Compensation Cafe

Cafe Classic: When They Want to Leave

Editor's Note: In these days of heightened concerns about employee retention, Margaret O'Hanlon's Classic post on discernment of "intent to leave" and the often questionable wisdom of relying on counteroffers to combat turnover is especially timely.  Read on!

There are different policies in every company about employee resignations. Some companies refuse to try to keep the employee no matter how valuable they are to the company. Other companies are willing to counter offer to try to lure the employee back. When they do, it's usually salary, title and career opportunities that are the bargaining chips used. And sometimes there's incentive and equity eligibility added to the mix.

The thing is, it's not unusual for an employee who's taken a counteroffer to turn around and leave within the next six months anyway, even when you've met all of their demands. In some states, you can attach an employment agreement to the deal that will commit the employee to the company for a time frame. But instead of going to these somewhat combative lengths, wouldn't it be better if you could use predictors to know beforehand whether or not the counteroffer was a good move?

If you're in an organization where things can go into overtime, you know how much effort and good will can be put into these negotiations with the intention of supporting the eager manager as well as the wandering employee. With all the work and money involved -- let alone the messages sent to all the other employees -- wouldn't you want to feel more certain that you're making a plausible investment in the future of the company?

If you're answer is "Yes," then you may want to track some research on voluntary turnover that has recently publicized by Tim Gardner, a Utah State University associate professor and his research colleagues, Professor Steve Hanks of Utah State University and Chad H. Van Iddekinge, a Florida State University associate professor. If their work continues to advance in the same vein, you will have behavioral indicators for those who would be a good investment in these situations and those who would not.

The researchers provide these examples of "subtle but consistent behavioral changes people often make in the one to two months before they leave their job."

• They offered fewer constructive contributions in meetings.
• They were more reluctant to commit to long-term projects.
• They become more reserved and quiet.
• They became less interested in advancing in the organization.
• They were less interested in pleasing their boss than before.
• They avoided social interactions with their boss and other members of management.
• They suggested fewer new ideas or innovative approaches.
• They began doing the minimum amount of work needed and no longer went beyond the call of duty.
• They were less interested in participating in training and development programs.
• Their work productivity went down.

It's not just one or two of these behaviors. The researchers say that employees who demonstrate at least six of these behaviors are about 80% likely to leave the organization.

What does this have to do with the fruitfulness of your compensation negotiations with employees? Turn the coin around. 

I'd suggest using these measures to assess the likelihood that a counteroffer would be worthwhile. Think twice when managers have observed six or more of these behaviors in the employee, because we have good indication (through these research findings) that he or she has already gone to a level of disengagement that would be hard to repair, no matter what you and the manager can cook up.

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.

6 Things You Think Are True, But Aren’t (Compensation Edition)

Some of you may have seen this recent viral video discussing things that we believe to be true, but are actually made up. The video got me thinking about things compensation professionals believe that have little, or no, foundation in reality. Here we go…

 1. Incentive pay motivates people to perform.

It has been sold to businesses that a great incentive program can motivate a person. Sorry, but that’s just hope talking. People motivate people to perform. Incentive plans are there to remind everyone of what is important and to reward them if they stay focused and achieve their objectives. By itself, an incentive plan is useless for most people. Communication and leadership are the keys to success.

 2. Equity compensation is a great retention tool.

Equity compensation has been sold as the holy grail of retention for more than 20 years, but data shows this is simply not true. The tech industry is the heaviest user of equity programs and also has one of the highest turnover rates. While these programs can support retention (mostly mid-term), the evidence shows that they do not work as advertised. It should be noted that tons of data also shows people do not understand their equity. Maybe better communication is the key to retention.

 3. The 50^th percentile represents a real number.

People target the 50^th percentile like it is a real number that truly represents the middle of the market. If this were true the 50^th would be the same for every data set that targets the same type, size and location of companies. While this may be true for a few jobs, it is a ridiculous idea for most jobs.

 4. Having a great total rewards program attracts great talent.

Much like people motivate people, people attract people. The best compensation program in the world is useless without the right people to “sell” it to potential customers. Attracting good employees is more of a marketing effort than a product development effort. Just like many people happily use inferior products with great marketing, companies with great talent acquisition strategy and execution will crush companies with great pay and mediocre talent staff.

