Compensation Cafe

Cafe Classic: The Holidays Are Over

Editor's Note: The New Year could be a new chance to step up your pay-for-performance game, says Chuck Csizmar in his Classic post.

The business year has ended, but managers everywhere are turning their thoughts to receiving one last Christmas present. The calculators are out and every eligible soul from Marketing to Manufacturing to Sales, IT, HR and the Executive Suite is trying to figure what their annual incentive check will look like. For some, it's still the gift receiving season.

Year upon year the same bad script repeats itself for this annual process: once again we'll see objectives created at the last minute, embellished accomplishments dutifully recorded, problems and shortcomings diminished or forgotten and the exercise of completing assessment forms treated with disdain.

More Than Mechanics Are Flawed

Most would agree that the process (performance + assessment = reward) is flawed not by design but by administration. Yet the foxes remain in charge of the chicken coup, offering little hope for reform. Because for those in charge the process works, and self-interest pays its own rewards. Every time.

As you approach the top of the organizational hierarchy true pay-for-performance can become an elusive concept best remembered from Compensation 101 textbooks, suitable only for life as it should be, not as it is. Sad to say, but senior management is often the worst offender. I’ve seen senior executives adjust the interpretation of financial results to ensure that their own incentive awards aren't reduced. Senior staff deserves to receive competitive incentive rewards, don’t they? How can you not provide them with what they need?

Entitlement can and does trump performance.

While studies suggest that the I-deserve-it mentality has been reduced by the effects of a still struggling economy I believe that it’s alive and well wherever rewards are viewed as payment due for time served, not for effort and results.

It can be an uphill climb trying to persuade leadership that it's primarily good performance that should provide rewards; that tenure isn’t a compensable factor, that incentive payments should be deserved, not simply an automatic gift of delayed compensation. Much is made of the principle that the rest of the organization is expected to earn their rewards; shouldn’t the same case be made for management?

End-of-Year Expectation

Have you ever suggested to an executive that their annual incentive award might be reduced because corporate or even individual performance didn't meet expectations? They'd look aghast at the possibility. I’ve heard from many an executive who became upset when reminded of the review process and that the Board of Directors had to approve awards. The common attitude was, times up! – where’s the money?

Will the situation be any different for the upcoming incentive cycle? How about in your organization? Because bucking the trend of human nature is far from a sure bet.

To change those dynamics, as well as the effectiveness of your incentive plans you need to push a bit of pro-active initiative. With a new cycle beginning it’s not too late to have an impact, to instill an actual management pay-for-performance philosophy in your organization - even if it's only taking one step at a time.

• The performance appraisal form shouldn’t be an activity list of what happened during the rating period ("I was very busy"), but a focused statement of achievement against quantifiable objectives.

• Let the assessment tell you the rating, not the other way around ("how do I fill out this form to give a 4 rating"?).

• Ensure that the assessment form language corresponds to the performance rating (Hmmm, doesn't read like a "4").

• Completed forms should be required before an incentive payment is made – negating a procrastination trick ("Just process the check. I'll get the form to you . . . soon").

• Have annual objectives established early in the year, not in an after-the-fact rush at the end.

Not exactly radical thinking here, but more like common sense tenets that should be remembered.

You'll need more than a steely look and a waving flashlight to stop a speeding freight train, so educate management about these ineffective and wasteful practices before the cycle restarts. Afterward is always too late; discipline as a learning tool is best used to prevent problems, not when hands are already reaching into the money bag.

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.

Yes, No, or Maybe?

Are you satisfied with the way your organization's performance appraisal process is working?

Yes, no, or maybe?

One of the most debated issues among Human Resource professionals for the past several years has been arguments regarding effective performance appraisal processes.  Everyone seems to have their oar in the water, anxious to join the debate about what works and what doesn't.

In one corner you have the performance management crowd who want to divorce pay increases from the performance appraisal process. They prefer to focus attention on performance improvements and career counseling - issues that tend to have a longer-term focus. Looking forward, not backward.  The subject of pay determination (the increase) would come later, during some vaguely defined subsequent conversation.

In another corner, you have the so-called traditional practitioners, those who tie rewards directly to the work effort and in so doing combine performance/reward determination and career counseling steps into a single conversation.  Desired performance improvements and the where-are-we-going? discussion become the epilogue, not the main topic.

Finally, you have the seldom reported employee perspective, those who have delivered the performance and await management's assessment and reward determination.  They expect to see a direct connection between their efforts and a subsequent reward.

What's Wrong?

