Compensation Force

Ears to Hear: A Listening Primer for Compensation Pros

Recent events have got me thinking about the importance of listening for compensation and HR professionals if we truly want our work to have impact.  In considering some of the listening lessons my own experience has taught me, I came up with my own hierarchy of compensation listening levels, highlighted below for your consideration and reaction.  In an effort to connect each level to compensation reality, I have used the example of a manager approaching you with concerns about an employee (John) who has reached the maximum of his assigned salary range.

Level One: Pretend Listening (aka the tune out)

At this level, the listener is only pretending to hear what is being said, having essentially tuned out the manager after her opening line because it's the same old complaint the listener has heard time and again.  You know your program is right and the manager's concerns are simply a factor of her not understanding.  So you do your best to assume an interested listening pose and then, when she stops (or perhaps just stops for a breath), you plug and play your standard tape on salary range design and overpaid employees.

Here I go again, explaining our salary range and salary increase programs to another manager...

Level Two: Defensive Listening (aka listening with an agenda)

Here you are listening, but for the purpose of picking up enough of the context and key facts to tailor your talking points to the manager's circumstances and concerns.  You're hearing her, true, but not at a deep level because your intent is simply to understand well enough to hone your message in explaining and defending current policy.

Now that I understand John's work and performance history, I can better explain why we have a policy - via salary ranges with set maximums - of holding base salaries to a level of 20% above the market rate.  And I can make some informed suggestions regarding what the company believes are options that employees in this situation should consider.

Level 3: Learning Listening (listening to learn and understand)

At this level of listening, you put aside the urge to explain or defend current policies and practices and focus on deep inquiry and understanding. Try to escape the bonds of program ownership and adopt a beginner's mind.  Be curious and inquisitive; seek to see the situation through the eyes of the manager and employee.  Not because they're right and you're wrong, but because it's a learning opportunity for you. You may not discover anything that changes the short term reality - the employee may still face a capped base salary - but practicing this level of listening may bring other benefits.  It will help you gain the trust and respect of those who bring their concerns to you.  It will also broaden and sharpen your understanding of the larger talent management system in which your pay programs operate.

Hmmm. We have lots of employees in John's shoes.  What levels of engagement and motivation are they bringing to their jobs?  What are these employees seeking from their careers - and is there a business case for the company to take extra steps or make extra investments to retain them in their roles?  What challenges and opportunities do such employees present for managers, and how can we best support those managers in responding?

My own observation here: It takes a certain amount of self-confidence, professional maturity and courage to move from Levels 1 and 2 to Level 3.  As young professionals, many of us struggle to escape Level 1 because we believe that the ability to explain and defend policy is the first test of our competence as professionals.  Conversely, and somewhat ironically, it is often through experience and "seasoning" that we become comfortable admitting we don't have all the answers and can open ourselves to listening and learning.

What are your thoughts about listening as a career skill?  How do we develop better ears to hear?

Creative Commons Image "I'm all ears" by Flickinpicks

What Incentives Can Do, What Incentives Cannot Do

Incentive compensation.  Powerful stuff when used well and - unfortunately - potentially even more powerful when misused and misdirected.  Chip and Dan Heath said it well...

Incentives are dangerous, and not just because people game them. They often yield collateral damage. Remember the tale of the Darwin Award winner who strapped a jet engine to his car, dreaming of a joyride for the ages, and then met his sorry end as a human flapjack on the side of a mountain? Incentives are like that jet engine. There’s no question the engine will take you somewhere, fast, but it’s not always clear where. Or what you’re going to mow down on the way. Yet incentives are still the first resort of most managers, perhaps because they all think they’re smart enough to create the perfect carrot.

How do you know when an incentive plan is a good idea and when it is not? 

For starters, it is important to have a sense of the circumstances you are fixing to drop them into and the objectives you (or the prospective plan "sponsor") hope to achieve by putting them in place.  If you don't, start there.

Next, you'll need to face up to the reality that there are problems which incentives cannot fix (and may even make worse).  What follows is my own list of what incentives can and cannot do.  Many of you will have your own lists; I would love to hear them.

