Compensation Cafe

Prevailing Wage Determinations Are Good for Us

Don't worry that the foreign worker who works legally in the United States will displace you. If the sponsoring employer follows the law, imported talent is a lot more valuable than you are. The Prevailing Wage Determination rules typically require proof that a higher wage than normal will be paid to any non-citizen qualified for a job where local native viable alternative candidates do not exist.

Concern about foreigners being imported at cut-rate pay levels to displace citizens of the United States lies at the heart of the rules for Permanent, H-1B, H-2A, H-2B, or D-1 visas. Politicians pass laws to discourage employment practices that harm voters. In fact, elected officials are swiftly voted out of office by their constituents if they do not guard and protect local jobs in their communities. Keeping American work for Americans is a foundation bedrock principle for every American politician, reflected in the Davis-Bacon Act, Fair Labor Standards Act, the Immigration and Nationality Act and other protective legislative regulations.

"The Immigration and Nationality Act (INA) requires that the hiring of a foreign worker will not adversely affect the wages and working conditions of U.S. workers comparably employed."

Rather than going into long and boring details about how these government constraints on employers (both public and private) operate to choke a horse ... to enrich immigration attorneys .. I mean ... to curtail unconscionable abuses of economic power, I will summarize. The Prevailing Wage Determination regulations are carefully crafted to tilt the playing field in favor of citizen voters. For example, I always felt it is quite difficult (and always expensive) to come up with good current competitive pay figures that can overrule the deliberately high government threshold hurtle figures that are skewed to the high side. My professional opinion on that was confirmed in a private conversation with a former INS Commissioner. 

Consciously forcing American employers to pay a premium rate to import foreign laborers actually seems to be a quite sensible punitive step in a deterrent policy. The more you pump up the hiring specifications to support your claim that local talent is absent, the higher the wage target for imported talent becomes.  Unless the employing organization pledges to pay at or above the prevailing wage set by the government's interpretation of the duties specified in the justification documentation, no legal permission will be granted to permit someone not a USA citizen to work here. Those federal rate enforcement rules are adjudicated by a local State Workforce Agency (SWA) for many visa types. Such state employment departments are quick to offer candidates registered with them for unemployment insurance as alternatives to an expensive foreign hire. Thus, citizens seeking work in the community get first shot at a high-paying position before the SWA is forced by lack of available local talent (one of the usual INA requirements) to approve the employment visa application of any outsider. The number of foreign work visas are also strictly limited and get snapped up very swiftly, which is a related but different story similarly fraught with controversy. Conflicts are inevitable between protective government agencies charged with maximizing citizen employment and talent-hungry prospective employers indifferent to the nationality of their workers.

The bottom line is that many obstacles are placed in the way of enterprises that seek to give domestic work to foreigners. The United States is not as bad in this regard as many other nations, but our barriers are already strong enough to discomfit both public and private organizations desperately seeking competent candidates here, especially for certain STEM positions. American human resources, employment and compensation people still need to warn their management that a long, complex and expensive gauntlet of paperwork must be endured to successfully import human talent. That's probably good for us, too.

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. 

"Liberty" image by Russ Allison Loar, courtesy of Creative Commons

Outing Outsourcing and the Gig Economy

Why get excited about CEO pay piggery when outsourcing and giggery is much more likely to cost you your job? The accelerating trend towards reducing payrolls by replacing employees with outside contractors threatens our livelihoods.    

Compensation people and the objects of our efforts might not survive outsourcing where work is delegated to other outfits or the gig economy in which consultants are given short focused assignments. Even handling employee remuneration and administering pay programs can be outsourced. Total reward professionals need not be involved when independent contractors are controlled by purchasing agents and cost accountants rather than human resource people. Meanwhile, employees from virtually every occupational category stand to lose what little security still comes from a regular job with an organization if they are displaced and then must seek day to day survival by continually negotiating temporary project deals as independent outside suppliers.

