Compensation Cafe

Cafe Classic: What Do Dead Horses Have To Do With Compensation?

Editor's Note:  Is your compensation program a breeding ranch for dead horses?  Jacque Vilet rides to the rescue with advice for those out-of-date, no-longer-relevant policies and practices!

  “When you discover you are riding a dead horse, the best strategy is to dismount.”                                    ---- Dakota tribal wisdom                            

Simple common sense don’t you think?   However, truth be told, the world of business is full of dead horses.

What’s the definition?  It’s any program, project, policy, or established way of doing things that is out-of-date, irrelevant and not in sync with a company’s strategy.  Surprisingly, management often tries to keep the dead horse alive.

Instead of “dismounting”, management tries (as a last ditch effort) to revive the dead horse in question.

Perhaps you have seen some of these attempts in your company.  For each business example, I've created one for how it might look in Compensation:

1)    This dead horse is too big to fail.   The company has sunk too much money in the project/product/service and it’s cheaper and easier to spend a little more money to fix it than it is to cut it.   It’s called the "sunk-cost effect", otherwise known as throwing good money after bad.

Compensation:  A large, very expensive _____  compensation study (fill in the blank) has taken six months so far with a lot of money spent and no end in sight.  No one believes it’s relevant anymore --- including you --- but you’re afraid of cutting it and risk management’s wrath for money and time that’s been wasted.

2)    Visit other companies to see how they ride dead horses.  After looking at several companies, management comes up with a “best practices” model to use in resolving their dead horse problem.  This is in spite of the fact that the companies aren’t in the same industry and don’t have the same business strategy

Compensation: In an effort to decide whether to offer tuition assistance you do a benchmarking study.  Companies reviewed don’t offer it so you decide your company won’t either. One important difference --- the average age of employees in the companies reviewed is 45; your company’s average age is 28.

3)    This is the way we’ve always ridden this horse.  This is the CEO’s pet project/program and has been a major reason for the company’s success in the past.  To end it s/he would have to reverse his/her position with the Board by admitting that it’s no longer relevant.

Compensation:  The company has always used an anniversary date approach for its annual review/merit program.  However now the company really needs to set employee performance goals in sync with FY business goals.  No one in Compensation has had experience with focal review programs and has deeply embedded biases in favor of the anniversary date approach.

4)    Engage a consultant to study the dead horse.  Management is convinced a certain program/process needs to continue as is, but no one internally wants to go against the Board who recommends it be killed.  So management hires a outside consultant and drops hints of further business if s/he provides a recommendation to the Board that the program be continued.

Compensation:  Compensation has been asked to develop a recognition reward program for all employees and management is requiring that the same rewards apply to all employees worldwide.  You know that awarding $50 to an employee in Japan would not be considered appropriate. So you hire a consultant who recommends that the actual reward be decided at the country level.  Now you can deliver this message to management with no fear of retribution.

5)    And when all else fails, promote the dead horse to senior management.     Maybe s/he won’t be noticed there!

We have to selectively abandon the past.  Not everything ---  just those programs/processes, etc. that are no longer relevant.   If we focus too much on the past and present, we’ll lose touch or be left behind when the future arrives.

Do any of our readers have an example of dead horses in their companies?  In Compensation?

*The 10 underlined dead horse statements belong to Vijay Govindarajan.   The explanation of each one is my contribution.

**Please note: Absolutely no horses were injured in the writing of this post. I certainly don’t advocate attempting to ride a dead horse, nor do I advocate working in a company that attempts to replicate said state.

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.

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

Cafe Classic: If You Want ... (The Pay Plan Edition)

Editor's Note:  Let us recount, dear friends, all the ways in which we in HR and the rewards field are our own worst enemies.  Fun, yes?

This is inspired by a post with the same title on Seth Godin's blog, which opened on this note:

If you want employees to go job hunting in order to leverage you into giving them a raise to keep them, then by all means, only give them a raise when they go job hunting.

Thinking that this approach lent itself well to employee compensation, where we are constantly shooting ourselves in the feet via the unintended consequences of our poorly construed and sometimes just foolish practices and policies, I came up with the following:

If you want to encourage employees to focus exclusively on getting their own jobs done, to the point of ignoring or even working at cross purposes with colleagues, then incent them heavily on individual results with no counterbalancing rewards or reinforcement practices.  Works like a charm!