 5. It’s possible to design a program that will work in spite of leadership.

We sure try hard at this one, but it is just isn’t possible. An average program with amazing executive champions will beat a great program that the CEO doesn’t support. Every. Single. Time.

 6. Survey data reflects what is happening in the market.

Most survey data is incredibly thin. First, it only represents companies who take the time to submit their data, (often a single-digit percentage of your peers.) Second, it is only as good as the person(s) submitting the data. Most survey submissions are done by an early-career professional, or by experienced pros with more critical things on their plate. Third, the data collection, analysis, and reporting need to be great. Most smaller surveys reflect biases of the survey provider or skew toward the client of the firm sponsoring the survey. It is also important to note that many companies do not include their “secret sauce” in the survey submission.

So, let’s hear some of your “facts that aren’t” stories! I am betting we can get this list to at least the 13 things that are in the viral video!

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.

More Specific Equals Less Accurate (MS=LA)

Equity compensation confounds many in the compensation world. There are lots of reasons for this, but perhaps the least understood is its association with Vincent Van Gogh. No, people with equity don’t die penniless in an institution. And no, the typical equity compensation expert does not cut off their own ear. But like so much of impressionist art, appreciation of equity requires the ability to step back from the details and the need to bury yourself in the technical details. For the sake of this post, we will discuss the first requirement, distance.

This post is about a simple formula: MS=LA

Compensation people love to be precise. Benchmarking base pay is more science than art. Heck, a 2% difference in base pay can be the change for a whole year. That means that a 1% mistake is enormous. We grind through deep job descriptions, match arcane aspects of tough jobs and twitch people up and down to find the perfect base pay and total cash match. This specificity gives comfort to many in the profession. It’s hard to be wrong when you do something e x a c t l y right.

Equity compensation turns this on its head. Equity is basically art that is informed by science. Rather than try and paint a perfect sky with perfect stars, you must paint something that tells a story about the sky without ever painting a star. When you see a piece by Van Gogh or most impressionist artists from a distance, you almost always know what it is.  As you get closer the swirls and blurriness distract from the ability to “see” the piece. When you get incredibly close the details are fantastic, but it can be hard to understand how the artist put them together to create a bigger picture.

With equity, you must be comfortable with data that provides direction rather than answers. Should that software engineer actually get 0.037498% of your company’s fully diluted outstanding shares? Maybe, but maybe not. Should your level 4 account get 17.3% equity than your Level 3 Accountant? Perhaps, but 19% or 15% more are likely to be just as accurate. The specificity of award size is not your goal. Your goal is delivering the intent of your program, for a given position.

For those of you who loved the idea of “broad-banding”, equity is probably more comfortable. But for those who have grown up in a world of 3% annual increases and data-driven CEOs, it can be extremely frustrating. You need to find a way to get them to look at equity from a distance. Paint a picture, using all of the data and your expertise, so that when it's seen from afar it clearly communicates your goal. Don’t argue that the tree should or should not be blue, just get them to agree it’s a tree. The rest of the process comes down to technical details I will discuss in my next post.

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.

Cafe Classic: To Innovate in Rewards, Get Outside the Rewards Profession

Editor's Note: Because innovation is messy and irritating, and because we like to ruffle feathers here at the Cafe. Please share your take below!

There appears to be general agreement among reward professionals that the compensation approaches and protocols which have dominated practice for the last few decades are ripe for reinvention.  That disruptive change in the field is necessary and inevitable.

I also sense an assumption that we will be the change that we have been waiting for.  That we will lead the revolution, just as soon as we get those year-end budgets and plan changes completed and find the time to get our innovation game on. 

Not sure it will pan out that way.

An article in The Atlantic Why Experts Reject Creativity takes a close look at the bias we all have against new ways of thinking.  Senior Editor Derek Thompson asserts that not only are our brains hard-wired to distrust creativity, but that the more knowledge and expertise we have on the subject, the more hostile we are to new approaches.  And he highlights a number of research studies that support his claim.