Don't be surprised when enterprises are quick to shed employees. Avoiding employment relationships by shipping out work to contractors certainly simplifies business. It reduces management to contract planning. Monitoring the results produced by outside vendors for whom you have absolutely no responsibility means no more "people problems", because you no longer have subordinate employees. Instead, you receive the contracted services of other entities operating at an arm's length distance and required to deliver specified results. No performance evaluations, stressful personal dealings or contentious emotional expectations.

Employee pay is replaced by a clear cost expense item without any burden rate, no taxes to deduct and no imprecision for overtime, commissions, bonus, or variable cash awards. No complicated benefit selections, no individualized payroll deductions. No long-term employment relationship commitment at all. Rather than stockpile people with wide varieties of knowledge, skills and abilities, instead buy totally fungible specialized talent as needed by immediate circumstances from easily replaceable output modules. Like today's electronic equipment -- don't fix it ... just replace the entire unit. Similarly, it is easier to drop a supplier than to fire any regular employee, no matter how problematic their performance may be.

A regressive devolution back to the exploitative practices of dark past years looms. Despite brave attempts by some organizations to introduce more enlightened environments over the last century, too many enterprises consciously accept the old sweat-shop indifference to the humanity of their workers. Instead of valuing and cultivating worker talents, they concentrate on finding the lowest cost highest quality output bidders for their product or service. They don't care who does it as long as it is produced within the proper tolerances of quality, quantity, time and cost for the highest profit possible. That is the typical mandate delivered to top executives of every organization by their owners. It is not a phenomenon restricted to commercial private businesses, either, because the same dynamics operate in the public sector. Taxpayers insist on optimum services at minimum personal cost. Even union pension funds seek high returns on their investments. None of those expectations depend on employee welfare at the enterprises that serve the customers. Whether all these demands create a workplace of robot automatons or one of collaborative independent agents, neither environment requires much HR management.

I'm struggling to articulate an uneasy gut feeling about the potential implications of negative attitudes towards the employment role of organizations. Purchasing production units is easier than hiring and managing troublesome people. Lean vendors can be deployed to supply the same output results as team members, but at the cost of accepting a different relationship ... like, hardly any, beyond that of buyer and seller. The purchase of a product can easily be callously disengaged from the lives, souls and welfare of the producers. But is this the desired future of work?

Unsure if the slide towards this scary dispassionate dystopia can be stopped. Perhaps more of us should speak out. Maybe "outing outsourcers" can become a new rite of public employer shaming that will discourage this ominous trend.

Perhaps that fat cat overpaid CEO truly deserves an imperial reward package if he or she supplies good steady jobs with living wages to regular people.

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. 

"Cheap Labor to Go" image by PT courtesy of Creative Commons (magnify by clicking on it)

"Outsourcing" illustration by Frits Ahlefeldt, courtesy of Creative Commons

The Consultant Dilemma: Make Your Own or Go with Store-bought?

Much of what we do in compensation is logical and systematic. Once you know the steps for a process or a report, why would you spend money on a consultant? Just get the work done and move on. After all, isn't this stuff in your job description?

Odds are, it is. Whether we're talking job pricings, salary structures, gender/minority analysis or you name it, it's all in our job description somewhere. And yet, in my experience, hiring a consultant doesn't mean you're shirking your job. In fact, if you do it well, working with a consultant often demonstrates your ability to lead by making an investment that will provide returns for many years without having to reopen your wallet.

Here's the case for investing in consulting assistance that I made to a colleague recently:

Become as sophisticated as the consultant's best clients. You may have worked for two or three companies. Your consultant will have worked for dozens. Each one had a problem to solve that you do, too. Work on a new or vexing project on your own, and you might as well be unfolding a paper map and uncapping a highlighter. Invest in a consultant and you get a GPS that shows you the two or three best routes, and enables you to avoid dead ends and accidents.

Meet hard deadlines. Most of our work is very time consuming. Especially if you are a small shop, odds are you will get interrupted by a zillion other things and probably should. Consultants not only have more experience than you do in creating realistic project plans, they also contract with you to meet specific deadlines.

