Compensation Cafe

Cafe Classic: Why Employees Actually Leave (Hint: It's Not Money)

Editor's Note:  Why do employees leave?  How much alignment is there between why managers think employees leave and their actual reasons for doing so?  Derek Irvine shares some great research and perspective on the topic.  

I recently had the opportunity to enjoy a quite good HR.com-sponsored webinar led by Leigh Branham, founder of Keeping the People, Inc., and author of The Seven Hidden Reasons People Leave. Leigh has been researching employee engagement and retention best practices for the last two decades and shared with the webinar participants his findings from deep analysis of employees included in the Saratoga Institute study (which included 20,700 surveys from employees in 17 industries, and 4,500 verbatim comments).

While I have eight pages of notes from the webinar I’d like to share with you, I’ll attempt to boil it down to the main points most likely of interest to compensation pros.

A significant gap exists between why managers think employees leave and why they really do.

This screenshot from the webinar states the facts, but the why of the story is most interesting to me. When asked why this discrepancy is so pronounced, Leigh mentioned 3 reasons:

1. Far more employees (53%) leave for “push” factors (bad manager, poor culture, etc.) than employees who leave (10%) for pull factors (better opportunity, spouse relocation, etc.).
2. Managers don’t want to believe they’re at fault.
3. In exit interviews, employees don’t want to burn bridges by being honest about why they’re leaving, so they’ll say the new position offers them more money.

Layered on top of this are conflicting survey results depending on source. For example, asking employees who are not yet actively searching for new job why they might consider leaving often leads to a far greater response of “better pay or compensation.” But if you ask employees in an exit interview – those already out the door – why they did leave, and the instance of “better pay” as a response drops dramatically.

Better pay alone or more perks cannot fix the problem of employees how feel undervalued and unrecognized.

Leigh shared 10 ways employees feel devalued, all of which point to soft skills and poor management, not necessarily to poor pay structures. Being ignored or, conversely, being micro-managed are just as detrimental to employee engagement and retention. Globoforce’s Fall 2012 Workforce Mood Tracker showed that 61% of active job seekers are dissatisfied with the recognition they receive at work while 78% of employees who were recognized within the last six months report “I love my job.” Simple recognition and appreciation – frequently, specifically and from anyone in the organization – is critical to creating an engaging work environment and culture.

Pay and benefits are growing as areas of concern in recent years.

In the last few years, Leigh has seen an increase in the incidence of reporting pay and benefits as a significant issue for employee engagement (increased form 12% five years ago to 19% last year). This isn’t surprising as employees saw their pay cut or frozen and benefits removed. As Leigh put it, “We tend to value things that have been taken away.”

Lessons Learned

1. Create survey instruments or methodologies that deliver more reliable information. Leigh recommends having exit interviews conducted by third parties as employees are more likely to be honest in those scenarios. Conduct regular stay interviews to catch employees who may be near a “tipping point” decision to leave before they get there.
   
   
2. Respond to the reality of today’s workforce, not the experiences of the past. A great deal of research and experience shows that boomers and traditionalists don’t require (or at least say they don’t) the level of recognition and feedback Gen X and millennials need. Indeed, 71% of Gen X employees say they would appreciate more time off than a pay increase (which makes sense as they are the “sandwich” generation trying to balance the needs of both children and aging parents). Managing to the needs of the Gen X and Gen Y is critical and, ultimately, helpful for all.
   
   
3. Restore benefits and pay as quickly as possible. The job market is opening up and employees who have been on the fence in years past now have many more options. As Leigh pointed out, only 29% of employees who were actively seeking new job opportunities said their decision to leave caused them to give less effort. Nearly half said they cut their effort somewhat or a great deal. And these disengaged, actively seeking a new job employees can be in that mental state of unproductivity for months or even years – while still on your payroll. It’s time to restore pay levels and benefits as rapidly as is fiscally responsible, or any profits made through continued pay and benefits cuts rapidly disappear due to disengagement.

What causes you to disengage at work? The last time you changed jobs, what was the major factor “pushing” or “pulling” you out the door?

As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is a leader in the WorkHumanmovement and the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Cafe Classic: Disengaging from Compensation Schemes

Editor's Note: What to do about a reward plan that has outlived its purpose and fit?  Always easier to pile on more than to prune or even dig up and dispose.  Today we feature Jim Brennan's Classic on the importance of facing up to this problem, including some discussion starters on how to go forward.  Enjoy - and add your thoughts/advice!