In one study, 142 world class researchers from a leading medical school were randomly assigned to evaluate proposals for research funding.  Sometimes the faculty were experts in the subject matter being considered, sometimes not.  The experiment was triple blind, so that evaluators didn't know submitters, submitters did not know evaluators and evaluators did not talk to one another.  What the researchers found: New ideas -- those that "remixed information in surprising ways" -- got the worst scores from everyone, but were particularly punished by experts in the subject matter.

Thompson goes on to demonstrate that, in reality, most of us dislike new ideas, regardless of what we say or believe about ourselves. Ouch, right?  Read on.

Another study found that teachers who claim to enjoy creative children don't actually enjoy any of the characteristics associated with creativity, such as non-conformity. And a famous 2010 study from the University of Pennsylvania showed that ordinary people often dismiss new ideas, because their uncertainty makes us think, and thinking too hard makes us feel uncomfortable. "People often reject creative ideas even when espousing creativity as a desired goal," the researchers wrote. People are subtly prejudiced against novelty, even when they claim to be open to new ways of thinking.

Which means that disruptive change, innovations that move the field of play and introduce new compensation management solutions, might likely originate outside our profession.  They will come from business leaders and others with talent management smarts (but perhaps not the "credentials") -- particularly (but not exclusively) those in emerging and fast-growth organizations and industries -- who are willing to experiment, put new ideas to work and learn from their efforts.

It will happen out at the edges and beyond, outside the perimeter of "professional" reward practice.  And so I propose that our mission, if we choose to accept it, will be to discover, devote attention to and learn from what is happening outside the core of our field.  And then to bring those ideas in, adapting and piloting them in our own organizations.

A few years ago, I had an interesting conversation with a few leaders at one of our own professional associations.  I shared the observation that much of the association's focus and attention was centered on very large organizations, the Fortune 500 and their ilk.  I was informed that this was the case because it is at these big employers that the leading edge of reward practice takes place.

Maybe.  Maybe not.

To paraphrase the wisdom of Gordon MacKenzie, author of Orbiting the Giant Hairball: A Corporate Fool's Guide to Surviving with Grace (and only the best book on business creativity every written!), we won't be able to truly push the boundaries of practice until we figure out how to escape the Hairball -- our entanglement with the policies, assumptions and practices of the past.  Orbitting -- escaping the gravitational pull of the Hairball enough to observe and embrace original ideas and lessons -- will require that we read and interact outside the boundaries of our profession. 

Irritating, inconvenient and messy, for sure.  But that's what the road to discovery typically looks like.

What do you think?

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 "An Idea" by aloshbennet

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.

One Reason Pay Is NOT Skyrocketing

For several months many of us have wondered why base pay wasn’t spiking upward out of respect for the historical strong job market. The basics premise of our economy is the strong demand and short supply results in high prices.  This is true for peaches, cars, and people. With unemployment at very low levels and a job market continuing to create jobs at a rate of 210,000 per month, we should have been seeing pay rise far faster than our now sad 3% annual increase. It turns out the trickster was simple math.

On August 21, 2019, it was announced that our jobs reports since April 2018 were inflated by about 40,000 jobs per month. A new adjustment reduced this number to 170,000 jobs. This is about 125% over-reporting of the facts! This is the kind of error that would get any executive or compensation professional fired. It’s a level of error that could result in a maximum, instead of a target, payout on a highly leveraged incentive plan. It’s like paying your new Level 4 Accountant as if she was at Level 6 or 7. I think you get the point. In the real world this probably wouldn’t be an acceptable error.

The error does help explain the ongoing stagnation in base pay. We have posited that the lull was caused by the use of additional short term incentives. This ignores the fact that the majority of jobs have little or no incentive opportunity, We have read that the stagnation was due to low inflation. This ignored the whole “supply and demand” argument in a fundamental way. The fact is, job growth is just normal and what we have seen for most of the past decade. We were duped, but there is a bright side.

Our industry pay data, often maligned by people named me, stood up to this test pretty well. Even as politicians and economists bragged about the historically strong job market, we applied our principles. We looked at the data and applied our compensation philosophies. We adjusted when specific markets or positions moved to be more competitive, but we did not react to the fantastical world of growth that we could not see with our own eyes.

