Compensation Cafe

Proactive Valuation

This past weekend called for a time of reflection and expression of gratefulness, as many Canadians celebrated our national Thanksgiving holiday.  As employees and organizations come to terms with feeling valued and how to express it, the holiday seemed like the opportune time to assess how we as employers can be better at proactively demonstrating value. 

As a wave of employees experience a paradigm shift, grapple with a sense of belonging and seek meaning in their work, many are already living out this year's buzzword by way of the “great resignation”.  Some however are on the cusp; feeling a bit dazed and confused. Organizations can instill clarity by resetting their “great expectations.”  As work evolved in the how, where and when it was being done, then likewise a sense of disconnect has been created as to whom we are working for.  Leaders must define the values, missions, and goals of the business in today’s context.  What’s more important is the necessity of defining the day-to-day business norms.  For example, what are your expected work hours with a flexible schedule?  When should you be responding to emails and are you supposed to have your camera on during a TEAMS call? These may be the most basic of questions, but all of them are contributing to increased levels of ambiguity and creating a lack of stability; hence the need for employers to articulate newfound business protocols.

By announcing your expectations as a business, you cement the employee and employer business relationship.  To increase the value proposition, it takes data, inside and outside knowledge to ensure you retain the key players in your organization.  With a tightness of skilled workers and competitors poaching talent, you best know what critical roles are at risk, what the emerging ones are, and the depth of your talent pipeline or lack of.  Tapping into your internal HRIS you can get a lay of the land, and overlay this with market insights, to address whether pay levels are competitive or far off.

Recent exit interviews can be the evidence you need to justify off-cycle pay adjustments, particularly for valued employees who are at risk of being offered higher salaries than what you have them valued at.  Base pay adds a level of stability, any top-up to it can be enough incentive for individuals to leave.  For most, we would contemplate our worth and question why our current employer isn’t valuing us in the same way as a prospective company when the offer far exceeds one's current salary.

As an employer, don't be the one waiting on the sideline only to make a move for when an offer is presented by an employee now at risk of leaving, especially if you knew all along that, if push came to shove, you would match it.  For many, the backhanded increase is a perceived hindrance to the once-loyal relationship.  The fact that an individual needs to produce the artifacts to get an employer to nudge is enough to question your worth and their purpose to stay.  Instead, be proactive in your valuation of key performers; retain the merits of your relationship and present an increase in advance (where feasible, of course).  Doing so strengthens the bond between the worker and company, increases engagement and productivity, and will likely save you time, effort, money, and the skill set you would have had to recruit for.  Most importantly, you retain respect.  

Reena Paul (CCP, GRP) works as a Senior Compensation Consultant.  She is passionate about all things “total rewards” and has experience in dealing with all stakeholders of an organization and strategizing optimum client-focused solutions.  A lover of data and the story it tells, Reena enjoys the exploration of presenting and discussing compensation with a fresh perspective.  Connect with Reena directly on  LinkedIn. 

Image source: Unsplash image with credit to Simone Maage.

Cafe Classic: What's That In Dollars?

Editor's Note:  Today we present Chuck Csizmar's Classic cautionary tale about the temptation we face to push the easy button when establishing pay levels and practices in other countries.

It's human nature to look for simple solutions to perplexing problems.  Simple avoids confusion, keeps you “on message” and helps (you think) create greater employee awareness and an appreciation of reward programs and policies.   However, when you're dealing with the diversity and complexity of international compensation it's just not that easy – nor should it be.   For those seeking the simple life it can be difficult to understand and accept that each country operates in a different environment from the next. 

There's no cookie cutter out there.

Perhaps because of its long history of isolationist tendencies, or a bit of Yankee arrogance, but U.S. managers tend to struggle with the challenge of this "no, we're not all the same" concept more than many other players on the global scene.

