Compensation Force

The REAL Power of Incentives

I ran across a Fast Company article from 2000 that profiled the exciting work a former colleague of mine has been doing and wanted to share it here.

The article, Bonuses Aren't Just For The Bosses, profiles Brad Hill's (he of Tandehill Human Capital) work teaching rank and file hourly workers how to devise their own incentive plans, using a gainsharing approach.  At the article's heart is an important lesson about the power of incentive plans to do good, for both workers and the companies that employ them.

In a pork-processing plan in Milan, Missouri, amid the hog carcasses and pig fat, workers who operate fast-moving disassembly lines are assembling a new approach to compensation and motivation.  The 900 people who work at Premium Standard Farms, many of whom are paid $10 an hour to perform some pretty old-fashioned jobs - slaughtering, slicing, and cleaning - are working in some pretty new ways.  They have instituted changes that are saving their company tens of thousands of dollars a month.  They have improved employee retention rates by more than half (in an industry where 200% annual turnover is common).  And they are being rewarded for their efforts through an incentive program that is yielding substantial payouts.

Brad does his work by forming a design team of workers representing each department included, gives them a crash course in the theory and practice of gainsharing, and then guides them through the tough work of figuring out how best to measure and reward their own performance via a self-funded (meaning that any and all awards are paid for by improvements in performance) incentive plan.

It's not always easy to convince workers to get started.  Many of the 300 unionized employees at Kurdziel Iron of Rothbury, a castings plant in Rothbury, Michigan, were suspicious of any program that seemed to come from management, which brought in Hill in 1998.  "Our problem was convincing employees that this was for real, that management wasn't going to take all the savings," says foundry worker and design-team member Terry Coleman.  But once employees bought into the plan, absenteeism dropped dramatically, as did the number of production errors and overtime hours.  Meanwhile, the number of union grievances declined by 90% over six months.  As a result of all of those improvements, the first payment came at the end of the second quarter of the program, with the foundry sharing half of its gains with the ironworkers. 

Some of these groups have even taken the additional step of sharing some of their gains with others by giving a portion of their payouts to local charities.

My own work with design teams has taught me the incredible power of what Brad is doing - not only in developing win-win reward programs, but in giving workers in all kinds of jobs a greater sense of control, ownership and purpose in their work.

That is the real power of incentives.

Related posts:

• Using Design Teams for Program Development
• Lessons from CARS: Comprehensive Research on Group Incentives
• More Lessons from CARS: Making Group Incentives Effective
• Additional Information on CARS Research

More on Performance Management and the Limitations of Supervisory/Management Training

Wally Bock of the the Three Star Leadership Blog shared some great thoughts in a comment to my previous post on Performance Management and the Limitations of Supervisory/Management Training.  They were so good, I thought they deserved their own post!

We don't model good supervisory behavior, nor does much of our training even teach new supervisors to identify and use good role models. And we don't hold supervisors accountable for supervisory work.

There's another factor, too. We get lousy supervision because we resolutely promote the wrong people. Since we don't recognize that management is a particular kind of work, we promote technicians to management. It's like selecting golf coaches based on the fact that a person is a great volleyball player.

We should be looking for people who can do management work, like helping people succeed, making decisions and confronting people about their performance and behavior. But we don't and so new managers are not only left to sink or swim, they're invited to take the whole team to the bottom with them.

Wally's blog is rich with wisdom about leadership and management - if you aren't already a reader, be sure to check it out!

Performance Management and the Limitations of Supervisory/Management Training

In my experience, poor performance management practices typically stem not from poorly designed forms or systems, but rather the unwillingness and/or inability to do the things necessary to actively manage employee performance. 

Often, Human Resources will recognize this underlying issue and work to address it by offering supervisory/management training to build skills in critical areas such as setting goals and communicating expectations, providing effective feedback, and addressing performance problems.  This is a commendable first step, but it rarely solves the problem by itself.  Why?  Because it deals only with the "inability" to actively manage, not the "unwillingness" to do so.  To move an organization toward better performance management practices, we also need to understand the reasons why supervisors and managers do not actively manage employee performance even when they have the skills and knowledge necessary to do so.

I find that the reasons tend to fall into one or both of the following categories:

1)  Those at the top are not modeling good performance management practices.  I recently attended an all-manager meeting at one of my clients where the CEO admonished the attendees for not getting their performance appraisals completed on time.  After the meeting, the Human Resources Director confided to me that the CEO himself was typically 3 to 4 months behind in conducting performance appraisals for his reporting staff, if he did them at all.  I had to wonder how he could say what he said with a straight face.  Where top leaders treat performance management as an exercise in compliance, rather than a business improvement tool, it will be difficult (if not impossible) to get the rest of the organization to act any differently.