In short, we did our jobs and did them fairly well. We maintained our course because our data and experience told us more than the reports and breathless articles. Short-term incentives have increased, but mainly as a way to control budgets and most specifically support specific motivations. Some industries have seen explosive growth, but most have grown, or shrunk, as expected.

We have work to do but this is a strong confirmation that we have level heads and can apply what we know consistently. I should note that none of this truly defends average annual increases of 3% in a world where the stock market, housing prices, and medical costs are booming and executive pay has grown at about double the rate of the average person. It’s a start, a very good start.

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.

Wow. That Data is Terrible!

Almost every compensation professional I know can guess the base pay of mid-level accountant or software engineer with near-perfect accuracy. Given regional variations and other factors, most guesses are within 5% of current market data. This consistency and predictability is a foundation of trust when we are pricing jobs that are less familiar or more volatile. If only it was always so easy.

Annual incentive plans add complexity and noise to pay data. Even when you have confidence in the target and actual levels in the survey data it takes real confidence (or ignorance) to make decisions on how the plan pays out in good and bad scenarios. Even with this uncertainty, most compensation professionals do a great job and getting these numbers within a reasonably accurate range.

Long-term incentives are a different animal altogether. In the best cases, the data is noisy or opaque. A good example of this is the pay packages for executives at publicly traded companies. The data seems like it is all there if you know how to dig through it. Once you get into the thick of things a talented executive compensation professional can make sense of it and provide real guidance. When you move from publicly traded to privately held companies things can go haywire.

I recently looked at two industry-leading data sets. They were for the same size companies. For the same industry. For the same region of the U.S. But that’s where the similarities ended. As I mentioned earlier, a good compensation professional can usually guess the base pay amount for a standard position within 5% of the market. Imagine thinking someone should be paid $100,000 and looking into the data to see they should be paid $853,000. It would probably make you question your abilities or the data. The differences in the two sets of equity data I was reviewing ranged from less than 5% to more than 800%!

I spoke to experts from both survey providers. Each expressed their absolute confidence in their data collection and analysis processes. Most disturbingly was neither thought that the differences were of great concern. Now, I work on equity compensation programs for all sorts of companies nearly every day and have done so for more than twenty years, but this nonchalance in the face of craziness reminded me how hard this can be for someone who only deals with this data once or twice a year.

In some cases, ignorance is bliss. If you had only ever seen one of the sets of data I reviewed, you may not have any idea how different it was from the other. Heaven forbid you saw both and decided to verify which was right by purchasing a third set. I can almost guarantee that the third set would raise just as many questions. We love to say our industry is a combination of art and science, but I think most of us were thinking of art a bit less like that of Jackson Pollack.

I love to wrap each post up with some type of solution, so here goes… When dealing with equity, especially at private companies, expect the data to be terrible. Get more than one set of data so you can have a reasonable range for the terribleness. Then do your process in reverse. Instead of looking at the market data and determining how to fit people in, look at your people and determine what you are trying to accomplish. Then determine what levels of equity and types of features will help you reach your goal. Finally, take a look at the market data and determine if you are, based on your needs, within the right range of accuracy.

I find this type of work to be the most fun and interesting part of my job, but I respect those who want a more solid foundation. I’d love to hear how you deal with this challenge (or not).

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He 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.

Value Driver? No, It's Not a Discount Store!

Do you know what value drivers are? In the world of business strategy, a value driver is an activity or input that drives financial and operational results. They are called value drivers to reflect their role in the value creation that your company wants to achieve: 1) Increasing the share price, thus creating more value for shareholders and ensuring your company funds future operations. 2) Creating more value for customers by customizing your product or service to their needs, thus ensuring sales growth.

Why bring up value drivers now? Because they should play the leading role in your efforts to address HR analytics. Value drivers identify what it takes to make your company successful (compared to what it takes to make the company run). Without the defined value drivers for your company, you run the risk of "garbage in, garbage out" in spite of your hard work on HR analytics.

