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: 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: Checks on the Chalkboard

Editor's Note:  Compensation and HR staff are spread mighty thin these days.  In today's Classic post, Dan Walter asks: Is everything you do necessary?  Is everything you do making it easier to get important work done?  

Is everything you do necessary? Perhaps, I should ask the question differently. Is everything you do making it easier to get everything done? Today’s post is about the practical. It’s so practical that it applies to just about everything, including compensation.

I was working with a client recently, and a lesson from a long-ago teacher came to mind. She called it “Check on the Chalkboard.” She had each student do a series of basic math problems. She then created a team of the fastest students and a team of the slowest.

The teams raced each other in a relay-style format. You got up from your chair, did a math problem and went back to your chair. In the first race the “fast team” won easily. It seemed patently unfair. The rules changed for the second race.

In the second race, the “fast team” was asked to put a check mark on the chalkboard after they correctly answered each question. The checkmark had to be placed in a numbered box (I believe there were ten boxes, representing the members of the team).

The fast team answered questions like lightning. They sprinted to the green chalkboard (it was a LONG time ago) and made a messy check in their assigned box. It seemed to take very little time even as it added an element of excitement and chaos to the race.

When the dust settled, the “slow team” was the clear winner. Burdening the “fast team” with a simple additional task slowed them enough to lose the race. The checkmarks had no purpose other than to change the outcome of the race. Each checkmark was insignificant. When they were combined, they changed the game.

After I remembered this lesson from my youth, I started seeing checkmarks in the processes followed by nearly every company. Most of the checkmarks are tiny things. Many are performed because the supporting systems have not been set up to their full capabilities. Some are a result of out-of-the-box features. Most are unique to a specific company and have no known origin. They are done, simply because “things have always been done that way.” They offer no upside. They support no known purpose. They seem to exist simply to slow things down.

In our haste, we often forget to ask why we do things. We are so consumed with getting things done; we do more than we need to. All of this can keep us from doing more important tasks, like evaluating the strengths and weaknesses of our programs and making improvements where needed.

Compensation departments are increasingly asked to do more with less. Our jobs can be complicated and our customers are every person in the company, and often many people outside it. All of those people are going to add checkmarks to our processes. It is essential that we do our best to avoid any of our making.

The best way to police your processes is to ask yourself why twice. The first thing you need to ask is: “Why am I doing this?”. If you have an answer, the next question you should ask is: “Why is it important?” If both answers make you feel warm and fuzzy, then carry on. If not, you may have just identified a “checkmark” on your chalkboard.

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: Are You Adding Value?

Editor's Note:  Chuck Csizmar raises this Classic question and urges us to take an honest look in the mirror to discover the real answer.

Have you ever been asked this question at work? Or perhaps looked at yourself in the mirror one morning and asked yourself? My belief is that we don't consider this question enough, for ourselves and for the employees who work for us. We dance all around it.

In either case above the usual knee-jerk response most of us come up with tends to focus on job performance, on personal competencies and even on having shown a demonstrated loyalty to the organization by sticking around for years. But is that missing the critical point of the question, your value to others, and by missing that point you can mislead yourself - like a slick politician who talks a good game but fails to address core issues.

The Real Question

Shouldn't a more considered response relate closely to what the organization itself considers as to what your value should be, and less about how busy you've been, how knowledgeable you are in your field or even your impressive length of service? You could be a paper pushing administrator occupying the same chair for years and still give yourself a high personal score. "I'm doing a great job."

Chances are that many of us may not be honest with ourselves, and validating that sidestep are many performance appraisal processes that seem to gloss over the value question without zeroing in. Their "What have you done?" query often doesn't relate close enough to those actions, behaviors and achievements that should have been done to advance business interests.

Yes, you have a job to do, and perhaps even a job description that lays out your duties and responsibilities. If you perform as to what the description lays out, is that enough? Is that adding value or is that treading water? Just doing enough. It can go either way, but even the rare job descriptions that are accurate and up-to-date can be very inward focused - not considering the bigger picture of how a job performance relates to and can advance the department, never mind the business.

Or hold things back.

And what about those employees who report to you? Would you be satisfied if one of them told you, "I'm doing what the job description says. Isn't that enough?" Here the unstated follow-up thought is likely, "I'm getting by."

What Defines "Value"?

Your organization, whether you consider the entire business or even the smallest department, has likely laid out a series of objectives for the year. There are goals, there are definitions of success and very likely defined pathways toward the end zone. With that thought in mind it's easy to see that an employee adds value when, in the course of performing their job they assist the organization / department in achieving those goals - helping in even a small way to score the financial touchdown.