Learn a lot. Consider this. Even if you know how to cook, the Barefoot Contessa offers tested techniques and recipes that you may never discover on your own. In compensation, the best consultants consider themselves teachers, showing you how everything is done and prepping you to do it yourself, so you can build on the results of your current project without further help from them.

Make your attorney happier. Can you even imagine that? Here are a couple of reasons. When employee legal challenges occur and work becomes discoverable by a court, consultants' work tends to be far more documented than in-house work. When it comes to questions of equity, guidance by a third party (who has no skin in the game) often has more street cred than your company's self-assessment. From an experience standpoint, consultants have typically worked with attorneys on these issues in the past, so they know how to address formal requirements. In addition, some consultants provide expert testimony. Having been on the "hot seat," they can help you avoid practices or documentation that can be easily challenged.

Unsubscribe when you're ready. Most consulting work is once and done. You decide if you want to invite them back.

Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career paths and communications at the Café. Her firm, re:Think Consulting, provides services that include market pay information, base salary structures, incentive plan design, career paths and new plan implementation. Margaret is a Board member of the Bay Area Compensation Association (BACA). Earlier, she was a Principal at Willis Towers Watson. Margaret coauthored the popular ebook, Everything You Do (in Compensation) Is Communications, which can be found @ https://gumroad.com/l/everythingiscommunication.

Merit Deserves More than Mere Money

Money is not the only reward available to serve your compensation program.

You can't rely on cash alone, anyway, in these times. During this current long period of relatively flat or tiny incremental salary increases, human resources people have already squeezed as much as possible out of very small discretionary annual increase opportunities. Margaret O'Hanlon wrote eloquently earlier about the current weaknesses in annual pay increase programs.  This is an excellent time to expand your thinking beyond the limited boundaries of payroll budgets.

When pay increase guidelines limit good workers to 3% and outstanding performers to 4%, the difference is hardly worth the lifestyle cost penalties accepted for an extra 1%. Why bother killing yourself for a hardly noticeable pittance delivered long after the performance that earned it and trickled out in each future paycheck? You can get a much bigger boost in earnings by switching jobs.

If other jobs exist with higher salaries, why don't people quit to take those higher-paying positions more often? The answer to that simple question is also the answer to the motivational dilemma. Money is not the only reward prized by workers. Consider some of the other elements of total reward systems that are in greater supply than cash. Some of them are also easier to apply and can win much more appreciation than a few extra dollars disappearing into a bank account.

It does seem impossible to achieve a credible pay for performance (merit) system with lean payroll budgets constrained by low increase authorizations. Merit is not properly recognized by a mere 1% differentiation. Such tiny distinctions are virtually imperceptible, below the level of notice. Let's consider some solutions.

Merit is actually being reflected in retention and movement today. If they are good, you keep them; otherwise they are shed, one way or another, with minimal muss and fuss. If they are outstanding, you prize them and should shower them with (hopefully appropriate) reinforcements. Money is frequently the least available to offer, the most expensive reward element and often the least effective.

The optimal reward is being treated as a treasure rather than as a resource to be exploited. Imaginative total reward options are always possible and sometimes vital. Let's think of some ...

• Valued talent should be encouraged to stick around by frequent positive feedback from the immediate supervisor.
• Can the employee's work schedule be adjusted for maximum ease and convenience? (THEIR ease and convenience, not yours.)
• Could this person's talents, skills and abilities be enhanced for mutual enrichment by another assignment that would please the worker while simultaneously increasing the positive leverage they can supply to organizational output results?
• Are there any training courses, professional societies, sabbatical programs or task-force memberships that would serve both parties well? What new experiences do they seek that will serve their long-term career interest?
• What goods and services does this employee purchase with after-tax income that you could provide while deducting the expense from your taxes?
• It might be informative to ask your tremendously valuable top performers what they would like as a reward. Bet it will not be the same thing from each of them, either.

