Compensation Cafe

Cafe Classic: Rewards and the Disruptive, Uncredentialed Misfit

Organizations that are unable to innovate and evolve will likely not survive - let alone prosper.  Few inside and outside our profession would argue the point.  What role can rewards play?

I had the opportunity to hear a great presentation on strategic thinking a few years ago and came away with interesting ideas and an intriguing book on creative invention:  The Medici Effect by Frans Johansson.  The book presents the case that new discoveries -- those that have real impact - will no longer come from within disciplines and established fields of expertise, but will instead spring from situations where ideas from multiple fields and points of view come together.  That is the Medici effect, named for the Medicis, a wealthy banking family in fifteenth century Florence.  The Medicis used their wealth to bring together and fund the work of creators from a wide range of disciplines -- from sculptors to scientists, from financiers to architects.  This diverse group of people who converged, beckoned by the Medici family, on Florence ignited one of the most creative eras in history, known today as the Renaissance.

We've discussed before how deep, specialized education in a field can potentially limit an individual's ability to think creatively.  Innovators are often self-taught (think Steve Jobs, Thomas Edison) or have pursued a broad learning experience that crossed many fields.

Johansson shares the story of Charles Darwin and John Gould as one example.  Darwin was a below average student who (to his father's chagrin) wandered around the English countryside pursuing various botanical interests and meeting with a range of scientists.  He enrolled to become a physician, then a minister, then finally decided to board a boat for a five year trip around the world to study geology on his own.  Along the way, he collected and wrote notes about birds from the Galapagos Islands.  Because they were of little interest to him, he gave the collection to John Gould, one of the most prominent zoologists of the time.  Gould, an accomplished taxonomist, assessed the collection and reported his rather interesting findings back to Darwin: that the birds were a single group of finches yet also reflected 13 distinct species -- one for each of the 13 islands.  Gould, the expert, stopped there.  Darwin went on to use this information to propose a radical notion that became a new theory of evolution, considered to be one of our most significant scientific theories.

In a more recent example, successful venture capitalist Paul Maeder discusses the important role that disciplinary outsiders, often people without formal training, play in generating innovations. For him, identifying these individuals can help pinpoint the entrepreneurial teams worth betting on.  Johansson recalls a conversation with Maeder:

"Take this guy Stan Lapidus," he told me one day.  "He doesn't have an M.D. or a Ph.D., but he has come up with an amazing way of analyzing stool samples for colon cancer pathology.  Put it in a blender, mix, and you can spot cancer with hardly any false positives.  It's really an amazing invention.  Now, why did he think of this?  Because he's not a doc."

Back to us and the organizations we serve.  Many have cultures and embedded practices that inadvertently (or perhaps by unacknowledged design) discourage, punish, even expell the uncredentialed, disruptive misfits.  Because everything we do in compensation is communication and organizations often become what they reward, I believe we have a potential role to play here -- if we can get out of our own disciplinary silos.  A nfew of questions come to mind, including:

• Could linking rewards and promotional opportunities too directly to formal education and credentials create a barrier to those who may have followed a different learning path but could bring a valuable perspective to the table?
• Are our performance management/career development/succession planning processes designed to recognize those with expertise gained in non-traditional ways as well as those who may be counter-cultural and disruptive in a way that's ultimately beneficial?
• Can we do a better job of using non-cash rewards like high visibility assignments, the chance to work on key projects, and the opportunity to participate in exciting product/service development efforts to recognize the potentially valuable "misfits" and encourage a healthy convergence of different ideas and viewpoints.

Your thoughts?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at 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 hiking, reading and hanging out with family in any spare time.

Image "Leader Holding Multiple Color Umbrella" courtesy of hin255/FreeDigitalPhotos.net

Cafe Classic: To Innovate in Rewards, Get Outside the Rewards Profession

There appears to be general agreement among reward professionals that the compensation approaches and protocols which have dominated practice for the last few decades are more than ripe for reinvention.  That disruptive change in the field is necessary and inevitable.

I also sense an assumption that we will be the change that we have been waiting for.  That we will lead the revolution, just as soon as we get those year-end budgets and incentive plan changes completed and find the time to get our innovation game on. 