For the most part U.S. managers don't want to hear that pay levels in Finland, or Argentina or Tunisia are different from the U.S. - even for identical jobs.  Instead, they would rather treat everyone the same, call it globalization and with a pat on their shoulder consider themselves a one-world player.  But those who push such an agenda of simplicity foment and spread a misleading distortion of the facts, a twisted sense of reality that they'll find very costly to implement, and its inevitable results will more than likely irritate key talent within their workforce.

Consider the senior manager who simply wants to convert a foreign national’s salary into U.S. dollars – based on a concern over what they call “internal equity.”  The assumption the manager is under is that everyone pays approximately the same for an “XYZ Manager” - or should.

"We pay USD60,000 for the job; what's that in Euros"?  Or worse . . . .

"When we convert our UK employee 's pay to dollars the amount is less than their U.S. counterpart.  We have to do something."

No, no, no.

Other considerations:

• If simple conversion was a viable approach, why don't we see such formulae prominently displayed by highly reputable salary survey providers?  Why are all figures reported in local currency?

• Local national employees will be skeptical of the simplistic approach, as in their mind too many local realities would be ignored in favor of what is perceived as Company standardization for the sake of administrative ease.  And that somehow they're saving money at the employee's expense.

• Lacking a strong correlation between country pay levels you will either needlessly increase your compensation costs, or under-value your employee talent and risk disengagement – or worse.

I once developed a formulaic approach that explained to a COO why he should not establish internal equity between the U.S. and the UK by simply converting GBP into USD.   I factored in a host of elements, including local taxation, competitive pay levels, incentive practices, cost of living, required social charges, benefit costs, etc. to make my case.   My point was that a simple conversion would be a distortion of the economic realities that drive pay levels in both countries.

Sad to say, but the explanation was ignored and the COO, though he acknowledged the logic of my argument, continued to prefer a simple conversion to establish relative values in his own mind.  So every time the conversion issue arose we had to rehash the myriad differences between countries in order to remind decision-makers that apples are not oranges.  That there is no universal fruit.

To operate successfully on a global basis management needs to understand, to truly believe that each country operates like a separate and sovereign national entity, with distinct economies, taxes, competitiveness, employment laws, culture, statutory benefit requirements, etc. that make a 1:1 comparison with any other country a distortion that will cause you to either over spend or under spend your reward dollars.  Either result should be avoided.

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, "Money Logo," by Ivan Walsh

Cafe Classic: Compensation Convergence ---- Company vs. Country

Editor's Note:  Our site statistics indicate that this topic, and this post in particular, are trending.  With that, we are bringing it back as today's Classic featuring the global compensation experience and insights of Jacque Vilet.

Many Compensation professionals working in global companies believe their jobs would be much easier if Compensation policies/practices were the same at all company locations worldwide.

There is increased talk about how Compensation and other HR practices will someday converge around the world.  Convergence means that HR management/compensation policies/practices are similar across countries and cultures and divergence means that HR management/compensation policies/practices are different across countries and cultures.

"Convergence" means different things to different people:

1) To some it means that each global company will have the same Compensation policies and practices worldwide --- differing only because of local labor laws.
2) Some believe that it will be individual countries that have convergent Compensation practices ---- not global companies.

Company Convergence

The results of the 2008 World at Work Global Compensation Practices survey reveal that 53% of respondents characterize their companies compensation policies/practices as convergent. (As the date on the aforementioned survey indicates, there has not been much research done on this subject in general compensation.  Most of what has been done is focused on executive compensation.) 

Global companies are attempting to create global practices, but not always with success.  Even when a compensation practice appears constant across business units, implementation differences may make practice the same in name only.   It is probably safe to say that compensation practices are converging to the extent possible within individual companies; as to whether there will be global convergence across countries and companies the jury is still out.

Country Convergence

There seems to be a tug-of-war between company and country convergence and, in my opinion, country convergence seems to be winning.

You can argue that if a company is globally convergent, then it will likely not be convergent at the country level.    If they are convergent in each of their country locations, then they most likely won’t be convergent within their company worldwide.