Things Incentives Can Do

1.  Incentives can focus.  Incentives call out top priorities for employee attention.  This is one of the most potent capabilities of incentives (assuming you are really clear on the implications and consequences of that "focused" attention).

2.  Incentives can guide.  Incentives are communication tools, pointing employees to where their efforts can create the most value.

3.  Incentives can share the rewards of success.  Incentives provide a mechanism through which employees can share in the economic success they help create.

4.  Incentives can weaken silos.  By tying groups together with shared performance metrics and reward opportunities, incentives can encourage teamwork and collaboration across business or functional lines.

5.  Incentives can promote development.  Incentives can help drive and reward the development of critical skills and capabilities.

Things Incentives Cannot Do

1.  Incentives can't fix broken organizational structures and processes.  If your structure and processes are so bad that you have to dangle money to "motivate" people to work around them, you'd be well advised to bring resources to bear on the real problem (which is not a lack of rewards).  Barring that, better have a really clear idea about the type of workarounds people are likely to attempt in pursuit of that extra cash.

2.  Incentives can't fix bad job design and staffing decisions.  Incentives are not an alternative to designing and staffing work roles in ways that make good performance possible and even likely.

3.  Incentives can't serve as a substitute for enforcing policies and job requirements.  Following policy and meeting job requirements should be considered a condition of employment, not something you "purchase" with extra compensation in order to avoid confronting those morale-depleting slackers.

4.  Incentives can't get you off the hook for providing regular feedback to employees and correcting work efforts that are off the mark.  And THAT is because...

5.  Incentives cannot manage your employees for you (honestly, this doesn't even work with most sales jobs) and they are not an alternative to setting and communicating clear performance expectations.  Although there will seemingly ALWAYS be managers who want to give this a shot, believing that they (unlike those poor schlubs who came before them and failed) are truly smart enough to create that perfect carrot. 

What can you add?

Creative Commons image "which way do I go?" by Lisa Nail

Flexibility: Your Pay Program's Strength... or its Achilles' Heel?

When talking with leaders about their compensation programs, I will often ask them what they see as the program's biggest strengths and weaknesses.  Often enough, particularly in reference to base salary programs, they will mention the program's flexibility as one of its strengths.

More than a few of them will note, however, that this flexibility can serve as a double-edged sword.

By flexibility, they typically mean some level of managerial discretion.  They will say that while they appreciate the program's structure and rigor, they also appreciate that there is some room for maneuvering, for "tweaking", in order to respond to specific circumstances and needs.  Effective managers, who have the overall organization's best interests at heart (versus merely their own), use this flexibility to ensure that the program truly works as intended.  Less-than-effective managers ... not so much.

Does our increasing attention to and focus on equity change the way we look at flexibility in pay decisions?  Should it?

At a minimum, I think it is wise to keep a close eye on the role that flexibility plays in the administration of our wage and salary programs.  When we give managers the space they need to do the right things, have we put the conditions and boundaries in place to ensure that outcome?

Creative Commons Image: Caution by Focal Foto

Compensation Pros, Duck Hunting and Averages

Did you hear the one about the compensation professionals who went duck hunting? 

They see a duck in the air and both shoot.  The first comp pro's shot is 20 feet wide to the left.  The second comp pro's shot is 20 feet wide to the right. 

Two comp pro's give each other high fives, because on average they hit the duck.

(Hat tip to my friend Nancy.)

Creative Commons image "3D Bullseye" courtesy of stockmonkeys.com

Incentive Plan Success: Think Big Picture, Act Small Picture

Incentives remain one of the most powerful, and yet also one of the most misapplied, management tools out there.  While research has shown that group incentives can deliver significant return on investment, evidence abounds that our incentive design and implementation efforts often misfire or fall short.

