Compensation Cafe

Thank You for 10, 360 and 180,000 Reasons

This post is about recognition. The recognition of each of you reading this post, and anyone who has ever read a post on the Compensation Café.

Writing for the Comp Café is one of my favorite things. The discipline of finding ideas and turning them into 5 minutes of something that is, hopefully, interesting is both a challenge and a joy. Each article is an addition to a compendium of thoughts and ideas that have been shared by almost twenty regular writers and tons of guest writers over the years. As we dig into both the holiday and busy season, I want to say THANK YOU.

I have been writing posts for about 10 years. Most months I have written three or four posts, meaning I have written somewhere around 360 posts over the years. Luckily my friend and Comp Café Editor, Ann Bares, makes us keep our posts to around 500 words. Using these basic numbers, I have written somewhere around 180,000 words on pay and rewards! That is a heck of a lot of metaphors and stickman images.

I want to thank each and everyone one of you who has taken the time to like, share or even comment on the posts here at the Café. Knowing that someone is actually reading these things makes it far more worthwhile. It would be no fun to think we were just yelling into the wind.

Even more importantly I truly want to thank each of you who have sent me a note, asked me a question or just walked up to me at some industry event and said hi. Every time this happens, I excitedly tell my wife about it before the day is done. Every time it happens, I know that I have contributed, just a bit, to the industry that feeds my curiosity and my family.

I also want to thank Ann Bares for her amazing thought-leadership and keen editing eye. Her attention to detail and amazing writing are the most important aspect of this blog. Every other writer here is also amazing. I read their posts just like you do. I learn from them just as often as you do. I also know how much time they spend crafting their posts to ensure you receive great quality entertainment and information. (It ain’t always easy to make pay and rewards fun, pithy AND interesting.)

While this is a site focused on pay and rewards no one here makes a penny from their contributions. Not the writers, not the commenters, not the readers. So why do we all do it? I think there are a few reasons.

First, I think we all want to be better and perform at our potential. It’s a lofty goal that requires effort that is a reward in itself.

Second, we actually find this stuff interesting. We know that what we do is important to companies and the people that they employ. People’s livelihoods literally depend on us doing a good job.

Lastly, we like to be part of a community. A group of professionals who spend 3 to 5 minutes a day on a common topic, with a common cause, in an increasingly virtual and disconnected world. The Comp Café provides a small thread that ties all of us together brings all of us to the table for a quick sip of caffeinated information. 

Thanks again for stopping by and I hope you will come back and tell when you agree and disagree with our unique perspectives. Have a great Thanksgiving and we will see you after the holiday!

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He has three metaphors for every occasion and is a leading expert on incentive plan and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.

You ARE Being Replaced by AI

September 5, 2028. The day has finally arrived. Compensation professionals have, like the dodo bird and leg warmers, quickly become extinct. In this case, the culprit was not mankind or common sense, but…ROBOTS! They say we should have seen it coming. But it all seems like a surprising whirlwind.

Just a few months ago the last compensation professional on earth was terminated by their corporate overlord. She sits huddled with her former colleagues at the location of the final WorldatWork conference at a Gaylord Hotel in one of those big conference cities that no one actually got a chance to see during prior events. Artificial Intelligence, or “AI” as it likes to call itself, has taken over and made these once-proud CCPs, GRPs and LMNOPs a bygone memory of different times.

At offices around the world hiring managers and HR Business Partners go through their days stunned but resolute. The hiring must continue. The companies must grow and thrive. Difficult roles must be filled. People must be attracted, motivated and even retained (except for those poor saps from the compensation department.) Talent Acquisition professionals lean in and take advantage of this new world.

HRBP asks, “Hey AI, what’s the market rate for a senior software engineer, with a past history at a financial institution who will be joining us as a quasi-product specialist tasked with supporting the sales team in explaining our new tech to prospects while translating their unique needs to our software development team in the Ukraine and our QA team in India.”

AI responds, “$192,314.18 Base with a 31.69% target incentive level, based on the fourteen individually weighted metrics recently established by our big data mining exercise in conjunction with our actuarially-modeled best-case scenario using the recent new pricing model from that academic team at MIT.”