Country Compensation surveys over time result in “convergence creep” ---- because companies must compete at the local level.  Companies that ignore this, run the risk of being at a competitive disadvantage.  In the “war for talent” this is particularly damaging.

Labor law within particular countries, especially with regard to labor unions, remains a significant differentiator in terms of HR approach.  Employment/labor laws and works councils are unique and must be followed on a country by country basis.

The Case for Divergence

Culture:  Using “culture” as an argument for divergence has been emphasized way too much.  It’s become an even weaker argument in recent years. The changing values of the younger generation have made employers reconsider some of their work practices.

For instance, in Japan, Western individualism is becoming more popular.  As a result Japan has moved towards U.S. practices in performance appraisal for employees.  Korea is trending towards individualism and away from collectivism.  Chinese companies today --- non state-owned ---- put more pay at risk; base their employees’ compensation on skills, knowledge and abilities; base a large component of pay on performance; and include intrinsic rewards as a part of their rewards systems.

Differentiation:   There is a major reason for divergence, and it is purposely caused by the company and not the country.  Competitive advantage.   Companies place more emphasis today on business strategy as globalization is creating intense competition.  The focus on business strategy leads to increased differentiation --- in products, markets as well as Compensation and HR practices in general. 

Successful companies in the same country may have widely divergent Compensation practices that work for each of them because of differences in strategy.  Two companies may each choose to pay widely different pay packages to employees with specific skill-sets regardless of competitive practice.

If there is no “one best way” to compensate employees, then there is no reason to expect convergence to a single set of Compensation practices.  In the case of differentiation, business strategy will trump geography and culture.

Perhaps the best way to strike a balance is to set responsibility for the design a of broad and flexible Compensation framework at corporate and allow choice of plans that fit within that framework as well as implementation at the local country level.  Some companies have found this to be an effective compromise.

What’s your opinion of Compensation convergence and/or divergence?  Have you seen examples of this in your own company?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, Texas Instruments and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology plus an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.

Cafe Classic: When It Isn't There

Editor's Note:  Classic and practical advice from Chuck Csizmar on pricing jobs in countries where data is scarce or simply unavailable.

I was asked the other day to market price several positions in Nairobi, Kenya, and Chao, Chile. The client was seeking to open field operations sites and wanted to get a sense of the marketplace in which they would be seeking to hire talent. So the project was to ascertain the local competitive marketplace for their positions. What is everyone else paying?

However, in the world of compensation survey sources and available pay data Kenya and Chile are not exactly major players. In fact, one might be hard pressed to uncover reliable information from which to gauge anything remotely like a "marketplace."

What's The Problem?

This is what I explained to the client.

• Commercial surveys are scant: When you're dealing with either a small country, or a third world nation or somewhere you can't find without a map chances are good that readily available survey sources will not be available. That's a research dead end.

• National data is the only show in town: When data is available, in any form, it's usually only for the national average. You can essentially forget about industry slices, or revenue size. What you'll get is national data and have to make the most with it.

• Your "special" jobs are missing: Limited data will condense around benchmark jobs, in an effort to gather up as much information as possible. So unique, industry-specific or even extra career ladder jobs may not be represented.

• Algorithms anyone? Sometimes the anecdotal data that you'll come across won't be based on incumbent data, but projections and formulae. So if job "A" pays "X" and jobs "B" pays "Y", then we project (guess, really) that job "C" must pay "Z." Do you want to fall on your sword defending that rationale?

• Look behind the curtain: Some sources will offer, at a hefty price, what appears to be a thorough per-job analysis that essentially fills out a detailed template form with all sorts of data on the country, including 25th, median and 75th percentile data for a job that you couldn't have found elsewhere. The appearance of precision and thoroughness may be masking a simple algorithm coupled with generic data taken from the internet. Did I mention the big price?

This is bad news, I'm thinking, so how can I help the client anyway? They still need something from which to base their compensation strategies for these remote locations.

What Are You Gonna Do?