Will it pan out that way?

A while back, Derek Thompson had an interesting article (which continues to pop up in conversation online) in The Atlantic,  Why Experts Reject Creativity, which takes a close look at the bias we all have against new ways of thinking.  Thompson asserts that not only are our brains hard-wired to distrust creativity, but that the more knowledge and expertise we have on the subject, the more hostile we are to new approaches.  And he highlights a number of research studies that support his claim.

In one study, 142 world class researchers from a leading medical school were randomly assigned to evaluate proposals for research funding.  Sometimes the faculty were experts in the subject matter being considered, sometimes not.  The experiment was triple blind, so that evaluators didn't know submitters, submitters did not know evaluators and evaluators did not talk to one another.  What the researchers found: New ideas -- those that "remixed information in surprising ways" -- got the worst scores from everyone, but were particularly punished by experts in the subject matter.

Thompson goes on to demonstrate that, in reality, most of us dislike new ideas, regardless of what we say or believe about ourselves. Ouch, right?  Read on.

Another study found that teachers who claim to enjoy creative children don't actually enjoy any of the characteristics associated with creativity, such as non-conformity.  Research conducted by organizational psychologists at Cornell University examines our bias against creativity and why people desire but reject creative ideas.   The authors of the study, in discussing their findings, note that "Because there is such a strong social norm to endorse creativity and people also feel authentic positive attitudes towards creativity, people may be reluctant to admit that they do not want creativity; hence, the bias against creativity may be particularly slippery to diagnose."  They further state that "If people hold an implicit bias against creativity, then we cannot assume that organizations, institutions or even scientific endeavors will desire and recognize creative ideas even when they explicitly state they want them."

Which means that disruptive change, innovations that move the field of play and introduce new reward management ideas, tools and solutions, might likely originate outside our profession.  It could happen out at the edges and beyond, outside the perimeter of "professional" reward practice.  And so I propose that our mission, if we choose to accept it, will be to discover, devote attention to and learn from what is happening outside the core of our field.  And then to bring those ideas in, adapting and piloting them in our own organizations.

To paraphrase the wisdom of Gordon MacKenzie, author of Orbiting the Giant Hairball: A Corporate Fool's Guide to Surviving with Grace (and IMHO one of the best book on business creativity every written!), we won't be able to truly push the boundaries of practice until we figure out how to escape tMacKenzie's Hairball -- our entanglement with the policies, assumptions and practices of the past.  Orbitting -- escaping the gravitational pull of the Hairball enough to observe and embrace original ideas and lessons -- will require that we read and interact outside the boundaries of our profession. 

A closing thought.  The fact that the events of the last few years have pushed so many of us not only outside our on-site offices but outside our comfort zones in many ways may position us for escaping our own professional "entanglements."  Does this up our odds of taking the steps to reverse any bias against creativity ... at least as it exists in our own field?

What do you think?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at 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 hiking, reading and hanging out with family in any spare time.

Creative Commons image "Lightbulb in Malta" by Mark M.

Cafe Classic: Merit Pay and the Tragedy of the Commons

Editor's Note:  What wisdom can Aristotle offer those of us who endeavor to make merit pay work?

In a conversation about pay-for-performance a number of years ago, one of the participants drew a comparison between the challenge of making merit pay work and the classic dilemma the Tragedy of the Commons.  It was a great point, one I've borrowed countless times over the years.

A little background.  The theory underlying the Tragedy of the Commons dates back as far as Aristotle, but it was popularized in modern times by the essay of the same name written by Garrett Hardin for Science.  Essentially, it describes the dilemma that occurs when the short-term interests of individuals are at odds with the long-term interests of the group or, as Aristotle puts it "... what is common to the greatest number of people gets the least amount of care..."

I like Wikipedia's summary of Hardin's article:

This story describes a group of herders having open access to a common parcel of land on which they could let their cows graze. It is in each herder’s interest to put as many cows as possible onto the land, even if the commons is damaged as a result. The herder receives all the benefits from the additional cows but the damage to the commons is shared by the entire group. Yet if all herders make this individually rational decision, the commons is destroyed and all will suffer.

