Compensation Cafe

Time for a Termite Inspection!

I live in a house that is more than 100 years old. It was maintained well over the years but, like all old homes, it needs regular maintenance. My neighborhood is filled with many homes built around the same time, and a few homes built very recently. A few months ago, a house a couple of blocks away just disappeared. One day I walked by and it was sitting there, looking resplendent in its new coat of paint, with a “for sale” sign out front. The next week I walked by and there was only an empty lot. It was jarring.

If you have ever bought a home, you have probably experienced the anxiety of a termite inspection. Oddly, this is something that we seldom do when we have been living in a home for several years. It’s as if we believe that termites will respect our ownership and focus only on neighboring houses. This attitude usually prevails right up to the point where something crumbles, or the insects start crawling out of the woodwork. In the case of my neighborhood's missing house the inspection showed that the house was mainly made of paint. The termites had eaten everything important and there was no way to save the structure.

Every compensation professional who has started a position at a new company has experienced their own version of a termite inspection. You get your bearings and immediately dig into everything the prior person did or did not do. You make a list of trouble spots and determine if you can solve the issues with a little bit of targeted work or a bigger process. Sometimes all you find is a nice paint job. Maybe it's a well-written compensation philosophy or handbook, but no real foundation or structure to support the pretty documents.

There is really never a great time to do a termite inspection. But it is far better to do one before the issue becomes unfixable. Like a long-time homeowner, we seem to think that our presence alone is enough to ward off the destructive pests. In reality, the pests do not care if you or I exist. They are only focused on what they need. Our objectives do not factor into their lives. Without regular inspections, we may find we live in a house made of paint.

Luckily, we can build these inspections into our regular compensation calendar. We can even do partial inspections on different elements of pay at different times of the year. The reason for this post now, while you are swamped in COVID-19 response and recovery, is simple. If you look closely, right now, you may see the early signs of an infestation. Maybe your pay programs are not flexing well to remote work. Perhaps your legacy equity grants are no longer useful, or maybe your grant leveling methodology has been exposed as inefficient or ineffective. And, of course, there are the more obvious issues like short-term and sales incentive plans.

Now is the time to evaluate your programs like a new homeowner. The “new normal” is likely to be newer than planned and far, far less normal than desired. Getting ahead of things now may prevent having the house disappear unexpectedly in the future.

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

Mark Zuckerberg is Wrong About Remote Pay

It has always been inevitable. Remote work was always going to become a major piece of the success of many companies. The current situation has just pushed many into the future sooner than they had planned. There is a lot to unpack with a remote workforce (perhaps something for a future series of posts). For right now, let’s just talk about compensation. A couple of weeks ago Mark Zuckerberg not only announced that many employees would be able to work remotely, but they should also expect their pay to be adjusted according to their remote location. GitLab uses a formula to adjust the pay of their workers according to their remote location. A recent article says Canadian employees should expect the same. My question is: Why should this be the case?

The prevailing thought seems to be that we pay people not based on what they do, or how they do it, we instead pay people based on how much it costs for them to live. This is the only conclusion one can reach from pay adjustments because a remote worker moves from somewhere pricey to somewhere inexpensive. Based on this stream of thought someone might think you should pay those who save and scrimp less than those who spend and waste.

Do you currently pay people who live farther away from headquarters less, simply because they wanted to save a little money on housing? Companies apparently believe that people will only move to cheaper locales and therefore allow the company to save some money on pay. If they were remote, who you also adjust their pay upward if they move from Queens to Manhattan, or Gilroy to Palo Alto (please take a moment to imagine your own proximate locations with lower and higher costs.

Let’s imagine a different world. This is a world where three individuals deliver the exact same quality and work productivity. Let’s call them Avery, Blair, and Cameron. They all live on the same block, just a mile from the home office, but they work remotely. Each year they receive the highest performance rating offered by the company. Every year they hit all of their goals. In year three Blair moves 60 miles away to a rural town where the cost of living is lower, and schools are better. How would you adjust their pay?

Does Blair get a cut in pay? Do they stop getting raises at the same rate as the other two? What if Avery then moves to the most expensive nearby suburb. Their partner is the CEO of a publicly-traded company and covers all the bills. Should Avery be paid more?  Less???  No Change? Do you need to learn first if Avery is a male or female? Do you need to know if they really “need” a raise? Is there any rational way we can support this type of system? No. No, there is not.

It isn’t often that compensation professionals get to truly change the way businesses do business. This is one of those times. Some or all of your business will be challenged by this issue soon, perhaps immediately. You need to get to work documenting the pros and cons and your recommended approach to addressing all of them. We all need to get to work on defining the best path(s) forward on this issue. If we wait for some non-compensation person to “lead” and create the best practice for us, we will surely regret it in the future.

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

Cafe Classic: Want Results? Prove It!