Compensation professionals often cite line of sight - the perceived ability of employees to impact broad measures of business performance - as one of the biggest obstacles to group incentive plans.  I think we may be missing the point.  One of the beautiful things about incentives - particularly broad based plans -  is that they give us a great vehicle for communicating business strategy and objectives to employees, while also providing them a stake in making these things happen.  Like any other "vehicle", however, incentive plans can't get you to that destination all alone.  In the same way that the mere presence of an automobile in your driveway isn't sufficient to get you to that vacation destination (you'll need clear directions, a committed driver, fuel, adequate maintenance, etc.) your incentive plan won't take you anywhere if you just plop it in place and leave it unattended.

With the right communication and education efforts to support it, an incentive plan can be a platform for leaders to help their employees "think big picture and act small picture."  By talking regularly about an incentive plan that focuses on a few critical measures that reflect progress toward strategic goals, managers can help employees see where the organization is trying to go and what it must do to get there.  By coupling that regular big picture reminder with ongoing conversations about the things the employees can do - every day, in their own jobs - to help move the big needle on these critical performance measures, managers can support their staff in taking the right small picture steps.

And then, of course, there's a payout if their collective efforts drive the right results.

Rather than dismissing incentive plans, especially broad all-employee programs, because of line of sight concerns, we need to recognize the potential that these plans offer (with the right care and feeding) to connect big picture thinking with small picture acting for all employees.

Creative Commons Photo "starlings" by Rob Blanken

Solving Pay Angst

As an independent advisor, I have often been called in to help with situations where compensation has become a very emotional and even intractable problem.  Having the opportunity to work with -- and through -- a lot of these situations over the years has taught me a few things.

The biggest lesson is probably this: Clarity, process and structure are the most effective remedies for compensation angst.  This is true whether the pay concern involves an individual or a group of people. 

In the absence of clear, explicit process and structure for addressing and making a decision about the compensation concern, you must go about creating these things.  Process first -- determining who will be involved in what role, what steps will be taken and in what order, and what timeline will be followed to a final decision.  Then, you follow the process to create and apply the structure -- the information and rules which will frame and guide the decision.  If a process and structure already exist, it is important to step back, clarify them, and then track carefully through the roles, steps, information and rules in order to revisit, adjust and/or confirm the decision.

Plodding and methodical?  It can seem that way in today's fast moving environment, particularly to executives and entrepreneurs accustomed to making decisions on the go with the best information available.  It can also fly in the face of custom and tradition when managerial flexibility and discretion have historically reigned supreme over compensation decisions.  Certainly some level of flexibility is important in a world where organizational agility and responsiveness are at such a premium.  But sometimes flexibility is just another word for reluctance to commit oneself.

Flexibility and discretion rarely resolve acute compensation distress.  For that, you need clarity, process and structure.

This is because compensation angst, at its core, is usually about fairness.  Compensation decisions made without context or explanation behind closed doors and/or entirely inside the heads of executives, unless they are utterly in sync with or in excess of an employee's expectations, will rarely be perceived as fair.  Fairness, contrary to what many seem to believe, is not about paying everyone the same.  It is not even about paying people enough to take money off the table (just try devising and executing that approach in a way everyone agrees is fair!).  It is about having everyone's pay subject to a clear, logical and explainable set of rules and information. 

Which is exactly where the application of clarity, process and structure aims to take you.

Creative Commons image "angry face" by Graeme Maclean

Unleash Your Inner Scientist: A Lab Mindset & HR/Compensation Experiments

Experimentation, it seems, is on a lot of our minds lately. As one example, check out Mercer's great piece on Cultivating a Lab Mindset.  I agree with the direction of this thinking, that moving compensation (and all HR) programs and practices forward, at the ground level where most of us live and work, will happen through evidence-based learning and innovation, through tinkering and tailoring, and through raising the bar on our understanding of fundamental data analysis.  I have also held on to a HBR article from a couple of years ago:  Step-by-Step Guide to Smart Business Experiments  written by professors Eric T. Anderson of Northwestern's Kellogg School and Duncan Simester of MIT's Sloan School of Management.  And I have borrowed shamelessly from their material to create a set of rules for compensation and HR experimentation, presented below for your review and response.