As Hardin and others point out, the "tragedy" plays itself out in a wide range of modern day "commons" - beginning (but not ending) with our use of resources such as water, parks and wetlands, fish stocks and oil.  The point made by my colleague during the aforementioned discussion is that we often see a similar dynamic at work among managers when it comes time to assess their subordinates' performance and hand out merit increases.

The actions of many managers would suggest that they see their role and their primary objective in the merit pay process to be getting the highest possible increases for each of their reports, however that might be accomplished.  If gaming the pay system is the most expedient way to get there, then so be it. 

The outcome of this behavior is that the ability of the group (the organization) to pay for performance, to differentiate and reward the employees who truly go above and beyond in their roles, is compromised in favor of the individual manager trying to maximize the pay levels of his/per particular group of employees.  Peformance-based pay ultimately fails.

Addressing this "tragedy" requires more than simply training managers in the nuts and bolts of how the performance management and pay systems work.  It requires directly dealing with the definition of what it means to be in a management role.  I would submit that the role of a manager is one of stewardship; of being good stewards of the organization's resources - both human and economic.  Stewardship involves actively balancing the needs of both employees and the organization.  What it isn't is putting the short-term interests of their reporting employees above the longer-term interests of the larger group.

Until and unless we hold managers accountable for their roles as stewards, we may be unable to conquer this particular Tragedy of the Commons and our pay-for-performance efforts will suffer accordingly.

Maybe Aristotle's got some ideas for us...

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at 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 hiking, reading and hanging out with family in any spare time.

Creative Commons image "Grazing Cow" by Matthijs Meeuwsen

Cafe Classic: Motivation 101 (or, Pass the Motivation, please)

Editor's Note: Motivation is a key objective for many of the plans and programs we devise.  But how well do we really understand and work to appreciate the variations and complexities of motivation?  Jim Brennan share some insights and conclusions in this Classic post.

No one can motivate anyone else.  People already come with their own motivations. As an employer, you must deal with the actual people who do your work rather than artificial stereotypes stamped from an identical mold formed by the creative imagination of some speechwriter.  All you can do is offer reinforcements and consequences that hopefully align with the actual motivations of your employees.

Herzberg's refinements of Maslow's hierarchy of needs is a starting point, but individual motivations run the gamut. The starving poor need basic necessities and money; the prosperous rich have the luxury of pursuing other goals like affiliation, recognition or self-actualization. What works best with a particular group depends on what they need and want.  One cannot generalize that cash is always superior to other rewards nor that individual recognition will always create more productive output results than group awards.  In the immortal words of the ancients, it depends.  Motivation is a diagnostic process rather than a universal lever that can be quickly identified and easily pressed for instant results. You don’t inject motivation into your people like a serum; they already have their own, thank you.

The most effective managers are those who know the actual key motivations of each of their subordinates and therefore customize their contacts, output consequences and reinforcements to the actual motivations that drive each individual. Those who believe "everyone is just like me" are gambling on a broad oversimplification. They will find occasional success with their clones but will experience failure with the majority of people who have different circumstances, different priorities and different motivations.  Research has proven that the most effective supervisors are those with the best understanding of the motivations of their individual subordinates, not those whose direct reports have the exact same motivations as the supervisor. 

A boss motivated by status can’t safely expect a crew of workers desperate for money to want the same rewards he wants; their decisions are driven by different desires.  A supervisor who wants to Do Good For Mankind better not project her motivations onto her starving subordinates who are struggling to make ends meet; their enthusiasm is currently best excited by cash.  In academia, where the subjects studied are comfortable in regard to their hygiene factors, the forces that motivate behaviors are quite different than those operating among twenty-somethings with growing families to feed.  There is a wide disparity of motivations encountered in a typical work group, and the effective supervisor needs more than one tool in his or her kit.

Bottom line: your employees will determine which consequences are more effective with them. Personal responses depend on the preferences of actual individual persons and cannot be reduced to a binary choice between A or B, cash or non-cash, personal or group, individual or team, intrinsic or extrinsic, etc.  Life is more complicated than that.  Actually, the ideal situation is to offer some of all:  the most effective total remuneration systems encompass both cash and non-cash elements in a tremendous variety of forms. 

