Compensation Cafe

Cafe Classic: The Best Laid Plans of Mice and Compensation Professionals

Editor's Note: A well-timed Classic post from Dan Walter on how to do your job when your plans no longer fit the reality of what you're facing.

It’s hard. Sometimes it’s very hard. You took the classes. You studied the facts. You brought in great outside experts. You have determined the solution. You are the expert and you know what you are doing. How can they say no?

“In preparing for battle I have always found that plans are useless, but planning is indispensable.”
― Dwight D. Eisenhower

My job is to go into a meeting with the head of HR, a CEO or Board with what I believe is the perfect solution to their problem. “You should get rid of the old XYZ plan and put in a new ABC plan.” Occasionally I leave those meetings excited and ready to act on a very different solution. “Let’s leave the XYZ plan alone for now and work on adjusting base pay and equity for this key group of employees who are critical to the next six months of our success.”

As an HR or compensation professional, even the best plans require the agreement of others. Some of you have taught sessions on how to get a seat at the table. Many have taken courses on how to negotiate, be persuasive or sell ideas. Sometimes that extra chair just doesn’t fit in the room. Sometimes no matter how much evidence you have to support your idea, it simply isn't going to happen.

This does not make you a failure. It does not make your idea bad. It doesn’t mean that you need to forget your great solution or leave it in the rubbish. It also doesn't mean that you are done. It is frustrating, but it is nothing more than a temporary setback.

The best plans usually solve more than one problem. An effective approach after losing the first round of discussions is to find the most important (or well-received) nugget in your “big plan”. Polish it up like a diamond and go back in with the idea they can't refuse.

Even a little help is better than demanding that you get everything you want. If you can’t get that incentive plan budget for the entire staff at least make sure you get something for the group of people without whom you will suffer or fail.

We plan for the opponent we expect, but we must fight the opponent who shows up.

Maybe your board won’t support the mission critical solution your have devised. Instead of waiting until next year and trying again, consider recommending Plan B or Plan C. Have an idea of what these might be, but prepare well enough that you can suggest potential alternatives quickly and thoughtfully.

Instead of getting approval from the top down, you may have similar issues getting buy-in from the ground up. Your employees may not be enamored with the “motivational pay for performance plan” you rolled out with great fanfare. Your sales people may find that the new commission program you designed to fix their complaints about the terrible old plan is even worse.

We often discuss communications as a solution to these kinds of problems. Better communication is always a good place to start, but even best communications can’t solve every problem. Don't be afraid to regroup, retool and try a smaller, different or less exciting idea. Even the best-laid plans may be useless once the real fighting starts, but even the smallest solutions move you forward, regardless of the plan.

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

Cafe Classic: A Few Things Economists Would Like Compensation to Know

Editor's Note:  Smart professionals in any field seek and are open to learn from the insights of other professions.  In this Classic post, Margaret O'Hanlon introduces us to a couple of "laws" touted in Economics that offer lessons we'd be wise to add to our compensation (and broader HR) toolkits!

I've got news for those of you who don't spend your time in behavioral economics, game theory or educational assessment but are willing to learn from these researchers. I ran into a few of their "social indicators" the other day. They describe why we make systematic errors in judgment -- errors that are contrary to the assumption that man is rational by nature and thus behaves rationally.

I stumbled over "Campbell's law" and "Goodhart's law" and I noticed that they may have something to tell us about, oh . . . concepts like performance appraisal practices, bonus allocation, merit increase awards, high potential selection and, well, most of the things that we spend our time on.

Spoiler alert -- the "laws" are not based on research but are subjective individual perceptions. But they are given so much credibility in economics that they are used to monitor and evaluate financial and governmental policy. In other words, it seems like people who are saving the world in the capital markets give them credibility, so we might as well give it a try it, too.

"Campbell's law" goes this way:

The more any quantitative social indicator (or even some qualitative indicator) is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social pressures it is intended to monitor.