2)  Managers are not held accountable for good performance management practices.  One of the first questions I ask when I encounter an organization struggling with poor performance management is:  "Are there any consequences for doing a poor job of performance management?"  If there are no consequences, if managers are neither recognized for investing the time and energy in good performance management nor admonished for essentially ignoring the process, then we can't really be surprised by the logical outcome.

I will admit that working to address these reasons for poor performance management is a lot more difficult than sending people to training, as they necessarily involve changing either top management beliefs and behaviors (in #1) or changing organizational values, culture and/or reward systems (in #2).  For many organizations, though, this is the only path to successful performance management.

Project Milestone/Completion Bonuses Becoming More Prevalent

More and more of the work we perform is being structured and managed in projects.  This used to be true primarily for IT and engineering professionals, and in technology firms, but now project-based work seems to be nearly everywhere.  As this transition takes place, more employers are adding project-based incentives to their overall mix of rewards.  WorldatWork's most recent (2007/08) Salary Budget Survey reports that the prevalence of project milestone/completion bonuses is up 50% over the past four years, as detailed below:

Prevalence of Project Milestone/Completion Bonuses

• 2003 - 14%
• 2004 - 16%
• 2005 - 17%
• 2006 - 18%
• 2007 - 21%

My experience would suggest that these bonus opportunities are not replacing more traditional forms of variable pay - such as special recognition programs or group incentives - but rather are being added as a complement to existing plans.  If we think of our overall reward program as a balanced (ideally) portfolio of different elements, then project milestone/completion bonuses fulfill the role of reinforcing employees' ability to collaborate and produce results on teams that often extend across departments/divisions and increasingly cross even organizational boundaries.  Result:  a richer, more comprehensive, but also more complex total reward program.

As reward programs become increasingly complex, it is even more critical that we periodically review them to ensure that the overall package is indeed working harmoniously and that there are no strategic gaps (critical behaviors/outcomes that are not addressed with any reward element) or instances of double-dipping (two or more reward elements that are essentially targeting the same behaviors/outcomes).

Comparable Worth and the Push for Pay Equity Regs: Compensation Force Interview with Dr. Ellen Benjamin

The notion of comparable worth seems to be back on the agenda in a big way, particularly in the wake of the recently released AAUW study “Behind the Pay Gap” which generated attention with its finding that female workers earn less than their male counterparts, even just one year out of college and within the same major/disciplinary field. There is a call for strengthened national legislation to address gender discrimination, with proponents citing Minnesota’s State Employee Pay Equity Act as a model for correcting marketplace discrimination. And here in Minnesota, a group of legislators and the Pay Equity Coalition are working on expanding the requirements of the Pay Equity Act to all private companies that do business within the state.

Dr. Ellen Benjamin, President and Founder of Benjamin Consulting Group, Inc., is a compensation expert with over 20 years of private and public sector consulting experience that includes helping Minnesota government employers develop and implement pay programs that comply with Minnesota’s Pay Equity law. She has agreed to share her experience and knowledge in this interview, to help us better understand the workings and potential impact of pay regulations like those in place in our state.

Q: Can you give us a brief overview of Minnesota’s Pay Equity law, in your own words?

A:  The Minnesota Pay Equity law requires public sector employers (e.g., cities, counties, agencies) to conduct a pay equity study every few years and to make the indicated adjustments to pay for female-dominated jobs. The study involves using a job evaluation tool with State-specified factors to compare jobs on dimensions such as complexity of issues encountered, depth/breadth of knowledge needed, nature of interpersonal contacts, and physical working conditions. Employers can create their own job evaluation tool, utilize a tool developed by an outside consultant, or use State job matches. An analysis is then done using a State-developed regression tool to examine how female-dominated jobs are paid against male-dominated jobs of comparable job evaluation-determined content. Any female-dominated jobs that fall below a given level against this regression analysis must be adjusted.

Q: Based on your experience, how well do these required steps address and/or prevent pay discrimination?

A:  From a State compliance perspective, completing these periodic studies can show which female dominated positions fall outside the overall pay practice of an employer. I do not think, however, that compliance with the State Pay Equity law is sufficient foundation for an employer to assume that there are no pay discrimination issues. Discrimination goes beyond gender. The State’s requirements do not consider employee elements such as age, race, or linkage to performance. You could be in compliance with the State’s requirements and still have other forms of pay discrimination. For example, in Minnesota, some employers have found male-dominated jobs that fall notably below the overall male regression analysis. They are not, however, required to make any adjustments for those positions. I do not professionally consider that to be an equitable response.

Q: In my experience, it isn’t unusual – when developing and implementing pay programs – to run into situations where internal equity or considerations must be reconciled with external market pay practices. How are these situations addressed under Pay Equity law?