Universal prescriptions tend to be specifically ineffective.  There is always more than one way to skin a cat.

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.

Cafe Classic: Truth, Clarity & Alignment = A Successful Annual Bonus

Editor's Note:  With today's Classic serves up a call to walk the talk - or at least honestly talk the walk - when it comes to annual bonus awards.

It's a common lament this time of year.  In organizations with annual bonus "plans", whether paid out at year-end or early in the new year, leaders are beginning their conversations about whether and how much should be paid out.  Invariably, one of them will ask: "But what are we getting for this money?"

Many business owners and top executives have a strong preference for discretionary rewards - which often amounts to simply doling out cash in a manner that "feels right", based on available information about profits, growth, performance, etc.  It's not hard to understand why.  This gets them out of the admittedly difficult (particularly these days) task of pre-defining goals and bonus parameters.  It may help them avoid the need to share and explain complex, sensitive company information.  It leaves them in a position of complete control, relative to bonus expenditures.  What's not to love?

Unfortunately, it also doesn't drive performance.  It doesn't focus people's discretionary efforts or make priorities clear.  It doesn't communicate a path to success for motivated employees to follow.  It can create the impression, especially with any employees who receive less than others and aren't clear on the reasons why, that the program is more a popularity contest than anything else.  It produces a sense of entitlement among the recipients.  And it is nearly impossible to assess the return on the dollars spent - what the organization is indeed getting for its money.

I'm not sure there's a right way or a wrong way to do bonuses, really.  But it is important, ultimately, to be truthful about what you intend to accomplish with a bonus program.  If your objective is to express gratitude to employees - in an economic way - for their work during the course of the year, that is an admirable goal and a discretionary program could be just the ticket.  Just make sure, however, that you allocate and communicate awards accordingly.  Don't call it what it isn't and temper your ROI expectations accordingly.

As with any other reward, the recipe for bonus plan success relies heavily on truth, clarity and alignment!

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at 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 hiking, reading and hanging out with family in any spare time.

Creative Commons image "Truth" by Tim Abbott

Cafe Classic: Hey Startups! Tomorrow IS too late!

Editor's Note: Dan Walter shares his Classic advice about the perils of waiting too long (startups, we are looking at you) to get your compensation act together.

We’ve all heard the phrase “It’s never too late.” I am sorry to tell you that everyone has been wrong. As it turns out when it comes to compensation issues, today may not be too late, but tomorrow almost always is.

One of the most consistent and pervasive issues that I deal with is helping companies fix what they didn't do (or what they didn't do correctly.) This is especially true with small companies who often don't have a dedicated compensation professional. The problem may come to light when a key employee is lost, but it is often identified far earlier then lost in the shuffle of focusing on day-to-day business.

If you haven't gotten started on your compensation philosophy, structure and long-term incentives, please get started when you finish this article.

The repercussions of waiting can be expensive, time-consuming and distracting at the exact time your company is hitting its stride. First, every company should understand its approach to compensation, often referred to as a “compensation philosophy.” Your philosophy should define why and how you plan to pay people.

If your goal is to align your employees to investors through equity compensation, you need to act immediately. If you make promises or even suggestions regarding equity that are not formalized concurrently, you are likely to find yourself delivering compensation that meets no ones expectations. Even worse you may find expectations so high, that satisfaction borders on impossible.

It no longer surprises me to have a group of 8 or 10 key employees earnestly explain how each should receive 15% of their employer’s stock. It no longer surprises me when an owner or founder believes that they are doing something great by rolling out a new program only to find out their staff was imagining something far greater. I have seen companies lose great employees. I have seen companies pay huge mediated settlements to staff members whose understanding differed from their employer’s. I have seen companies deliver compensation programs so late that any chance of gains were lost before they got started.

Are you still reading? Have you made a note to get started on fixing your compensation today?

I know you have incredible employees that are passionate about the success of your company. I know they have bought into your vision of a successful future. What I also know is that they expect things to be formalized, finalized and actualized. Every day you wait, your employees’ passion and hard work will build value in their minds faster than your company can keep up. While it may “never” be too late to get started, I promise you that “never” refers only to today. Tomorrow IS too late.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a 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: The Innovator's Dilemma, Reward Plan Edition

Editor's Note:  A salute to the late, great Clayton Christensen, the academic and management consultant who developed the theory of "disruptive innovation." 