Performance management is the first thing that comes to mind. Whatever we try to do to make it objective, Campbells Law says we should just plain recognize and accept that we can never be fully successful. In fact, Campbell's Law says that over time, we become part of the problem, too.

"Goodhart's Law" is named after the banker who originated it:

"When a measure becomes a target, it ceases to be a good measure."

This seeming generality became a advisory for economists because they realized it was a valid caution when you work within any construct. It goes back to the old saying, "If you only have a hammer, you tend to see everything as a nail." Or, in our case, if you have given increases only to high potentials for the last two years, then executives tend to see soooo many high potentials -- and they tend to massage the definition of high potential. Or, in the case of  variable pay programs, if you concentrate exclusively on the incentives for recognition purposes, eventually you won't notice that you're decimating your base salaries. In fact, you'll say with deep conviction that your salaries are highly competitive.

The thing is, all of our practices could be described as "social decision-making" since they involve a wide range of people who contribute to, and are affected by, the decisions. The lessons? There are lots and I am not even barely equipped to expound upon them, but I can tackle the simplest one. If international finance groups feel they need to monitor their practices in light of Campbell's Law and Goodhart's Law, odds are we do, too.

Some thoughts?

Quit whining. It just makes good (business, economic, psychological, etc.) sense to change your performance appraisal approach every few years. It's a social means of managing economic behavior, so that's the way it goes.

And no matter what type of pay strategy you have, recognize that your decision making is naturally biased in favor of the rationality of the strategy. As you make decisions, you are gathering up all those nails you're so fond of. Because of your fondness for hammers and nails, every couple of years, sit down and have a free-flowing debunking session. Act like a non-believer, and see what kinds of holes you can shoot into your pay philosophy and practices. Over time those practices become an end in themselves. Your influence as a strategist grows when you recognize this and polish them up.

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.

 

The Time is Now. Compensation Pros Must Rise to the Challenge.

Change is hard. While it is inevitable, we prefer if it happens while we aren’t paying attention. It’s kind of like your hair during a more than 2-month lockdown. On day 5 your hair looks like your hair. On day 30 your hair looks like a long version of your hair. On day 70 your hair looks like someone dropped a prop wig on your head and ran away. The change happened, but gradually. For at least a few decades, this has been the way of things in the world of compensation. But now is the time for something new.

Our biggest changes are often those that are forced on us. Few of us thought that our coworkers would see the inside of each other’s houses every day, but here we are, living the video-conference dream. Most of us thought summer vacation would be a long three-months, but here we are experiencing some weird version of a six-month vacation, and we're mostly surviving it pretty well. When change is thrust upon us, we can accomplish amazing things, things that seemed impossible only moments before. Now is just such a time for compensation professionals.

The current crisis has exposed the dusty corners of compensation practices.

When professionals cannot survive for even a few weeks without a paycheck, we have created a system that is hard to defend when things return to whatever we will call normal in the future.

When the vast majority of companies have incentive programs that look very similar, but prospects that look far different, we must consider whether “market data” truly reflects our markets.

Our pay practices have leaned heavily on history, and next year’s history will be now. Will we truly want to base our pay decisions on what we had to do to navigate this period? What will we say when challenged by those making the decisions and those whose lives are inextricably tied to those decisions?

We seldom see the impact of change as quickly as we see the motivation for it. We must start figuring out what that change will look like, even before we have a clear picture of the road ahead. Take a good hard look at your pay programs. (Go ahead, I’ll wait. I’m just sitting in my home office.) Did your approach to compensation properly differentiate those who were essential to either your day-to-day existence or your long-term future? Do your incentive plans promote the decisions, behaviors, and actions that truly define your success? Have you noticed if your recognition program was well suited for recognizing people?

While we may not know exactly what the world beyond the horizon holds, we can be certain it will not be exactly like the past. Our compensation planning must start today if we are going to be ready for whatever is ahead. Now is the time to ask yourself what you will do if your budget is 20% less. Now is the time to make your argument for where it should be 20% more. Now is the time to determine where your adherence to market practices has made your company better, and where it may have hobbled your ability to move forward.