A:  The focus of the State Pay Equity law is on internal equity. One can broadly assume that the pay levels currently in place reflect the external marketplace to varying degrees. However, the entire pay equity movement argued that the external market is biased against female dominated jobs and therefore the focus has shifted to internal pay relationships.

Q:  What would you see as the potential implications – positive and negative – of extending regulation like Minnesota’s Pay Equity Act out into the private sector?

A:  Based on my experience in helping public and private sector organizations utilize job evaluation tools and market pay data to find a reasonable balance between the two, I am reticent to support a private sector mandate such the Minnesota approach in its current form. The manner in which the Minnesota Pay Equity Act is defined will not be sensible for the private sector. There are simply too many differences in the compensation needs and practices among private sector employers to make it a “one size fits all.” On the positive side, however, it will require private sector employers to pay more attention to internal pay relationships based on defined job elements.  My greatest concern is that it will serve as a set of handcuffs for the private sector—handcuffs that may be expensive, administratively burdensome, and not an advantage to anyone in the final analysis except compensation consultants. The challenge for any employer is to find a balance of market and job content that is both cost-effective and yet allows them to attract, motivate, and retain the quality talent they need to succeed.

Benjamin Consulting Group, Inc. is based in Minneapolis and serves private and public sector clients regionally and nationally. Dr. Benjamin is a Licensed Consulting Psychologist with a specialization in linking employee behaviors and rewards. She can be contacted at [email protected] or at (952) 928-0871.

Related Posts:

Disturbing News from the Pay Gap Front,  Comparable Worth Making a Comeback.

Carnival of HR - Lucky #13

I am thrilled to be the host of the 13th Carnival of HR, which I hereby christen "Lucky #13".  We have a terrific and varied array of posts (13 to be exact!) to feature this Carnival, so without further ado:

Amid all the career hype out there today - some wise, some positively wacky - its lucky we have a place to turn for practical, reality-based career encouragement.  Peggy at the Career Encouragement Blog provides us with some sane advice on Enjoying Life in Corporate America.

The truly lucky among us have people in our workplaces who care about us and our well-being, and don't hesitate to let it show.  Lisa at HR Thoughts emphasizes the importance of a caring gesture for our staff in her post Concerned? Tell Them.

If you are unlucky enough to find yourself in the awkward situation of witnessing a co-worker's racist joke, it can be tough to respond without either alienating that co-worker or appearing to condone his/her behavior.  Carmen Van Kerckhove of Race in the Workplace advises us on what to do as well as what not to in her post How to Repond to a Racist Joke.

And what if you're unlucky enough to work for a company that appears to make a practice of retaining "jerk" employees, despite their negative impact on morale.  Kris Dunn of The HR Capitalist digs deep to explore some of the reasons behind Why Companies Keep Jerks Around ...

Got a lucky tattoo?  Wondering whether it will help or hinder you in the workplace?  Michael Wolfe of The Career Revolution takes a close look at the pros and cons of body art for employees in his post Tatoo? And You Want to Work Here?

With health care costs skyrocketing in the U.S. (bad luck), some are turning their attention to Doctors' compensation and asking whether it is too high.  At Everything Health, Dr. Toni Brayer tackles this question head on in her post Do Doctors Make Too Much Money?

Is there a more important (and yet, at the same time, undervalued) role in Corporate America than the line supervisor?  Influencing employee behavior and performance doesn't happen by luck, but rather through the hard work of effective supervision.  In his post Supervision: What You Must Learn to Do , Wally Bock of Three Star Leadership takes us through the most critical activities in the day of a successful supervisor.

Does interviewing for jobs make you nervous?  It does many of us.  Luckily, we have Deb Owen at 8 Hours and a Lunch to help us put the interview process in perspective with her post There's more to you than there is to you (or how to approach an interview)

And speaking of interviewing, have you been unlucky enough to be caught off guard by "the weakness question?"  Well, no more!  The Manager at Ask a Manager provides some helpful tips on How to answer "what are your weaknesses?"

Struggling to understand your compensation (a topic near and dear to me) - or to help your employees understand theirs?  As luck would have it, we have Evil HR Lady to explain that Your Salary is not Arbitrary and Capricious, helping you understand the host of factors that impact what people are paid.

Wondering how well you would adjust to working from home - if you were lucky enough to have the opportunity?  Apu of Cubically Challenged shares her experience of Working Solo with us, covering the ups and downs of having a home office as one's primary base.

For those of you struggling to make harassment training more interesting and fun, its your lucky day.  Susan Heathfield of About.Com: Human Resources shares some tips on how to bring this potentially dry material alive in training and provides an enthusiastic product review in Making HR Training Palatable: Harassment Reviewed.