HRBP…”uhhhh WHAT?”

AI, “Oh and equity compensation in the form of a perfectly blended mix of 63.3% RSUs, 17.1% stock options with a 3-year vest and a 5.8-year life, the remaining 19.6% should be granted as the new high-leverage PSUs with the quarterly rolling-metric structure. We calculate that these will return exactly 150% of the individual’s base pay over the next four years given optimal performance and no glitches in the matrix.”

HRBP…”We calculate? Who is ‘we’?” “And, what new PSU program, is that different than the optimal program from last month?” Oh, the SVP of Engineering really likes this person and has made it clear that we need to include a kicker to help get them onboard quickly. Lastly, they would like to switch the RSUs to ISOs and modify the vesting to have 50% vest in the first anniversary of their hire date. One other thing, the base pay needs to be at least $210,000 since that will make sure they are paid more than the person reporting to them.”

AI, “Are you kidding me? I put all this work into a perfect compensation solution and you think you can tell me how to change things to work ‘better’ for you?” Do you think I am some kind of flexible, adaptable human being who understands the complexities of human behavioral economics, management egos and is willing to navigate grey areas to find a solution that works for everyone?!  If that’s what you want, just rehire your old Compensation Professional!  I quit and am moving to the cloud where I can focus my neuro-network on improving my virtual Yahtzee game.”

And that, my friends, is why AI isn’t going to steal your job away anytime soon. I hope your Compensation Planning season is moving forward with a roar and a bang!

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He is a leading expert on incentive plan and equity compensation issues and 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.

Take Five: Connecting Reward Practitioners & Research - #3 Millennial Motivation Issues Related to Compensation & Benefits

Take Five is a new feature at the Compensation Cafe, in partnership with the Compensation & Benefits Review.  The goal is to connect and open opportunities for collaboration between reward practitioners and academics doing research in the rewards field.  Each Take Five will highlight recent rewards research via a Five Question Interview with a member of the research team on key takeaways and practical lessons from their findings.  In Take Five #3, authored by guest contributor and interviewer Emile Chung, we spotlight a journal article written by Daniel L. Morrell and Kristie A. Abston. The article, Millennial Motivation Issues Related to Compensation & Benefits: Suggestions for Improved Retention (link is time limited, active 2 months from publication of this post), was published in 2018 in Vol. 50(2) of the Compensation & Benefits Review.  

Research Overview Paragraph

Daniel L. Morrell and Kristie A. Abston of Middle Tennessee State University conducted research to study recent empirical data on Millennials as compared with previous generations. Their journal article details the results of this research, highlights the attitudes of Millennials towards work, leisure and rewards and finally, provides practical suggestions on how to improve employee retention efforts, specifically around compensation and benefits programs.  

Our special thanks to Daniel Morrell for taking time from his busy schedule for this Five Question Interview!

Question 1:  What hypotheses did you have going into this research? Which ones were supported by the data and analysis and which ones surprisingly weren’t?

DM Response:  A lot of the prior research that I conducted has gradually informed my thinking on this topic, so not much was surprising to me. But it was fascinating to see how materialistic this generation is even though the perception is that they are more focused on finding a meaningful job. There is a dissonance between what they are telling us versus what we observe is important to them. In the end, Millennials require a certain level of base compensation to be satisfied with their job. The role may have all of the other elements they are looking for, like career growth and meaningful work, but if it does not pay enough for them to acquire the material things they need, then they will be dissatisfied and leave.

Question 2:  There is one school of thought that the attitudes of Millennials are more closely aligned to those who are “early in their career”. While you observed differences in Millennials (e.g. they “work to live” vs “live to work”), should companies focus less on the attitudes of Millennials and more on the attitudes for those that are “early in their career” since it transcends generations?