Rewards can and should be personalized as much as possible, because your workers are all unique human beings with individual hopes and dreams. If compensation people are to succeed in our ambition to effectively manage and administer total reward programs, we should both recognize that fact and act accordingly.

Those who visit this site are probably the most likely to cope effectively with this challenge. What say you?

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.

"Dreams" by Noah Coffey, courtesy of Creative Commons

Santa, Where Do Best Practices Come From?

Much as we like to believe that our compensation processes are objective, even numbers have a way of being influenced by human nature. If we are not aware of them, our vulnerabilities can affect our decisions all the way from job pricings to cost projections to talent assessments. After all, much of what we deal in is probability, and other forms of statistics, and we all know what kind of reputation statistical interpretations have.

One proven foible of our quantitative work is worth being talked about openly and often. We're likely to pay more attention to findings that support our beliefs and to ignore competing facts and patterns in our data. This is called the "confirmation bias," and we all suffer from it, with personality traits and other social influences impacting our bias.

Think about the wrangles you have with certain executives about salaries, from their own to their teams'. The exec is often waiting for you to confirm his/her beliefs, and has little interest in competing facts. We suffer from the same habits, we just exhibit them  less loudly.

Even though our own personal confirmation bias is not that obvious, it's there whether we like it or not. We often tell our bosses or internal clients how we expect our work to turn out. (Tell the truth: We do the same within ourselves with our inner voice, whether we are aware of it or not.) Of course, our predictions are based on experience but they can just as easily be incorrect.

Notice how high we set the bar when we run into evidence against our own hypotheses. This tendency is called the "disconfirmation bias" and it has also been supported through experiments.

You may think these biases have little importance to your work, but you can literally make mistakes that cost money and cause mischief if you do not formally examine your thought process each time you are asked to give a prediction. Fortunately, there are time-tested actions that you can follow including these three listed in a recent Harvard Business Review "Management Tip of the Day."

Start by following a data and analytic approach that is specified ahead of time. Document how this approach is followed -- including how judgments should be made using the data -- and hold everyone who is doing data analysis on the project to follow the same approach. This will govern the tendency we all have to cherry-pick data that agrees with our point of view and, for the same reason, the full process should be itemized for the person to whom you present the data.

Another step to include in your approach is to actively look for findings that disprove your belief. This is often called "shooting holes in the data," where you identify other patterns in the data and determine whether they indicate that other judgments could be more correct, or correct in a different way, from your own.

Treat your findings like predictions and test them. Even a single job pricing can benefit from this validation process -- how high can it go and how fast? What does this say about pay for other jobs that share the same salary grade? And so on.

In my experience, in-house compensation staff have the hardest time with the last two actions on the list. In comparison, while many in our field are biased against consultants, you can count on most to challenge potential biases. In fact, that's part of the rationale for hiring a consultant. We're trained to do it, and consider our bias checks as part of the service that a client is paying for. (Not all clients like this part of our service, by the way.)

For more on this particular topic, check out the recent WorldatWork video, "Advice on Working with Consultants from Consultants." And for the most jaded consultant-basher -- you know who you are -- allow the speakers to challenge your disconfirmation bias!

Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create the DIY guide to compensation leadership, Everything You Do (in Compensation) Is Communications @ https://gumroad.com/l/everythingiscommunication. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, communications and leadership to topics like the CEO Pay Ratio, performance management and compensation implementation discussions at the Café. Margaret is a Board member of the Bay Area Compensation Association (BACA). Before founding re:Think Consulting, she was a Principal at Willis Towers Watson. 

 

 

FLSA Chaos, Exploiting Exempts and Living Laboratories

Even if the new Fair Labor Standards Act proposed salary test threshold increase is cancelled, 2017 will still remain an exciting year for pay. America will become a living laboratory. Claims about the effects of government mandates to increase the cost of labor will be studied and examined, even as exempts continue to be exploited.