If you want to spend additional money on employee compensation without generating any impact on outcomes or behaviors, then give employees a bonus based completely on your discretion and tell them only that it is based on your judgment about what they deserve.  It's a great way to suck empowerment right out of the workplace!

If you want to actively undermine your FLSA classification practices or at least create internal pressure that runs counter to accurate classification, then design programs and policies that reward exemption status by making it a hurdle that must be crossed in order to get better pay or benefits. Congratulations on creating a class of employees who will now actively lobby (aided by their unwitting bosses) to be made exempt as an acknowledgement of their professionalism and value! I'm sure the Department of Labor will be very empathetic.

If you want to magically turn your bonus plan into an entitlement -- one where employees believe that money is due them no matter what, almost like an extra piece of their base salary -- then pay out the same (or nearly) amount every year whether the organization successfully meets its objectives or not.  And for heaven's sake, if you do vary it a little one way or another do not provide a clear and detailed explanation as to why!

If you want to appear two-faced and hypocritical, tell employees that the organization values teamwork, integrity and courage, and then ensure that people whose work interactions are the very antithesis of these values (but who produce desired outcomes) are visibly rewarded and shown appreciation.

I'll bet you've got some of your own.  Share them in the comments!

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.

PTO in a Staycation World

2020, the year of the forced staycation. While some people have been able to take real vacations this year, those of us with multi-generational families, who are immunocompromised or have other concerns about our health and welfare have had very limited options. In the world of Total Rewards, this creates some real concerns.

There is the basic issue of ensuring people have the time and privacy to recharge (I discussed “performance fatigue” in a recent article). There is also the issue of “use it or lose-it” programs that may result in people working more days than usual and losing their PTO at the same time. For those companies who pay out unused PTO, there is also the possibility of a PTO payoff cliff. Add in the loss of cachet for the “unlimited PTO” policy. Finally, there is the very real issue of thin staffing resulting in working via email, phone or zoom calls, even when someone is “on vacation." These issues must be addressed, but there is no one-size-fits-all solution. (And does one size ever fit all?)

We pay people to take personal time because it is good for them and businesses. Happy, relaxed, refreshed humans are simply better employees and coworkers. Take a look at faces on your next zoom call or slack. Do people look excited and raring to go? Do they look a bit like they could use a day or two off? I am betting it's the latter.

The "use it or lose it" crowd has it especially tough. More than half the year has passed us by and it seems like it has taken only 39 months. Robert Half did a survey in May 2020 showed that fewer people were expecting to take summer vacations. They intended to push their vacation into later in the year when things were more settled. But things are not more settled. Many vacation destinations are actually among the worst hit over the past two months. Those delayed vacations are very quickly going to become no vacations. How will your hardworking, lean staff respond when you announce that they are losing both their time away AND their associated pay? I am betting that “use it or lose it" will become “pay them or lose them.”

For companies who are already running on empty, paying out unused vacation in early 2021 may be the final nail in the coffin. These expenses are real and must be accounted for when determining other components of pay in the next few months. Read on to learn some possible ideas.

Companies with unlimited time-off already know that their staff members tend to take less vacation. This is an easier problem to address, but no time off means a strain on productivity and mental health. Even these companies may need to build something new to weather the storm.

The last issue is becoming one of the most common problems. Even when people are on “vacation” we expect them to be available. This has never been truer than now. Teams are running lean. All hands have been called to be on deck. But the storm has not calmed, and we really need to let people get some rest before big mistakes or permanent leaves start becoming commonplace.

So, I have set a kind of dark background, what can we do about all of it?

The easiest change for many companies is to change the rollover rules. Allow this year to carry forward rather than killing that PTO. Allow this year to add to next year, even when the standard policy is to pay them out. Provide an additional week or two or PTO even for companies with “unlimited” time-off. But what if the box were…much, much different?

Many companies will hard-pressed to meet their annual incentive plan goals this year. You may save money by paying these bonuses, but companies with some cash may choose to fold in unused PTO as an additional incentive payment at the time of bonus.

Could we allow employees to exchange their unused time-off for some other element of total rewards? Has your stock performed well and would employees like some extra stock options or PSUs?  Can your ESPP be amended to allow for unused PTO to qualify as compensation for the next purchase date? Is there a particularly useful benefit that people generally forego, but maybe a useful trade-in for vacation bucks? Can you cover the cost of travel arrangement services to help employees take advantage of their vacation time? Can you offer a 4 day work week in exchange for the paid time that will otherwise be lost to employees? The possibilities are out there.