Odds are the executives in many companies have identified the company's value drivers but haven't thought to share them because they don't understand the other, critical roles that value drivers can play beyond pure finance. So if you ask the right people, I bet you can find out what your company's value drivers are.

Then what? Redesign key HR practices to truly impact the bottom line. For example, track where the value drivers are executed in the company to identify key jobs. The answers shouldn't be the same old list. It should go beyond the most senior titles since you're looking for the select jobs that make a disproportionate contribution to the value that the company is working to create. If you can identify these jobs, you'll know where to most profitably target your work of attracting, recruiting, orienting, developing and rewarding.

In case you're worrying whether any HR jobs would qualify, the strategy powerhouse, McKinsey, specifies three categories of value driving functions: Value creators, value enablers (where HR would sit) and value protectors. And if you want a "deep dive" on the potential role of value drivers in HR work, check out McKinsey's podcast, "Matching Talent to Value."

By the way, value drivers also answer the question, "Where should my objectives come from?" You can use them to build an accurate line-of-sight so you can finally measure how well MBOs are impacting your company's bottom-line. (And wouldn't that would be value creation?)

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.

Compensation Singularities

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

Have you heard of the Compensation Singularity Rule?

I’ll confess that I had not heard of it until quite recently when one of my clients made me aware of the concept.  Frankly, I’m surprised that I hadn’t learned of it sooner because it appears to be an enormously versatile rule that can tremendously streamline the market-pricing process.

The client – one of those Washington, DC inside-the-Beltway agencies – was greatly concerned that their latest salary survey analysis was obviously wrong and needed to be fixed immediately.  It seems that the agency had just lost a senior cybersecurity executive to a private sector company which had reportedly offered the individual a salary of $600K.  (That was according to Fred, who had heard it from Nancy, who had overhead Susan talking about it … but, I’ll put the provenance aside.)  As a result, the client knew, empirically, and unequivocally, that the going market rate for all cybersecurity professionals was measured in the multi-hundreds of thousands of dollars per annum range, significantly above the ranges indicated in the salary surveys.  It turns out the client had applied the Compensation Singularity Rule.

The Compensation Singularity Rule (CSR) states, in part:

A singular compensation data point is vastly more reliable and is far more effective for determining true market rates than hundreds of thousands of compensation survey data points, provided that the singular data point is sufficiently large compared to the median survey rate.  A singular compensation data point that is near, or below, the median survey rate (some sources use P75 vice P50) must be considered an outlier, clearly spurious data. 

A major part of the versatility of the Compensation Singularity Rule lies in the fact that only the magnitude of the singular data point needs to be considered; one need not be concerned with job location, level, industry, duties, or other tedious aspects of job matching in order to apply the CSR.  The Rule can also be used to conclusively demonstrate that compensation is the sole determinant of what makes a job offer competitive (though that is a subject for a different post).

Now, I’ll admit that I had to look the rule up.  WorldatWork hadn’t started teaching it when I took my last course with them, but I’m sure that they’ll have to start soon, based on the frequency at which the Rule seems to be used and cited.  Apparently, it is already widely taught in some of the most prestigious and venerated institutes of higher education including YouTube, Instagram, and WhatsApp.

As wizened compensation professionals I’m sure that you’ve realized that I am being tongue-in-cheek; you have all likely faced this phenomenon in the past.  It seems that no matter how many reputable surveys you have used, how many curated data sets you have drawn upon, or how meticulous your analysis, the Compensation Singularity Rule will always garner the attention of employees and executives.  Compensation singularities seem to have a sort of cognitive gravity well.

Unfortunately, rational discussions about job/industry matching, the nature of right-skewed salary distributions, sample sizes, statistically significant data sets, etc., don’t seem to help in these cases.  Pointing out the obvious – that if the going market rate was truly at the singularity rate, every other employee would have already left for those salaries, too – can end the immediate compensation hyperventilation, but seems to leave people with the nagging suspicion that you have practiced some form of logic legerdemain.   You can free the person from the gravity well, but the effects still linger.

So, what techniques have you found to most effectively address compensation singularities?

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.

Image: https://archive.briankoberlein.com/2015/01/22/pointed-debate/index.html