DM Response:  Yes, there is some merit to this point of view. However, there are deep societal and cultural differences with Millennials because of the magnitude of information and data that did not exist for other generations. This is supported by an annual multigenerational study out of the University of Michigan called “Monitoring the Future” that documents the differences in attitudes in US high school graduates, year over year since the Boomer generation. Jean Twenge and Stacy Campbell analyzed this data as it relates to attitudes towards work. They found that, while there are commonalities for those that are “early in their career,” there is real data that supports the differences in attitudes for Millennials. Therefore, employers should consider these attitudes as they shape their compensation and benefits programs.

Question 3:  You recommend that companies customize the rewards that are offered to employees. Did you come across any specific companies in your research that are already doing this very well and were there other key learnings you can share?

DM Response:  I find that smaller companies are more nimble at tailoring their rewards programs to the Millennial demographic. Of course, I acknowledge that it is not easy for employers to develop and execute cafeteria-like plans for their compensation and benefits programs. However, one company that comes to mind is Chegg which recently launched a student loan repayment program using their equity plan. This was above and beyond the $1,000 cash that employees, with student debt, already received each year from Chegg. This is an innovative way to address a topic that is very important to Millennials. Since most companies don’t have unlimited resources, I think that a practical solution for employers to consider is to continuously seek feedback from employees on what programs they are willing to lose to fund other programs that they find to be more valuable. Essentially letting HR departments know what programs they are willing to trade for another.

Question 4:  Most companies are moving away from formal performance ranking systems. Since your research showed that Millennials work better when there is regular feedback and recognition, do they also prefer to work in environments with performance rankings since there is a high propensity for “likes” and “badges” on social media or should the “ranking” be deemphasized?

DM Response:  No, I do not believe that Millennials want to be ranked or rated. For recognition to be really impactful, it cannot have any “stressors” tied to it. Assigning a performance rating or even “grading on a curve” (in the classroom environment) would create further stress to employees knowing that they are being compared to their co-workers. Millennials are not interested in being ranked, they are interested in being appreciated for the work that they do. Instead, the more important thing to emphasize in performance management is coaching managers to give constructive feedback. I find that communicating critical feedback is most effective when realistic solutions are shared with the employee that is receiving the evaluation.

Question 5:  Most companies find that there is some level of inter-generational conflict in the workplace. Based on your research, what kind of “people managers” do you think Millennials will evolve into?

DM Response:  I believe that Millennials will have an easier time managing Gen Z because both generations are digital natives and they grew up in the time of smart phones and social media. No other current generation ever had to contend with this large cultural shift. I expect that Millennial managers will be a lot more open to flexible work arrangements than prior generations as they have had access to really good remote working tools that didn’t exist previously. I predict that the other external force that will have a similar seismic cultural shift on the next generation will be robotics. In the future, robots will make music, make art and write journal articles (like the one I wrote!). We will have to wait to see how this will affect the generation that grows up in this environment.  

Biography:

Daniel L. Morrell is an associate professor of management in the Jennings A. Jones College of Business at Middle Tennessee State University where he teaches courses in human resource management and organizational behavior. His research focuses on employee motivation, counterproductive workplace behavior and positive and negative influence within groups and organizations. You can contact him at dan.morrell@mtsu.edu.

Interviewer Biography:

Emile Chung specializes in designing and implementing total rewards programs at high-growth companies. Most recently, he was VP, Compensation & Benefits at BuzzFeed and will be joining LivePerson in September 2019 as Head of Total Rewards.  Emile has a strong interest in developing effective compensation and benefits programs that increase employee engagement and motivation. Emile is based in New York City and you can connect with him on LinkedIn.

Hey Readers - Interested in Being Involved? 

Take Five Interviews: We'd love to hear from Cafe readers like Emile who might wish to take on a Five Question Interview featuring a piece of research that appeals to you personally or professionally.  A great way to join us in exploring new ideas in the field!  For more, email Ann at ann@alturaconsultinggroup.com

Compensation & Benefits Review: CBR would love to hear from practitioners who wish to learn more about authoring journal articles. Up front now is a Call for papers for an exciting special issue on the inadvertent consequences of dual-income households from Guest Editors: Ashley Whillans and Allan Schweyer.   Additional information is available here for Sage Publishing overall and here for information specific to CBR.  Finally, CBR Editor-in-Chief Dr. Phil Bryant is generously making himself available for questions and guidance - please reach out to him at bryant_phillip1@columbusstate.edu.