No reinforcement program or incentive plan works forever; but they seem to last forever, lingering on long past the day when their effectiveness expired.  What can we do about it?  Tradecraft literature concentrates on new ideas while giving short shrift to how you erase old ideas that have lost their luster.  Searches on “disengagement” all show topics about employees becoming psychologically distant rather than how you end ineffective motivational plans.  It is about time that we collected the best suggestions on how to back out of reward programs that are still valued and prized by recipients who don’t want to lose them.

Every experienced compensation professional knows it is extremely difficult to disengage from any system seen as a significant part of the total reward “contract” with employees.  Simple expectation theory teaches us that once people receive a consequence perceived as valuable, they want it to continue infinitely.  One of my Brennan’s Laws is, “Old entitlements never die; they just accrue.” 

Examination of overall remuneration systems at mature enterprises usually reveals multiple overlapping redundant layers of reward programs and incentives that have been added over the years.  An expert house painter will strip off the old paint so they can most effectively lay a new coat on a freshly cleaned and newly prepared surface.  Maybe we compensation people should similarly strip our jumbled batch of simultaneously administered reward programs down to a clean simple basic core foundation before adding anything new.  Cost-justification is vastly simplified if a promising new plan replaces old ones known to be flawed.  At least, we should explore how to maneuver the organization into a position from which it is possible to add something new without stepping all over the existing redundant or ineffective stuff that has accumulated over time.

Old reward programs take on a life of their own.  Once in an annual budget, they are (relatively) easily renewed.  They become taken for granted, both by management and by the employees, readily accepted as a fixed cost.  One would think that the past decades should have given us many opportunities to practice disengagement and to gain experience about which methods work best in what situations.  The fact that you can’t easily find such information is depressingly informative.  Few enterprises make money by recommending that their clients reduce expenses; after all, they want to be paid themselves, and that generally means an increase in expenses, so they tend to jump enthusiastically on the “invest a penny to make a dime” train.  Rarely do you see consultants saying that their client should end a popular but expensive compensation scheme.  By the way, I see “scheme” as the British do, as a neutral synonym for a “plan” rather than meaning a “wicked nefarious plot”.  No, rather than drop programs, consultants are expected to create added  programs that pay out more money on top of the sums already being dispensed; otherwise, the authors of the pre-existing reward plans have to admit they are flawed or no longer appropriate.

Enough of background chatter stating the obvious problem.  Let’s get down to potential solutions.  Naturally, they will not be universally useful.  What works very well in one situation may be completely ineffective in a different environment; but we have to start somewhere.  To prompt more thoughts, here are some initial quick suggestions on how to withdraw from a reward program:

• Buy out pre-existing programs with a one-time cash payment
• Fold old systems into new incarnations
• Wipe the slate clean by cancelling all current incentives as a date certain, then redesigning all
• Incorporate expiration dates into existing plans 
• Forbid the addition of any new program until others have reached their drop-dead dates

What else can you suggest?

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.

Image courtesy of wallstreetsectorselector.com

Growing a Healthy Compensation Program -- DIY Communications Guide

This is the third article in a series.

"An appropriate application of ingenuity." That's a great way to describe how you'd be handling employee communications when you are leading a small or mid-sized company. And really, is there any other way a Human Resource professional could manage compensation communications when she or he is running an overwhelmed one-person office?

One thing I can tell you is that you should grade every communications you send as the "good, better or best" way of handling pay transparency. Given your limited resources, you need to be candid with yourself about what you really did pull off, and how much more communications would actually have been needed to be as effective as possible. Whether or not you plan to deliver those Best Practice communications, its crucial to be truthful about what you've really accomplished. So many companies sour on compensation communications early, thinking they are having no influence on employees. It's more strategic to realize that if you can't put enough effort into compensation communications, your communications are simply notifying employees of news (think government notification of Social Security benefits) and you really can't expect them to change their views or act any differently as result.

Being candid with yourself will help you envision what you really would need to do in order to change employee views or behavior, which will give you a sense of the steps and resources that should go into a more effective plan. You know, the plan that you'll execute when you have more time and resources, and are not just running on ingenuity.