Presuming that the client's budget is limited, taking the route of custom surveys or high priced per-job analysis is not likely a solution. Nor is spending thousands of dollars for a single country survey (if available) from one of the major commercial survey houses. Even with that expense the reality of scant data, even when prettied up and blended with reams of extra information, is going to be of limited use. Presuming that the client wants more than a number, but a "good" number.

A few practical suggestions:

• Compensation data can be found, usually through the internet, though it is often self-reported and / or government supplied. So try to gain multiple sources to see if a trend emerges. Avoid relying on a single source.

• When commercial surveys fail you, or your budget won't allow it, look for local staffing sources (i.e. Robert Half, Roberts Walters, etc.) for generic job matches.

• Regional data might be available (i.e., Employers Federation of Europe, Gulf Business Survey [Middle East], etc.), with country-specific breakdowns.

• Take what national data you have and presume that such figures are 5% to 10% higher than secondary locations in the country and 5% to 10% lower than what might be expected in the capital city.

• If the data needs to be aged forward (likely) use country inflation rates to estimate pay growth. A common practice is to the discount the annual inflation rate by ~.5% to 1%.

At this point it is critical that the client is made to understand how this anecdotal information from secondary sources is not a smoking gun, but only a price guide to aid their thinking. Because when more reliable data is simply not available all that you'll be able to provide is a rough guide. From there you can advise how they can use such limited information to develop a useful and practical local strategy.

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,"I Don't Know," by Lourdes Nightingale

Cafe Classic: What Do Dead Horses Have To Do With Compensation?

Editor's Note:  Is your compensation program a breeding ranch for dead horses?  Jacque Vilet rides to the rescue with advice for those out-of-date, no-longer-relevant policies and practices!

  “When you discover you are riding a dead horse, the best strategy is to dismount.”                                    ---- Dakota tribal wisdom                            

Simple common sense don’t you think?   However, truth be told, the world of business is full of dead horses.

What’s the definition?  It’s any program, project, policy, or established way of doing things that is out-of-date, irrelevant and not in sync with a company’s strategy.  Surprisingly, management often tries to keep the dead horse alive.

Instead of “dismounting”, management tries (as a last ditch effort) to revive the dead horse in question.

Perhaps you have seen some of these attempts in your company.  For each business example, I've created one for how it might look in Compensation:

1)    This dead horse is too big to fail.   The company has sunk too much money in the project/product/service and it’s cheaper and easier to spend a little more money to fix it than it is to cut it.   It’s called the "sunk-cost effect", otherwise known as throwing good money after bad.

Compensation:  A large, very expensive _____  compensation study (fill in the blank) has taken six months so far with a lot of money spent and no end in sight.  No one believes it’s relevant anymore --- including you --- but you’re afraid of cutting it and risk management’s wrath for money and time that’s been wasted.

2)    Visit other companies to see how they ride dead horses.  After looking at several companies, management comes up with a “best practices” model to use in resolving their dead horse problem.  This is in spite of the fact that the companies aren’t in the same industry and don’t have the same business strategy

Compensation: In an effort to decide whether to offer tuition assistance you do a benchmarking study.  Companies reviewed don’t offer it so you decide your company won’t either. One important difference --- the average age of employees in the companies reviewed is 45; your company’s average age is 28.

3)    This is the way we’ve always ridden this horse.  This is the CEO’s pet project/program and has been a major reason for the company’s success in the past.  To end it s/he would have to reverse his/her position with the Board by admitting that it’s no longer relevant.

Compensation:  The company has always used an anniversary date approach for its annual review/merit program.  However now the company really needs to set employee performance goals in sync with FY business goals.  No one in Compensation has had experience with focal review programs and has deeply embedded biases in favor of the anniversary date approach.

4)    Engage a consultant to study the dead horse.  Management is convinced a certain program/process needs to continue as is, but no one internally wants to go against the Board who recommends it be killed.  So management hires a outside consultant and drops hints of further business if s/he provides a recommendation to the Board that the program be continued.