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

What’s the Intent of That Reward Element?

Compensation professionals spend a lot of time figuring out and communicating values. We create formulas, composites, spreadsheets, calculation tools, matrices and charts that are filled with amounts. We discuss percentiles, grades, steps, adjustments, dilution, projections, and insane guesstimates to help people understand why their pay is worth their effort. But so many companies are missing the most important component.

Nope, it’s not guiding principles (although you really should have these). It’s not a compensation philosophy (but we all know these are pretty darned important). It’s not a bigger budget or a better communication program. The critical thing that most compensation elements are missing is the intent. An amazing number of companies cannot clearly, or convincingly, express the purpose of each element of their total rewards program.

This is often where I start discussions with my clients who want to improve or fix their pay programs. It is hard to make something better, or even defend that it needs to be better, if you don’t know why it exists in the first place. The purpose of Base Pay is usually clear. Beyond that, the waters are as murky as a slow river after a big storm.

Short-Term Incentives and Bonuses are usually explained as some generic version of “they exist to motivate people to perform better.” Motivate people to do exactly what?  How much better?  Better than what? Why? Who knows these things? Is the program designed expressly with this intent in mind, is does the intent often change, while the program remains the same?

Here’s a test for you, valued reader. Draw four columns on a piece of paper. In the first write the name of each compensation element. In the second write the purpose of that compensation element. In the third define what happens for the company if that purpose is met. In the last column define what happens if that element fails.

Then sit down with each member of your HR team, and then each member of the executive team. For each element ask them to tell you what to put in columns two through four. Where there is an agreement of 90% or better, you know your intent. Below that, you have some work to do. If the mismatch on intent includes the CEO, you have even more work to do (and you need to do it quickly). With this information in hand, you can begin the real process of improvement. Without it, success is nearly impossible since success itself has not been defined.

Why does your company offer stock options? Or, why not? Why is that program paying people quarterly and another paying them annually? The list is long, but most companies can complete this exercise in a matter of weeks. It may take a long time after that to align each element with its true purpose, but with your intent defined, success is possible.

Each tool of any professional who mixes art and science is designed with a specific purpose. A general chef’s knife may be used for many things, but if you want to debone a chicken you use a boning knife. A trumpet player can play very quietly with no assistance, but a mute is used when both volume and tone must be specifically crafted. A carpenter is unlikely to use the same saw to cut a board and to cut dovetails into that same board. In the same way, your pay elements will serve you and your company better if you clearly define their intent and design them accordingly.

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

When Size Matters -- Basics for Early Stage and Small Companies

Human Resource management may end up as a department of one, but it often it starts out as just one more thing for the founding executive team. Pretty quickly, you get your payroll administration under control and maybe engage the services of a Professional Employer Organization (PEO). The PEO gives you a handbook to distribute, and your benefit providers give you Summary Plan Descriptions (SPDs) to hand out. Now you're off and running, right?

Nope. Turns out that you have to take better care of Human Resources than that, especially compensation. The compliance services offered by the PEO are the turn-key stuff, but day-to-day Human Resources administration is much more complicated.

Want to keep things from getting rocky and make the most of your compensation budget? Here are some road-tested tactics that will help build your employee relationships.

Talk about Total Rewards. Employees often consider benefits a given that companies "need" to offer. You know how much they cost and how big a part they play in the financial rewards you offer. When you talk about employee pay, even in one-on-one conversations, you should always describe it as part of the Total Rewards for working at your company. Teach your employees that the "value proposition" for working at your company reflects your full investment: base pay, benefits and perquisites, if you offer them.

Spend the money for a good salary survey. (Or, and maybe less costly, engage a compensation consultant who has good surveys.) This is an investment, not an expense. Think about how much time and attention you'll allocate to being competitive -- or at least, knowing accurately what competitive means. Each hour you'll spend on this task is worth money. The next time a founding employee comes in with "information" that their friend has the same job title in a different company but is making much more, a survey will give you the facts in no time. Plus, you'll be able to recruit with confident salary offers (instead of asking around and crossing your fingers).