At the same time, you don't want to let yourself off the hook too easily, so the following is a list of the four communication steps that are considered Best Practices both for companies of fewer than 100 and for those who are growing toward 500 employees. In other words, the kinds of communications that should be considered Best Practices in the case about Healthy Gadgets medical device company that we've been following in the last two articles of this "Growing a Healthy Compensation Program" series.

HR "branded" templates -- Set up templates for emails and email attachments that have a "look" that employees can come to identify as HR's. It's so easy to do by adapting pre-existing examples -- if you're not handy -- or by having some fun using a DIY approach.  There will be so much payoff, with such a reasonable investment, to having your communications look different than the tsunami of other company communications they receive. Here's a place to start and a service provider that I really like to use. Create PowerPoint templates that you'll use for email attachments of in-house documents, and cut and paste the visual elements you choose to identify the department into the emails you send. Select them to look different from (but coordinated with) your company's branded templates -- because they should distinguish HR as a unique information source.

Formal communication plan -- "If I'm in the midst of making do, how can you imagine that I have time to create a formal communication plan?" Isn't that the thought that just went through your mind? Truthfully, this is far easier than you'd imagine and far more useful than you may have considered in the past.

Start by creating an HR event calendar which includes all benefits, wellness, performance management, compensation and employee event dates on a common calendar. With that visual in front of you, you are more than 50% on your way to a formal communication plan. You can now see set dates for announcement emails, executive presentations and major line meetings like the sales meeting. If you've included manager responsibilities on the calendar, for example, performance management deadlines, you'll know when their customized communications should go out, too. You can also see if any events overlap, so you can either plan to coordinate communications or to adjust the schedule.

Legal requirements -- Most HR practitioners jump on employee handbooks and lunchroom posters early in a company's start-up. But how do you expect employees to use them? That's rarely very clear, so it becomes a valuable topic to include in new employee orientation.

Employee listening -- As the employee group total grows closer to 500, the only practical way to listen to what's on employees' minds is through formal listening techniques. It's time to consider focus groups or an employee survey, handled by a third party, so you can promise confidentiality to the participants.

Not ready to do anything about findings of from any form of information gathering at this point in your company's growth? It is wise to move slowly in this case, but unwise to avoid formal listening entirely. Instead use the technique of limiting your listening goal to a single employee relations issue that you can address, or to a review of the company's business strategy and upcoming strategic initiatives about which you can have an open discussion.

What are we missing? -- As you grow, the value of an intranet becomes more and more obvious until not having one becomes an obstacle to completing daily work. Recognize that by the time that you are closing in on 750 to 1,000 employees, you won't be able to function well without one. Even though the decision to invest in technology may not be up to you, don't leave yourself unaware of the choices you'll have to make. On your own, review some of the technology options that your company will probably consider, like Workday. This way you can begin to think about a transition that will work best for you and your employees.

PS: It's just a quick click to chapters one and two of the Growing a Healthy Compensation Program series.

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. 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.   

Conference Inspiration Sources – Many and Varied for 2018

Editor's Note: Today's post comes to us courtesy of guest contributor Chris Dobyns, who has generously agreed to serve as "roving reporter" for Cafe readers and share his impressions and takeaways from the WorldatWork 2018 Total Rewards Conference and Exhibition, held recently in Grapevine, Texas. In fact, Chris - who was also a conference presenter, more on this coming - had so many great thoughts to share that we made it into a two post series!  Look for Part 2 on Friday!

The WorldatWork 2018 Total Rewards Conference and Exhibition is now in the history books.  Hosted at the Gaylord Texan Resort, the conference attracted a reported attendance of around 1,200 participants. This year’s theme was centered around the tagline “Inspired Thinking”, with the goal of spurring innovative and creative thought on rewards and engagement, drawn from the ideas and shared perspectives of speakers, academics, consultants and practitioners, brought together for the conference.  

Board Chair, Sara McAuley kicked things off, introducing Scott Cawood, who just completed year one in his new capacity as association President and CEO.  There’s still considerable buzz in the fashion channels resulting from the appearance of “the suit” that Scott wore, which is destined for the same “collectible” category as the vintage DeLorean DMC-12 that Scott proudly drives. You have to admire any employee who embraces their organization and their job to this level . . . although for now, I think I’ll show my support with my monogrammed baseball cap, at least until I see more clearly how “the suit” is trending on social media. (Click image to enlarge.) 

