benefits became transparent and employees gained a better understanding of how Compensation worked.

The result?  The best communication of compensation and benefits the company could ever have hoped for.

Unsophisticated?  No doubt --- but it was a start. Administrative burden?  The Controller was willing to take on the extra work.  It helped that the number of employees was only ~40.   Best practice?  This became the best practice for THEIR company.

I’m not aware of any formal research that's been done on this approach but is that really important?  If it works, isn’t that the real test?  Besides research studies can’t keep up with the pace of business today.  Companies have to be nimble and quick to change course.  Compensation needs to be too.  Waiting for research to tell you if a practice is OK will leave you behind in the dust.

We have an increasingly diverse and young workforce that has different values and work-life issues.  Getting free Friday lunches is great, but some employees would rather work through lunch in order to leave the office early to spend more time with family.

With that said who can argue with giving employees more control and at the same time making Compensation more transparent and better understood?

What do you think?

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.

Creative Commons image "Revived" by Scott Price