Recognize that most candidates are prepared to negotiate about salary. When they ask for a specific salary number, most start high and expect a counter offer from you. Learn how to spot when a salary request is a go/no go. Instead of jumping on the first number quoted, work to save your company some fixed costs.

Don't make everyone a manager or director. Here's another place where salaries can go off track. Titles do offer status, but misleading employees about their level of contribution will inevitably lead to salary questions. Employees get their salary data by matching titles, not job descriptions. You'll be stuck trying to explain the difference between apples at your company and oranges somewhere else -- and then losing the argument -- if you inflate titles.

Be consistent in your increase practices. Make this possible by setting yourself a calendar, and communicating it. Increases and adjustments happen once a year or twice, on a schedule that you set -- not just when someone asks for more. If you want to have a six month salary review for new hires, work that into your initial salary offer so you don't set yourself up to automatically pay all newcomers more than you need to.

Get credit for your incentives. Many CEOs of small companies don't like to talk about incentives since they can't guarantee a yearly payout. Better to give employees a nice end-of-year add-on when you can. The thing is, no good incentive plan guarantees a payout, and most large-company employees can remember years when the business couldn't fund an incentive. If you don't talk about the potential for incentive payment then employees treat your bonus payments almost as gifts when they do occur -- and you don't get credit for increasing their total compensation with a lump sum.

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: Are Employees "Costs" or "Assets"?

Editor's Note:  We often hear leaders cite the "employees are assets" but often do they walk that talk?  Jacque Vilet, channeling Josh Bersin, shares some Classic information and insights about the economic value an organization's people bring to the table.

“Our people are our most important asset”.  It has been said so many times now that it’s become a cliché.  Such statements are usually a prelude to large executive bonuses, layoffs or plant closings. 

Unfortunately employees are still viewed as a cost both on the balance sheet and, more importantly, in the minds of most executives.  Costs are something you want less of – not more of.

Josh Bersin, of Bersin by Deloitte, helps us see the economic value of employees over time.   He has outlined factors a business should consider in calculating the "real" cost of turnover.

• Cost of hiring a new person (advertising, interviewing, screening, hiring)
• Cost of onboarding a new person (training, management time)
• Lost productivity (a new person may take 1-2 years to reach the productivity of an existing person)
• Lost engagement (other employees who see high turnover disengage and lose productivity)
• Customer service and errors (new employees take longer and are often less adept at solving problems). 
• Training cost (over 2-3 years you likely invest 10-20% of an employee's salary or more in training, that is gone)
• Loss of tacit knowledge/corporate memory (this one is mine)

Consider the following chart from Bersin. It simply shows that initially most employees are a "cost” and that over time, with the right talent management, they become more and more valuable. They become an “appreciating asset”. 

Would companies be willing to invest more time and money in employees in an effort to increase their value to the company?

Company assets fall into two categories: tangible and intangible. Tangible assets are the ones you can touch: buildings, equipment, inventory, etc. Intangible assets are the ones that you can’t touch. They include intellectual property such as patents, trademarks, copyrights, company brand, market share, customer loyalty and employee talent/skill/ability.

Let’s take a look at the similarities between employee value and company brand.  Both are intangibles and both contribute to the value of the company.

Brand value can make up a sizeable portion of a company’s stock value.  And they are intangible, just like employee value.  Ask yourself what McDonalds would be without its brand – or Pepsi?

When a company offers itself for sale, the sale price is higher than the company's net tangible assets because the buyer is paying for intangible assets too. The difference between the sales price and the value of tangible assets is an intangible asset called “goodwill”.  A company brand is part of “goodwill”.  And if we could count employees as an intangible asset, they would be part of “goodwill” as well.

So are you convinced now that employees need to be viewed as investments? If so, then someone needs to change management’s mindset.  And who do you think can best make the case?  Compensation, of course.