Rule 1: Clarify the Question, Define the Concept

Any experiment begins, of course, by getting as clear as we can about what we are seeking to learn and the kind of evidence that will provide us an answer.  In academia, as Anderson and Simester note, researchers typically change one variable at a time so that they can know exactly what caused an outcome.  While ideal, in business this may not always be possible or practical.  For this reason, the authors advocate instead a proof-of-concept approach where you "change as many variables in whatever combination you believe is most likely to get the result you want."

Rule 2: Set it Up Like a Scientist

A business experiment requires three things: a treatment group (where the compensation or HR action in question is "applied"), a control group (a complementary group with no action) and a feedback mechanism (which allows you to observe how those in each group respond).  Feedback can come via data or metrics that measure the impact of the treatment on individuals in the group; this could include things like voluntary turnover, engagement survey results, productivity or operating statistics, etc. The feedback might also be drawn through more targeted survey efforts, through interviews or focus groups.

Rule 3: Don't Miss the Natural Experiments

The article quotes Norwegian economist Trygve Haavelmo, who won the 1989 Nobel prize, and observes that that there are two types of experiments: “those we should like to make” and “the stream of experiments that nature is steadily turning out from her own enormous laboratory, and which we merely watch as passive observers.”  The point here is that we (as busy, overextended professionals) should learn to recognize and take advantage of the low-hanging fruit; experiments that are either already happening in our organizations or conditions that readily lend themselves to observation and measurement.  Keep an eye out for treatment and control groups that may already exist, or are being created by factors outside your direct responsibility.

Rule 4: Measure as Much as You Can

The more you measure, the more you may potentially learn.  Slicing your data by different variable turns one experiment into many, while examining only aggregate data may cause you to miss things.  You might look at your results by, for example, differences in tenure, performance, HQ versus field, income level and even demographics like age, gender, etc.

Rule 5: Keep Your Eye on the Goal

Some companies, Anderson and Simester note, mistakenly believe that the only useful experiments are the successful ones.  The goal is not to conduct perfect experiments; the goal is not even (really) to vindicate your preferred policy direction.  The goal is to learn and to position ourselves for better business decisions.  The goal -- at the end of the day -- is to bring your leadership team data and evidence, rather than hopes and beliefs, about your compensation and HR recommendations.

Tell us about your own experiments.  What would you add to or amend in these rules?

Image: Creative Commons photo "Mad Scientist Doggie" courtesy of www.petsadviser.com

Maxing Out

I caught up recently with an old friend who works in an administrative position for a large professional services firm.  When I told her a little about what I do, she brought up a pet pay peeve of hers:  salary range maximums.  Having been in her role for nearly a decade, her salary has reached the max, allowing her only limited increase opportunity going forward.  As someone who’s been told she is an exceptional employee, she bristles at the suggestion that there should be a finite limit to her pay growth.

In what (at least historically) has been one of the most common salary range configurations – the 50% wide range – employees max out when they reach a base pay level 20% higher than the estimated "going rate" for their role and level of responsibility.  I have had many one-on-ones and have presented to many employee groups about the rationale for salary range maximums.  I tell them that an employee at maximum is earning a premium of 20% (assuming a 50% range width) over what we have determined to be the “market rate” for jobs like theirs, a likely result of them being rewarded for impressive performance in their role over a number of years.

Few appreciate hearing this, of course, and I've never particularly relished being the one to deliver the message.  But it is a reality that makes sense on a number of levels – not the least of which are 1) that nobody can be guaranteed unlimited base salary growth and 2) there should be some incentive for employees to invest time and energy in growing their skills and capabilities in a way that brings heightened value to their employer. 

I know, we’ve got the lump sum increase as one widely applied solution.  A lump sum increase is certainly better than no increase at all.

And yes, I know.  Many of you have broader salary ranges, so that the issue doesn’t rear its head until an employee is 25% 30% or more above their market wage.  (Broadbands?  Don’t even get me started.)  Bottom line, I think there is value, for employees as well as employers, in the kinds of controls and constraints that salary ranges provide.  There is protection from underpayment as well as overpayment.  Ranges help ensure that there is rhyme and reason to how salary decisions are made – no small thing.