Think that premium employment brand and strong reward package are going to help you succeed in the age of disruption?

Think again.

In his revolutionary bestseller The Innovator's Dilemma, the late Harvard Business School professor and innovation expert Clayton Christensen explored the dilemma behind innovative, well-managed companies who seem to do everything right and yet encounter a dive in their market share or even disappear entirely.  In fact and most disturbing of all, Christensen's research showed that the things that bring and secure an organization's initial success can often become the most powerful reason behind its failure.

In their chapter within the Oxford University Handbook on Organizational Climate and Culture, Mercer consultants Richard Guzzo, Haig Nalbantian and Luis Parra tell the story of a company that experienced the reward plan version of the innovator's dilemma.  Organizations -- the authors note (and many of us know from our experience) -- often become what they reward, and pay is considered a critical expression of an organization's culture.  When a company's culture, which has been a key reason for its business success, becomes an impediment to necessary change, the reward system may be a primary culprit.

The authors share the example of Digitt, a global technology and information services company.  Digitt was renowned for a strong culture that emphasized innovation, teamwork, employee participation in decisions and performance-based pay.  In studying Digitt, the authors took a "big data" dive, conducting an internal labor market (ILM) analysis that drew on up to 10 years of employee data in order to statistically measure, model and ultimately understand the most important drivers of workforce outcomes.  In addition to other findings, the analysis revealed the following two characteristics of the company's reward program:

• Digitt had a strong internal labor market that was insulated from outside labor market dynamics.  Talent was built from within, with the most successfu employees entering the organization right from school and advancing internally.  Mid and late career professional hires were infrequent.  Most open positions were filled internally through promotion or transfer.
• Because Digitt's performance rewards were predominantly group-based, pay variations reflected business unit performance much more than individual performance.  As a consequence, an employee's tenure and business unit location were the biggest drivers of pay.  There was little variation in the level of rewards flowing to the lowest performers versus the highest performers.  (In fact, the authors concluded that close to $100 million a year in rewards flowed to lowest quartile performers when all elements of "performance-based" pay were added up.)

Digitt, in the face of rising competition and technological change, found itself in a place where it had to transform both its business model and its product/service offerings -- a transition that had enormous implications for the skills and capabilities of its workforce.  It needed, in essence, to renovate its talent base. Unfortunately, the company's cultural reality, driven substantially by its reward practices, threw some substantial roadblocks into its path:

• Being handsomely paid based on their tenure and their position in declining yet still profitable business units, there was little incentive for those with outdated skills and capabilities to leave.
• In contrast, newer employees with more relevant skills and experience were disadvantaged pay-wise by a system that rewarded tenure and reflected their placement in newer business units that were still ramping up and not yet profitable enough to reap the rewards of existing incentive and profit-sharing plans.
• The problems above were exacerbated by the insulation of Digitt's internal labor market and the lack of market-sensitivity in its reward programs.  As the authors noted:

Internal labor market signals about relative value were telling lower-performing analog engineers to stay at Digitt, even as external labor market signals would have communicated depreciation of their value...

The lesson is this:  When business conditions change, as they now do at an ever quickening pace, the very culture and reward programs that created success could now be an obstacle to sustaining that success ... or even surviving.  That speaks to a level of vigilance that I suspect few of us are keeping.

I'll bet some of you are living your own version of this innovator's dilemma. 

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at 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 hiking, reading and hanging out with family in any spare time.

 Creative Commons image "Oops - Part II" by Kyle May

Cafe Classic: Don't Use Pay as a Babysitter

Editor's Note:  In this post, Chuck Csizmar addresses this Classic problem practice, a favorite of ineffective managers.  I'd wager that many of you have your own pay baby-sitting stories to share...

Have you ever used a babysitter?  This is when you have someone else assume your responsibilities while you take a break and focus on something else.  The babysitter stands in for you, is you during the period of your absence. 

Typically we think of babysitting when there’s a dependent child involved, but in the workplace it’s not uncommon for ineffective managers to use the same concept when dealing with their employees.  These managers seek to use the pay that their employees receive as a surrogate for leadership – for keeping those workers complacent, retained and generally “in line.”