The Rise of the Individual Employee

Keynote speaker, Josh Bersin, followed and cited research that inferred a rise in the influence of the individual employee in organizations.  Bersin suggested that this increasing influence would necessitate improved alignment of pay and rewards with employees needs, interests and values in the future.  

This resonated with me, at least partially, since at work we frequently refer to our pay and benefits programs as “the best bad option”.  This little bit of gallows humor is unquestionably accurate, because while we tailor our outcomes to satisfy the needs of the average employee, it’s almost always a given that the results will not truly satisfy anyone.  

Breakdown on the Breakouts

This year’s breakout sessions understandably coalesced around a handful of recent ideas and thought leadership reflected in publication and other communication channels. These included: pay transparency, CEO pay ratios, gender pay equality, applied analytics, ratingless continuous performance management, behavioral science, artificial intelligence/machine learning and the speculated future of pay and rewards, the rewards process and the rewards professional.

The Good and Rarely Bad and Ugly

The breakout sessions I attended were all quite good, with some obvious level of effort invested in concept and presentation materials development. There were also a couple that I attended (or heard about) that appeared to suffer from either a lack of full preparation or were poorly structured or which failed to deliver on the promised information or outcomes described in the session summaries. These were a very small minority however.

A good example of the latter, was at least one of the two presentations which had at its centerpiece the most recent vogue in performance management, that being the practice of continuous feedback combined with the adoption of “ratingless” performance ratings.  This always sounds idyllic, but at least in the session I attended, the presenters introduced the need for a quantifiable metric at the very end, for use in administering and determining actual pay increases. This sounded a lot like a performance rating in sheep’s clothing to me, and apparently I wasn’t alone as it elicited what I would characterize as a ripple of “nervous laughter” from the audience when someone raised the issue in a question.  

The Top Three

Of the approximately +80 individual breakout presentations offered this year, I made a concerted effort to attend one session in every available timeslot. Even so, that only allowed me to assess (and “rate”) about one-tenth of the actual presentations. Given that small sample size, these are my top picks for 2018. In the spirit of full-disclosure, I know the presenter teams in the first two selections, and it was solid, past presentations that at least in part drew me to their sessions this year.

To find out which three sessions Chris selected as his tops, come back on Friday for the rest of his Conference Inspirations!  (Yes, this is the closest you will get to a cliff hanger at a compensation blog, people.)

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.

The Next Age of Total Rewards Theory

Editor's Note:  Today's post comes to us courtesy of guest contributor Joe Thompson.

A few weeks back, Compensation Cafe guest contributor, Chris Dobyns, asked my thoughts about whether there were distinct ages – or “revolutions” in total rewards theory (akin to the industrial revolution, the digital revolution, etc.).  Chris opined – I think rightly – that the nexus of artificial intelligence and compensation marks a new age in total rewards theory. 

So, in the hopes of generating discussion, here is a lightly-modified version of the response that I provided Chris:

If we ignore the infamous instances of indentureship, impressment, and some of the other ignominious forms of total rewards, I think we can see three distinct periods in total rewards in our rear-view mirror:

 The First Age

Direct wage (or barter) for direct labor marked the first period. This was the simple exchange of labor for wage.  Think of the Biblical parable of the workers in the vineyard, where the vineyard owner paid the wages he thought fair to those who had worked his field.  It is easy to visualize other examples, like a blacksmith, a portrait artist, a composer, etc., all of whom worked under the actual or implied two-party specific performance contract of “do this in order to get that.” 

This period arguably lasted all the way through the beginnings of the industrial age - that is, up until the New Deal.  While toward the end of this period, there had been erosions made in the absolute power of the employer in the form of minimum age requirements and working conditions, little had changed in compensation theory.

The Second Age

The Fair Labor Standards Act, and several laws that followed closely, marked a seismic shift in compensation theory when Congress and the Courts began to impose compensation obligations on the employer that exceeded the exchange of direct wages for direct labor, such as minimum wage, overtime, portal-to-portal compensation, and other variations. 

Coupled with the related growth of labor unions (and what they represented), the role of the employer was shifted.  The owner of the vineyard was no longer free to pay the laborers as he wished.  The two-party contract had ended as the Government itself formed a third-party, as a semi-silent partner, in compensation contracts.  We might think of this as the Wages-Plus Period – in exchange for their labor, the employee was entitled to fair wages plus other compensation.