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

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

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

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

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

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

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

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

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

Compensation Air Traffic Control

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

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

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

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

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

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

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

Cafe Classic: An Even Money Bet ... For Happiness

Editor's Note:  Applied neuroscience, crowdsourcing and gamification intersect to bring us some Classic insights on happiness (and perhaps reward satisfaction?), via Chris Dobyns. 

The French author,  André Maurois, is said to have written, “the first recipe for happiness is: avoid too lengthy meditation on the past”.  Regardless of the period of one’s meditation, Maurois is just one of many who have suggested an answer to mankind’s eternal pursuit of . . . if not just the recipe, then the sure bet formula for happiness.

More recently, a group of research mathematicians have gone so far as to publish results from a scientific study, which would suggest that they’ve actually been able to quantify a specific formula for happiness — or more precisely perhaps, what the researchers would characterize as a person’s subjective well-being, as a proxy for happiness.

A Formula For Everything

So, everyone knows there’s no mathematical formula for predicting happiness, right?  Well, in the case of this research study, apparently there is.

Briefly, study subjects were asked to respond to various decision-making tasks, and from these choices they experienced monetary gains and losses.  Throughout the study, the subjects were regularly asked to report how happy they were at that moment.  Combining these responses with neural activity monitored via MRI allowed the researchers to generate a computational model where self-reported happiness was correlated to both rewards received, as well as the study subject’s reward expectations.

And Apparently An App for Everything Too

To test their computational model with a much larger sample, the researchers “crowd-sourced” their theory by developing a smartphone game, which mimicked the conditions of their original experiment, but offered points in lieu of actual monetary rewards.  The computational model proved to be remarkably accurate in predicting the happiness levels of the smartphone game participants, when compared to the actual levels of happiness reported.

Not Quite What Was Expected

The researchers anticipated that they would record higher levels of happiness, on a moment-to-moment basis, based on the recency of the rewards received, but another factor proved to be important:  The expectations of the subject.  Apparently, rewards (or losses) alone were not the primary source of the level of happiness experienced. The level of happiness turned out to be a larger function of the expectations of the individual subject – even to the extent that happiness was achieved in the absence of a reward, but only as long as a neutral or zero outcome was “greater” than the loss that was possibly expected.

The Benefits of Aiming Low

The researchers draw some familiar conclusions from their research, along with some more collateral parallels to the role and importance of life and career expectations.  Once again, we see that the motivational – and perhaps happiness “effects” -- of rewards are short-lived.  Life and career expectations typically have a much longer lead time before people are able to accurately assess the “goodness” or “badness” of their choices and life decisions – all relative to their personal expectations.  It’s even speculated that those with lower expectations will experience greater levels of happiness, since their actual outcomes are more likely to exceed their original expectations.

Applied Neuroscience and Gamification

The research conducted here is interesting and important, given the modern day focus of attempting to quantify as much as possible in order to more accurately predict future outcomes.  And it clearly has direct application in business and in the specific design and development of total rewards. The natural predisposition of human beings to create frames, establish expectations, experience loss aversion and make relative comparisons are all in play here – along with a number of other dynamic  that I just don’t readily recognize. 

A use of a smartphone app to crowd-source and generalize a theory from a small sample, and obtain confirmation from a much larger sample, underscores just one of the future applications of gamification, in learning and human factors research. The total rewards “smart money” is increasingly focusing on neuroscientific research as the next high frontier for human capital professionals, and to moving what has been predominantly theoretical research to regular and practical application in the workplace.

Everyone probably has a different perspective.  What's yours?

Chris Dobyns, CCP, CBP is currently employed as a Human Capital Strategic Consultant for the Office of Human Resource Strategy and Program Design for one of the largest U.S. intelligence agencies. The Office of Human Resource Strategy and Program Design is responsible for organizational effectiveness, personnel assessment, compensation and incentives, occupational structure, recognition and rewards, HR policy, human capital program design, implementation, evaluation and assessment and internal consulting. Chris has worked in the area of compensation for more than 35 years, and has been employed in various compensation-related positions by a number of large, private sector companies including, Sears, Roebuck, Arizona Public Service and Westinghouse Savannah River Company.

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

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

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

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

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

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

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

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

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

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

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

What's Going On Out There?

Hungry for up-to-date data on how your competitors are handling the Human Resource components of the Covid-19 pandemic? Aon (including Radford) just published data collected from April 7 to 10, 2020. This "point in time" report is called "Adjusting Total Rewards Programs, Workforce Strategies and Sales Force Effectiveness Practices in Response to COVID-19" and it has some valuable insights into how companies are (or are not) adjusting their people strategies to the current environment. The participants include a nice mix of essential businesses (56% of participants), non-essential (24%) and mixed (22%).

You can order your own download here. If you think that the findings can't possibly apply to a company like yours, participation ranged from companies with fewer than 250 employees (15%) to over 50,000 (9%).