In that light, consider that your activity list - you know, the one that ticks off all the accomplishments you've achieved over the course of the year - may actually be aimed in the wrong direction. Being busy can be viewed as the same as walking on a treadmill. You can build up a sweat but you won't be getting anywhere.

So how much value are you adding?

Do You Have What It Takes?

Let's go back to the mirror with a revised question. What are you doing to help your organization / department achieve its goals? Are you playing a leadership role, a supportive role, an individual contributor role or has your train gone off the tracks and down some rabbit hole into clock watching and "just doing the job?"

Leadership would view adding value as being personified by the employee who not only does their job but does it in way that keeps organization objectives in mind. That employee doesn't waste time or resources, understands how their role impacts the business and is engaged in helping the business succeed. Examples are many when one seeks to do their job in a way that helps the greater good.

Is that you? Do you have what it takes to truly add value to your employer? Is that what your mirror says?

Because the "I'm following my job description" attitude is a short sighted response that helps neither your career or your organization.

Chuck Csizmar CCP is 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 "Value" by Mike Cohen

 

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

Cafe Classic: Eternal Sunshine of the Spotless Mind

Editor's Note:  There are several versions of the famous quote "Those who don’t know history are destined to repeat it" and it is attributed to individuals ranging from British statesman Winston Churchill to Spanish philosopher George Santayana.   Regardless of its roots, this statement is as true in the sphere of reward programs as it is in any other, as Dan Walter explains in his Classic post.

In the world of pay, we are almost always looking forward to the upcoming year or more. We often operate with little or no reference to our histories. If we are going to measure our success, we should probably understand the path that got us here.

I often work with companies who can provide very little information on how and why they are in their current state. They can speak in broad generalities, but the details are hard, or impossible, to grasp. None of these people are dummies. To the contrary, most are smart professionals who work hard to make the best decisions every year. How well can you explain your past decisions and actions? 

What did your survey data look like three years ago? How did pay for each position align to it? Do you have these details and do you communicate them in any reasonable way?

How about your LTI plan? What were the specific "asks" and "expectations" five or six years ago How well did you meet these objectives and did you ask your employees or executives how effective the plan was in motivating them to those achievements?

Things in the past get fuzzier over time. This is especially true for tasks that require complex decision-making and involve discretion. We make hundreds of small decisions like this every time we benchmark compensation, determine incentive pay levels, set goals, and decide on merit increase minutiae. When we look back even a couple of years, the drivers of our decisions are often difficult to explain or defend. In a data driven world, our eternally spotless minds will prove to be an insurmountable obstacle.

A growing best practice is building regular reporting summaries at critical decision and measurement points. These summaries often include pictures or easy data visualization because our brains are best at remembering images. These summaries become a diary of our past. At their best, they also include the "why" of each decision. This approach to remembering history is seen in things like "Facebook memories" and old family videos but is very new to the world of total rewards.

Imagine if as you started planning each year you could quickly review the key decisions, failures, and successes that brought you to your current position over the past several years. While there are all kinds of tools that can help with this, a simple solution is a series of slideshows. 

Build a template for each program or process. Every decision cycle, usually annually, but more often for things like sales plans, create a quick set of charts representing your current state and desired state. Put together a bullet point of why you made key decisions. Then each following year, add new slides linked back the prior slides. As time progresses, you will easily be able to track whether you’ve been delivering real value (or not).

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: Can Quantum Mechanics Make Your Pay Programs Better?

Editor's Note:  One of our favorite things to do at the Cafe is to step outside the familiar confines of our jobs and look at the things we do through the lens of another field. 

Today we're going to reach out into the strange world of quantum mechanics for insights on pay program design and implementation.

Quantum mechanics, as briefly defined at LiveScience.com, is...

...the body of scientific laws that describe the wacky behavior of photons, electrons and the other particles that make up the universe. Quantum mechanics is the branch of physics relating to the very small. It results in what may appear to be some very strange conclusions about the physical world.

That, it turns out, is an understatement.  Quantum theory (which underlies the field of quantum mechanics), when it emerged a hundred years ago, turned our understanding of reality and the classic world of physics upside down.  Niels Bohr, one of the theory's pioneers, liked to say that "Anyone who is not shocked by quantum theory has not understood it."  A century after its birth, now being used daily in applications that range from MRI scanners to solar cells to DVDs, it is still considered a puzzle.

What can the murkiness that quantum physicists discovered at the heart of the atomic world possibly offer to us, who practice in human resources and compensation?  I think it is encapsulated briefly and beautifully by Italian theoretical physicist Carlo Rovelli, author of the bestsellers Seven Brief Lessons on Physics and Reality is Not What it Seems:

Reality is only interaction.