The Third Age

The next age was triggered by major disruptions in the employer-employee power-balance that began in the 1970's.  Like the prior total rewards revolution, this was also the result of Congressional action.  A new series of legislation (e.g., the Health Maintenance Organization Act of 1973 and the Employee Retirement Income Security Act of 1974) began to move us away from the "gold-watch" age of employer-unique benefits and pensions to the "free agency" age of portable benefits and retirement accounts. 

Heretofore, the employer had held all the cards.  If you wanted wages or benefits (e.g., pension), you had to put yourself in the service of the employer, often for decades.  But, HMO/ERISA/etc. marked a fundamental change that has accelerated since: the idea that the employee, as an agency unto themselves, is entitled to a range of compensable benefits – not for being in the employment of a given employer, but just for the fact of being AN employee.  More legislation, like the Consolidated Omnibus Budget Reconciliation Act of 1985 and the Health Insurance Portability and Accountability Act of 1996, continued to fuel this viewpoint.  

And the "free agency" aspect of work that this Age created began to drive the idea of "competitive" benefits to new heights as employees could now "shop" for jobs.  The pinnacle of this Age of total rewards theory may very well be the idea of the "living wage" – wages untethered from the services actually provided to the employer.  Now, just for being an employee, one is entitled to “extra-fair” wages (at times determined by someone other than the employer) and other benefits little connected to the underlying labor.

So, to my eye, I think if we want to label the revolution precipitated by artificial intelligence, we can argue we are entering a Fourth Age of Total Rewards Theory. 

But, this is just my opinion.  What do you think?

Joe Thompson, CCP, CCMP, is currently employed as a Human Capital Strategic Consultant at Booz Allen Hamilton where he assists clients with a wide range of human capital challenges.  He has delivered human capital solutions across the talent management lifecycle including recruitment, job analysis, hiring, compensation and incentives, workforce planning, HR policy, attrition, performance management, change management, cyber human capital, and human capital program design, implementation, and evaluation.  Joe has worked in the area of compensation for 10 years and, prior to Booz Allen, he has worked in the U.S. Intelligence Community and in the U.S. Navy.

“Vineyard With Ripe Grapes In Countryside at Sunset” image used under license from Fotolia.

Legislating Humanity – The Need for a National Policy on Paid Time Off

I am the father of small children. As any parent of small children knows, the incidence of illness in the household goes up as soon as your small children mingle regularly with other small children, sharing toys and germs alike. This was brought to mind when reading an article on a bill before the U.S. Congress to create a national paid-time off policy.

“The measure would create a national paid-time off policy for sick days and other personal needs, and businesses that comply would be exempt from tougher state and municipal rules. There are at least 40 different local laws designed to protect workers from being fired or disciplined for trying to follow doctor’s orders. About one-third of U.S. workers get paid sick days, either because local law requires it or their company offers it voluntarily.” (emphasis mine)

To clarify points above, this is a lump PTO policy proposal, inclusive of vacation, holidays, and sick time, “encouraging” 14-20 days of PTO. One challenge within the bill is the ability for managers to reject a worker’s request for time off (something not allowed in current state-based legislation). SHRM believes instances of rejected time off will be limited because non-compliance overall will cause reversion to the more generous state-based laws. But it is very concerning that a manager could deny a PTO request due to inconvenience of timing.

I would be remiss if I didn’t point out the glaring statistic that only one-third of U.S. workers get paid sick days. Stepping outside of the legislation, let’s focus on the humans affected by this policy or lack thereof. Illness – whether it be a nasty cold or a horrifying cancer – is part of the human condition. Setting aside the need to care for ill kids or take aging parents to doctor appointments, the lack of paid sick leave for workers is at least short-sighted and potentially dangerous. When workers have no facility to miss work when sick without risking their job or their paycheque, they have little choice but to come to work ill. That opens the company to risk. A sick worker simply cannot work to capacity, increasing presenteeism, which the CIPD reports costs businesses twice that of absenteeism. Layer on top of that the risk associated with inattention due to illness at work, and the costs to the business become exponential – simply from not allowing people to take the time needed to care for their own well-being.

Part of the compensation package for most employees are the additional benefits they receive – total rewards including health and wellness benefits and time off. I would argue the ability to take time off when sick without fear of reprisal is a human right. It’s also just smart business. (Indeed, Arianna Huffington’s Thrive Global recently raised $30M.

