We Have Met the Enemy and He is (Quite Often) Us!

Ever wonder what the compensation department looks like through the eyes of the talent acquisition team?  Well wonder no more, pay peeps.  Fellow blogger Tim Sackett gives it to us straight up in his great post Everything You Ever Needed to Know About Compensation.

Let me start by saying I don’t really understand Comp Pros.  Seems like a lot of spreadsheets, market analysis, internal analysis, 48-72 hours of waiting, followed by me getting approval to offer the candidate less than what they originally asked for, followed by the hiring manager sending a nasty email to their line executive, followed by me getting approval from said Comp Pro to offer what I wanted to originally, followed by the hiring manager believing I have no idea what I’m doing.

Yeah, ouch.

There are natural points of tension in most organizations.  Take sales and production as an example.  The production staff are often up in arms because the sales team is promising customers the impossible, and the sales people constantly complain that the production department is unresponsive to customer needs and interfering with their ability to close deals.  Each pushing against the other in an effort to get their job done.

And then there's recruiting and compensation.

To some extent, the tension can be a healthy thing.  Keeps the game sharp on both ends of the stick.  Recruiting staff - often in concert with hiring managers - push the pay envelope, sometimes to its limits, in an effort to nab the hot candidate.  Compensation people push back, hopefully in an effort to see that reward dollars are being spent well and for the right reasons, ensuring that squeezing the balloon in one place isn't going to cause it to pop out somewhere unexpected or ugly.

Sometimes this is healthy.  Sometimes less so.  And sometimes we just have to remind ourselves that pay structures, plans and systems are a means to an end; they not the end themselves. 

Our job is an important one.  Hopefully we do it, when we can, in the spirit of collaborative solutionizing, rather than just dropping obstacles into our colleagues' pathes.

What Job Did You Hire That Pay Plan to Do?

Designing new compensation plans.  Many of us are in the final throes of this activity as we roll into the last month of the year.  Perhaps it would help us to step out of our HR heads for a few moments and take a page from the playbook of Harvard Business School professor Clayton Christensen, author of The The Innovator's Dilemma and How Will You Measure Your Life?, and regarded as one of the world's foremost authorities on disruptive innovation.

Christensen advocates approaching product design and planning with what he describes as a "job-to-be-done" point of view.  As he says:

The jobs-to-be-done point of view causes you to crawl into the skin of your customer and go with her as she goes about her day, always asking the question as she does something: Why did she do it that way?

To illustrate this approach, Christensen shares the story (in his MBA course) of a fast food restaurant that wanted to improve its milkshake sales.  The company tried looking at the challenge using the demographic segmentation approach favored by marketers (who is the typical milkshake drinker?  what do they like in their milkshake?), but had no luck in improving sales.  The company then engaged one of Christensen's colleagues, who approached the situation by trying to learn what "job" the customers were "hiring" the milkshake to do.  He describes the experience in the interesting - and entertaining - video below.

At the center of this experience is a fascinating mind shift, a way to frame design problems in a whole new light.  Perhaps we could benefit from such a shift in perspective as we go about our business, assessing how well our pay programs work and attempting to make them better.

Looking at it from the perspective of one of our most basic "products", the base salary structure, we could ask our key customer, the line manager:

• For what job does the typical manager "hire" the salary structure - what are the circumstances under which they consult it and what are they hoping to achieve?
• When does it do the job well, and when does it not rise to the occasion?
• When do they have to "hire" other tools to get the job they are trying to do done?  What other tools do they turn to and what sort of help do these tools provide?  Or are they forced to "jerry-rig" the structure in order to get the job done?

And yes, we may need to dig and push around a bit (or to use Christensen's words, crawl under the skin) to get to the true job the manager needs to get done, as many of them are attempting to hire that structure to simply help them circumvent salary policy and budgets in order to simply maximize the money they can give subordinates.  Perhaps this can tee up an opportunity for mutual exploration, education and understanding.

At any rate, I find Christensen's framework an interesting one with which to engage our customers in attacking some of our thornier design problems.  What about you?

The Limits of Feedback and Appreciation

Providing employees with specific information on their productivity is one no-to-low-cost way to drive improvements in their performance.  A recent Harvard Business Review Daily Stat (To Boost Workers' Productivity, Tell Them How They Rank) reminds us of this reality, via the story of a German wholesaler that saw an average and apparently sustained jump in average productivity after sharing information about employees' relative performance.  When the conditions are right, most of us will respond positively to feedback that either points directly to actions we can take or triggers an instinct to better our showing relative to our peers.

Appreciation, we all know, can work in a similar way.  Big bang without the big bucks (and without a lot of the baggage that can accompany the delivery of those big bucks).  Having our work recognized, knowing that somebody notices what we do and cares enough to directly acknowledge it -- this is powerful stuff and it can have a tremendous impact on work energy, motivation and performance.

Amid the exciting possibilities of all we can achieve with feedback and appreciation, it can be easy to lose sight of an important fact.  The employment relationship, when you strip away all the bells and whistles, is an economic one at its core.  And the foundation of that economic transation, for most workers, is their cash compensation.  Right or wrong, good or bad, this is what's top of mind for the average worker when they take toll of the "rightness" of the employment exchange.