WOW! This is getting long. The editor is going to be annoyed, so let’s wrap it up! PTO is a valuable component of your Total Reward offering. We are experiencing something that has never happened before. It may be time to do something with PTO you have never tried before. I’d love to hear some of the things your company is doing or discussing.

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.

Cafe Classic: Want Results? Prove It!

Editor's Note:  Do we objectively test the results of our reward plans and programs to see whether they delivered what we planned (or assumed) they would?  Dan Walter explains why that should be part of our annual cycle and, frankly, our jobs as professionals in this Classic post.  

Most compensation professionals I know are very earnest in their desire to pay people as well as possible. They attend presentations, watch webinars, and review the latest article and the smart ones even read the Compensation Café. But, many of these same professionals admit a critical flaw that often makes all of their efforts useless. This problem is so common that it no longer surprises me when people cop to it. In fact, I am really only surprised by the small number of individuals or teams don't have it.

Getting compensation right is hard. You have to get a good handle on the company and individual objectives. You need to know the rules. You should probably understand what the market has to say about pay levels and the best pay elements for specific purposes. Then you have to put all of this together into something that reflects the complexity of the company and staff, while still being simple enough for everyone to approve and understand. Once you are through all of that, it is time to rollout the program and make sure it is managed effectively.

Then you take two or three days off and spend a week fixing minor problems and before you know it you are back at the beginning, getting ready for another year. This is what it feels like for many people in our industry. You are special, but you are not alone. This process is missing something so critical that if you were an educator you'd be laughed at for missing it. It is so essential that if you manufactured goods or software you would be deemed a failure without. Even people as diverse as scientists and artists can’t skip the step that an overwhelming majority of compensation professionals never ever take.

In virtually any profession, you are expected to prove that the work you are doing is achieving the desired results. Imagine a doctor who said, “trust me” rather than “here are the studies that show you’re getting better”. Would you go to a restaurant where you were only allowed to look at the food, but no one ever took the time to taste it? Who cares if it looks great, it might as well be made out of wax like the restaurant displays in Japan.

We ask other people to make decisions, or trust the ones we made for them. But, many of us haven't objectively measured the results for the last set of decisions and communications. We may be making adjustments on “trends” or on things that “feel” good or bad. With the exception of evaluating survey data, we almost never test our prior decisions by linking what actually happened to what was planned (or hoped for.)

Without this step, it is difficult to make the case that others should take your work seriously. With this step you move quickly from a tactical “wonk” to a strategic partner. It isn’t always easy. How do you prove results are linked to a specific program? How do you make the time when you only get two or three free days a year? Those are questions for another article. For now, I will leave you with the following questions. I look forward to your responses.

Do you objectively test your compensation decisions? What percentage of your compensation programs do you fully test each year? How has this testing led to specific decisions? Has it resulted in better support from executives or employees?

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.

Compensation Air Traffic Control

In the past three months, must of our businesses have experienced an upheaval of historic proportions. During that period, you may have been challenged with an array of uncomfortable tasks. You may have been involved in laying friends off, furloughing colleagues, cutting pay for executives, putting holds on merit increases, temporarily modifying incentive plans, marketing pricing for newly remote positions, all while working from a dining room table, teaching math, and cooking more food than an average holiday season. And now, just as summer is raising its beautiful head, many of us are planning to return our staff to some version of our past practices. The swirl of tasks and requests can make a compensation professional feel more like they work in air traffic control.

Each action taken in the past three months is like an airplane that was sent into the sky. Fuel is now running low and the planes need to land. You are probably sitting at your desk (or sofa) trying to determine which thing s needs to be brought home first. You only have a few runways, and each task requires new processes, rules, and ongoing communications. You may need to choose between finding the best solution to fix executive pay and finding a smooth transition to paying people who are returning to work. There is no rule book.

Every task may not be able to get the same attention and careful corrections. Some may need to simply be allowed to land on their own, while others may need you to put foam on the runway to soften their landing. Every person at the other end of these transitions is likely to feel that their personal situation is a priority. They aren’t wrong. Some may feel like they are the most important. And in today’s world several of them may also be correct. Similar to when we sat down a few months ago and figured out a new definition for “essential employee”, we must now determine who to handle first when there are several equally important tasks.