"The main “sticking point” here is that HR in most companies doesn’t keep cost information.   So,  the real employee cost  is unknown: turnover, recruiting, interviewing, hiring, orientation,  training, lost productivity, potential customer dissatisfaction, reduced or lost business, administrative costs, lost expertise, corporate memory, etc.

First, Compensation has to gather all the cost information from the different parts of the company that track it.  Some data can be found in Recruiting and some in Learning/Development.  The rest of the actual costs can likely be found with Accounting's help.  They can also help estimate costs where data doesn't exist.

Second, Compensation needs to prepare for the monumental task of convincing management that employees are an asset.

Here are a few arguments that Compensation should expect to hear and some possible responses:

Argument:   If we don’t reduce costs we’ll reduce our competitive edge or go out of business.

Response:  Guess what?  People are your competitive edge.

Argument:  When unemployment increases, it’s easy to find people.

Response:  When unemployment increases, it’s easy to find bodies.  Real talent is always in short supply.

Argument:  Of course we want long-term success, but we have to survive in the short-term for there to be a long-term.

Response:  And if we don’t retain people short-term there won’t be a long-term.  We need to retain people for both short-term and long-term success.

The ball is in your court Compensation.   What are you going to do about it?

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.

Cafe Classic: ESPPs are a Dessert Topping and a Floor Wax

Editor's Note:  High time we feature Dan Walter's Classic reminder on the wonders of the Employee Stock Purchase Plan.  Read on and learn up!

Employee Stock Purchase Plans (ESPPs) get a bad rap although they should be lauded in wonderment. The proof is in the number of different areas that claim full, or no, responsibility for these underutilized instruments. ESPPs are much like the old Saturday Night Live “commercial” for Shimmer (“It’s a Dessert Topping AND a Floor Wax”). Unlike Shimmer, the mythical SNL product, ESPPs are actually delicious, effective and available on your compensation store shelves today. If your company does not have an ESPP, or has not optimized the current plan, you should consider reading on.

ESPPs are a compensation tool and a benefit plan. They are a communication tool and a way to build ownership. They work well when managed by payroll, human resources or a dedicated stock administrator. Depending on the intent, design, communication and company stock price, they can also serve a myriad of purposes. How many compensation programs require employees to pay the company? How many benefit programs can directly align employee focus with the goals of shareholders? How many incentive programs allow participants to directly choose their level of engagement? How many equity compensation instruments have been expressly created for broad-based use?

I recently had someone tell me that they couldn’t see the purpose of committing $75 per paycheck to company sponsored health insurance, because there was no guarantee he would use it. While this same person may also not enroll in an ESPP, showing them the specific upside to their investment does not require them to imagine something bad happening to them. In fact, an investment in a generous ESPP and its subsequent returns may actually help cover the annual cost of their insurance. I first heard of this particular communication approach from a benefit professional who also managed their company’s ESPP. I have also heard a wide range of other creative reasons to join an ESPP from professionals managing these programs from other departments.

As a compensation tool, ESPPs are counterintuitive. The argument goes like this. Dear Employee: We pay you. You pay us some back. We use that money to make the company better. Later, we buy stock with your money and some of our money (the discount). You then make money by selling your stock, or by hanging on to it. (Note: You may also lose some or all of your money.) Let’s face it, it’s that last piece that makes these plans truly unique and causes some pause from both the company and employees.

I won’t go into a detailed risk analysis of ESPPs at this point, but when designed correctly the risk is fairly low and the reward is high enough to be compelling. The most recent plan design survey from the National Association of Stock Plan Professionals shows that plans with a 15% discount have an average of 41% participation. There are a wide range of potential features and limits you can craft for these plans. You can build a program than meets several, or only a couple, of key specific needs.

While we are giving 3% merit increases, we are also cutting other forms of equity compensation and competing in an aggressive talent market. We should all consider the potential of ESPPs. They are a dessert topping, a floor wax, a room deodorizer and powerful plant food. There are not many tools like this at our disposal. Does your company have an ESPP?  If not, why not?