We are not presented with many truly transformative opportunities moments in our careers. I can think of only two or three in my own career. But proactivity is the key to success. Those who leaped ahead of the pack were always those who saw the opportunity and drove the change. Your time is now if you are motivated to make it happen.

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

Cafe Classic: The Questions We Should Not Be Answering With Market Data

Editor's Note:  Looking for answers in all the wrong places?  Solid data on market norms and practices have their place.  Too often, though, we Comp Pros use market data to answer questions that should not be addressed simply by what "most" or "the average of" organizations are doing.  Sound familiar?  Read on.

Would you make a critical life decision based on market norms?  Decide to uproot your family for a job opportunity, divorce your spouse or determine the best care approach for an elderly parent based on "average practice?" 

Probably not.  You would want to consider your specific circumstances, your goals and aspirations and your values, among other things.  And you'd want to seek input from those directly involved and/or impacted by the decision.  Data on what other people have done in similar situations may inform your decision, but will not likely determine it.

Similarly, there are questions in the world of compensation design and management that we should not be answering solely on market practice and "competitive norms."  When you fall into the trap of thinking that benchmarking is the most important arrow in your quiver, however, it is tempting to fire it at every question you encounter.

As a consultant, I get a lot of market data questions that really make me scratch my head.  Here are a few of my favorites.

What are the most common incentive measures for management (or sales or professional level) employees in the technology (or contract manufacturing or pharmaceutical) industry? 

I call this one "plan design by market average" and it is not an uncommon approach, particularly with less experienced professionals.  Incentive plan design should always, ALWAYS begin with an understanding of the company's unique business strategy, what it wants to accomplish with the incentive spend and which specific efforts and results (if reinforced) will most likely lead to attaining those objectives.  It should not begin with the average choices made by others in the industry.

How many companies are providing incentives to their nonexempt employees?

While it may be interesting and even helpful to understand the direction of the market here, the decision to make any particular group of employees incentive eligible should not be simply an effort to mimic the crowd.  Are there sound business and talent management reasons to provide incentives to this group?  Are your managers willing and able to take on the communication and coaching activities necessary to establish and reinforce the connection between employee efforts and moving the bar on plan measures -- necessary for success and any chance of return on award dollars?  These are the types of things that should guide incentive participation decisions, not simply the determination of whether everybody else is doing it.

How many companies in our industry position their pay above the 50th percentile (median)?

Whether or not the average company in your industry purports to pay at premium levels shouldn't be the primary factor driving your compensation philosophy.  Rather, is there a strong business case -- for your organization -- which suggests that positioning compensation aggressively for all or some portion of the workforce is necessary?  And likely to deliver a positive economic return?

Do most companies classify this job as exempt or nonexempt?

Yes, let's do crowdsource our FLSA classification process.  This is one of my favorites -- and I will tell you that I hear it a lot.  With all the scrutiny and attention being directed at wage and hour compliance these days, do you really believe that a borderline exemption call could be defended, if it came to that, with data that shows how other most companies have classified that title?  Me neither.

An HR executive (who shall remain anonymous) recently remarked to me that, in his experience, most compensation people are great at benchmarking.  Period.  The implication being that our contribution begins and ends there. 

Let's be better than that!

(And please do share your own versions of questions we should not be answering with market data.  I'll bet there are some doozies out there.)

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.

Creative Commons image "Finger Wag" by Lara604

6 Ways Incentive Plans are Like COVID-19 Planning

Comparing incentive plans to a pandemic response seems like a stretch, but great incentive plans are all about stretching. Stretching people's expectations. Stretching company performance. Stretching your compensation budget. The list is long.

We have spent a couple of months cooped up in our home-offices / home-schools / home-restaurants / home-newsrooms (and home-homes.) The weeks inside have given me the time to realize the lessons a pandemic team can learn from the perspective of incentive plan design and execution.