But I am nagged by the sense that there may be a missed opportunity here.  Because there are employees who can and do rise above their role.  Employees who can or already have delivered something extra; not necessarily something that qualifies them for a higher level job, but something with tangible value. 

I'll also confess that I've not yet completely sold on the idea of wholesale movement away from job-based pay to person-based pay.  I can grasp the logic and beauty of it - in theory - but I still believe that it is the exceptional organization who can execute it well.  Hopefully, analytics will change that.  Still, there are places where additional person-based practices can and should be considered, and the enforcement of salary maximums may present us with just such an opening.   Whether through special project work, process improvement, providing mentoring or peer coaching – whether through a salary increase or some variable pay mechanism, we should be on the lookout for opportunities which open the door for alternative contributions and alternative rewards for our maxed out colleagues who have the potential to contribute more in their current role. 

Can we design these kinds of opportunities to our pay programs in a way that allows both employer and employee to win?  Or would these efforts create another semi-automatic entitlement which simply slides our salary maximums out without a corresponding commitment to value creation?

Any experience, wisdom or opinions to share on these questions?

Image courtesy of reconis.com

Is the Purpose of Incentives to Motivate People?

Article after article tells us that we should halt our use of incentives because people aren't motivated by money.  Or because they are motivated by money, but to do the wrong things.

I can't help feeling that many of them are missing the point.

Many of the incentive arguments centered around whether or not money motivates people reflect a wrongheadedness about the role of and reason for variable pay.  This stems in no small part from the Deci/Kohn/Pink worldview that contingent rewards exist solely as bluntheaded instruments of control, as bribes, as a means of getting people to do things they would otherwise not be inclined to do.

I reject this point of view.  It suggests that most employees come in each day unwilling to do good work and unwilling to help their organizations succeed and applying incentives just exacerbates the problem.  I don't buy that.  While there are bad apples in every bunch for sure, I don't think it's true of most places and for most workers.

Where it is true, however, I would agree that incentives have little chance of producing any lasting positive effect.  Truth is, you have to create the conditions for motivation - trust, transparency, a sense of shared interest, good work systems, etc. - as a baseline before any reward is going to be worth the investment.  If your employees don't walk in the door each day motivated to do good work, you have problems that no incentive plan is going to fix.

I don't believe that the purpose of incentive is to motivate people.

I would suggest that the purpose of incentive pay is - in fact - to influence the efforts and choices of workers who had better already have a baseline level of motivation, by calling out top priorities, by guiding them to areas and activities where they can create the most value, by signaling the importance of collaboration through highlighting shared goals and the opportunity for shared reward, and by defining a form of partnership through which employees have the chance to share in the economic success they help produce.

Incentives - variable pay - will continue to be an critical part of the compensation landscape.  Not because today’s workers need to be bribed to do their jobs well.  Rather, it will be because a static, inflexible, unchanging reward package with no connection to the things the organization must accomplish to succeed is a distinct competitive disadvantage in a world as unpredictable and fast-changing as ours. 

Salary: No Laughing Matter. Or is it?

Humor is a powerful tool.  Wielded well (particularly in a self-deprecating manner), it can help defuse tension, build rapport and boost morale.  But who would have guessed it had particular application to salary management?

Apparently a good joke can pay off.  In simulations conducted by Todd J. Thorsteinson of the University of Idaho, job candidates who jokingly requested ridiculously high salaries received offers that were 9% higher than candidates who made no such jokes.  Thorsteinson's research found that introducing a high anchor - even an implausibly high one - into salary negotiations influences the ultimate outcome ... the salary offer.

What can we take away from this?

It's an interesting salary negotiation tactic, although I think you'd need to be quite sure about your reading of the person, the moment and the circumstances before launching it.  I certainly wouldn't suggest trying this in reverse.  You're not likely to score points in a salary conversation with a employee or job candidate by introducing a ridiculously low salary - no matter how brilliant your sense of comic timing and delivery. 

It should, however, reinforce for us how sensitive pay discussions can be to context and expectation setting.  And it should remind us of the importance of careful preparation (no winging it!!) for these conversations.

Image courtesy of regretnothing.com.au