Compensation Cafe

Two + Two = Five

It’s a fact of life that not everyone is going to agree with your point of view.  How you deal with that reality will mark you, for good or ill, as you progress through your personal and professional experience.

On the business front, from time to time you’re going to come across colleagues or even management leaders who you think truly believe that two plus two equals five.  In other words, you have a difficult time understanding (and agreeing with) what they want to do, or why they want to do it.  Sometimes their ideas just don’t make good sense.

Perhaps the competitive market data points a strategic finger in one direction and management is looking in the opposite direction.  Perhaps management is pushing a policy or practice that goes against “common” or “best” practices, and you’re offered no other reason than “we’re comfortable with this.” Or perhaps management wants to go down a pathway that you believe makes little practical sense, will create more harm than good and is likely to blow up in your face.

If this situation hasn’t happened to you yet, fear not, because it will.

Swallow Twice Before You Spit

When the craziness starts, don’t lose your head.  Literally.

Avoiding an immediate, kneejerk reaction to irrationality is always sound advice, especially when you’re emotionally wrapped up with a controversial situation. You should step back, take a breath and think about what you might want to do next.  But don’t start voicing loud disapproval of the decision or threatening to quit.  That approach would only divert everyone’s focus from the problem issue to your own behavior.  You won’t win.  No one will go down with the ship with you.

Some factors that you might wish to consider while you’re taking that deep breath:

• Do you have all the data you need to have reached your conclusion? In other words, are you confident in your professional assessment of the facts and in the steps you chose to make improvements?  Any chance you might have missed a mitigating piece of information?
• Might you be facing unintended consequences that you hadn’t anticipated?  A good approach in developing recommendations is to always anticipate potential or likely glitches, to have answers ready when the naysayers challenge you.  But again, you might have missed something.
• Do you understand their rationale? Leadership may seem arbitrary and capricious with their decisions, but they’re not stupid. They’ll have a reason for their decisions, and it would behoove you to understand where they’re coming from.
• What are your next step options, from charging over the cliff (“damn the torpedoes!”) to settling for half a loaf (something is better than nothing) to slinking away chastened and embarrassed?  If they didn’t utter a flat “No!” then perhaps there’s life yet in gaining some part of your original recommendation.
• Can you regroup and try again?  Or is the door closed to your ideas?  Here your persuasiveness and influencing skills can pay dividends, because if you didn’t throw the baby out with the bathwater (those torpedoes again) the decision-makers may be willing to listen to a set of revised recommendations, recommendations 2.0

Each of the above factors can offer you options, should you wish to continue pressing your viewpoint.  Carefully consider each before deciding your next step.  However, if the future appears bleak . . ..

If It Still Makes No Sense

The time may come when you have a career decision to make.  Can you work in an environment that you find is fundamentally at odds with your professional beliefs, where you have concluded that management is not interested in your opinions?  Or at least they are not willing to act on them?

Or you could stand down from pressing management, turn in your activist label and join the bowling team.  Become an administrator.

However, those black/white options may be too simplistic.

The human condition seems to possess and display a basic “Fight or Flight” reaction to stressful environments.  You can of course, always decide to quit an organization that isn’t compatible with your professional belief system (flight), or you could stick around and employ more subtle half-a-loaf tactics to slowly move the organization in the right direction (fight).

What’s it going to be?

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 "Pumpkin Pie works best," by topgold

Cafe Classic: Are Your Compensation Plans on Autopilot?

Editor's Note: What can Van Halen and David Lee Roth teach us about the antidote to autopilot in pay plan management?  Might as well JUMP! ... and read on!

In our busy organizational lives, many of us allow our compensation plans to simply roll forward from year to year with only minimal adjustments.  Or we follow regular schedules for periodic review and intervention in an effort to ensure some level of oversight.  In doing so, however, we may be at risk for missing important signals that the plan is not working as intended.

In their book Decisive: How to Make Better Choices in Life and Work, Chip and Dan Heath examine the double-edged sword of operating on autopilot.  While there are benefits to being able to tune out certain things and free out minds to focus on others, it can be difficult to interrupt the autopilot cycle once we fall into that pattern.

The antidote to autopilot, they say, is the tripwire.  Day to day changes in an organization can be so gradual as to be nearly imperceptible to those of us on the inside.  Like the poor amphibian in the well-known boiling frog story, where the little green felllow is placed in cold water that is slowly heated up until he's cooked before even realizing he is in danger, it is hard to know when to jump.  Tripwires tell you that it's time to jump - or at least time to start paying attention.