The key to success is to schedule things to come in for a landing in a sequence. No matter how much someone insists, two planes cannot land on the same runway at the same time. Hold your ground if you see this happening. The things that are running out of fuel must be landed first. This may be adjusting pay for a job family that has become more critical during this period. It may mean waiting to communicate an important executive plan until your broad-based program has been brought back to speed. The important thing to remember is that you may be the only person at your company who has the expertise to make these decisions.

Air traffic control is not for the faint of heart. People’s lives are literally in your hands. Compensation can often seem pedestrian, but in times like this, your job may be similar. You may be the difference between your company or your staff successfully navigating this transition … or not.  It’s time to bring them in for a landing. Who else knows how to do that but you?

I have been collecting information on, and working with many, companies who are making this transition. The issues are similar, but below the surface, the solutions are often unique. Use the comment section to share your thoughts or questions. I am sure there are other professionals who are willing to provide helpful advice.

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.

Cafe Classic: Following the Leader

Editor's Note:  As we work to move forward from the pandemic and its impact on our workplaces, we all seek data in an effort to understand what others are doing, what trends are for compensation actions, plans and practices.  This provides helpful context as we consider different future paths and the reward scenarios to support them.  The economic impact of COVID-19, though, has been unequal, different across industries, different even within industries as some organizations fight for survival and others see new opportunities for growth and prosperity. With that, I bring you Chuck Csizmar's Classic advice about "best practice" and following the leaders.

"What does the survey say?"

This is a common question, and one that Human Resource practitioners hear all the time.  Whatever the issue might be in the office, the boss usually comes around to ask, "what's everyone else doing?"

It could be regarding the value of your jobs, through competitive market pricing, or wondering about common practice benefit provisions or even how other organizations handle various HR policies.  But the theme remains the same; the questioner wants to know about "common practice."   What's everyone else doing? 

Why do they ask that question?  Because they want to do the same thing?  Because they want to follow what everyone else is doing?

I guess we're all too accustomed to pushing that EASY button.

Why We Want To Know

There's a natural curiosity to discover what everyone else is doing when we face an issue that's important to our business.  I get that.  Maybe you don't need to reinvent the wheel, especially if others have already completed the work for you.  So the thinking goes, let's grab the benefit of someone else's research and tag along , going with the flow.   Common practice suggests the popular answer, and it's hard to offer criticism for doing what everyone else is doing.

It can also be considered a mistake if you don't know the common practice answer.  Because how can you make a decision without knowing?  Your analysis would be incomplete.

At the same time it's a natural defensive mechanism to point fingers at the "market" or a "most companies" comment and say, "see, others with the same challenges as we have are doing the following."  The reporting of survey results doesn't require creative thinking, risk taking or even sticking your neck out by recommending an original thought.  It's a silent recommendation that you can offer without comment.

Marching To The Beat Of A Different Drummer

But have you forgotten something important in the rush to follow along?  Have you considered what may be the unique (or perhaps merely uncommon) circumstances within your organization, the nature of your own employees, your own situation?  Are you a boiler plate organization with only the same challenges and circumstances as everyone else?  Is the answer to your particular challenge(s) to be found simply by recommending what everyone else is doing?  Wouldn't that tactic really become the absence of decision-making?  The abrogation of responsibility?  Passing the buck?

Is it your intent, or just happenstance that you decide to let someone else, someone from outside your organization make key decisions for you?  And make no mistake, tagging along is a decision, in the sense that even non-judgments eventually turn into a course of action.

And if you're challenged to explain your actions?  The lament of "I'm just doing what everyone else is ," doesn't sound like an effective rationale, does it?  Probably isn't what senior management is expecting from you.

What Do You Think?

Following another's footsteps  does seem to be the safe approach, though.  It's likely the path of least criticism, at least in the short term.  At least until that common practice answer that seems to works for everyone else ultimately doesn't work quite as well for you.

It's easy to deflect criticism of your recommendations by pointing to "common practice."  You're not sticking your neck out, you're not advocating something different.  You're reporting on the activities of other organizations, ones who seem to already know the answer.