To whet your appetite, here are some of the key findings:

• 22% of participating North American companies are cancelling salary increases and 17% are deferring or postponing increases.
• 18% of survey participants offer special pay programs, typically in the form of flat amounts, for those in high-risk roles. 93% of these participants are essential businesses.
• 58% report that their Executive/Officer group is taking voluntary base pay reductions.
• 23% are planning to make benefit changes and 14% are planning to make retirement changes. Given these findings, it seems limited revisions are planned for Total Rewards.
• More than half of participating companies have special programs to help those working from home deal with equipment purchases and membership fees. Most are offering help on an as-needed basis.
• 88% of participants have increased the number and frequency of communications from senior leadership, including topics like business continuity -- with 77% using video and web conferencing as well as email, and 33% using texting, among many communication channels.

I think it would be useful to understand what's going on outside your doors, if only to help you feel more confident about the way you are handling the tsunami of challenges that you meet every day. This is a well conducted survey covering a point in time that can be confusing and sometimes even disturbing.

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: All Decisions Are B.A.D. Decisions

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

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

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

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

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

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

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

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

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

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

I Can Do That!

As any experienced compensation practitioner would agree, from time to time you will find yourself faced with someone who doesn’t think much of your job.  In fact, they’re pretty sure that they can do it themselves.  “Just give me the survey report and I’ll flip the pages until I find what I need.”

Have you heard that one before?  Scary, isn’t it? And just a bit condescending as well.

This suggestion may initially be made under the guise of saving time (“You’re so busy”), but it’s actually a bid to gain control over what they see is their dependence upon you as the one who analyses and reports on the competitive marketplace.

They may even say that they have obtained a survey of their own that they want to be used.

Flipping Pages

From the perspective of this skeptical client, all that you’re doing is matching the internal job title with that from the survey source.  Simple.  So, all one needs to do is to grab the highlighted figure from the designated page (it will be obvious) and, voila! Market pricing complete.

Aside from the insulting implications of this attitude that demean your objectivity and professionalism this simple self-taught process will certainly deliver the WRONG figure most if not all the time.  Remember that these clients will be looking for a figure that will support their pre-conceived beliefs, so their objectivity will have left the room.  They know the answer and want to see a figure that they can use to support it (picture someone running down the hallway waving a piece of paper). They will then tend to ignore such cautionary variables in the data as:

• Industry type
• Revenue size
• Geographic considerations
• Aging of data
• Matching the job content vs. title
• The reputation of the survey
• Challenges to survey methodology and cleansing

Consider the client “process” as it will run its course; job titles may be matched instead of job content, which sends you to a page in the survey report.  The most provided/highlighted figure will be grabbed if it fits with the client’s internal criteria (what they’re looking for).  Once they have the chosen figure, they will then flaunt that “answer” as what the survey is reporting.  The variables listed above are usually dismissed as smoke and mirrors aimed at confusing what is an otherwise straightforward report.  In other words, if they like the number they see, everything else becomes distracting chatter.

If perchance the figures offered don’t agree with the client agenda, figure adjustments may be made based on stronger vs. weaker job matches, greater/lesser complexities involved, senior vs. core jobs or even the tenure (experience) of internal staff. Sort of like molding clay (the survey) into the desired end product (the answer). 

Not exactly a process recommended by compensation experts.

Give Me the Data

Now, this is a bit more contentious issue.  Every now and then someone will ask/demand to see the raw survey data from which you reported a market figure. This is only asked when the client doesn’t agree with the figure reported, so they want to see the data themselves.  They want to see if they would come up with the same answer. In other words, they didn’t get the answer they wanted, and they don’t trust you.

I have never been asked for the data prior to submitting my report.

During my career, I have NEVER agreed to this, either during my extensive time working in Corporate America or more recently as a global consultant.  Thankfully I had bosses who agreed with me, but you might not be so lucky.

The tact I took was that market analysis was the responsibility of Human Resources and that we have professional staff trained to objectively analyze the data variances provided by survey reports.  As such we are unable to hand the process over to the least objective players – the client.  We would be happy to discuss our findings at length, but it is our responsibility to properly evaluate and analyze the data before reporting our findings. 

Guess what?  If you do provide the raw data, I’m willing to wager that they will find an alternative view of the competitive marketplace.

When dealing with clients I have found it helpful to make the point early on, that most often reported survey data provides more of a “Pricing Guide” suggestion than an “Aha!” moment. The data doesn’t purport to tell you what you should be paying but it suggests guidelines of what others are commonly paid for like jobs.  At that point, the decision (what to do next) becomes an internal one.

Chuck Csizmar CCP is the founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad-based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.

Creative Commons image "Angry Tiger," by Guyon Moree

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

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

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

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

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

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

From the article:

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

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

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

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

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

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

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

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

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

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time. Follow her on Twitter at @annbares.

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