The practice of manipulating rewards presumes that the employee will chase the money, and will be happy with their lot, while at the same time will not require much in the way of supervision, periodic direction or even meaningful conversation.  The thinking here is that, if I provide you with enough reward you will act as desired in order to not jeopardize those payments.  The goal is to place the employee’s attitude and performance on automatic pilot while the manager is engaged elsewhere.

So far, so good.  Not necessarily a problem.  The red flag goes up the pole when you consider whether these monies are warranted by either performance or business need, or are they simply bribes?

What are we talking about?

Scenarios where pay is used in lieu of actual management are easy to spot.

• The Grand Giveaway:  Where managers try to give away as much money as they can to as many as possible, not worrying overmuch with distinctions between individual performances.  The key is to build an employee's appreciation of their manager’s largesse.

• Title inflation: The promise of bloated and meaningless titles that distort organizational structures, for the prime purpose of rewarding employees in lieu of cash.

• Over rated performance:  Playing the good guy by over-rating performance during salary reviews.  Culprits are often seen rewarding activity over results.  So look busy!

• Assured compensation: Take the risk out of rewards and encourage an attitude of entitlement.  Everybody receives an annual merit raise, everyone earns a bonus. 

• Counter-offers: “Let’s make a deal” attitude to keep resigning employees from actually leaving; a dangerous practice that increases costs and lowers morale.

What’s the cause of this behavior?   Managers typically receive inadequate training (if any) on how to use their company’s pay programs, so many use pay as a crutch.  Spending the company’s money effectively and efficiently isn’t on the radar screen.  They use pay like a club to get an employee’s attention.  And once they have it the manager is off doing something else – with the presumption that pay will substitute as supervision and motivation while the manager is absent – kind of like a babysitter.

Weak and ineffectual managers don’t actually manage their employees, in the sense of performance direction, leadership, setting good examples and decision-making.  Instead, they want to be liked.  They want to avoid conflict and they don’t want anyone to quit.  They want employees to get along, and to help foster a friendly team atmosphere they try to manipulate pay in support of their efforts.

It’s really kind of a bribe.

So what is “managing” to these people?  It’s not about making hard decisions.  Too often it’s trying to get the most for their employees, deserved or otherwise, whether the organization gains in the process or not.  The manager is focused on their own interests, and is using someone else’s money to fund their behavior.

Why it doesn’t work

Relying on pay as a replacement for management has a short effective life cycle.

• Employees see arbitrary same-same pay treatment as de-motivating to high performers.  Why bother extending yourself if you’re going to receive the same reward as the guy doing crossword puzzles?

• Employees resent favored-son treatment and those who benefit for non-performance reasons will always become known.  There goes your morale.

• No amount of money replaces the value of honest performance direction and feedback.  Those with an interest in learning and growing appreciate the help.

• Absentee managers lose the respect of their employees, who know what’s going on.  Remember that employees leave managers, not companies.

For managers who need a crutch to help motivate and retain their employees, to help them do their jobs, the above cautions likely won’t make a difference.  Their goal is not to manage, but to get-by, to be liked by their employees and to avoid disruptions to their routine.  This is not leadership, but administration.

But for those managers who wish to make a difference, who understand that managing employees is a challenging and rewarding role, abrogating responsibility through babysitting is not an option.  They recognize it as the opposite of management, a damaging practice that will not enhance anyone’s long term career prospects.

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.

Cafe Classic: Uncertainty Motivates No One

Editor's Note:  Part of our job, if we do it well, is to remove uncertainty and ambiguity from rewards where it can and should be done (and correctly discerning where this is true).  Dan Walter examines this in today's Classic post.

Have you ever been asked by an executive or compensation committee to create a compensation solution for a problem that was poorly or incompletely described? Nearly everyone reading this has had this happen. Admit it. As you walked away you were probably uninspired even though you may have said yes. That’s because uncertainty isn’t motivating. In fact, when you ask people about their most common driver of procrastination most will say it has something to do with not being certain of how to move forward. The list includes: big projects that require you to delve into areas where you are less than fully confident; complex calculations that require the creation of new formulas or entire tools; dark basements on stormy nights after a blackout; blog articles when you might not have a great idea. You get my point.