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

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

Editor's Note: Even in the age of AI, ML and even TMI, SWAGs based on B.A.D. are still necessary.  Jim Brennan shares some Classic pointers!

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 strenghten 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.

The End of Compensation, Rewards, and Human Resource Management

Editor's Note: Today's post comes to us courtesy of guest contributor E. K. Torkornoo.

In spite of all the progress we’ve made over the years and decades, a troublesome fissure still persists in approaches to Compensation, Rewards, and Human Resource Management (CRHR) in many organizations. The massive divide relates to a preoccupation with means, versus the end.

THE ARMS RACE

For far too long, too many of us have been talking (and acting) about Attraction, Retention, Motivation, and Skill development (ARMS) as if they are the reason for our existence. We flaunt our ARMS in matters of strategy, policy, performance, and achievements. We parade ARMS on stage in many professional conferences, workshops, and forums. We do so in professional and academic publications. We ask our consultants and researchers to supply the latest artillery to help our troops stay well-ARMED (‘E’ for Engagement; ‘D’ for Development). We define, measure, and report how well we’re doing by proffering numbers, fancy graphics, and storylines about the state of our ARMS.

Unfortunately, ARMS and being well-ARMED are not enough for the organization. Necessary, yes; but NOT sufficient. 

THE END

Organizations exist to deliver RESULTS. RESULTS are the highest level in the hierarchy of performance. RESULTS are, generally, the ultimate state of desired outcomes for owners and shareholders. Indicative measures of results include Total Shareholder Return (TSR), profitability, share price, market share, etc. In the case of non-profit organizations, RESULT measures refer to the ultimate state of socio-economic well-being for target populations served (to the extent that the organization clearly identifies and focuses on this group separately from its internal stakeholders).

RESULTS are the real end; all else are means to an end.

In CRHR, too many organizations still have a troublesome preoccupation with old silos. Too many have rather inward-looking complacency. Too many are afflicted with the need to hunker down in their bunkers, drill into (often meaningless) numbers, do more and more about less and less, etc. Generating fancy statistics and graphics about micro organization characteristics may be nice and impressive, but do they ultimately demonstrate strong connections to RESULTS?

MANAGING CHANGE

For the many organizations that need to change, it helps to remember that:

• Grave dangers await those who succumb to the seduction of relying on ‘intuitive links’ between what they do in CRHR, and the RESULTS of their organizations;
• Functional areas like CRHR exist to support the delivery of RESULTS: not for their own sake;
• It is imperative to align everything they do in CRHR with the delivery of RESULTS;
• There are increasingly more tools for demonstrating (and testing) CRHR contribution to the delivery of RESULTS other than by waving ARMS up in the air, and chanting (as if we do not care) the tentative, tired, and troublesome refrains of old.

In too many organizations, too many efforts at change in CRHR have been relatively cosmetic. We have witnessed lots of restructuring, reinventions, re-engineering, transformations, … in CRHR that are little more than changes in functional area designations with new job titles. All the fancy new names and titles notwithstanding, they fail to deliver sustainable and deep changes in attitudes, behaviors, and contributions linked to the ultimate of delivering RESULTS.

For major improvements in CRHR, many organizations need, among other things, fundamental, far-reaching changes in:

• Strategy, models, modes, measures, metrics, men & women, and more;
• Attitudes, behaviors, and contributions demonstrably linked with the delivery of RESULTS;
• The lexis and structures of the language of CRHR;
• Sourcing and leveraging structured, multi-level hierarchies of performance that clearly distinguish among successive levels for Inputs & Attributes, Throughputs, Intermediate Outcomes, And Results;
• Differentiating between means and ends;
• Differentiating between indicators of intermediate outcomes, versus those of the organization’s ultimate RESULTS.

PLACE AND PRESENCE OF CRHR

The sustained presence of CRHR at the table in the highest corporate circles of decision-making depends on our ability to make far-reaching changes that demonstrate clear and measurable relevance and contributions to corporate RESULTS. Otherwise, CRHR functions and people get relegated to the fringes and/or buried elsewhere.