Part of the reason for such debate between opposing viewpoints is that performance appraisal systems are flawed; it's commonly recognized that they're the object of numerous well-deserved criticisms.

• Managers do a poor job of it:  Whether it's lack of training, lack of interest or simply an attitude of "I've got more important issues to deal with," the result is often rushed, poorly thought through and . . . sloppy.
• Favored son (or daughter) treatment: The "I like you" or opposite syndrome, regardless of performance.  Fair treatment can be a casualty if appraisals are too subjective.  Refer again to the training issue.
• Job responsibilities not clarified: When the manager expects performance "A" and the employee thinks "B" is called for, while the outdated description shows a muddled "C" - what follows is going to be an awkward conversation.
• Forms gone wild:  Human Resources and systems people are always tinkering with forms, creating ever longer, more complicated processes.  The usual result is a manager's passive resistance and poorly handled assessments in a process that they don’t like.
• The focal date review:  "Let's do these things all at once."  Procedures that mass produce performance appraisal forms and discussion meetings usually result in a loss of quality - and credibility for the process.  Pity the manager who has ten of these to work on at the same time.

What's Good?

The process of performance appraisal has been around since the first manager - subordinate conversation, and that learning curve of experience has highlighted several advantages:

• How else are you going to tell an employee how they're doing?
• If your compensation strategy is to have a pay-for-performance program, you'll need a performance appraisal to assess the employee's contribution, and to somehow assign a corresponding reward -- to pay . . for. . performance.
• Employees expect a connection between performance and pay.  That's what they're listening for during the performance discussion.
• It makes sense to periodically review performance/pay levels, to eliminate the need for employees to stress over when to ask for a raise.

Practical Realities

During any performance appraisal discussion, the employee's first question is likely going to be, "how much is my raise?"  If you're not prepared to discuss that, even mentioning your "recommendation," you're in trouble.  Because employees tend to pay closer attention to career counseling and next steps after the raise for past performance has been resolved.

When an employee expects a performance appraisal discussion to include a reference (at least) to a likely pay raise, and you don't cover that topic, the meeting will rapidly slide downhill from there.

• They won't be hearing your thoughts for the future, as they've stopped listening.  You're not talking about what they want to hear.
• Frustration and lost engagement are going to seep into body language, tone, and perhaps even conversation, with the recognition that pay-for-performance is somehow not viewed as a primary concern by management (you).
• To make the assessment process work employees need to be engaged in the conversation.  Otherwise, what you're left with is delivering a boring lecture to a half-interested employee who only hears blah-blah-blah.

My Two Cents

Personally, I recommend connecting performance to rewards because performance rewarded is performance repeated.

I like to acknowledge the elephant in the room, that employees want and expect that their performance appraisal meeting will cover reward determination as a key component, even if senior management approval remains pending.

I don't like to artificially separate performance from reward as if somehow the two aren't connected.  The employee considers it a solid, direct line connection.

Chuck Csizmar CCP is the founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad-based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.

Creative Commons image "Bureaucrat," by Delmarva.Dealing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Finger on the Scales of Remote Work and Work-Life Balance

We all knew it was bound to happen. Science fiction movies have been showing scenes of people working from anywhere for years. At the same time, futurists have been predicting that increased technological productivity will reduce the need for humans to work as many hours. Well, we are finally working remotely and work-life balance is 100% fixed. (right?)…. 2020 has been a big, fat, finger on the scales of remote work, and a bit of a heel grinding down on the scale of work-life balance.

So what does this have to do with compensation? As we have already discussed here in the recent past, paying remote workers in our new environment will require some new thought. A bigger issue may be figuring out to properly pay and reward the most highly productive when you no longer have the ease of patting them on the back or giving them public recognition. There is no doubt that the biggest issue is work-life balance. Solutions to that issue will require new thoughts on compensation succession planning and workforce tools.

Paying remote workers, when remote isn’t a “privilege”, but instead is a rule, requires some soul-searching by HR and Compensation professionals. Do our traditional job descriptions accurately portray a job being performed from someone’s sofa or basement? Are Geo Differentials a reasonable (and competitive) method for determining pay levels for our newly mobile workforce? In this case, we probably have 90% of the information we need, but we have not yet reorganized that information into something that is truly useful.

Paying our most productive workers has always been a challenge. It is likely that the remote world will expose the laggards and stars in ways that were harder to see when people worked in a group. I am predicting that pay ranges will widen as we tamp down on the pay of the slowpokes and ramp up pay for the fastest. The most productive workers are often those we ask the most from. This means, that without coaching on how to manage virtual workforces, we will likely overwork our productive people in our efforts to keep things stable and moving forward.