Compensation:  Compensation has been asked to develop a recognition reward program for all employees and management is requiring that the same rewards apply to all employees worldwide.  You know that awarding $50 to an employee in Japan would not be considered appropriate. So you hire a consultant who recommends that the actual reward be decided at the country level.  Now you can deliver this message to management with no fear of retribution.

5)    And when all else fails, promote the dead horse to senior management.     Maybe s/he won’t be noticed there!

We have to selectively abandon the past.  Not everything ---  just those programs/processes, etc. that are no longer relevant.   If we focus too much on the past and present, we’ll lose touch or be left behind when the future arrives.

Do any of our readers have an example of dead horses in their companies?  In Compensation?

*The 10 underlined dead horse statements belong to Vijay Govindarajan.   The explanation of each one is my contribution.

**Please note: Absolutely no horses were injured in the writing of this post. I certainly don’t advocate attempting to ride a dead horse, nor do I advocate working in a company that attempts to replicate said state.

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, Texas Instruments and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology plus an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.

Cafe Classic: Baking is to Science as Cooking is to Art, Pay = Both

Editor's Note:  I hold that Dan Walter is the king of the compensation analogy, and this Classic analogy is particularly instructive. (And I'm not just saying that because I like to bake and cook.  And eat.)

Many great bakers are average cooks. Many great cooks avoid baking all but the simplest of things. Baking requires precision in measurement and actions. Even a small mistake can result in an inedible mess. Cooking requires creativity and flexibility. The best outcomes are usually a result of unique twists that match the food to the audience. Compensation requires you to be both a baker and a cook.

A client recently had a member of their board ask that a new analysis be done for a new executive in exactly the same way as performed for a prior executive a couple of years ago. The company is unique in industry, location and compensation philosophy. Its peers have continued to grow, change and even disappear over time. It is simply not possible to replicate the exact recipes and processes used to create the numbers from years ago (or even more than a few months ago.)

Executive pay is often more like cooking than baking. You are beholden to the ingredients that are fresh at the time you perform the task. Data sets, like great veggies or herbs, are often only available in small quantities at certain times of the year. Some professionals thrive in this environment, loving the swirl of possibilities and the frequent changes that must still result in predictable success.

Broad-based pay can often be more like baking than cooking. The data sets are larger and less volatile. Like flour, butter and other less perishable ingredients, you can expect some level of consistency throughout the year. You have a specific recipe that you can follow with only perhaps a replacement of the fruit that goes in the pie or muffin. Many professionals live for this organization, process and exactness.

What we seldom recognize is the precision required to create great art or the creativity required to make a recipe better.

Cooks must practice new things all the time while being flexible with both the ingredients available and their patrons’ tastes. They must learn flavors and techniques to build meals from a wide range of disparate sources. All of this practice must come together at the time of execution so that quick decisions can be made and executed without fear or hesitation. Differentiation is easy and variety allows for many different choices at every meal. Execution is often as much a matter of taste as it is technique. Incentive pay professionals are chefs.

Bakers must work and rework recipes, sometimes for years, to create something that is completely new and confidently repeatable. Differentiation is hard since the ingredients are so similar. Since there are also fewer opportunities for baked goods in any meal, the final product must have wider application and appeal. Execution is about rules and techniques first and taste will generally follow. Board-based pay professionals are bakers.

In reality, most compensation professionals do a little of each of these nearly every day. They are less likely to be as specialized as the pastry chef at a five star restaurant and more like the head chef at the local family café. In other words, you are right. Your job is probably harder than most people realize. When you do it right, most people simply get what they expected all along. When you do it wrong it is obvious to everyone.

In your current position do you identify more as a baker or cook? Which is more enjoyable for you?

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.

The New Remote GEO Differential

It is time for a real change in pay. Like most real changes this is not a change driven by desire, it is a change driven by necessity. Less than ten years ago headlines crowed that working from home had failed at Yahoo and that everyone was being called back into traditional offices. Just a few months ago working remotely was usually viewed as a privilege of the few who had proven themselves worthy. Today we have entire companies working from their living rooms, and inlaws’ places in the country. Things have changed and will never go all the way back to the “old ways.” Our practices must adapt, quickly.

