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Important to whom? The purpose of ambiguity is to hide something or divert attention. I can see why some Board members might not welcome extra clarity around executive benefits...

WG:

Good question and points. So, sounds like you join me in the "clear and unambiguous" column then...

I'll play Devil's Advocate and take the other position.

Ambiguity is simply a fact of life and not a necessarily a deceptive posture. One might even argue that it is a more realistic position than insisting that one can forcast future outcomes with 20-20 foresight and perfect accuracy. How ridiculous! Things change; hence ambiguity reigns supreme in many areas. The pre-established objectives sought January 1 are frequently irrelevant, unimportant or even downright wrong by December 31. Future reality is not an immobile fixed element one can easily target with precision. Pretending otherwise is silly, and we do enough silly stuff already.

Thinking like that brought us the current economic collapse and TARP. Even as the world screamed "foul," the scoundrels who faithfully did exactly what their incentive plans drove them to accomplish were obscenely rewarded for the results generated by such "unambigous" reward progam contracts. Sometimes, ambiguity is a synonym for even a small dash of common sense. Let's embrace it, at least as enthusiastically as "diversity."

With more formal recognition of ambiguity, we might be inspired to improve our feedback cycles and make objectives SMARTER. Otherwise, we have the crew still re-arranging the deck chairs as the Titantic sinks.

Thanks, Jim. I was hoping someone would rise to the occasion and put out a solid argument for the other position. This is a concept that I personally struggle with. I encounter so many leaders who are simply unwilling to commit to standards and objectives and prefer just to allocate pay (typically at year end, in the form of bonuses) in whatever way feels "right" to them at that moment. The experience has turned me into a strong (and sometimes bull-headed)disciple of upfront reward clarity. I hear your points and logic, and don't disagree - really - but I also worry that purposeful ambiguity can be a slippery slope.

In short, I remain conflicted here. But that's why I put out this post - knowing that I would benefit from any discussion I could prompt. Appreciate you're weiging in!

Von Moltke said "No campaign plan survives first contact with the enemy," and the same principle applies to a business plan. Make the rules crystal clear, by all means, but reserve the right to alter or modify the plan during the year in accord with reality. When the context changes dramatically, you don't stick with the old rigid inappropriate program. No need to make the plan totally subjective and arbitrary, but it should not be static and immutable, either. Hope that's a satisfactory melding of clarity and sense.

Like the crew duties in the final hour of the Titanic: their clear pre-established work schedule should have been modified when they hit the iceberg, right? The functions they performed were all specified, but they were applied in the context of the situation; so no one insisted that the regularly scheduled midnight snack should proceed, for example.

I like to think that the way we handle the need for wiggle room in our annual wage package planning is flexibility, not ambiguity. We say out loud that, finances willing, our intention is to pay "at market," or be as close to median pay (as measured by job family weighted average) as possible.

By including the finances willing piece, we bake in flexibility. It does not relieve us of the duty to explain what barriers are in the way when we're unable to bring all job families' average pay to match median.

Depending on which side of the employee engagement line a particular person employed by us resides, this may be seen as ambiguity. The committed employees who get it see it as fiscal responsibility.

Great topic.

"Does ambiguity have an important and purposeful place in compensation plans?" Sure ... if you believe in the mushroom theory of management. Under the theory, mushrooms -- like people -- grow better in the dark and when they are fed manure.

Just kidding! I was looking for an excuse to tell that analogy.

But there is one other risk associated with eliminating all ambiguity. Don't go so overboard with communications that a performance-based plan sounds like an entitlement program. All communications on performance-based plans need to clearly state the risk of non-performance.

This is a fair argument, but it should not be applied Company Wide as it is sure to affect any established culture. This should fall into competency management especially for Sr Leaders in the organization. Perhaps tying in this measure with a quasi year-end Discretionaly bonus, or having this as part of all Sr Leader's Merit goals.

Of course that leads us down the path of quantifying ambiguity, which can be quite an ambiguous task!

It need not be either/or. Structured incentive plans are necessary to drive behavior in advance, and are also perceived to be fair. However, discretionary rewards (not ambiguity) have the advantage of rewarding something which might not have been foreseen or structured into our carefully crafted KPIs. Having a separate pot of reward funding for discretionary rewards allows the Board to retain the idealised structure, but also reward someone or a team for doing a something great (perhaps not even in their area of responsibility) and get additional rewards. You could even design multiple reward pools for other performance areas, such as EEO improvements, etc, or consider non-financial rewards for these discretionary areas, such as conference trips and other less extrinsic rewards.

From our experience, we have seen ambiguous compensation plans lead to greater dissatisfaction and lack of trust by executives especially when delivered rewards did not meet the executives' expectations. Layered total reward plans with clearly stated and understood structured results and a smaller reward pool for "Out of the Box" or "Take it Over the Top" actions allow for a balance between consistent long-term results and short-term creativity that keep the work interesting and progressive. Maybe if the goal for the Titanic was a safe voyage instead of meeting a destination time goal, the Captain would have chosen a more southern route across the Atlantic.

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    Compensation consultant Ann Bares is the Managing Partner of Altura Consulting Group. Ann has more than 20 years of experience consulting with organizations in the areas of compensation and performance management.

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