In my conversations with workers, I find many are particular sensitive to this balance.  Top performers, often acutely so.  They believe that when their efforts create economic value (e.g., profits) for the employer and other stakeholders, that they should reap some of the rewards of that success.  In their minds, this might be through increases to base salary or some type of profit-based incentive award. 

The point?  While feedback, appreciation, and the well-placed "thank you" may deliver motivational impact that a cash award or raise does not, we cannot overlook the importance of the cash package as the baseline of the employment relationship.  We must get cash compensation right - and do the communication and information sharing necessary for employees to understand how this critical baseline of the relationship is set and managed.  If we fail this, if employees believe that there is a fundamental imbalance at the core of employment exchange, chances are good that our efforts to provide sound feedback and express genuine appreciation will fall on deaf (or at least highly skeptical) ears. 

Creative Commons image "Bundle of Dollar Bills" by Images_of_Money

Would You Like a Shot of Erratic With That Salary Administration Process?

I have a bone to pick regarding midpoint differentials.

For the uninitiated - those who spend less time than I do fretting over salary structure design at the tactical level - midpoint differentials are the "jumps" from range midpoint to range midpoint as you move up a traditional salary range structure. 

What I regularly encounter, the core problem at the center of this post, is salary structures where the midpoint differentials appear to have been spit out of a random number generator; e.g., 11%, 3%, 25%, 8%, 4%, 19%, and so on.  In many cases, the structures were actually created this way on purpose, in an effort to "match up" salary ranges to the job groups and values in place at the time of structure development.  In other situations, the chaos emerges over time, as a result of ongoing one-off adjustments in response to the circumstances du jour.

What's the big deal, you ask?  Getting a little too hung up on order and symmetry, you say?

Here's the crux of the problem.  Let's assume you came to this special place on purpose (rather than simply via haphazard structure management), striving at the time of your structure's creation to tailor ranges and midpoint differentials precisely to current job values.  Your elegant plan hits a wall when it encounters the real world, where the organization and its jobs do not remain static and where market values do not follow a predictable and uniform path.  New jobs will be added, some jobs will go away and many more will experience change in their nature, scope or background requirements.  Even those jobs that stay constant will see their market rates move at different rates - some lurching upward, others flatlining or even dipping in value.

Fast forward a few years and there you sit, with a structure precisely designed to fit a snapshot in time and a set of jobs and circumstances that no longer exist. And your erratic midpoint differentials, which are now disconnected from current reality, play havoc with your efforts to consistently manage promotions and job re-evaluations in a consistent fashion (because, as example, a one grade promotion or upgrade inexplicably means a 3% jump in one case and a 25% jump in another).

Bottom line: better to begin with a structure that has some logical consistency, and that can stand the test of time.  (Or, in other words, good luck administering salaries in a consistent and fair manner when the underlying structure is whacked.)

Image: Creative Commons photo "Salkantay-85" by cspruit

Congratulations on that Developmental Downgrade!

We compensation professional can be at risk for getting caught in the weeds, stuck in the survey data or lost in our own worksheets.

Case in point: A scenario I bumped into just the other day where a job was being re-designed to both provide a growth opportunity for the incumbent and meet an organizational need.  A win-win you say?  well, not in the eyes of one compensation professional.  See the video short below; I've been experimenting a little with animation and this represents my initial rough try at using it to tell a pay story.  Thinking this might be the first of several, I am calling them Pay Pokes^TM.

And yes, names and other details have been altered to protect the "innocent."

Pay Poke #1 - The Developmental Downgrade
by: abares

We've all had our run-ins with an Alice.  Many of us, sad to say, have had our own Alice moments (hopefully earlier in our careers!).  There is undeniable comfort to be found in having data, rules and ratios to rely on in making decisions and taking action.  Unfortunately, maturing in our roles means knowing when it is necessary to step away from that comfort zone and apply judgment.  Unless and until we are able to put our data in the context of the bigger picture - considering what the business needs as well as what will ultimately create the conditions for employee and organizational success - we risk getting stuck in an Alice rut.  One dimensional pay cop.  Unwitting obstacle to progress.

I'm willing to bet you all have your own Alice stories.

More Early Results: 2013 Salary Increases

Last week, I shared top level results from WorldatWork's annual salary budget survey.  This post features top level results from another source, Hay Group's recently released salary forecast study, featuring the responses of 350 U.S. organizations across a number of industries.

Not surprisingly, we find Hay's projections to be pretty closely in sync with the results shared by WorldatWork last week.

In addition to salary budget plans, the Hay results also provide us with some early projections for salary structure adjustments.

And for some reflections on the the salary budgeting process for 2013, see my post today at the Compensation Cafe.

 

 

Early 2013 Salary Increase Outlook

WorldatWork released top level results from its annual salary budget survey yesterday, data which features the actual 2012 and projected 2013 salary increase practices of over 4,200 respondents worldwide.

United States

For the U.S., on the surface, things aren't projected to change much.  Given our persistent high unemployment and continued economic challenges, it probably comes as a surprise to no one that we expect to continue hovering around the 3% level.