The new FLSA guaranteed weekly salary threshold level was scheduled to more than double to $913 on 12/1/2016, so most workers earning under that amount would get time and a half overtime. That nice pay bump, if supported by the incoming President, will be expensive for employers suddenly facing major increases in their fixed payroll costs.

Before the last-minute temporary injunction, most employers went ahead and made the necessary changes to wages, salaries and payroll practices, anticipating the new rule. The few that held back until the last moment or who continued with the old system now become a control group. This is perfect for truly objective tests.

If the rule change is cancelled, rolling back increases already announced and other changes already implemented may be impossible. Right there, another test group will emerge: those who continue with the suddenly stalled new pay mandate and those who instead re-adjust to return to the old system. Broad issues of morale, motivation, engagement, credibility and economic survival will play out before your eyes.

Old pay equity problems and entitlement status issues will get worse. How will you explain why two people doing the same job side by side are paid so differently, if one gets handsome overtime pay and their co-worker receives nothing. Of course, the best excuse will be that the exempt individual already earns a higher salary, thus fitting above the new short test cutoff point. But if there are not orders of magnitude differences in their weekly take-home pay, those gifted with exemption may see this as simple exploitation by a heartless employer. They might be right, too.

Exemption from overtime might inspire accusations of bias. Denial of extra income is not generally seen as A Good Thing. Exempts may feel victimized, forced to work "without pay" for many hours (and weekends) longer than their better-treated "wage earner" peers whose paycheck gets larger for the same time spent at work.

Many longstanding assumptions about work, wages, salaries and the dignity of labor will be shaken. The traditional myth that exemption implies you are a member of management still persists in many places. Another common belief is that exemption means you are a true professional. Holding non-exempt status is considered somehow shameful for college graduates.   Conventional wisdom for as long as I can remember has been that FLSA OT eligibility is a demeaning condition reserved for mindless wage slaves. Maybe these ideas will change ... or maybe not.

Many truly professional workers employed in highly skilled occupations will be "on the clock" for the first time, one way or another. How they behave can be more clearly compared to peer-level workers who are paid differently.  

Problems will certainly multiply. Many managers will be stunned to learn that FLSA in general and its new income threshold specifically applies to individual workers rather than job titles or broad occupational classifications. Inequities will appear when incumbents of a peer occupation are split between overtime-eligible and exempt in the same grade or even in the same job title. When faced with a situation where duties are identical but individual pay varies, only workers whose personal income falls below the new regulatory salary threshold will be entitled to overtime; others with higher guaranteed incomes will "continue to be exploited." That will also happen in cases where the threshold bump is cancelled but the employer proceeded as if it went into effect.

Overtime income treatment decisions determined by rigid employer classification choices based on cost control rather than "equity" or "fairness" or "justice" will be challenged. Bias will be claimed whenever some workers are treated better and given more favorable breaks. It will also be both educational and interesting to learn later just exactly how people judge such different treatments.

2017 should be a year of great excitement with much attention focused on compensation people. Sorry about that!

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After corporate HR and consulting roles in most industries, 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.

Waterdrop image by francescoprocida, courtesy of Creative Commons

Two Types of Compensation People

Compensation people seem to come in two types: employee judges and employee advocates. Bear with me while I oversimplify about how each type distributes rewards. Follow my thoughts for a minute; then let's discuss these sweeping generalizations about this profession being divided into dispassionate adjudicators and egalitarian advocates -- more or less.

I see major dramatic (if not polar) differences in attitudes among our peers about distributing rewards. One group adamantly maintains that pay for performance is a Good Thing and rewards should be allocated to the most deserving ... whoever they are. Such "judges" believe in measuring contributions and rewarding consequences proportional to output results. Another group (which I will carelessly label "advocates") prefers to ignore individual performance distinctions and instead would confer identical generous compensation rights to all employees.