Work-life balance will be a doozy. Some companies will bring everyone back into the office before the end of 2021. Some companies will keep people working remotely perhaps forever. If you have been working from home, you know it isn’t always wine and roses. Your computer is too close to your living room or backyard. Your days can stretch from long before you are ready to be awake, to long after your kids have gone to sleep. Your life and work have merged into a blob of working, cooking, Zooming, cleaning, teaching, rinsing and repeating. None of this is healthy or sustainable and money can only fix some of it.

As we engage in our annual compensation planning exercises, it is a good time to start discussing some of these issues with the stakeholders on your team. Our final approaches will probably take a few years to fully work out. Broadly enacted remote work will change the competitive talent landscape forever. Those who fall behind may never get an opportunity to catch-up. Let’s change compensation and make it better. We can either take advantage of the thumb on the scales of remote work or be ground under the heel of work-life balance. Either we fix this, or no one will.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He has convinced himself he is a “Compensation Futurist” and works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.

Help Managers with the Challenges of Video Calls

Picture what it's like to have someone celebrate a personal best in your office. Or cry, or raise his/her voice in anger. These are just a few of the scenarios that can happen in performance management and salary discussions -- but remember that we'll be doing most of these discussions on video this year.

I don't know about you, but I feel a chill run down my spine about the video aspect of these interactions. These are not the regular, squirmy video meetings that can be challenging to accomplish well on any workday. They are personal discussions that require insight into an employee's reactions. This kind of insight is the toughest interaction to pull off well on video, since everyone has to work much harder to process non-verbal cues on video compared to in-person conversations.

This is no year for the same old compensation communications. Managers will need extra help with these sensitive conversations, particularly because most won't recognize the special challenges of these video calls until they struggle through their first raggedy conversation.

To preempt the difficulties, plan to provide tools in addition to administrative guidelines. FAQs, tip sheets and discussion outlines will be effective because they are practical and can be read speedily. If dissatisfaction with video conferencing is widespread in your organization, it might also be worthwhile to acknowledge the challenges in organizational communications and to give both employees and managers suggestions for facilitating the conversations comfortably.

As we have found out, one of the barriers that video calls entail is emotional. We don't tend to watch facial and bodily cues as closely as we do in person. That makes it much harder work to notice, process and/or discuss emotions. Also, people tend to watch the feed of their own face more than the speaker's, so they may tend to be more self-oriented in these discussions than in face-to-face where self-monitoring is accomplished in other ways.

Here are some examples of the nuts and bolts you could cover in communications:

• Set the stage well -- To make focus on the conversation easier to achieve, eliminate distractions in the video background. Sitting too close to the camera exaggerates feelings, so be sure to set your chair back. You should be as far from your video camera as you would be from the employee if the conversation were in-person -- and the position of your camera should be at eye level, if possible. (Ask the employee to do the same.)
• Make an extra effort to understand -- Tell employees that you expect the conversation to be collaborative. When they share feelings or ideas, ask them WHY they think they feel that way. Ask for clarifications and use reflective comments to show you understand. Take breaks between calls to manage "Zoom fatigue" which could influence your attention span and tone of voice.
• Follow up -- Check in with your employees within two weeks of the conversation. Take the temperature of the relationship and answer any additional questions that have come up. This is always a good idea, but this time it's a must, since video calls are more likely to leave loose ends. 

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

COVID, Mission Critical Skills, the Haves and the Have Nots

It can be, in my experience, a tough-to-swallow fact that not all skill sets are equal in the eyes of the labor market.

It may not be a happy reality, it may not seem "fair" to some, but it's a reality we have to acknowledge and navigate through in defining and executing on our reward strategies.  Organizational success in our fast moving, knowledge based, technology driven and disruptive world will require and become more dependent on certain types of human talent and competencies.  Those who invest in attaining and developing those capabilities will command a premium price for their skills.

Related to this is a concept that is pushing to the forefront of base salary management.  It is the idea that base salary decisions can no longer hang simply on the traditional merit matrix variables of individual performance and position in range, but must increasingly reflect the need to invest in talent that is critical to the success of the organization's mission.

My discussions on the concept of mission critical skill in presentations and client meetings usually generate a lot of questions.  Some of these focus on the approach and process for figuring out which skills are critical for a particular organization; others reflect concern about the impact of this delineation on the workforce.  What about the "have nots" who still do important work for the organization?  Won't they be demotivated to learn they've been excluded from a category defined as "mission critical"?