1. If you don’t plan early, great results will depend on hope and luck.
   If we only knew then what we know now. It is the lament of the late riser, the poor planner, and the grasshopper of Aesop’s Fables. Every good incentive compensation professional knows that the best time to prepare for next year is while you are working on this year. Why would anyone be the person who waits until the last moment to begin designing their solution for the future?
   
   
2. Understand your intent before you create your solution.
   Every good incentive plan project starts with a simple question. “What are we trying to accomplish?” The best incentive plans have a cascade of prioritized goals. Some are critical, others nice to have. The goal is to make sure the highest priorities are met, and the biggest risks are minimized. When intentions conflict without clear direction the result can be a total failure of the plan.
   
   
3. It’s a bad idea to start acting without testing.
   This is where many incentive compensation people fall short of their goals. Testing can be hard and time-consuming. It is never perfect. A lack of testing is a sign that you aren’t worried about the plan working. Your best and brightest will see through this almost instantly because they will run their own tests. When we take the time to build dynamic models and involve everyone with a stake, our solutions are more likely to work and far more likely to be supported.
   
   
4. People will want to get out if the plan bad or they feel stuck.
   The goal of any incentive plan is to provide motivation and support retention through a specific time horizon. Plans that cannot adjust to changing conditions, or that are incorrectly calibrated will neither motivate or retain. In many cases, they will do the opposite. When individuals feel like a plan was never meant to succeed, they will run to someplace with a better solution. The only people you will keep are those who are unwilling to make changes of any kind (and they don’t need an incentive plan at all).
   
   
5. A little miscommunication goes a long way.
   In a lack of information, people will use their imagination. If you don’t proactively over-communicate your message will be easily overrun by rumors and innuendo that fit people’s preconceived narrative. Is there a feeling that the company has set prior goals to be unreachable? Well, these goals are also unreachable unless you explain how they aren’t.
   
   
6. Transparency works. In the end, people will figure out what really happened. In the end, nearly all people will figure when they have been tricked. If your endgame is to take off before this happens, then any solution will do. If your goal is to be involved for the long haul anything you do to hide real projections, cover-up the intent of the plan, or set unrealistic goals will be discovered. Your best plan of attack is to provide enough transparency for people to make informed decisions.

Getting in front of incentive plan solutions requires doing a bit of work when you may otherwise wish you were recovering from first quarter compensation tsunamis. This year may give you a unique opportunity to proactively plan for your next incentive plans. Or, you may just barely have the time to teach some multiplication, act as your own IT person, perform as a personal chef, and become your own advice nurse. These are odd times indeed. Stay well and reach out if you need help.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense and has three metaphors for every occasion. 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.

What's Going On Out There?

Hungry for up-to-date data on how your competitors are handling the Human Resource components of the Covid-19 pandemic? Aon (including Radford) just published data collected from April 7 to 10, 2020. This "point in time" report is called "Adjusting Total Rewards Programs, Workforce Strategies and Sales Force Effectiveness Practices in Response to COVID-19" and it has some valuable insights into how companies are (or are not) adjusting their people strategies to the current environment. The participants include a nice mix of essential businesses (56% of participants), non-essential (24%) and mixed (22%).

You can order your own download here. If you think that the findings can't possibly apply to a company like yours, participation ranged from companies with fewer than 250 employees (15%) to over 50,000 (9%).

To whet your appetite, here are some of the key findings:

• 22% of participating North American companies are cancelling salary increases and 17% are deferring or postponing increases.
• 18% of survey participants offer special pay programs, typically in the form of flat amounts, for those in high-risk roles. 93% of these participants are essential businesses.
• 58% report that their Executive/Officer group is taking voluntary base pay reductions.
• 23% are planning to make benefit changes and 14% are planning to make retirement changes. Given these findings, it seems limited revisions are planned for Total Rewards.
• More than half of participating companies have special programs to help those working from home deal with equipment purchases and membership fees. Most are offering help on an as-needed basis.
• 88% of participants have increased the number and frequency of communications from senior leadership, including topics like business continuity -- with 77% using video and web conferencing as well as email, and 33% using texting, among many communication channels.