"Judges" expect employees to earn income by demonstrated performance.  "Advocates" consider all compensation an employee entitlement tied to membership in the group. While most reward "judges" agonize over applying variable pay allocation methods to individual workers, many "advocates" disregard differential remuneration approaches and want to distribute as much as they can as non-controversially as possible to virtually everyone. One group worries about what senior management will think of their decisions and the other group worries about whether it has pleased the general employee population. Judges focus on allocating what is earned and deserved according to current results; advocates focus on rights that, once granted, imply guaranteed perpetual rewards.

In our much-criticized subset of the HR community, for every penny-pinching tightwad "judge," there seems to be an egalitarian "advocate" benefactor dedicated to playing Santa Claus. The more extreme examples on either side seem to vary according to whose money is being disbursed.

Certain circumstance favor the respective attitudes of conservative allocators or generous givers.  When the cost comes out of their own pocket, managers tend to be quite parsimonious. Bonus pools that shrink when expense outflows exceed a nominal level frequently inspire fervent compliance with budget limits. If awarding workers an extra tenth of a percent increase will eliminate your year-end bonus, it becomes quite difficult to muster enthusiasm for that additional expense. One might even suspect that it would require tremendously powerful evidence and severe psychological pressure to motivate the typical manager to voluntarily accept a cut in their personal anticipated income in order to boost the wages of workers otherwise content with their pay.  Compensation managers at prosperous corporations and tax-rich government agencies, on the other hand, are more likely to be advocates haunting discussion boards seeking new ways to further enrich already well paid workers. Shop stewards and executive compensation consultants are another two occupational categories that extend the entitlement philosophy to the farthest degree possible. 

The typical total reward manager is generally caught in the middle between management and other employees, pulled by both sides.  We don't want to be either heartlessly dispassionate misers or overly empathetic softies.  Part of the problem here is the essential confusion about who we really work for.  Are we the minions of top management or the protectors of our constituent workforce?  Or both?  We HR/compensation professionals face a constant dilemma, because what is best for one party may not always be in the best interest of the other. 

Do compensation professionals truly display a basic preference between judging and advocating?  Must we always be forced to decide between responsibly managing organizational assets (like cash and human resources) or generously supplying the maximum enrichment to the lives and careers of the employee population we serve?  Unsure if there can be a balance between the two objectives or if we can achieve both simultaneously.  Please share your thoughts.

Or am I seeing things that aren't there, again?

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After corporate HR and consulting roles in most industries, 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.

U.S. Army Garrison Red Cloud 2014 Thanksgiving Meal image, courtesy of Creative Commons

Teachers Are Worth Less

Last year marked a deplorable record low pay level for American teachers. According to a new report, public school teachers earned 17% less than their college graduate peers who pursued different careers.

That’s the largest gap since 1979, when teachers’ weekly wages were 5.5% less than those of college graduate peers in other occupations.  The analysis adjusted for education, age, gender, marital status, geographic region and race/ethnicity. When benefits including insurance and pensions were factored in, the gap was still 11.1%.

Relying on Bureau of Labor Statistics and Census data, the Economic Policy Institute researchers found that the depressing negative trends of the past only continued to get worse.  Despite a worsening shortage of educators during a period of increasing demand, teacher pay relative to their peers continues to lag.

The pay gap is biggest for teachers between 35 and 44 years old, who earn 21.7% less than their peers in other lines of work:  male teachers get 24.5% less and non-union teachers get 25.5% less.  Male teachers have always suffered a huge pay gap, even in 1979 when they earned 22.1% less than comparable college graduates.

Note that this report compares weekly wages, so the shorter educational work year is not a factor.  Also remember that this latest study of public school teacher compensation relied on government data, so bias in observation sampling is unlikely. It is difficult to find fault with the report's findings.

The painful pay inequity trend may have contributed to other continuing issues, too. Teacher turnover rates are rising, more new and mid-career incumbents leave the profession, fewer enter the field and more retire. Even while school systems plead for more diverse teachers, the majority are still white women. The lack of significant numbers of black, Latino and male educators continues to remain a serious problem.  