I think this is an important talent management question going forward, particularly in the wake of our collective COVID experience.  The market is going to keep doing what the market does: acting as our arena of exchange where supply and demand work to drive up the price of skills and competencies that are the most critical to the most organizations.  We must figure out how best to respond to this from the standpoint of our organizations' talent needs, but we must do so in a truthful, forward-thinking and compassionate manner.

I believe we owe our employees an education in how the talent marketplace works, and the impact it has on compensation practices and opportunities.  Employees need this information and understanding to make the best possible decisions about their own careers and livelihoods. 

But more than that - wouldn't it be in everyone's best interest if we took it a step further?

What if we not only identified and tracked the skills and competencies critical to our organizations - today and into the future, but also communicated this regularly to our employees?  What if we regularly shared specific information on the kinds of education and certification steps it would take for employees to retool in these areas?  What if we tailored our tuition reimbursement and even flexible work options to support an employee's pursuit of these credentials?  Offered internal apprenticeship or mentoring connections to help them along that path? And made this a part of every performance management discussion?

This so that every employee who complains about the unfairness of not having and being paid for mission critical skills could be pointed to a coordinated set of resources to help them make the necessary investment in themselves to get there.

Wouldn't that, in fact, be a very smart investment for the employer as well?

I'm certain that there are forward-thinking organizations out there already on the cutting edge of this practice.  We'd all love to hear from and about them!

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time. Follow her on Twitter at @annbares.

Cafe Classic: Develop Grow Achieve - 3 Tiers for P4P

Editor's Note: Three cheers for Dan Walter's cogent and Classic advice on how to make pay for performance more successful in your organization.

Pay for performance continues to rise. However, the failure of pay for performance is rising almost as fast. As the discussion about best practices continues, I thought I would provide a few thoughts about an approach that may work for your employees.

Usually the drive for pay for performance comes from the top of the company. “We need to have people be more productive.” “I don't want to have to pay people that much, unless they are REALLY doing a great job.” While these are valid concerns, we must be able to better define what people do that makes a company successful.

1. DEVELOP  In the early stages with your company, an employee needs to focus on development. They need to learn who your company is and how it does things. They need to fill the gaps in their professional knowledge with the things that make your company’s approach special and different. They need to build a foundation that can support them as they grow their career and excel at their job. Metrics for development can be tricky when looking for direct alignment to pay.

For these people the goal is to keep things simple. Identify a few key foundational elements that your best employees have told you are essential. Rather than focusing on the results of these elements, focus on people learning or growing these skills, talents or ideas. These are the kind of goals that work well for regular coaching sessions and a loose link to pay.

2. GROW  The bulk of your staff should be focused on growth. In broad terms we are usually talking about the growth of the business. In individual terms we should focus on those metrics that drive growth, rather than the end result of growth. Focusing on the drivers allows leaders to continue regular coaching. It is fine to include some aspect of the DEVELOP metrics for those newer to this level. And for those who have the potential to transition to more senior positions, you may consider adding a few ACHIEVE metrics so they can learn how to be accountable for results that may not be directly related to the work they do.

P4P for this group can be challenging, especially if a company is growing quickly. If you focus on the things that drive your company’s success, you can then sprinkle in a metric or two, that is based on a unique time frame, location, project, or other specific, but is perhaps a temporary  area of focus. Grow metrics and goals work especially well for short-term-incentive programs and as interim measurements in long-term incentive programs.

3. ACHIEVE  This is what your CEO or other “boss-like figure” means by performance-based pay. They only want to pay people incentives if they have proven results. It’s understandable, but not always the best approach. Most companies are successful with ACHIEVE metrics when they are applied to the top tier of the company. When these can obviously be communicated and driven deep into an organization (they may already be part of your company’s cultural approach to management) they can be used at any level. But, let’s face it. Communication of an individual’s impact on these types of metrics requires a long-term and consistent effort. It’s the type of effort that most companies won’t fund, and for which most compensation departments cannot get support.

Effectively linking pay to results requires a fairly tight connection between the actions or decisions of the individual, and the results that are likely to be a combination of many people’s efforts. These metrics include revenue, EBITA, TSR, profit margin, percentage of growth, stock price and similar big-picture measurements. These metrics also have the effect of frustrating someone at the end of almost every measurement period. Your shareholders are upset when overachievement results in big executive payments. Your executives are annoyed when big payouts to managers cut into their ability to spend money elsewhere. Every participant will become upset when success was denied. This is especially true when failure to meet the goal was due to outside market conditions. But in the end these programs, when layered with other good compensation practices, can help a company succeed in a competitive market.