Other Countries

Canada and the European countries reported join the U.S. in predicting continued low salary growth (outdone in this regard only by Japan, which comes in at the lowest among the nations surveyed).  India and China, again not a surprise, report the highest levels of increase -- although one wonders whether they will sustain those trajectories (and indeed, their 2013 projections suggest some softening) in the face of the growth challenges faced by both countries.



More details and the top level WorldatWork report itself can be found here.

Remedying Pay Angst: Clarity, Process and Structure

As an independent advisor, I am often 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 -- many of these situations over the years has taught me a lot.

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 of The Scream by Christopher Macsurak

A Look at the State of the Counter-Offer

We had a brief but lively conversation, my Compensation Cafe colleagues and I, about counter-offers during our Advice on Pay from the Compensation Cafe session on last week's Proactive Employer podcast.  Generally speaking, the group was not "pro" counter-offers.  Reactive dollars never deliver the same ROI or the same satisfaction that proactive dollars do, and a pattern of counter-offers and adjustments can ultimately land you the reputation of having a "pay the squeaky wheel" compensation strategy.  Not a winning play.

Nonetheless, it is good to have some real data on the topic of counter-offers and a just-released report Retention of Key Talent and the Role of Rewards -- released by WorldatWork, Dow Scott of Loyola University and Hay Group -- provides just aht (and addresses a number of other retention topics as well).  The new study features the responses of 526 WorldatWork members.  Even better, the same authors conducted a similar study on counter-offers back in 2004 (284 respondents, link to WorldatWork Journal article may be limited to premium members), enabling us to get some small sense of historical context and trends.

What do these surveys tell us?

Counter-offer approaches tend to be ad hoc and situational, rather than driven by formal policy.  Few organizations have a formal written policy in place.

Counter-offers tend to go to employees who are both in key positions and outstanding performers. It is, however, also interesting to note the apparent spike in manager-driven counter-offer requests.

HR is typically (but not always) involved in counter-offers, but rarely as the primary decision maker. Not much has changed in this data over the past seven years.

How well do counter-offers work?  These questions were less consistent from the early to the later survey, and responses appear to suggest a mixed bag.

Problems?  Respondents in the 2012 study say its about an even bet.

For employees who accept a counter-offer, does their relationship with the employer appear to be damaged by the experience?  Most respondents don't believe it has been; few, however, see the experience as having improved the relationship.

Bottom-line, are counter-offers effective?  Here's where we see the pessimism break through; the great majority say not -- or only marginally so.  But what makes a counter-offer effective?  Perspectives among respondents are varied, with prevalent measures including employee acceptance, not disrupting business operations and retention of the employee for at least three years following the counter-offer.

The 2004 article, for those in need, offers some strategies for overcoming -- or at least staving off -- some of the negative consequences of counter-offers.

What's your position on counter-offers?

Image courtesy of www.thewisdomjournal.com

Free Agency, Regular Resets and Skill-Based Pay

What if you made your employees eligible to become free agents every three years?

That is the intriguing question that HR executive and blogger Andy Porter poses in a recent post over at Fistful of Talent.

Before reacting to the "insanity" of actively encouraging employees to shop around (which, let's face it, many of them are doing already), Andy encourages us to consider the benefits that an "open" (and, I would add, potentially mutually beneficial) process might bring to the table.  With this in mind, Andy highlights a number of possible outcomes of a regular free agency period:

•The employee shops their skills around to competitor organizations to get a true sense of their value
•The employee negotiates a new (better) deal with their current company and agrees to stay
•The employee finds themselves a better deal and jumps to a new company
•An employer has the opportunity not to “re-sign” a particular employee

I would add another, implicit in Andy's points above: the employer and employee have an opportunity to "reset" their relationship. A chance to assess the employee's skills and interests against the organization's current business and talent needs, to ensure that internal opportunities which may better fit the employee's capabilities and aspirations are identified at the same time that he or she considers what the outside market might have to offer, and to reset the pay arrangement based on the employee's current relevant skill set.

A reset like this could also open the door to bringing the concept of skill-based, person-centered pay into the picture as well.

Administrative challenges? Yes, I can think of quite a few.  But there are also a number of benefits, benefits that could be particularly significant for those organizations whose success hinges increasingly on continuous learning and new skill acquisition in its workforce.  Employees have a regular chance for an outside reality check (where many may find, as Andy notes, that the grass isn't necessarily greener outside their current gig).  The regular reset opportunity would also create an incentive for motivated employees to keep their skills current and pursue ongoing development of new ones.  It also brings the possibility of consequences for those who allow their knowledge and skills to languish. And, frankly, it could lay the foundation for a more agile, reality-based salary management approach than the current salary review process combined with a flurry of ill-defined market adjustments that many employers need desperately to escape.

High potential, top performers would likely find such a process to be very exciting and rewarding.

As Andy notes, even if the implementation of a true free agency program might be more than many employers can reasonably pull off, the notion of forcing an honest, transparent and regularly scheduled check-in on an employee's skills, choices and value has real merit - and should find its way into all our reward programs.

Image courtesy of zazzle.com