So while it's always a useful strategy to know the common practice that covers  your particular challenge, have a care to look outside the box as well.  Sometimes that survey you relied on provided only anecdotal information, while a more viable solution lies in understanding your organization's particular dynamics;  the culture, the politics, management biases, what had been tried before and whether what everyone else is doing makes common sense for you as well.

So whatever your recommended course of action might be, make sure that your rationale includes more thought than simply following the leader.  That's a child's game, and may not be a career enhancing move for you.

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, "Follow the Leader," by The Old Brit

The Time is Now. Compensation Pros Must Rise to the Challenge.

Change is hard. While it is inevitable, we prefer if it happens while we aren’t paying attention. It’s kind of like your hair during a more than 2-month lockdown. On day 5 your hair looks like your hair. On day 30 your hair looks like a long version of your hair. On day 70 your hair looks like someone dropped a prop wig on your head and ran away. The change happened, but gradually. For at least a few decades, this has been the way of things in the world of compensation. But now is the time for something new.

Our biggest changes are often those that are forced on us. Few of us thought that our coworkers would see the inside of each other’s houses every day, but here we are, living the video-conference dream. Most of us thought summer vacation would be a long three-months, but here we are experiencing some weird version of a six-month vacation, and we're mostly surviving it pretty well. When change is thrust upon us, we can accomplish amazing things, things that seemed impossible only moments before. Now is just such a time for compensation professionals.

The current crisis has exposed the dusty corners of compensation practices.

When professionals cannot survive for even a few weeks without a paycheck, we have created a system that is hard to defend when things return to whatever we will call normal in the future.

When the vast majority of companies have incentive programs that look very similar, but prospects that look far different, we must consider whether “market data” truly reflects our markets.

Our pay practices have leaned heavily on history, and next year’s history will be now. Will we truly want to base our pay decisions on what we had to do to navigate this period? What will we say when challenged by those making the decisions and those whose lives are inextricably tied to those decisions?

We seldom see the impact of change as quickly as we see the motivation for it. We must start figuring out what that change will look like, even before we have a clear picture of the road ahead. Take a good hard look at your pay programs. (Go ahead, I’ll wait. I’m just sitting in my home office.) Did your approach to compensation properly differentiate those who were essential to either your day-to-day existence or your long-term future? Do your incentive plans promote the decisions, behaviors, and actions that truly define your success? Have you noticed if your recognition program was well suited for recognizing people?

While we may not know exactly what the world beyond the horizon holds, we can be certain it will not be exactly like the past. Our compensation planning must start today if we are going to be ready for whatever is ahead. Now is the time to ask yourself what you will do if your budget is 20% less. Now is the time to make your argument for where it should be 20% more. Now is the time to determine where your adherence to market practices has made your company better, and where it may have hobbled your ability to move forward.

We are not presented with many truly transformative opportunities moments in our careers. I can think of only two or three in my own career. But proactivity is the key to success. Those who leaped ahead of the pack were always those who saw the opportunity and drove the change. Your time is now if you are motivated to make it happen.

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.

Cafe Classic: All Decisions Are B.A.D. Decisions

Editor's Note: During this time of crisis and challenge, we are mining our archives to bring you Classic advice and ideas from previous tough times (because we've been around for awhile!). And as we all strive to do our jobs in circumstances that change daily, even moment-to-moment, it's an excellent time to revisit Jim Brennan's guidelines on B.A.D. decisions.

All decisions are B.A.D. decisions, relying on the Best Available Data known at the time.

Even compensation experts, supposedly the most analytical of HR types, have difficulties with data.  Makes sense to me, because all human decisions are B.A.D. decisions, made according to the “best available data” when action was required.   

When there is no good data, you must rely on the Best Available Data.  The resulting acronym (B.A.D.) is quite meaningful as well as memorable.  The process of making decisions without access to complete and perfect information occurs every day.  The best professional survey analyses involving “counts”, for example, report their reliability statistics.  And guess what they define?  The estimated rate of error contained in their statistical results.  Standard error is a vital measure because it predicts how much of a miss is likely when relying on the normative results derived from a particular observation sample.  It is much like the spread in the shot pattern you get from pellets dispersed by a shotgun; or from sand thrown by hand, where wet sand will be more densely clustered than loose sand. 