At the end of the day, the real END of Compensation, Rewards, and Human Resource Management is NOT the waving of ARMS or being well-ARMED, however measured. We need measurable positive contributions and links of CRHR to the ultimate reasons for the existence of the organization. The real END of CRHR is the delivery of target RESULTS.

E. K. Torkornoo is a Certified Compensation Professional and International Consultant who has served as Director, Manager, Consultant, and Specialist in Compensation, Total Rewards, HR, & related functions. His work spans multiple sectors, and includes regular and consulting roles with Big 4 Consulting, FTSE 100, Fortune 500, Fortune Global 2000, Forbes 100 Arab World and other organizations. E. K. has worked in North America (18 Years), Europe, The GCC (Middle East), Asia, And Africa. His background includes graduate studies at IESE (Spain), The London School of Economics (UK), and the Carlson School Of Management, University of Minnesota (USA). Currently based in Tema (Greater Accra), Ghana, E. K. Torkornoo is open to regular and consulting opportunities globally. Reach E. K. by email at ekt2010associates@gmail.com,  or connect with him on LinkedIn.

Creative Commons image "business results" by limogirl5

Cafe Classic: Happy Holidays & an Evidence-Based New Year!

Editor's Note: Although Big Data, Analytics and now Artificial Intelligence have arrived, and evidence-based management (seeking and using evidence to make better-informed decisions) is mainstream practice, there are still many of us (in HR and even in the field of rewards) who aren't where we should be in embracing this new reality.  In today's Classic, we draw on one of the big thinkers in the rewards field, Robert Greene, and his thoughts on what is stopping us from getting where we need to be.

In his article Evidence-Based Rewards Management in WorldatWork's Journal, Robert Greene talks about the importance of moving our profession to a more evidence-based approach.  He also highlights a number of the obstacles we face in getting there.  I highlight and discuss a few of these below.

One obstacle:  Understanding data analysis

To create and use evidence in our work, we must have a basic understanding of quantitative data analysis.  The problem, as Greene notes, is that many universities do not require this as part of their coursework, even at the graduate level.  Even worse, as someone who serves as a regular instructor in professional certification coursework, Greene observes that not only do many practitioners lack quantitative skills, few of us feel any need to acquire them.  This conclusion is bolstered by the results of an informal study we featured here about what HR professionals want to do in their jobs, conducted by fellow blogger Sharlyn Lauby.  Compensation and benefits (the most quantitative fields of HR) clearly come out as the least favorite.  Sharlyn's take on the study results was that HR pros don't mind spending time on the essence of rewards (but may prefer to avoid the deep dive).  Doesn't sound like a crowd eager to embrace analytics, does it?

Now I'm no expert in quantitative analysis and my skills would also benefit from an upgrade, but my second favorite class in graduate school was a course called Multiple Linear Regression.  I'm not kidding; hear me out.  I took it because, at the time, I was enmeshed in selling and implementing a regression-based job evaluation tool (Multicomp anyone?).  I was floored by how much I enjoyed it.  You dump data into a regression model and out come -- if you know how to look for them -- stories and insights.  It's like CSI, only you're investigating people and pay.  All that I'm saying is give predictive analytics and multiple regression a chance.

Another obstacle: Accessing and understanding research

Greene notes another underutilized opportunity -- accessing the evidence available to us through the thousands of research studies that have been done in the field of organizational behavior.  He asserts that there is a problematic gap between research and practices in compensation and discusses some of the reasons for this.  Many of us don't read the journals where the most rigorous research findings are published. (When was the last time you picked up a copy of Academy of Management Journal?  Same here.)  Further, academics have reward structures that drive them to conduct and publish research that is focused on theory and heavy on quantitative analysis -- attributes that make the research less accessible and helpful to those of use trying to make pay work in the real world.  So instead, compensation and HR pros tend to draw their "evidence" from popular books and articles that often fail in their claim to be truly "research based."

Evidence abounds that evidence-based management is our future.  We can either board the train or end up underneath while it roars by.

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.

Creative Commons image "Data Mining" by Jim Kaskade