Compensation Cafe

A Tale of Two Markets

As every Compensation practitioner will tell you, sometimes there is no straight answer to a question you’re being asked.  However, the boss who is asking that question will still look to you for not only what the tea leaves say (surveys), but what should management do about the information.  The answers that you may have to offer, though, often aren't simply black or white, but instead show a good deal of grey.  

Ahhh, but management doesn't like to hear about grey.  They don't want you to sit on the fence with maybes, variables and “coulda/shoulda” responses.  They want you to make a call, to raise your hand and your head above the firing line.

So how do you respond when the chips are down, and the ticking clock just ran out?

Consider This Example

A survey shows that there are 350 nonprofit organizations in Florida, and the base market rate for the XYZ position you're analyzing is $150k.  However, that same survey indicates that there are 36 Florida organizations that are same size as yours, and that narrower market is paying only $125k. 

When you consider the variations of data, you are faced with . . ..

• Florida is a large state.  Where are these 350 organizations located, compared to your site?
• Does the survey tell you this?
• These organizations will vary in size (operating budget, employees, number of sites, etc.) a great deal, from much smaller than you to much larger
• Does the survey segment data according to size?
• How many of these 350 organizations are in the same "type" of nonprofit business?
• Does the survey segment data according to type?
• If the data is segmented, which segment is more important to you?  Can you ignore others?
• Do you really care about variations, or does the answer with the most robust data win?
• If you recruit some positions from for-profit organizations as well, should you restrict your analysis to only the non-profit universe?
• Does the incumbent employee’s own base rate affect how you look at the competitive marketplace?

Management is waiting.  How do you answer their question about the market rate for the XYZ position?

Depending on the circumstances your answer might be $150k, or under other circumstance you might say that the answer is $125k.  Both can be considered correct, dependent upon how you read your data sources.  Or perhaps a third figure as well?  However, for the incumbent employee, their market is the $150k.  That's their view of how they should be valued.  That's their view of what they can get from another employer.

The Wannabe Survey Analyst

How your organization defines its view of the competitive market is critical, but most folks outside of Compensation will let that distinction slip right by them.  Grab a survey, flip the pages until you get to the subject job and point your finger at the top-of-the-page figure.  There.  Done.  How hard was that?

I've seen it done that way.  Likely so have you.

The trouble with this approach though, is that's it's all too easy to miss the mark.  If you're a $50M nonprofit food distribution organization in Central Florida, how important is it to know, and include in your analysis what a $150M nonprofit disability organization is paying in the Miami area?

The trick for the wannabe analyst is that often the available survey data doesn't make enough distinctions in the figures being reported.   There may not be enough data (statistically valid) for $50M nonprofit organizations in the Central Florida area.  Never mind food distribution.

So, data on that narrow slice of "same organization" criteria you're looking for is simply not available.

That data on the top of the survey page may not represent your organization at all.  Or you could get lucky.

Broaden Your View

Look at your "market" from two perspectives; 1) what are other organizations - just like you - paying for a subject position, and 2) what are others paying in an organization sized like yours.

You can even add a third component; what about your geographic area?  What you have then is a composite of data points that require interpretation and explanation.  So perhaps your response is buried in the midst of the survey page, not at the highlighted top.

Just to make things a bit more complicated, another consideration for you is the difference between the employment market value of a jobholder (what pay can they achieve out there) and what organizations just like you and sized like you are paying.

This is the "it depends" element of compensation that drives non practitioners crazy.

I can see their point.

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 "Complexity 3," by michael.heiss

Cafe Classic: Nonprofits, It's Time to Improve Your Total Rewards ROI

Editor's Note:  Employees often make real trade offs when they choose a nonprofit career over a corporate one.  That may mean that it's more important - not less - for nonprofits to clearly articulate their value proposition, as Margaret O'Hanlon explains in this Classic post.

Why would I choose to work for the Red Cross if I have credentials and can build a career at General Electric or Wells Fargo?

If you interview Red Cross employees, you'd probably hear a lot of different answers to that question, but it would be easy to put your finger on at least one common theme. Most nonprofit employees feel a strong draw to the Mission of their employer, and they put making a difference in the community at the top of their wish list (instead of stock options).

I guess that's why so many nonprofits that I work with do not talk with their employees about Total Rewards. If most organizations' overriding talent goals are to attract, motivate, retain and engage, the nonprofits with which I work have a more straightforward job of attracting and engaging employees than their corporate sponsors. Most of their job applicants are almost pre-approved for high engagement scores -- whether or not they are hired. Yet many of my nonprofit compensation clients have invited me to Total Reward discussions because they feel that they could be doing better in a number of employment areas.