I think it would be useful to understand what's going on outside your doors, if only to help you feel more confident about the way you are handling the tsunami of challenges that you meet every day. This is a well conducted survey covering a point in time that can be confusing and sometimes even disturbing.

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: Wherefore, Whyfore Team-Based Sales Incentives

Editor's Note: It's not unusual during tough economic times for sales compensation to come under the microscope.  One of the questions that comes up during difficult stretches is whether sales incentives should incorporate more emphasis on team (versus individual) performance. The question isn't wrong or right simply on its own merits, but it does demand careful consideration of your particular organization, sales strategy and reality, and sales roles. If that conversation is happening in your corner of the world, here are some guiding thoughts to consider.

Traditionally, sales incentives have been heavily - if not exclusively - focused on individual performance.  This reflects the long-held stereotype of the lone wolf salesperson, working independently to develop customer relationships and secure sales.

Times have changed though, and the sales process for many organizations (particularly in the B2B world) is becoming longer and more complex, increasingly requiring teams of sales and sales support people working together to bring business in.  The resulting reality: More organizations are facing the question of whether team-based incentives should be an element of their sales compensation plan.

Addressing this question requires a deep look at many elements of how your company approaches and staffs the sales process.  In their article Are Team-Based Incentive Measures Right for Your Sales Organization?, Sibson consultants Sheila McCarthy and Shalin Sharma identify three important aspects of answering that question:

Recognizing a Team-Based Sales Organization.  McCarthy and Sharma talk about the need to look at how the work of sales individuals and teams comes together to drive business.  I find that conversations with a representative group of sales managers and staff can help shed light on the sales strategy by fleshing out the real nature of the selling process and the degree to which multiple roles contribute to the successful sale.

Selecting the Best Measures at the Team Level. If the step above leads you to the conclusion that there is, indeed, a team element to the successful sale, then which metrics should be used to reflect team versus individual performance?  Measuring the multi-faceted sales process is a challenge, given that the ideal plan should include no more than three metrics.

Finding the Right Balance.  As a company moves from a purely individual-based sales incentive to the introduction of team metrics, how do you find the optimal balance between the two elements?  McCarthy and Sharma wisely advise that a company transition their mix of metrics conservatively, allowing the organization and the sales staff time to become more comfortable with team-based measurement.

It is also critical, however, to look beyond the good reward design guidance highlighted above at the underlying talent and motivational issues.  Research suggests that salespeople differ from non-sales staff in some key ways.  Not only are they (surprise!) more motivated by financial compensation (82% versus 62% for non-sales employees), but they also tend to:

• Be more engaged (57% versus 51%)
• Be more committed to their companies (68% versus 62%)
• Have higher career satisfaction (57% versus 52%)

I believe there is a connection between the higher engagement and career satisfaction of salespeople and the kind of direct feedback, recognition and reinforcement provided by a compensation program heavily leveraged in favor of quantifiable individual results.  And that there is further connection between the historically typical individual-based sales compensation plan and the type of person who pursues and succeeds in a sales career. 

And my point is simply that we need to be mindful of these things.  Switching up the compensation plan without a good look at things like...

• The skill sets, work styles and competencies of our current sales population
• What motivates, engages and drives them in the sales process
• What makes them feel recognized and rewarded

... could lead to some unhappy, unintended consequences. 

In summary:  Team-based sales incentives could be a good, even critical addition to your sales compensation plan - but should be pursued only after taking a close look at not only the sales process itself but also the skills, attributes and preferences of your sales talent. 