Under these conditions of rising demand and short supply, conventional economic theory would expect a new higher equilibrium rate for classroom instructors. Teachers should be experiencing steady strong pay increases like those seen in the relatively prosperous health care and specialized STEM occupations. Yet, supply and demand economics seem to fail teachers. It is unclear why the free open market for labor is not operating as it should for educators.

Although public school teachers earned within 2% of other professionals few decades ago, their earnings have taken a severe tumble into steady relative decline. Teacher compensation that used to rate about a B- grade now struggles to stay around a D level, it seems, even when scored "on the curve." All else being equal, teachers today are considered worth less and less to the public bodies who employ them, even though their profession remains one of the most unionized in America.

If teaching is such a valuable field, why has this happened?  Their occupation has not been technologically obsolesced, outsourced or off-shored.  Are educators a unique self-selecting population more focused on intrinsic rewards than on economic compensation?  Perhaps they are either immune or indifferent to monetary challenges.  Could the quality of teachers be so bad that they are only paid the little they deserve?  Or is it hard to justify paying relatively good money to classroom instructors after years of cumulative deterioration in the excellence of American educational results?  Are school boards more tightfisted than ever?  Have teachers' unions failed their members?  Some or perhaps all of those reasons might be true.

Having allowed my teaching certificate to expire when more profitable activities drew my attention, I'm no longer close enough to the action to have an informed opinion.  On the other hand, maybe that's exactly what has happened to the rest, too.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in corporate HR management and all-industry consulting throughout the continent. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness, Jim testified in many reasonable executive compensation cases. He also serves on the Advisory Board of the Compensation and Benefits Review.

Image "Teachers pay based on experience" by Quite Peculiar, courtesy of Creative Commons

Excessively Successful Incentives

The only thing worse than an incentive that doesn’t work is one that works all too well. Wells Fargo is just the latest company to be ethically embarrassed and financially distressed by a fiasco involving excessively motivational incentives. Thousands of employees were discharged over scandalous fraudulent practices that generated illegitimate bonuses and enriched salespeople while bilking their clients. This incident is merely the best publicized newest example of something that happens all the time, but it is important to us.

While the general public might just shrug at another set of criminal acts that can be laid at the feet of money-grubbing bankers, we in the compensation profession should take the lesson more seriously. The moral hazard problem is not industry-specific or even an issue about incentives. It strikes at the heart of our profession’s intense focus on applying rewards to generate positive output results from human resources.

Any fault lies not in capitalism but in human nature. Similar debacles involving reward system perversions occur in every kind of human enterprise in every social system on every continent. Government agencies,the halls of Congress, multinational conglomerates, non-profits, small companies, LLCs, partnerships and sole proprietorships all routinely stumble over the most basic principle of behavioral psychology: people always choose to act in ways that they perceive as best for themselves.

Any program effectively designed to generate rewards that are meaningful will tend to elicit behaviors intended to win those positive consequences. Each individual will choose:

• to perform as you desire to earn that reward,
• to ignore your offered inducement as less desirable than some other course of action or
• to take some other alternative path to attain the attractive reward.

That was simplified, of course, but you get the idea. We who do HR and compensation things are supposed to show mastery of the methodologies to create (or copy) marvelously efficient mechanisms to achieve top management objectives.  On time and under budget, too.

As others have observed, good process can enhance any final incentive product. Strategic planning sessions, communications, Beta tests, focus group studies and performance audits are all basic steps that can help improve design and implementation. Precommitment agreements with honesty pledges signed at the top rather than merely at the end will create statistically significant improvement in compliance success, as well. But the final test of a viable incentive program will be its appropriate responsiveness to how the targets of the plan balance the consequences they see inherent in the situation. Employees affected by the plan might not see what you see or react they way you hope.