The Heaths share a story about trip wires from the world of rock and roll featuring Van Halen (and lead singer David Lee Roth), one of the first rock bands to bring major stage productions to smaller markets.

The band's production design was astonishingly complex.  The contract specifying the setup was, according to Roth, "like a version of the Chinese Yellow Pages" because it was so technical and complex it was like reading a foreign language.  A typical article in the contract might say, "There will be fifteen amperage voltage sockets at twenty-foot spaces, evenly, providing nineteen amperes..."

While Van Halen had its own road crew, much of the prep work had to be done in advance, before the eighteen-wheelers arrived.  Van Halen and its crew lived in feat that the venues' stagehands would screw something up and leave the band exposed to injury.

The band was notorious for partying and egos.  One frequent rumor about Van Halen's outrageous behavior featured a clause in their contract demanding a bowl of M&Ms backstage, with all the brown candies removed.  Roth - who had a reputation for walking backstage, spotting a single brown M&M, and freaking out - became the symbol of rock star divadom.

The rumor turns out to be true.   There was an "M&M clause" written into the contract, buried in the middle of volumes of technical specifications.  It was there for a reason.

When Roth would arrive at a new venue, he'd immediately walk backstage and glance at the M&M bowl.  If he saw a brown M&M, he'd demand a line check of the entire production.  "Guaranteed you're going to arrive at a technical error," he said.  "They didn't read the contract ... Sometimes it would threaten to just destroy the whole show.

Turns out that Roth (at least in this aspect) was less a diva and more an operational master.  The brown M&M was a tripwire.  It forced the band to step out of autopilot and take the time for a complete check of the set-up at the venue.

A number of compensation examples come to mind.

Is your incentive plan on autopilot, chugging along without consideration of changes in the business and potential undesired consequences?  Perhaps there is a data point or two that could serve as a tripwire here; for example, metrics that might alert you to emerging safety issues in the wake of implementing new productivity incentives, despite your leadership team's confidence that supervisors could "manage away" this potential risk.

Or might a tripwire make sense to help keep abreast of pay competitiveness for a critical set of jobs?  Should a certain level of turnover or number of departures signal that an immediate market audit is due?

Where might you use a tripwire to protect from pay plan autopilot?

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.

If Data Says Punch Your Mom in the Face

Most of us have a fairly decent sense of right from wrong and good from the bad. Imagine your pay data is like a self-improvement book. You have been reading the book for a bit and it is starting to ring true. You turn to page 37 to see The Chapter 3 title that says: "Step 3, Punch Your Mom in the Face.” You'd probably put the book down for good. 

In cases where there is a bright line between good and bad, we hope that everyone will choose the right path quickly. When it comes to pay trends and market data the  line is not as bright, nor the negative consequences as personal, perhaps that is why I have seen so many cases of “we just did what the data said.” Sometimes data is bad. Sometimes it is wrong. Often, we can just feel how wrong it is. Other times it only becomes noticeable when someone else points it out.

Most compensation professionals are pretty good at navigating the obvious problems. We quickly find better data or use our experience to fill the gap in a more useful way. But, when the issue is less obvious, or when we have missed the problem altogether, making a correction can prove to be very challenging.

Sometimes this happens when an employee or manager says that your recommended pay rate or equity amount is too low. Our first defense is to hold up our market data and strong processes. We point out that this is “right” and that they are wrong. While confidence in your position is admirable, take time to make sure that things haven’t changed since the last analysis, and take the time to see if there is something unique about the position, or the person.

Often companies bring in outside help to review pay that isn’t working. When consultants point out flaws in past data or bring in a more representative data set, the pushback can be substantial. There is a level of ownership in the prior processes and data that can be hard to abandon. This is understandable, but not useful. When someone points out that you have essentially been punching your employees in the face, it’s time to take a step back and make corrections.

Now those of you have read my posts for years know that I have no true love for market data. I think companies should use it as a reference point, rather than a bible. But, regardless of your compensation philosophy or approach to data, you must be willing and able to make adjustments when your approach is not aligned to your goals.

Most of us adjust instinctively when the data is obviously “punch in the face”-incorrect. Sometimes the challenge to your internal compass is not as obvious as this. We need to keep an open mind when presented with a new perspective that may challenge “known facts.” In these more subtle instances, being willing to change is just as important. Own what’s right until the moment it isn’t, then change swiftly and decisively.

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: 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.