Quantum theory holds that things, at the atomic level, don't always exist.  They exist only when they are observed by or when they interact with someone or something else.  The controversial finding at the heart of quantum mechanics is that there is no objective reality independent of whoever happens to be reacting with whatever.  As Rovelli likes to put it, the things of the world can be better compared to a kiss - which only exists when it happens - than a stone.

You think of your new salary structure, that incentive plan you developed in collaboration with your cross-functional design team, as things that exist as their own independent and objective realities.  But what if that isn't true?  What if your pay plans only exist, only become real when managers and employees interact with them?  What if their reality is solely the experience that managers and employees have when they encounter the plan in their work lives.

The problem is that we often go about our jobs believing that our pay plans are like stones.  We create them, we set them neatly in their place, we write a memo or hold a communication session (maybe even several communication sessions!), and then we step back and wait for the magic to happen while we turn to our next initiative.  And we try to understand why they don't drive the changes and produce the impact we hoped for.

How would we do our jobs and plan our priorities if we considered the interaction that people have with our pay plans - rather than the plans themselves - as the product of our work?  What might we do differently if we focused our ideation, design and implementation efforts on the "kisses" - those moments when managers and employees observe and interact with our pay plans?  If we envisioned the result of our work as the net of interactions that builds over time around them instead of the content of the written plan materials?

Could this make our pay programs and our work better?

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.

Cafe Classic: Compensation Work and Having Skin in the Game

Editor's Note:  Is our profession, are our jobs truly designed for success in the age of continuous disruption?  What are your thoughts on this Classic question?

Some fascinating work is being done around navigating human capital risk and uncertainty.  I think it could raise some interesting questions about how compensation jobs and functions are defined and organized. 

Success for businesses increasingly hangs on their people and the structures they create to guide and support their work.  The problem, of course, is that industries and markets can shift quickly and unexpectedly.  Your company might respond with changes in pricing, product offerings, branding or its "go to market" approach -- but how quickly can it transform its workforce to deliver on these changes?

How quickly could you (compensation professional) get your head around the differences in skills, practices and behaviors needed?  How well could you pinpoint the gaps between what you've got going on today and what is needed tomorrow (or this afternoon)?  And how efficiently can you identify the obstacles that your current reward programs -- base pay delivery, incentives, benefit plans and programs -- will toss into the path of the workforce transformation that must now happen?

It's classic Innovator's Dilemma stuff.  And I'm thinking about it today relative to the way we structure compensation roles and work.  

There's a lot to be said for growing and refining your HR analytics capabilities so that they can tip you off to the make-up of and trends in your workforce, and help you identify and respond to the risks that might exist in the people part of your value proposition.  Hopefully we in the compensation profession, as the original data nerds in HR, are taking the necessary steps here.

But I think there's also the reality of how well our compensation jobs allow us to see and understand the day-to-day reality of the work people are doing.  The eyeball-to-eyeball, ear-to-ground reality.  Skin in the game.

To have skin in the game essentially means that you have some share in the costs and benefits your decisions and actions create for others.  Do we?  Should we?  Should our functions and roles be defined to create some sense of it?

How is the compensation function in your organization structured?  Do you -- like some -- have a centralized compensation function that is tucked away in "corporate" where you must rely on HR generalists and advisors to be your eyes and ears on the ground?  Or do you -- like others -- have compensation professionals embedded in the different business units where they have more direct contact and a front row seat to the action.  

Will this become a bigger deal as the pace of change continues to accelerate and navigating human capital uncertainty becomes both more challenging and more important?

Nassim Taleb -- the guru of risk and uncertainty whose books on the topic include The Black Swan and Anti-Fragile and of whom I am a big fan -- feels so strongly about the notion of skin in the game that it is the topic and title of his next, soon-to-be-published book.  I don't have the answer to the question I raise above, but as food for thought I'll leave you with this principle of skin-in-the-gameship courtesy of Mr. Taleb, who holds that skin in the game only happens in decentralized systems.

Principle:  It it always vastly easier to macro BS than to micro BS.

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 "hands group" by Safe.Homes.Rape.Crisis.Coalition

Speaking of Performance Reviews

These final days of the new year approaching is a metamorphosis of old and new.  It is significant as it creates that one defining moment each year when we reflect, revaluate, and re-set, or (simply put) conduct the annual performance review.  This is a typical process adopted by most organizations and, for some, seen as another administrative task, begging for a checkmark response.  Despite whatever internal performance management regimen is in place, it takes a personal and vested interest between a leader and subordinate to conduct a review that is meaningful, productive, and hopefully inspiring.