Remember Thrive Global’s mission, as quoted on their website: “To end the stress and burnout epidemic by offering companies and individuals sustainable, science-based solutions to enhance well-being, performance, and purpose, and create a healthier relationship with technology. Recent science has shown that the pervasive belief that burnout is the price we must pay for success is a delusion. We know, instead, that when we prioritize our well-being, our decision-making, creativity, and productivity improve dramatically.”)

Part of what it means to WorkHuman is to create the space, time, and ability for our workers to care for all aspects of their personhood – from personal illness and rejuvenation to caring for family. What could this legislation mean for your business? Will a national law calling for paid time off help or hurt organizational efforts to care for the well-being of their workers?

As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Compensation Work and Skin in the Game

Some fascinating work is being done around navigating human capital risk and uncertainty.  I think it could raise some interesting questions about how compensation jobs and functions are defined and organized. 

Success for businesses increasingly hangs on their people and the structures they create to guide and support their work.  The problem, of course, is that industries and markets can shift quickly and unexpectedly.  Your company might respond with changes in pricing, product offerings, branding or its "go to market" approach -- but how quickly can it transform its workforce to deliver on these changes?

How quickly could you (compensation professional) get your head around the differences in skills, practices and behaviors needed?  How well could you pinpoint the gaps between what you've got going on today and what is needed tomorrow (or this afternoon)?  And how efficiently can you identify the obstacles that your current reward programs -- base pay delivery, incentives, benefit plans and programs -- will toss into the path of the workforce transformation that must now happen?

It's classic Innovator's Dilemma stuff.  And I'm thinking about it today relative to the way we structure compensation roles and work.  

There's a lot to be said for growing and refining your HR analytics capabilities so that they can tip you off to the make-up of and trends in your workforce, and help you identify and respond to the risks that might exist in the people part of your value proposition.  Hopefully we in the compensation profession, as the original data nerds in HR, are taking the necessary steps here.

But I think there's also the reality of how well our compensation jobs allow us to see and understand the day-to-day reality of the work people are doing.  The eyeball-to-eyeball, ear-to-ground reality.  Skin in the game.

To have skin in the game essentially means that you have some share in the costs and benefits your decisions and actions create for others.  Do we?  Should we?  Should our functions and roles be defined to create some sense of it?

How is the compensation function in your organization structured?  Do you -- like some -- have a centralized compensation function that is tucked away in "corporate" where you must rely on HR generalists and advisors to be your eyes and ears on the ground?  Or do you -- like others -- have compensation professionals embedded in the different business units where they have more direct contact and a front row seat to the action.  

Will this become a bigger deal as the pace of change continues to accelerate and navigating human capital uncertainty becomes both more challenging and more important?

Nassim Taleb -- the guru of risk and uncertainty whose books on the topic include The Black Swan and Anti-Fragile and of whom I am a big fan -- feels so strongly about the notion of skin in the game that it is the topic and title of his next, soon-to-be-published book.  I don't have the answer to the question I raise above, but as food for thought I'll leave you with this principle of skin-in-the-gameship courtesy of Mr. Taleb, who holds that skin in the game only happens in decentralized systems.

Principle:  It it always vastly easier to macro BS than to micro BS.

Ann Bares is the Editor of Compensation Café,  Author of Compensation Forceand Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting 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 "hands group" by Safe.Homes.Rape.Crisis.Coalition

Trouble Getting Support for New Pay Plans?

Maybe you’re asking the wrong questions.

I often hear statements like, “Our employees don’t value that. We asked them.” Overall, we have improved our efforts to engage our employees in the participation in new of pay programs, but perhaps we should be asking different questions.

Asking your employees if they want equity compensation or a new type of STI is kind of like asking a two-year old if they want a new kind of food.

The answer will almost always be no.

New food, like a new pay plan, is an unknown and therefore a risk. In a world with so many “knowns,” why risk it by trying something new? This is particularly the case when the new thing is different or hard to understand.

You need to explain the new thing before convincing them to try it.  Then you need to confirm that they like it.

Instead of asking people if they want to participate in a stock option plan, or telling them that they should want to be in the new annual incentive plan, think about starting the discussion with the conclusion or results.

Instead of, “Would you like to get stock options?”

Try, “Wouldn’t be great if you could be paid in a way that gives you more money as your hard work contributes to the company’s success?"