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

Image: Creative Commons Photo "Soccer Practice" by woodleywonderworks

Cafe Classic: All Decisions Are B.A.D. Decisions

Editor's Note: During this time of crisis and challenge, we are mining our archives to bring you Classic advice and ideas from previous tough times (because we've been around for awhile!). And as we all strive to do our jobs in circumstances that change daily, even moment-to-moment, it's an excellent time to revisit Jim Brennan's guidelines on B.A.D. decisions.

All decisions are B.A.D. decisions, relying on the Best Available Data known at the time.

Even compensation experts, supposedly the most analytical of HR types, have difficulties with data.  Makes sense to me, because all human decisions are B.A.D. decisions, made according to the “best available data” when action was required.   

When there is no good data, you must rely on the Best Available Data.  The resulting acronym (B.A.D.) is quite meaningful as well as memorable.  The process of making decisions without access to complete and perfect information occurs every day.  The best professional survey analyses involving “counts”, for example, report their reliability statistics.  And guess what they define?  The estimated rate of error contained in their statistical results.  Standard error is a vital measure because it predicts how much of a miss is likely when relying on the normative results derived from a particular observation sample.  It is much like the spread in the shot pattern you get from pellets dispersed by a shotgun; or from sand thrown by hand, where wet sand will be more densely clustered than loose sand. 

Every measurement, even the best, comes with a certain risk of error.  Tight standards of precision offer more hope of being “right” and strengthen the ability to make inferences from studies, but that is not always possible or useful.  The real world is filled with bad information, inadequate facts and missing data points.  And the opposite situation occurs, too, where you are flooded with contradictory information.  In this Internet world, it seems like anyone can find support for almost any contention somewhere.  Too Much Information (TMI) has become a catchphrase acronym. 

Relevance counts, as well.  Despite access to all the information in the world, you can never be sure that one particular answer will prove to be valid in your particular unique situation. 

Sooner or later, you may reach a point where you can only speculate before acting without perfect confidence.  Even in the numbers-oriented world of compensation management, Scientific Wild-Ass Guesses (SWAGs) still are required sometimes.  Operating in circumstances where useful facts may be missing  is a normal part of the total rewards profession.  The more often you enter uncharted waters, the more frequently you will find an absence of robust benchmark studies with relevant useful facts that can guide your choices, suggest options or demonstrate context.  Then, it is time to get B.A.D.!

The best approach when dealing with ambiguity generally is to define your assumptions, explain the risk level and give it your best shot.  For instance, if no one complains over an admittedly arbitrary guess about what you think a specific job should be paid, you are probably offering to pay too high and they don't want you to find out because it makes life easier for them.  When hiring managers grumble but are able to comply easily and operate adequately, then the approximation is probably just about right. 

If any SWAG based on the Best Available Data works out, then your B.A.D. decision will be the best possible outcome.

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.

It Was Never Like Vanilla Ice Cream

When I tell someone that I am a compensation consultant it is inevitably followed by, “You need to talk to my boss.” This is true when people are hourly or salaried. It is true whether they barely make a living wage or whether they are part of the “1%.” People just don’t love their compensation. It isn’t like vanilla ice cream.

Vanilla ice cream is yummy (yes, that is the scientific term). It is nearly universally loved. It may not be everyone’s favorite flavor, but pretty much anyone is happier when they are eating it. This is true when the ice cream is that weird unmeltable stuff inside a cheap ice cream sandwich. This is true when it is handmade gelato at a Michelin starred restaurant. It is true when it is a soft-serve cone served out of a truck parked on the side of the road. It is hard to find someone that is truly dissatisfied with vanilla ice cream.

Compensation? Not so much. Compensation professionals tend to write this off as a product of “people are never satisfied.” But vanilla ice cream would seem to crush this argument. Somehow the always complaining, never satisfied, compensation ingrates are happier when they eat vanilla ice cream. It’s not that they are “never satisfied.” It’s that they are never satisfied with their pay.