And, there's no interest like self-interest, Rowan Manahan of Fortify Your Oasis tells us as he muses on Bonuses and Human Nature.  Rowan makes the case for removing bonus caps to create a win-win situation for employer and employee alike.  Lucky for everyone!

The August 22 Carnival will be hosted by Wally Bock at Three Star Leadership.

Wage Gap Reversing for Young Earners in Big Cities?

An interesting analysis and set of findings by Andrew Beveridge, a demographer at Queens College, appeared first in the Gotham Gazette and then in a New York Times article.  Dr. Beveridge's analysis of demographic data shows that women of all educational levels from the ages of 21 to 30, living in Yew York City and working full-time, earned 117% of men's wages.  (This compares to national data showing women earning 89% of men on average.)

According to the New York Times article, this "reverse wage gap" pattern is repeated in other big cities across the U.S., including Chicago, Boston, and Minneapolis, with the most significant being Dallas, where women in this group are earning 120% of their male counterparts.

A number of theories are posed as to the causes of this phenomenon, from the fact that women are now attending and graduating from college in greater numbers than men to the possibility that young urban women - perhaps feeling the pressure of impending family obligations - are more devoted to their career growth in these early years.  At any rate, it will be an intriguing development to follow - could we be at the leading edge of a trend?

WorldatWork Releases Salary Increase Projections for Major Metro Areas

With the publication of its 2007/08 Salary Budget Survey, WorldatWork has released salary budget increase data for a number of metropolitan areas across the U.S., as highlighted below.

Salary Budget Increases by Major Metro Area (U.S.)

• Atlanta
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• Baltimore
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• Boston
  • Actual 2007 - 3.9%
  • Projected 2008 - 4.0%
• Chicago
  • Actual 2007 - 3.9%
  • Projected 2008 - 3.9%
• Cincinnati
  • Actual 2007 - 3.7%
  • Projected 2008 - 3.9%
• Cleveland
  • Actual 2007 - 3.7%
  • Projected 2008 - 3.8%
• Dallas
  • Actual 2007 - 3.9%
  • Projected 2008 - 3.9%
• Denver
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• Detroit
  • Actual 2007 - 3.7%
  • Projected 2008 - 3.8%
• Houston
  • Actual 2007 - 4.0%
  • Projected 2008 - 3.9%
• Los Angeles
  • Actual 2007 - 3.9%
  • Projected 2008 - 3.9%
• Miami
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• Minneapolis
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.8%
• New York
  • Actual 2007 - 3.9%
  • Projected 2008 - 3.9%
• Philadelphia
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• Phoenix
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• Pittsburgh
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• Portland
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• San Diego
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• San Francisco
  • Actual 2007 - 3.9%
  • Projected 2008 - 4.0%
• San Jose
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.9%
• Seattle
  • Actual 2007 - 3.9%
  • Projected 2008 - 3.9%
• St. Louis
  • Actual 2007 - 3.8%
  • Projected 2008 - 3.8%
• Tampa
  • Actual 2007 - 3.7%
  • Projected 2008 - 3.9%
• Washington D.C.
  • Actual 2007 - 4.1%
  • Projected 2008 - 4.1%

Related Posts:

WorldatWork Releases 34th Annual Salary Budget Survey

A Few Pithy Management Quotes

Peggy at the Career Encouragement Blog has a post today featuring some great management quotes from a client of hers who seems to have a real gift for (as Peggy tells it) "delivering nuanced feedback via pithy sayings". 

Check it out!

Bruce Ellig on the Most Common Compensation Mistakes

The August issue of WorldatWork's workspan magazine features an interview with Bruce Ellig, the WorldatWork Keystone Award recipient in 2004, more recently honored with the University of Wisconsin-Madison School of Business' Distinguished Business Alumni Award, whose total rewards career covers a span from the 1960's through today.

In the workspan interview, Ellig is asked about the common mistakes that new practitioners to the field of rewards make.  His response, part of which I quote below, provides wisdom worth heeding for all HR and reward professionals (even those of use who've been here for a few years).

Too much focus on trends and hot topics.  Not enough focus on customizing programs and processes to address real needs.  People have programs looking for an application rather than analyzing the issue and then determining what's the best program or process.  Too many start at the end and work toward the beginning.  Logically they should start at the beginning.

Here, here!  My experience would completely confirm the prevalence of this problem.  When I speak publicly on the topic of rewards, and in meetings with prospective clients shopping for a consultant, the most frequent question I am asked is:

What are the hottest trends in compensation? 

It is the wrong question, and it reveals a fundamental misunderstanding of how rewards work in an organization.  It also reveals a desire to skip the basics (as Ellig states, analyzing the issue and determining the best program and process - to address it) and simply apply the coolest new solution without thought to its fit or relevance. 

The result of this all-too-common mistake: a reward program that rightly deserves even Alfie Kohn's harshest criticism.