The rapid evolution of where and how work is done leaves moments of actual interactions more or less fleeting.  This year’s impending discussion is the one instance to uncover and level up on what worked, what didn’t, and how to effectively improve and settle into another renaissance year.  I prefer a simple approach, sticking to the facts, the objectives, and speaking candidly.  With that in mind, I give you my “SPEAK” acronym – five pointers to consider when having your next performance conversation:

S – Be specific.  Discuss actual examples that describe scenarios on which performance is being measured.  Having illustrative cases makes the behavior and evaluation more tangible. Specific events and situations should be relevant to the recipient, not a comparison or a conversation of others.  Document examples throughout the year, so you can easily draw upon them during next year’s review meeting.

P – Point of view.  These conversations are twofold, as colleagues you equally deserve and play a participative role in the conversation.  Allowing enough opportunity to present your perspectives will be instrumental in understanding the context and overall construct of what each participant experienced.  This cannot be more true than now when, having gone through a pandemic, our personal and work lives quite literally flipped more times than once.

E – Lead with empathy.  Empathy became somewhat of an HR “buzzword” this year.  It was a call to action by management to elevate their leadership style with an increased aptitude towards emotional intelligence.  Dissecting someone’s ability is awkward and already a sensitive topic to pick apart.  To ease the emotions, create a space (remote or in-person) that is inviting and lends itself to be engaging, comforting, and leading towards productive critique.

A – Organization alignment.  As a people leader, you have the responsibility to create a direct line of sight for your employees.  Quite often, frontline staff find themselves too far removed and or lack the understanding of corporate measures, KPI’s and objectives.  This lack of understanding affects engagement, sense of purpose and hinders the perception of what one’s contributions would be towards business success.  Alignment requires leadership to set out clear directives, which link performance to desired expectations and overall objectives.

K – Knowing the move forward.  Having the knowledge of what is to come in the days or year ahead is a means of setting one up for success.  Dispel any sense of ambiguity by taking the final moments of the conversation to debrief and establish the next steps. Whether this means setting up one-on-one reoccurring meetings, officially signing off on this year’s review, or confirming next year’s goals, knowing each's expectations of the other ensures a fair chance of starting the new year on the right foot!

Regardless of the connotation performance reviews tend to get, it's really what you make of it.  Speak with conviction, purpose, and the right intentions and one can only hope that the results too shall follow. 

What tips do you have when leading into performance reviews?

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

Image source: iStock image with credit to Devrimb.

Stop the $600 Annual Incentive!

As regular readers know, I am someone who does a ton of incentive compensation work. I believe in incentives and their ability to align people with the culture, strategy, and goals of a company. I know incentives work when properly designed and communicated. I also believe that managing people is more important than incentivizing them.

This is a quick article about well-meaning but misguided short-term incentive plan design. When business leaders are asked to identify critical metrics for success, we often get two types of answers. The first is a big-ticket item that aligns well with management. These metrics are important, but they may not always resonate with rank-and-file employees. The second answer is a laundry list of all the things that must be accomplished during the upcoming year. In between these answers is the real core of your incentive plan.

A few years ago I wrote about the Incentive Plan Rule of Three. This can be summarized as: “No more than three metrics (KPI), no more than three defined goal levels, no more than three incentive plans for any one individual.” This rule allows you to focus your incentive on what matters, but it also helps make those incentives meaningful.

Over the years I have seen many companies with “multi-metric” incentive plans. These plans usually have one big goal that covers 30-50% of the total incentive target and 4 or five smaller goals that break down the remainder of the incentive target. These may be great when target values are large, but they are just plain crazy for your mid-level and lower-level professionals and support staff.

Let’s do some math!

Imagine Sally makes $60,000 a year. You have created an incentive budget targeted at 10% of her pay. There are six metrics that drive the target value. The main metric covers 50% of the total, the other five metrics are evenly split at 10% each.

$60,000 * 10% = $6,000

50% of $6,000 = $3,000 (not terrible)

10% of the remaining 50% ($3,000) = $600 per “mini-metric”

This means that you are asking Sally to focus on something specific and work to attain a higher level of performance for about $2.75 per day, or $0.35 per hour. Sally must keep $0.35/hour. as related to a specific mini-metric top of mind for the next year and the hope that, after taxes, she has “won” the money to buy her kid a Lego set! To be perfectly clear. To be clear, Sally isn’t going to do that.

This is where managing beats incentivizing. The leader who chose this metric was probably right in defining it as important. But the return from the incentive plan will have no impact on the achievement of this goal. Clarifying this metric as a management goal for the leader and ensuring that they follow through on communicating and updating progress throughout the year will have far more impact. This is where compensation professionals have to educate. (Don’t “push back.”  Teach.)

With a bit of math and discussion about best practices, you can usually get leaders to reevaluate and narrow down the focus of the incentive plan and help everyone have a more incentivizing year.

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.