Or, “We’d like to find a way to have your pay more closely aligned with the growth of the CEO’s pay over the next few years. Let’s talk about some ways to do that.”

You just can’t expect people to inherently accept something new. You need to guide them into seeing potential solutions from new perspectives. You can start by demonstrating how the new solution is right before you ask them if they would like to try it. Every food my son has eaten (and he eats almost everything) was first consumed by an adult in front of him.

The same is true when discussing new pay with your executives or Board of Directors. You can’t just expect them to support a move from a legacy program to your new cool idea. Unlike you, they haven’t read the articles, taken the classes, and met with colleagues. They haven't been thinking about the solution and working out details in their heads for months. They may not have yet concluded that the current program isn't perfect, or that a new solution may be better.

Blindly asking if they will approve a switch from the current LTI metrics to something else won't work. Telling them that you "need" to change to RSUs from your current Stock Options is unlikely to get enthusiastic support. Try instead to show the goals or objectives the new plan is designed to achieve (go beyond the numbers and dig into the human capital goals). Then show where your legacy programs have strengths and weaknesses and how a new approach will provide better success.

Only then ask the question you need to have answered. "Can I get your support in completing a full recommendation for a new approach that may like this…?" That is when your real work begins, but that's fodder for another article. 

Of course, this doesn't work for every tool and every person (some kids are super picky), but you will find it will work for most. And, when it doesn’t, it provides new data on what you may want to consider before the next “ask.”

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and considered a leading expert on equity compensation issues. Dan has written several industry resources including a recent Performance-Based Equity Compensation issue brief. 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 @Performensation.

Cafe Classic: The Compensation Cookbook

Editor's Note:  Here, for a little midweek fun, we bring you Jim Brennan and his long-awaited, utterly authoritative and instantly gratifying dictionary of compensation decisions.

Imagine having the solution to every pay issue in one volume!  The Compensation Cookbook will solve all your problems.  It promises to provide the perfect recipe for virtually every Total Rewards challenge.  Instant answers to any remuneration issue are made available at your fingertips!  No compensation chef should be without this essential guide to serve up the ideal menu in your café, restaurant, or eatery ... and even in your private dining room.  Spice up your initial cafeteria offerings with the perfect blend of base, incentive, extrinsic, variable, flex, step, intrinsic, static and untrinsic elements.

The long-awaited authoritative dictionary of decisions contains every remuneration formula and reward metric required for instant success in the compensation trade, says its editor, the noted Total Rewards guru H.R. Screwtape.  This massive manual of metrics should be available on February 29, 2013, according to the distinguished publishing house of Ratchet, Gimme, Compound & Sons and Daughters and One Odd Nephew.  Plans are being considered for conversion of the initial cuneiform script version into PDFs, then to electronic text and eventually even an interactive Cloud format.  Libraries have already announced plans to place the weighty tome next to thePhlogiston topic section of their Research Reference stacks.

Sample:  The Timely Turnaround Technique  

1. Take 3,985 employees and trim the outliers (see Chapter 19)
2. Freeze the pay of the remaining lowest 5% of performers and place it in a Frozen Fund
3. Toss the candidates into a cauldron and bring them to a boil 
4. Whip them into a froth with a basic mix of bland intrinsic motivators (see the Appendix for a list of Pink-approved incentives) leavened with a pinch of sweet gold dust
5. Garnish the survivors with distributions from the Step 2 Frozen Fundaccording to The One and Only Magic Matrix (see Chapter 8)
6. Serves exactly the right number (as specified in the Chapter 33Master Count Table)

David J. Thomsen, PhD, founder of the rival pay survey publishing house ERI Economic Research Institute, expressed admiration at the ambition of the researchers but scoffed at the prospect that any one book could encompass the entire realm of tradecraft knowledge, saying: “Really?  No way.”  The even more distinguished Keystone Award Winner PhD Jay Schuster retorted with an argumentative but articulate lengthy book review response: “Yes, way.”  Readers are invited to decide for themselves.