Implementing this approach can take a few years at some companies. At smaller companies, with little prior pay for performance and a strong initiative to create a P4P program, this tiered approach can immediately become the foundation of your program. Of course, there is not a magic formula and I am always excited to hear from readers about how they have approached this issue.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.

Can You Depend on Solid ROI for Expensive Elite University Hires?

If you were hiring for an entry-level position, how much more would you pay for someone who had graduated from Harvard? How about Cornell? Would you be willing to pay as much for that candidate as the one from Harvard for the same job?

These are useful questions to ask yourself if your recruiters and execs are fond of hiring from the top universities in the country. Though a more important question is, "Do you get your return on investment for these hires?" Or, "Are you overpaying them for their full tenure with your company -- and spending more than necessary?" Employment discussions involve Compensation, front and center, so insights into the impact and cost of these employment decisions would be worthwhile.

Is there predictive data that can guide us? If the most recent research published in Harvard Business Review (HBR) is any indication, the answer continues to be not so much. This report talks about "nominal" differences in groups, but that word just helps them communicate what they've found and sidesteps the fact that the data may not be either robust or predictive. Nonetheless, the data does suggest a few valuable analytic opportunities if you read between the lines.

1. What do you want the candidate to do? Sounds like the perfect no-brainer, but there are opinion leaders who believe that college performance doesn't translate to company performance. One thing the HBR data points out is that there IS a performance difference in the following new hire competencies, with the elite university grads coming out on top: Knowledge in field; technical and business writing; team leadership and coordination. So if the position that you are sourcing prioritizes any or all of these, an investment in an elite university hire should pay off. On the other hand, what if you're hiring for an entry-level position with a tall career ladder over it? You may be in danger of overpaying if you consistently seek out elite university hires and pay them a premium.
2. Who are you hiring? It's likely, given the small number of new graduates from elite schools, that you will hire an "average" student from a top school. Will her/his performance be better than a top student from an "average" school? Face it, you risk missing out on real talent (at a lower salary) if you keep your recruiting pools too restricted. While bleeding-edge technical knowledge may be critical to some organizations, knowledge and skills customized to the company -- and thus, only learned on the job -- are becoming more and more important to companies that differentiate on product knowledge and/or customer service.
3. How good are you at this? Does your company have a reliable career development infrastructure? Do you use career levels to price jobs? If the answers are no, there will be few ways to rebalance total compensation as employees move up in the organization. If you are under pressure to over pay, study your practices to see if they hold up. Did those highly paid recruits of the past reliably provide exceptional performance? How did their performance trend over time? Most importantly, how does the trend line compare with other new hires in comparable positions? These metrics will provide useful insights into your practices, as well as discussion points when the time comes for the next expensive hire.

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

Cafe Classic: Incentives to Force Turnover and Change Culture

Editor's Note:  Back in 2015, Jim Brennan wrote this Classic post about Zappos' CEO Tony Hsieh's bold move to upend the company's culture and management approach and to introduce the idea of a holacracy.  How has that worked out?  Opinions appear to vary but offer many interesting insights in reflecting on the company's journey; after reading the post feel free to check out the brief list of articles and links at the end.

In a bold move, one company has deliberately shed 14% of its employees by offering a cash buyout to those unwilling to embrace their CEO’s new direction for the future.  “As of 4/30/15, in order to eliminate the legacy management hierarchy, there will be effectively be no more people managers.” THAT warning certainly shook things up!

In an extremely long 5,000 word email memo, Zappos CEO Tony Hsieh issued an ultimatum confirming his commitment towards transforming Zappos into a business that doesn't need managers to grow and fix internal problems.  Promising strong steps towards achieving “our desired state of self-organization, self-management, increased autonomy, and increased efficiency,” he declared there would be no place for opponents of self-management and self-organization… and backed it up with a cash incentive for dissenters to leave.

The online retailer, a unit of Amazon, should survive the exit of the few hundred employees who accepted a three-month severance package rather than stay with a company without manager roles or job titles reflecting the traditional organizational hierarchies.  Not everything will change, as shown in a parenthetical statement: 

(On our backend HRIS system, employees will still have "reporting" relationships solely for the purposes of maintaining compliance (e.g. SOX) requirements because we are part of a public company. This compliance requirement will be largely invisible to most employees and should not be confused with legacy reporting structures which will no longer exist.) 