As soon as you have employees in disparate locations you have issues with pay. Geographic differential (GEO Diff) rates are the “go-to” solution to solve this problem. These rates show the differences in pay between two, or many locations. They allow us to confidently pay an engineer in Nashville, the home office location, less than an engineer in new San Francisco office. Lower cost marketplaces result in lower base pay. It just makes sense to pay what the market requires. We simply apply the GEO Diff and move on.

We have moved to a world where individuals, instead of employers, can choose their location. This is no longer a privilege for the unique few, but a reality for many successful businesses. If your employee chooses to move from Nashville to San Francisco should they get the same increase as if the company dictated that they needed to be in that location? It would seem that the correct answer is…no.  But that breaks the base pay paradigm that we used for decades. How do we adapt?

Most companies will operate with a blend of “in-office” and remote employees. For this purpose, “in-office” is any location that is dictated by the company (even if it is an office at home). Remote is any self-selected location (even if it is in a company location). I am suggesting the creation of an entirely new GEO Diff. The “Remote GEO Diff.”

The remote GEO Diff is a manufactured differential from your home office pay. It is designed to reflect your pay philosophy and the value (or discount) you place on a job that is being performed by employees at the location of their choice.

Example: Assume your home office location is exactly aligned with the national average for base pay. Your market data indicates that an Accountant 3 should be paid $100,000 at the 50^th percentile, your targeted level.

1) Let’s say your company wants more people to work remotely. You may set your Remote GEO Diff to 5% above the home-office location. You would pay people this amount even if they worked in the home office city, but NOT in the home office itself. If the person moved to San Francisco, you would also pay them based on the remote GEO Diff.

2) Your company offers amazing benefits and prefers people to work from the home office to reduce the complexity and costs of delivering these benefits. You may set your Remote GEO Diff to 10% below the home office rate (yes, even if the person is work from home in. the same city).

3) If you open a new office in San Francisco you would still apply a traditional GEO Diff to ensure your mandated location pays competitively. The same would be true if you opened an office in a less expensive location.

The New Remote GEO Diff is a way for you to have remote employees, pay people consistently, and reflect your company's approach for total rewards and compensation philosophy. It is already being done at some companies, so your time to get prepared is not before the 2020 compensation planning surge this coming Fall.

There will be more on compensation in the remote place to come in future posts.

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: Compensation in Context

Editor's Note:  Context matters.  Our pay programs are now operating in a world where businesses and work are operating in an enormously different environment and face significantly different demands than even 6 months ago. Understanding this is critical to effective reward management, asJacque Vilet lays out in this Classic post.

Context:  Background, environment, framework, setting, or situation surrounding an event or occurrence.

Context has always been important to me.  For example, I don’t like digital clocks.  I don’t like seeing the exact time without a reference point.   I like to see the clock face with all the numbers and the hands.  I need context.   Guess I’m just an analog girl in a digital world!

It’s the same at work. I always thought there was a strong connection between compensation and organizational design.  I couldn’t “do” compensation unless I had organization charts.  Today context is so much more than that. 

Bear with me.  I’m going to tell a story that I hope will make you see a parallel to compensation. 

A relative of mine has had to have his entire 30 year old house re-wired.  When the electrician looked at it he told him that the wiring was completely up-to-date when initially installed and met the then required code.  So what happened in 30 years?

The builders didn't anticipate the information age.  How could they know that the house 30 years later would have HDTV, a DVR box, a laptop port, an iPod speaker system, and a smart phone charger all operating at the same time.  What worked 30 years ago, doesn’t work now.

It isn’t just wiring.  Think about it.  In other industries besides construction I think you would agree that very few products, services and business practices/processes are the same today as 30 years ago.  And it’s even more complicated today.