Many nonprofits have noteworthy Total Rewards, yet they introduce employees to their new positions by explaining the salary and providing benefits forms galore. Period. Unlike corporate, nonprofits rarely have a marketing dimension to recruiting and hiring. You know, the messaging that highlights and promotes the organization's collaborative work environment, rich benefit offering, training opportunities and/or healthy work/life balance. Why take the time to point these things out when new employees are already eager to change the world?

One reason to talk in terms of Total Rewards is to be well prepared for the inevitable tough questions. So many nonprofit employees compare their salaries with their friends in corporate and come away disappointed. Of course, they typically don't have to work 65-hour weeks, shoulder production goals or watch their medical deductibles increase every year -- and because they don't think in terms of Total Rewards, these comparisons never occur to them.

If nonprofit employees come in to talk with HR about their misgivings, HR is stuck doing a form of backpedaling that can seem like double talk. After all, doesn't it seem a bit desperate to suddenly bring up retirement benefits and vacation time when they've never been a topic of conversation?

If nonprofit employees don't come in to talk with HR about their misgivings, their resentment can become overblown since "fairness" is an extremely important value to them, given their career choice.

Employees make real trade offs when they choose a nonprofit career over a corporate one, but are often acting on their feelings rather than looking at the "fine print." It's to a nonprofit organization's benefit to make their entire "value proposition" more specific from recruiting onward.

Many nonprofit organizations have Total Rewards offerings that are more valuable than typical employers -- think Defined Benefit programs, medical coverage that hasn't been redesigned in many years and regular 40 hour weeks, to name a few possibilities -- but they are overlooked or taken for granted unless a spotlight is intentionally pointed their way.

Margaret O'Hanlon 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 everythingiscommunication.com.

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.

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.

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 [email protected] 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

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.

Cafe Classic: Chaos Theory

Editor's Note:  Many organizations and leaders resist structure in their pay practices; this is particularly true for smaller, more entrepreneurial businesses and many nonprofits.  Margaret O'Hanlon brings science to bear on this Classic challenge and explains why this ultimately may not serve the organization, its mission or its people well.  Listen up!

To jump on market opportunities, entrepreneurs love to exercise unrestrained initiative that involves risk. To change the world, non-profits encourage bold initiatives meant to unsettle the status quo. Perhaps that's why, in my experience, both start-ups and non-profits are the organizations that most often report that they have neither salary structures nor systematic compensation practices.

By their nature these organizations have a high tolerance for shoot first, aim second. Innovation is the very reason they exist. But when it comes to employee compensation, time is not on their side. In its section on the Chaos Theory, Wikipedia tells us, "Chaotic systems are predictable for a while and then appear to become random." As it turns out, even randomness can be plotted . . . and so can the outcomes of cutting individual pay deals.

In start ups, the initial rush to get going is on the founding employee's side. Ask and, pretty regularly, you receive. The money you're paid is obviously an investment, and the person who is paying it wants to feel like they can make things happen (like an effective entrepreneur).

It makes some sense . . . until it doesn't. Most notably if you are treating your salesforce this way. Nothing angers a real competitor more than when there are different, unspoken rules for different players in the same competition. When your salesforce notices -- that is, when you can no longer afford to keep throwing money at them -- their motivation will waiver just at the time you need them most.

In non-profits, everyone in the organization is aware of the difficulties of staying ahead of financial and operational challenges. "We all need to pitch in" is an organizational value that often takes precedence over attention to pay practices. The thing is, while their employees are strongly devoted to the Mission, they are also accutely attuned to unfairness in the world.

By their nature, both types of organization think it makes good sense to take what they see as bigger risks that leave pay policies in the dust. They are well intentioned but misguided, and it's our job to point it out early and often -- whether or not the CEO has compensation on the agenda. Consistent, strategic pay practices are not simply a recruiting or overhead issue for a small, dynamic organization, they are part of an operating strategy designed to keep the company healthy and focussed. 

As we all know from personal experience, you can buy just about anything but if it's mainly on impulse, chaos can ensue.

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: Does Lack of Pay Lead to Lack of Discipline?

Editor's Note:  As we can always count on him to do, Jim Brennan raises an interesting, potentially uncomfortable but nonetheless important Classic question about the relationship between pay levels and behavior.  Do weigh in with your perspective.

Is pay required for professionalism? Despite the widely publicized excesses of the Wall Street crowd and the constant Hollywood demonization of capitalism, things seem to fly out of control faster when a Non-Profit is involved.  From the Papacy to Penn State and Boy Scouts of America, the shenanigans that occur in religions, schools, charities and other tax-exempt entities seem to show that NPs exhibit many Dark Side behaviors that would never be permitted at enterprises organized for crass amoral commercial purposes.  

Those who have served non-profit boards of directors know quite well what I’m talking about.  People who on their regular jobs would never think of doing something unprofessional will not hesitate to wield their power rashly from an unpaid management post.  A short list of sample misbehaviors includes:  
    •    Demanding special treatment for relatives or friends,
    •    Second-guessing vastly experienced subordinates,
    •    Playing with the careers of regular employees.