Compensation is fraught with uncertainty. Outside of hourly pay and salaries, much of what we do is based on variability (translate that to uncertainty.) The compensation world has lived by the mantra of “attract, motivate and retain” for so long that sometimes we believe just telling our employees that we designed a program to support these goals is reason is enough to make them occur.

Incentive plans, short and long-term, cash and equity based, depend on a level of uncertainty. The point of these programs is for participants to make the potential happen. Our job is to remove as much ambiguity as possible and allow clarity of the potential. One challenge is to make the potential clear without making promises. Another is continuing to have people focus on the potential when the sparkle of the initial rollout is long gone.

When dealing with communicating the potential without overselling, we must take the time to educate. Some of this education should be in the form of tools that allow participants to model outcomes and see the personal impact of them. Other key component is ensuring that each level of management can confidently discuss specific aspects of compensation and properly direct people to the best resources for the answers that are not their responsibility. You may be surprised when you find out how many of your managers either confidently answer questions incorrectly, or create even more uncertainty by not having any answers at all.

Keeping the spotlight on potential for the duration of the program is not as hard as most people make it out to be.  Yes, you can have a comprehensive project plan, millions of documents, videos, an intranet, self-serve kiosks and a super cool performance management system. But, the first step is far easier. Talk. Talk about compensation. Talk about the company. Talk about the goals and talk about how all of them fit together to support your company culture and strategy. Then, when the buzz has quieted a bit, talk some more.

Don’t be afraid of the goals that look like they will never be met, talk about them.  Don't avoid the plan that has underwater stock options, talk about it. In a world where uncertainty motivates no one create as much certainty as possible to drive success. Are there situations where this won't work? If so, post your comments below and let’s discuss!

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a 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: Hammers, Nails and our Compensation Biases

Editor's Note:  We all have our "best way to fix a compensation problem" biases. We work better (and produce better results) when we are aware of them.

It's called the law of the instrument.  The concept is said to have originated with philosopher Abraham Kaplan, who said "I call it the law of the instrument, and it may be formulated as follows: Give a small boy a hammer, and he will find that everything he encounters needs pounding."  The more popular version comes from Abraham Maslow's The Psychology of Science (1966) and is typically presented as "if all you have is a hammer, every problem looks like a nail."

Sound familiar?  It ought to.  The law of the instrument is alive and well in the field of compensation, compliments of the biases we all hold.

Let's start with the more general bias, that compensation is the fix for every organizational challenge.  Turnover an issue?  Pay them more!  Engagement a problem?  Pay them more!  Employees not meeting performance standards?  Put in an incentive plan (a.k.a. pay them more ... but on a variable basis)!

Never mind taking the time to understand and clearly define the problem so that we can ascertain the best solution.  Pound that hammer and move on!

Sometimes the general bias is ours.  Whether through lack or experience, maturity or confidence, we simply respond to situations with the tool we have most readily available.  Other times, we encounter bias in the leaders we are trying to serve or advise.  They want the quick fix; they don't want some HR or compensation professional digging around in their area for information or answers.  Backs up against the wall, we give them what they want.  And when it doesn't work, they rail against us for our lousy pay plan, which fails to fix a problem that had nothing to do with money in the first place.

Then there are the more specific biases we have toward a particular compensation approach or choice, either because we've had great success with it in the past or just because we find it intellectually appealing.  It may be a particular affection for broadbands, for group incentives or for skill-based pay.   It may be a specific metric that we believe belongs in every sales compensation plan, regardless of the circumstances.  It may even be that we think 360 degree feedback is always the right, or always the wrong, thing to do.  It may be a smaller, more finely tuned hammer, but we swing it just as indiscriminately.

Bottom-line, we all have our biases.  The trick is to be aware of them, be open to understanding the unique business and people reality in every organizational challenge, and be willing to explore other possibilities beyond pounding something with our favorite hammer.

That's what I think.  You?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at 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 hiking, reading and hanging out with family in any spare time.

Creative Commons image "Hammer" by homespot hq