Every measurement, even the best, comes with a certain risk of error.  Tight standards of precision offer more hope of being “right” and strengthen the ability to make inferences from studies, but that is not always possible or useful.  The real world is filled with bad information, inadequate facts and missing data points.  And the opposite situation occurs, too, where you are flooded with contradictory information.  In this Internet world, it seems like anyone can find support for almost any contention somewhere.  Too Much Information (TMI) has become a catchphrase acronym. 

Relevance counts, as well.  Despite access to all the information in the world, you can never be sure that one particular answer will prove to be valid in your particular unique situation. 

Sooner or later, you may reach a point where you can only speculate before acting without perfect confidence.  Even in the numbers-oriented world of compensation management, Scientific Wild-Ass Guesses (SWAGs) still are required sometimes.  Operating in circumstances where useful facts may be missing  is a normal part of the total rewards profession.  The more often you enter uncharted waters, the more frequently you will find an absence of robust benchmark studies with relevant useful facts that can guide your choices, suggest options or demonstrate context.  Then, it is time to get B.A.D.!

The best approach when dealing with ambiguity generally is to define your assumptions, explain the risk level and give it your best shot.  For instance, if no one complains over an admittedly arbitrary guess about what you think a specific job should be paid, you are probably offering to pay too high and they don't want you to find out because it makes life easier for them.  When hiring managers grumble but are able to comply easily and operate adequately, then the approximation is probably just about right. 

If any SWAG based on the Best Available Data works out, then your B.A.D. decision will be the best possible outcome.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in most industries.  After corporate HR posts and consulting CEO roles, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

Cafe Classic: Scenario Planning and Reward Design in an Uncertain World

Editor's Note: During this time of crisis and challenge, we are mining our archives to bring you Classic advice and ideas from previous tough times (because we've been around for awhile!).

Compensation planning - like life in general - is a lot tougher in today's reality.  Many of us are wrestling with where (the heck) to take our reward plans amidst today's environment of uncertainty.

Perhaps we can draw some help from a technique in the business planner's toolkit.

Scenario planning, pioneered by the military in the 1950's and long used by some of the world's largest corporations, involves identifying a small number of "scenarios", predictions or possible paths the future might take, and defining how to potentially respond or adapt to each of them.  It should come as no surprise that recent times have brought a new surge in popularity for this particular planning approach.

A Knowledge@Wharton article, Eyes Wide Open: Embracing Uncertainty Through Scenario Planning, talks about this resurgence and covers some of the challenges involved in doing scenario planning effectively.

From the article:

Trying to gain a better understanding of the trends shaping the competitive environment has always been critical for managers. In the 1970s, scenario thinking first became relatively popular as a structured way to look ahead -- to understand new growth areas, anticipate risks, spot opportunities and build a long-term vision. Perhaps most notably, Royal Dutch Shell used the approach to look more broadly at the trends and developments that could impact the price of oil and develop stories that could challenge management perceptions. Since then, however, companies of all sizes and in many industries have picked up the practice, particularly at times of crisis or dramatic change.

George S. Day, a professor of marketing at Wharton and co-director of the Mack Center, also has witnessed the recent rise in scenario thinking firsthand. "What has changed to make scenario planning so timely? Obviously uncertainty is way up. This is the main driver, because when conditions are stable it's easier to live with momentum and the projections we normally use," he points out. "The challenge is that when things are very uncertain we need to think differently, because what we project based on current momentum may be the least likely outcome. We need to start thinking about the unthinkable scenarios -- and what's new today is people are finally figuring out how to do it well, in an environment with a huge amount of uncertainty."

My point? Simply this question: Are there elements of scenario planning that we - as a profession - should be embracing as we try to position our reward plans to support success in a near- and longer-term future that is difficult today to predict? 

Let's face it.  The days of simply plugging a new budget number into our compensation program and rolling it forward with a few tweaks are behind us, at least for the moment.  Right now, we need a dramatically different process that considers our reward structure against the possibilities the future may throw at us ... and asks questions like:

• What are the boundaries of possibility for our organization in the coming year ... and beyond?

• What might the possible scenarios mean for how we manage and reward our employees?

• What direction should/would we move our reward plans to respond to these realities?

• What, if anything, do we do today to ensure we would be appropriately positioned to make these moves, if circumstances demand them?

I'm betting that there are some forward-thinking practitioners out there who've already incorporated questions like these into their compensation planning efforts.  The rest of us ... well, time to learn up and get on board.

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.

Image: Creative Commons Photo "It's about rules and strategy" by pshutterbug