Those abuses seem less typical in corporations and businesses than they are in organizations run by volunteers.  Of course, my view could be jaundiced by the unique features of those I’ve closely encountered, but conversations with others even more experienced in the ways of non-profits have consistently confirmed these observations.   Maybe the lack of compensation gives rise to irresistible temptations to take your pleasure in other ways.  Perhaps workers need scorecards to keep track of the right and wrong of their actions.  Could it be that a salary tied to a clear quid pro quo like a job description or employment contract is necessary to supply a governor on the engine of motivation that might otherwise spin out of control? 

Is there something inherently healthy in the for-profit mode of operation?  Does a toxic seed grow when you don’t get paid for your efforts?  Researchers have identified behavioral differences in Social versus Commercial environments.  Standards and expectations are not the same in a social setting where people act without pay as a commercial motive.  Why is it that the lack of perceived “compensation” seems to inspire irrational behavior?  Well, maybe not irrational but at least irregular, when viewed thru the prism of conventional professional standards.  After all, “compensation” is literally that… something that satisfies you, received in exchange for your service. 

How, then, do you assure balance in the value proposition when work is done without pay?   I fear that, in the absence of formal rewards, volunteers create their own informal compensation programs to supply whatever consequences they find most satisfying to their personal motivations.  After all, everyone knows that anything of value not controlled by the organization will be controlled by its inmates workers, regardless of their volunteer or paid status.  That compensation may be in the form of money, the intrinsic satisfaction of creative or socially beneficial activities, the personal pride that results from public recognition before your peers, or the pleasure taken from the exercise of authority over others; but every contributor exerts themselves for somereason. 

The rewards taken by the unpaid people who rule over tax-exempt non-profits tend to be less visible than what shows up in a payroll record.  And that is not always a good thing.

What do you think?

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.

Creative Commons image "Coins in High Saturation" by MoneyBlogNewz

Growing a Healthy Compensation Program

This is the first in a series.

If you're an HR office of one, busily juggling everything from beneficiary forms to incentive awards, it's hard to believe that you share any pressures with other HR managers. After all, your company and culture are unique, your CEO directs a lot of the key decisions personally and, often, market forces are exclusive to your products and/or services.

Nonetheless, consultants and researchers will tell you that there are some predictable similarities between the reward challenges of companies that are the same size and/or at the same stage of development. If you can learn from what others have done who were in your shoes, your program design decisions could be favorably influenced . . .  and you can go home many more weekends feeling confident that you're an effective HR leader. I am beginning a series with the goal of giving you that kind of boost.

When organizations are categorized, typical size categories are: Fewer than 100 employees; 100 to 500 employees; 501to 1,000 employees; and so on. I will cover the first three sizes in the series and leave it at that. By the time a company has 1,000 to 5,000 employees, HR has a lot to go on. There is a good-sized HR budget, plus the total HR and Compensation staff usually adds up to at least six practitioners who have had enough experience to know what "wellness" looks like.

Here's the principal that inspired me to write the series: If you start with healthy compensation habits, you'll be equipped to make healthy decisions as your organization grows. We'll look at case studies of typical compensation design and operating decisions based on company size and, respecting your organization's uniqueness, and offer things to take into account -- rather than requirements -- that should help you prepare for your company's (inevitable) future decisions. The emphasis in the discussions will be key decision points that could build or undermine HR's role as strategist.

Case background: Healthy Gadgets is a new medical device company with fewer than 100 employees who both research and produce its products. The company has one HR practitioner who wears many, many hats. Here are some of the compensation decisions typically made in a turbo-charged, highly fragmented setting like Healthy Gadgets'.

HR operating context: Predictable revenue and productivity are the company's overarching operating goals. Since there are no clear paths to achieving these goals yet, nor are there enough performance data to make reliable plans, day-to-day work can be erratic for everyone. Because the organizational infrastructure is in development, the CEO plays a very visible role in daily work and influences decisions at all levels of the organization including the selection of many new hires.

Compensation practices you typically see in an organization of fewer than 100 employees. Note: Be sure to read the subsequent comments about how "healthy" these habits will turn out to be:

Salary administration practices are limited to one-off salary decisions made in tight timeframes. Employees arrive either to fill an urgent workflow demand or to become a "founding" leader of the business. HR doesn't have a budget for salary surveys. Managerial and executive recruits often find that their initial salary requests are approved. Other employee pay decisions are often based on data gathered from local job listings found on online job boards.