I often wonder if some company has figured out the secret of making their pay as pleasant as even the lamest vanilla ice cream. Is it possible? If so, what would it take? Would 15% more base pay make the difference? 50% more? We know that tons of money in incentive value doesn’t work. Tons of people have amazing incentive pay packages, but dissatisfaction remains an issue.

You have to assume that the first attempts at vanilla ice cream were failures. If you have ever tried to make it yourself, you know that it requires just the right mix of dairy, sweetness, vanilla, cold and churning just to make a passable batch. There is no way that happened without a ton of trial and error.

Although people have been paid for a very long time, our current methods of paying people are not all that old. Some companies continue to work at creating the perfect recipe, but a far greater number seem to assume that satisfaction is unachievable. What other excuse can there be for doing something again and again in a way that does not make people happier? If better is possible, then it should be our main goal. If not, then why are any of us doing this?

I’d love to hear about your successful, and not so successful, attempts to do something truly better with your pay programs. I am sure other readers would also be fascinated to learn about approaches that have accomplished what so many believe to be impossible.

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

Cafe Classic: Scenario Planning and Reward Design in an Uncertain World

Editor's Note: During this time of crisis and challenge, we are mining our archives to bring you Classic advice and ideas from previous tough times (because we've been around for awhile!).

Compensation planning - like life in general - is a lot tougher in today's reality.  Many of us are wrestling with where (the heck) to take our reward plans amidst today's environment of uncertainty.

Perhaps we can draw some help from a technique in the business planner's toolkit.

Scenario planning, pioneered by the military in the 1950's and long used by some of the world's largest corporations, involves identifying a small number of "scenarios", predictions or possible paths the future might take, and defining how to potentially respond or adapt to each of them.  It should come as no surprise that recent times have brought a new surge in popularity for this particular planning approach.

A Knowledge@Wharton article, Eyes Wide Open: Embracing Uncertainty Through Scenario Planning, talks about this resurgence and covers some of the challenges involved in doing scenario planning effectively.

From the article:

Trying to gain a better understanding of the trends shaping the competitive environment has always been critical for managers. In the 1970s, scenario thinking first became relatively popular as a structured way to look ahead -- to understand new growth areas, anticipate risks, spot opportunities and build a long-term vision. Perhaps most notably, Royal Dutch Shell used the approach to look more broadly at the trends and developments that could impact the price of oil and develop stories that could challenge management perceptions. Since then, however, companies of all sizes and in many industries have picked up the practice, particularly at times of crisis or dramatic change.

George S. Day, a professor of marketing at Wharton and co-director of the Mack Center, also has witnessed the recent rise in scenario thinking firsthand. "What has changed to make scenario planning so timely? Obviously uncertainty is way up. This is the main driver, because when conditions are stable it's easier to live with momentum and the projections we normally use," he points out. "The challenge is that when things are very uncertain we need to think differently, because what we project based on current momentum may be the least likely outcome. We need to start thinking about the unthinkable scenarios -- and what's new today is people are finally figuring out how to do it well, in an environment with a huge amount of uncertainty."

My point? Simply this question: Are there elements of scenario planning that we - as a profession - should be embracing as we try to position our reward plans to support success in a near- and longer-term future that is difficult today to predict? 

Let's face it.  The days of simply plugging a new budget number into our compensation program and rolling it forward with a few tweaks are behind us, at least for the moment.  Right now, we need a dramatically different process that considers our reward structure against the possibilities the future may throw at us ... and asks questions like:

• What are the boundaries of possibility for our organization in the coming year ... and beyond?

• What might the possible scenarios mean for how we manage and reward our employees?

• What direction should/would we move our reward plans to respond to these realities?

• What, if anything, do we do today to ensure we would be appropriately positioned to make these moves, if circumstances demand them?

I'm betting that there are some forward-thinking practitioners out there who've already incorporated questions like these into their compensation planning efforts.  The rest of us ... well, time to learn up and get on board.

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

Image: Creative Commons Photo "It's about rules and strategy" by pshutterbug