Companies are now operating in a very different business landscape than the one they faced even 6-7 years ago --- pre-recession.  The major issues they face now are such things as economic uncertainty, financial turmoil, globalization, global interconnectedness, political upheaval, etc.  These issues are all contextual and they have a huge impact on industry.

Business example: U.S. companies learned the hard way that business models that worked in the U.S. did not work in emerging countries.   Realization and acceptance of this took a long time and resulted in a lag to market and lost business.   Management had to realize their historical model was no longer an absolute.

I think this example may be reflective of a problem in Compensation today.  Can you see the parallel?  Is Compensation in the same state of denial?  Theories/concepts developed in the past and accepted as absolutes may not be serving us well today.

Just as companies had to change their business model to compete in global markets, why should we assume our models are any different?  Well, you say, our theories have been scientifically tested.  But business models in the past were researched and tested as well.

(Hint: Research cannot keep up with all the changes taking place today.  And it probably never will.  So we can’t wait for the comfort of experts to bless the practices we will have to use today/future in order to deal effectively with all the issues we face/will face.)

We need to think holistically.  We need to be able to venture out of our comfort zone. We need to be more flexible and adaptable just as companies are learning to be. We need to look at the larger context and how all the parts are connected.

Understanding our companies’ business is important but it is just as important to see the  broader context and build in some contingency plans for changes that are bound to occur.  Our companies are doing the same thing.

What do you think?

Context:  Background, environment, framework, setting, or situation surrounding an event or occurrence.

Context has always been important to me.  For example, I don’t like digital clocks.  I don’t like seeing the exact time without a reference point.   I like to see the clock face with all the numbers and the hands.  I need context.   Guess I’m just an analog girl in a digital world!

It’s the same at work. I always thought there was a strong connection between compensation and organizational design.  I couldn’t “do” compensation unless I had organization charts.  Today context is so much more than that. 

Bear with me.  I’m going to tell a story that I hope will make you see a parallel to compensation. 

A relative of mine has had to have his entire 30 year old house re-wired.  When the electrician looked at it he told him that the wiring was completely up-to-date when initially installed and met the then required code.  So what happened in 30 years?

The builders didn't anticipate the information age.  How could they know that the house 30 years later would have HDTV, a DVR box, a laptop port, an iPod speaker system, and a smart phone charger all operating at the same time.  What worked 30 years ago, doesn’t work now.

It isn’t just wiring.  Think about it.  In other industries besides construction I think you would agree that very few products, services and business practices/processes are the same today as 30 years ago.  And it’s even more complicated today.

Companies are now operating in a very different business landscape than the one they faced even 6-7 years ago --- pre-recession.  The major issues they face now are such things as economic uncertainty, financial turmoil, globalization, global interconnectedness, political upheaval, etc.  These issues are all contextual and they have a huge impact on industry.

Business example: U.S. companies learned the hard way that business models that worked in the U.S. did not work in emerging countries.   Realization and acceptance of this took a long time and resulted in a lag to market and lost business.   Management had to realize their historical model was no longer an absolute.

I think this example may be reflective of a problem in Compensation today.  Can you see the parallel?  Is Compensation in the same state of denial?  Theories/concepts developed in the past and accepted as absolutes may not be serving us well today.

Just as companies had to change their business model to compete in global markets, why should we assume our models are any different?  Well, you say, our theories have been scientifically tested.  But business models in the past were researched and tested as well.

(Hint: Research cannot keep up with all the changes taking place today.  And it probably never will.  So we can’t wait for the comfort of experts to bless the practices we will have to use today/future in order to deal effectively with all the issues we face/will face.)

We need to think holistically.  We need to be able to venture out of our comfort zone. We need to be more flexible and adaptable just as companies are learning to be. We need to look at the larger context and how all the parts are connected.

Understanding our companies’ business is important but it is just as important to see the  broader context and build in some contingency plans for changes that are bound to occur.  Our companies are doing the same thing.

What do you think?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, Texas Instruments and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology plus an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.

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.

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.