Elements of The Compensation Cookbook include:
• The most popular sales incentive programs found at TARP firms in 2007
• Bilingual pay premium rates for left-handed English-speakers at Venezuelan oil export companies 
• The one average pay increase rate uniformly suited for every job at every employer
• Staffing formulae that will assure the appropriate growth of the HR department 
• Calculators to compute the perfect benefit package for each new hire
• A universal holiday schedule appropriate for application in any nation on Earth
• The correct pay compression emergency relief valve setting
• A Taxonomy of Pay Premiums, detailing all the ways to justify demanding extra money
• Advanced methods for forced performance distributions to guarantee strict limits on the proportion of workers permitted to excel
• Special applications for outside consultants hired to cook the books

FLASH Update:  Unfortunately, it appears that publication may be delayed due to a special request by the U.S. Office of Personnel Management. OPM asked that the release of the trade secrets be deferred until the revolutionary consensus Best Practice concepts of The Compensation Cookbook are ridiculedtested by the National Academy of Sciences and broken ruined applied in the Federal sector first.

E. James (Jim) Brennan, former Senior Associate of pay surveyor ERI, recently returned to consulting. Author of the Performance Management Workbook and veteran expert witness in executive compensation trials, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

No Statue of Entitlement

There is no statue of entitlement, nor is there any law guaranteeing a right to anything you want.  Yet.  Maybe there should be a statute of entitlement, too, because that concept seems to reflect many popular expectations.  We compensation professionals have been slow to face the implications of how entitlement attitudes affect reward management practices.

Commercial advertisers are much quicker to apply practical knowledge about behavioral economic psychology than bureaucratic stuck-in-the-mud compensation managers. Note that the entitlement mindset underlies most advertising pitches. Ubiquitous TV ads promise this law firm will get you what you deserve. Your natural right of freedom to do whatever you want is broadcast every time you look around. The United Nations has declared access to internet service is a basic human right. Your entitlement to (fill in the blanks) is loudly proclaimed by every vendor of that product or service.

My least favored commercials are the ones with the background of that large green lady on the island in the harbor behind the sardonic pitch-person(s). The presenter gives a short tale of heart-breaking loss and then expresses indignation, sneering sarcastic aspersions against any insurance company too heartless to automatically provide 100% replacement cost coverage. They literally condemn any insurer who fails to issue a policy where the buyer assumes no risk. By the time the mockumercial ends, one would think that supplying exactly what was promised somehow cheats the consumer who deliberately chose it.

Forget that insurance actuaries would place an extremely high price on original-value reimbursement policy premiums, making them so expensive that no sensible comparison-shopping customer would ever pay it. No, the decision to take out a reasonably priced insurance policy with coverage for less than full original market value is considered the fault of the company that permitted it as one of its options. Every capitalistic enterprise is happy to charge you more for its most profitable product. But the priciest option doesn't get selected that often, except by the filthy rich for whom cost is irrelevant: to them, the greater the expense, the more bragging power it provides.

Normal people don't brag about paying high insurance premiums; neither do they consider actuarial statistics nor dwell on product pricing practices.  They certainly do not live flagrantly like the excessively wealthy who spend without regard for costs. Regular folks are conservative about incurring regularly continuing expenses to pay for something they never expect to need. Rather than commit to the most expensive insurance protection plan, middle-class buyers will routinely select a more reasonable policy with an acceptable deductible and coverage only for the depreciated value of their product. Yet, after the fact, everyone wishes they could recover the original full cost of their purchase. Everyone includes employees, too.  We are all influenced by those media-presented depictions of how we are supposed to react.  Blaming the supplier for giving you a choice you later regret is a hypocritical manipulation of the ever-popular entitlement syndrome.

Perhaps a new wind is blowing. A story about a mother instructing her child how to assert his own right to stand up to peer pressure and decline to share his toys has gone viral. The implication is that entitlement has limits.

Or I could be wrong. Maybe this is just a different version of the same old same old "I have a right," drumbeat, but merely inverted into an opposition to infringement of your right to be selfish and to refuse the demands of others. Put into a compensation framework, is everyone entitled to a raise? Does the employer even have a right to deny productive workers pay increases?

One way or another, workers absorb the attitudes of their society, so employers must be prepared to deal with those cultural expectations.   Professional progress is a lot easier when moving with the current rather than fighting against it. 

How have you most successfully coped with the entitlement expectation?

E. James (Jim) Brennan, former Senior Associate of pay surveyor ERI, recently returned to consulting. Author of the Performance Management Workbook and veteran expert witness in executive compensation trials, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

"Statue of Liberty" image by Demitrios Lazos, courtesy of Creative Commons