Regardless, the boss termed the action a “rip the bandaid” approach to stimulate faster progress towards his desired objective. 

Using compensation incentives to change the nature of an enterprise is not a new idea, but it is uncommon to see it attempted so openly. It is also impressive when the company clearly demonstrates such a commitment to comprehensive restructuring that they will pay cash to encourage dissenters to quit.  A few months severance seems an inadequate incentive to induce resignations by itself.  Those who opted for the buyout probably had other reasons for leaving, too.  But there are always some who consider their management roles so essential to their personal reward package that they would rather depart than remain in a diminished role.  That says something about their values, but I’m not sure exactly what.

It will be fascinating to see the end results from the courageous experiment in using compensation incentives to affect behavioral transformation.  Words paired with actions carry more powerful impacts.  Promises followed by payments are particularly effective reinforcements.  There can be no doubt that such dramatic changes in organizational dynamics will have very strong effects on future success.  As long as workplaces are populated by human beings, the manner in which they relate to each other will have immense consequences for output results.  Here we see intersections of reward systems and contextual structures for human interactions. 

Test the accuracy of your crystal ball.  What do you think will happen? 

Editor:  So what did happen?  Opinions, immediately following Zappos' move, as well as more recent ones, vary.  Check out the sampling of articles and links below, and share your thoughts in the comments!

Harvard Business Review 2016: Beyond the Holacracy Hype

CNBC.com 2016: Zappos CEO Tony Hsieh on Getting Rid of Managers: What I Wished I'd Done Differently

Workforce.com 2019: Holacracy Helps Zappos Swing From Job Ladder to Job Jungle Gym

Financial Times 2019: Bossless Business is No Workers Paradise

Inc. 2020: Zappos CEO Tony Hsieh's Biggest Management Experiment is Evolving Again in a Very Intriguing Way

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: The Best Performance Goals Are D.U.M.B.

Editor's Note:  Here at the Cafe, we taking conventional wisdom and flipping it upside down or giving it a good spin, to see what can be learned from a different vantage point.  With that in mind, we bring you Dan Walter's Classic flipperoo of the ubiquitous SMART goals approach.

Anyone who has taken a class or performed a Google-search on performance goals has learned about the concept of “SMART” goals. The most common breakdown seems to be: S - Specific, M - Measurable, A - Attainable, R - Relevant, and T - Time-bound. We all seem to know this and yet many still seem to have problems creating successful pay for performance programs. I would like to propose a new D.U.M.B. approach that celebrates the spirit of insanity.  Insanity is being defined as the repetition of doing the same thing, again and again, with the expectation of different results. If SMART goals aren't working for you, why not try DUMB goals?

D.U.M.B Goals are:

D – Demonstrable: The metrics and goals you use for P4P must show their impact. You must be able to demonstrate how they work and why they work. You must show how the intent, execution and effort of the individual, group or entire company being assigned these goals, can and will make a difference.

U – Understandable: EBITDA is awesome, but how many people truly understand Earnings Before Interest, Taxes, Depreciation and Amortization? Heck, how many people understand even two of these elements? Even if someone knows what they mean, can they comprehend how their decisions, actions and behaviors materially impact any of these things? Think about some of the other goals, or complex plan design features you have seen. Have you spent the time, money and expended sufficient effort to ensure that they are REALLY understood?

M – Modeled: Your goals must be modeled and applied to realistic growth and pay packages. Stop showing how your mythical stock price of $10 (or some other easy round number) will increase by 50% (or some other easy round number.) Stop showing a continuous, consistent year over year growth rate for multiple years (or quarters.) Don’t model only the best possible scenario. Model multiple realistic possibilities and explain why they might occur and what can be done to earn something better. I realize that figuring out exactly how P4P plans will payout at different levels of performance and for different levels of participants can be hard. But, imagine how much harder it is if you are NOT a compensation professional.

B - Business Critical: There are a whole lot of things that managers want their employees to do well. It really is important that each of these things get done and done well. But, this does not mean that every one of these things should be a metric or goal in your P4P program. A goal that accounts for 10% of the 25% of the year’s LTI vesting, that only pays in the event that there is an improvement of 15% over the prior year, when that 15% represents only 3% of the total value delivered to the company by that individual or group is just silly. But, these types of goals end up in plans because someone is unwilling to fight that fight, or cannot explain how making or losing a potential of $845 on a base pay of $100,000 probably isn’t going to change anything.

So there you have it. Lets hear how DUMB your goals are. Can you successfully apply these principles to all of your current performance plans?

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.