In one illustrative case, a State highway patrol chief asked for comments when he announced the introduction of an innovative pay for performance plan that would involve safety criteria. Part of the future pay evaluation of patrol officers would involve the traffic safety record in their area. A veteran sergeant immediately spoke up: “If I’m going to be held accountable for traffic accidents, Chief, we really need to get a stop light at Dead Man’s Corner, where I have to call for the meat wagon at least once a week.” The Chief responded, “OK, but you have covered that section for years, Sarge. Why didn’t you ever mention that before?” The sergeant answered, “Well, it was a great place to write tickets.”

Be careful what you ask for.  You just might get it.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After every kind of corporate HR and consulting role in every industry, 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, Jim testified in many reasonable executive compensation cases. He also serves on the Advisory Board of the Compensation and Benefits Review.

Image by Tran Nhat, courtesy of Creative Commons

Stuff Changes

Stuff changes. That simple phrase has profound implications for total reward professionals.

The way things change over time affects almost every compensation situation. Consider some of the typical challenges that arise.

“She has already surpassed the quota demanded last year.”  Performance output objectives valid in prior periods are irrelevant going forward.

“Why was that promised raise challenged?” Ouch. The salary increase budget that won preliminary approval in January suffered substantial revision in July.

“What do you mean, the CEO bonus plan needs to be modified?”  The executive compensation formula acceptable at a small startup operation in its early days before a steady positive income flow has been established may become unconscionable later. Once the business has grown to become an established giant with multi-million dollar profit levels, that primitive simple cut of a modest sum would never pass muster from an outside objective executive compensation committee of the board of directors. Relative relationships not periodically revisited and revised can be hazardous.

“I thought I was supposed to switch my functional assignment and move into the management progression ladder this month.”  Career development paths are altered and modified whenever organizational long range staffing plans change.

“Move him up on the succession chart and double check to assure his pay trajectory is consistent with his current high value.”  This previously overlooked and historically underpaid guy was hired at a discount, but he has vastly outperformed the entire crop of supposed superstars we hired at premium rates at the same time for the same function. And make sure to slow or reverse their disproportionate base pay lead over him.

"But I've always been rated outstanding..." or "I never have been denied an annual bonus before."  Every advantage is presumed to be an infinite entitlement while any negative consequence is abhorrent and indignantly protested as an alien unfair exception. Unlike positive rewards, negative reinforcements fail to register as permanently regularly scheduled outcomes.

“Let’s just use the same approach that was so effective way back when!”  The best solution used ten years ago will not automatically remain the best option now.

“Although the competitive market rate for Noses used to match that for Tongues, the latest flavor industry surveys show the sniffers to be a lot more valuable than the tasters. If we bump one group up according to our Compensation Policy, the other bunch will demand classification parity, screaming that peer relationships are sacred and must always be maintained.”  Funny, how employees always embrace the principle of relative peer pay equity when it yields a higher figure than their market reference point. When the competitive market rate lags, they demand to be kept “whole” with their prior peers whose jobs remain highly paid. Yet, when outside demand rises rapidly for their jobs, they are quick to abandon the historically treasured peer equity relationships and clamor for the proper higher open-market rate. Well, circumstances do change with time, don’t they?

Every element of human resource management is time-sensitive. The solid practices of yesteryear fade into distant memory when better and more popular techniques emerge. What worked well once before might not be appropriate (or even legal) today.

All aspects of the reward trade fluctuate with time and circumstances. Change is continuous although its velocity generally varies. Reality itself is in a state of constant flux. No stream of water remains the same. The atmosphere is never static (sic). The only constant is change, but it very rarely takes place at a steady predictable pace, tends to follow irregular patterns and is almost never symmetrical in form.

We engage in a constant balancing act, juggling roaring chainsaws, flaming torches and sharp sabres while teetering on a freshly cut log rushing down a flume. We will never get bored, because stuff changes.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After every kind of corporate HR and consulting role in every industry, 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, Jim testified in many reasonable executive compensation cases. He also serves on the Advisory Board of the Compensation and Benefits Review.

Image "Ominous" by James Loesch courtesy of Creative Commons