• "Do your best with what you've got" is the mantra in one-person HR shops. The thing is, this way of managing salaries in small companies seems like a dandy quick fix but ultimately ends up being short-sighted. Many "founding" employees will become long-term employees, whose entry salary will direct every future salary decisions you make about them. Over- or under-paying now will cost real money, so the $3,000 that an online national survey costs is actually a negligible amount compared to the budgetary impact of overpaying salaries and HR tail-chasing.
• Instead of giving the CEO and managers a blank page to work from, consider writing up guidelines from the start identifying the parameters that salary offers should be based on, how internal equity should be considered in the mix, and so on. (If you don't take the reins, albeit gently, you're setting yourself up to be seen by the CEO and managers as an "order taker" starting from the very early days of the company.)

An annual bonus may be offered to all employees, but is often based on vague measures that drive short-term results. Payment of bonus is determined by the CEO after the "books are closed" and results are discussed with Board. Employees guage the probability of earning the bonus on what they've heard about previous years' practices.

• Note that these practices tend to send employees the message that bonuses are discretionary and that individual performance has a very uncertain influence on annual results. Because of this, HR would benefit from coaching the CEO and managers how to talk with employees about how performance influences the bonus and how the bonus acts as a form of incentive. Otherwise, consider the long-term impact of employees developing the view of the bonus as a gift from management, like those turkeys that used to be handed out for Thanksgiving.

Job titles are played down in small companies; nonetheless, employees campaign for titles that signify leadership. Department heads assign titles when their employees put real pressure on them. However, some jobs are not assigned titles until they will need to be listed on the "About Us" section of website or when business cards are needed for a conference.

• Consistency in titling will inevitably become important to company operations. Start from the beginning by at least settling on levels and associated titles in a broad way. You know, guidelines like the title, "Manager," can only be applied to those who run functions and/or oversee employees in a department, "Director" can only be applied to another specific role, and so on.

HR has engaged a payroll provider, but has held off on other online administrative support. Most communications related to pay are about policies and deadlines.

• Why not build a robust database from the beginning? Payroll providers often offer ways to organize employee data and run reports. Unless the provider's approach is too idiosyncratic to its own platform, consider adopting these services early, especially if you can integrate manager access, so employee data becomes SOP for them from the get-go.
• Many payroll services offer auto-messaging capabilities that you can use for announcements to employees. Don't lean on these exclusively. They have a robotic voice that is nothing like the relationship HR wants to develop with employees, even via email.

Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.   

Canadian Doctors Pushed Themselves Away From the (Pay) Table

In Quebec, the infrequent and unusual has happened. Doctors refused a proposed raise. Not because the increase was insufficient, but because they would rather see the money go to the staff who support them and the patients they serve. In the world of HR and Compensation, this not the standard.

There are stories of individuals, including the occasional CEO who has “reallocated” their pay to others. But groups of professionals agreeing to forego payment in respect of others who may be in greater need is unusual enough to make the news.

In my career, I have had this occur, without prompting, only a few times. Each time it was refreshing and eye-opening. Each time, someone further up the ladder questioned whether it was a good idea. In more than one case the request to allocate pay to others was ignored, in other cases, a new approach was devised to use the compensation budget more effectively.

Yes, ignored. Why? Some of the reasons included; exacerbating the ongoing pay compression on the top of the company, insufficient motivation or incentive for the individuals claiming they were making enough, and a slavish need to adhere to a compensation philosophy or model that apparently wasn’t working.

In one of my favorite examples, we discussed a more leveraged and lucrative sales incentive plan with future recipients. As a group, they expressed concern that the distribution and support teams were the stars that need better pay. One individual actually said, “It doesn’t seem fair to pay us for selling more since we are just creating more work for everyone else.” Yep, a salesperson said that to me and sincerely meant it.

In another case, a CEO kept his pay low for several years.  Out of respect (and a misunderstanding of pay structure), other executives were also kept below market. After several years of growth and significant performance, the CEO and executives wanted to take the artificial cap off their pay, but the company has become accustomed to having that extra cash for operations, and the Board had become comfortable with the pay levels. Catching up with the market, proved to be an effort that drove everyone close to the brink.

In these rare cases, the “best practices” playbook is insufficient. If the request is honored how does the business catch up when more budget is available? How does a company explain to the lowest paid members in the group that the highest paid “make enough” (for now?) Is the company prepared to create a hybrid incentive plan that motivates salespeople while funding incentives for those who “make sales happen?”

I wish I had answers to all of these questions, but like so many compensation challenges, the answers are likely to be as unique as the individuals and company. I’d (and I suspect subscribers would as well) love to hear from individuals who have addressed this issue. What was the impetus? What was the short-term solution? What was the long-term impact?

Lastly, I wanted to follow-up on my last post “Why Do You Pay Women Less?” As of yet, no one has answered to the very not-rhetorical question. But, since published, we have had International Women’s Day, and UK companies have started to release pay gender equality results. An example that proves the problem, Deloitte said that females in their UK practice make about 43% less than males. As of yet, they have not written a response to my passive-aggressive article.

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