Compensation Force

Competitive Pay AND Accountability - a Critical Combination for Non-Profits

A recent Bloomberg article highlighting concerns about excesses in executive pay at non-profits (in this case, primarily theatres) got me thinking ...

The following excerpt from the article highlights what I think is an important angle in the issue surrounding non-profit compensation:

Paying competitively helps theaters attract and retain administrators capable of managing complex businesses, fundraising, and, as they outgrow their facilities, empire building.

Some public companies with comparable revenue pay their chief executives more than $1 million a year. Yet compensation that's modest by comparison can still rankle donors.

``Contributors are clear that when they see salaries over $200,000, they freak out,'' said Ken Berger, president of Mahwah, New Jersey-based Charity Navigator, which rates non-profits on growth and efficiency. ``They associate charity with a vow of poverty.''

To be clear, I am not defending excess compensation for any organization's executives, whether for- or not-for-profit.  A non-profit agency with overpaid executives is not likely to attract my support, or my charitable dollars.  But I see an unfortunate trend being played out here.

The non-profit world is a diverse one, made up of a wide range of very different kinds of organizations, from foundations to trade associations, from cultural and arts institutions to healthcare and social service providers.  This makes it difficult and risky to draw generalizations.  Nevertheless, here I go.

Within many (not all) non-profit sectors, there is seems to be an unspoken expectation that pay will and must be set at below-market levels.  And I'm not just talking about executives, I'm speaking to all levels of employees.  Sometimes this expectation runs hand-in-hand with the imperative to hold down administrative costs, sometimes it is the assumption underlying the public funding provided for ongoing operation.  As the HR managers supporting these organizations will tell you, this presents a real challenge to the attraction, retention and motivation of qualified employees.

This leads directly to another dilemma, and that is a reluctance to hold non-profit employees accountable - in the same way a for-profit business would - for tangible results and accomplishments.  Many non-profits struggle with the concept that dispensing candid performance feedback and direction to employees is somehow at odds with their charitable mission.  Under these conditions, the default becomes to appreciate that "people have their hearts in the right place" and to conclude that it is unreasonable to set high demands when we cannot deliver commensurate rewards. This is all wrong.  Our non-profits, or at least the lion's share of them - are doing critical work.  If we want to see them make genuine headway toward fulfilling their missions, we must ensure that they are positioned to attract and retain qualified staff, with competitive compensation levels and then we must ensure that employees at all levels of the organization are held accountable for results. 

Administrative costs?  Of course we want to keep them at a reasonable level.  But to scrimp where we should be investing - in tools, in technology and (most importantly) in talent - is to miss the opportunity to drive real improvements and results for the clients and constituents we mean to serve through these institutions.

Competitive pay and accountability (either one without the other doesn't fly) is a combination we must insist on if we want high performance from non-profit organizations.

 

 

It's That "Tweaking the Sales Compensation Plan" Time of Year!

There's a lot of sales compensation plan activity in my world this time of year - whether it be finalizing a new plan design for a client or helping them identify and make adjustments to the existing plan.  And this year, our economic crisis has driven a heightened sense of urgency into this already challenging annual exersize.

"Tweaking" any compensation plan is inherent with dangers, and this is particularly true for sales compensation plan.  Here to help, Jerry Colletti and Mary Fiss of Colletti-Fiss LLC, in the newest edition of their sales compensation "short", point out five common design flaws that too often occur as a result of tweaking sales compensation formulas and provide us with suggestions on how to avoid each one.

Potential Flaw #1 – Incentive rates based on "optics"

"Optics" refers to adopting the practices of competitors or other internal divisions because it looks good, for example, adopting a 10% commission rate because that's what others do. One potential problem this approach causes is commission costs that are too high or not aligned with the desired target total cash compensation. It's best to avoid this practice. The way to do so is to: 1) set an incentive comp target by job; and, 2) link rates to the incentive comp for performance in the job and business plan – particularly if it's a commission rate.

Potential Flaw #2 – Too many payout "modifiers".

This practice is rooted in the belief that "...if you don't pay them, they won't do it..." The consequence, of course, is too many measures or modifiers on measures in the plan. This flaw can be avoided by limiting the number of measures to three including modifiers. Also, other performance management tools – merit pay, performance appraisal, contests, and recognition, wisely used, can serve as more effective alternatives.

Potential Flaw #3 – Performance range "too-high; too low".

When the performance range is set too high – meaning the range from threshold to excellence -- too few sales people gain entry into the plan; and, even fewer benefit from the over- achievement (OA) or leverage opportunity. A performance range that is set too low means just the opposite, that is, too many sales people not only gain entry into plan payout but also those who do exceed quota benefit from over- achievement pay without true overachievement performance. To avoid either case, the best approach to take is to complete thorough historic performance and cost modeling exercises to validate the right performance range anchors (threshold; excellence) associated with plan cost.

Potential Flaw #4 – Rate change(s) disconnected from where selling makes a difference.

This flaw is often the result of management's desire to use multiple points of acceleration in the incentive payout line. Of course, those points of acceleration result in incrementally higher incentive costs; thus, it is critical to confirm that accelerated rates are a factor in moving sales performance to the next level. One way to address this design challenge is to: a) identify the highest performing sales people; b) identify the point of sales performance between (a) and the next highest performers (i.e., cluster) and, finally, (c) "test" or model the cost consequence of putting an acceleration point in between.

Potential Flaw #5 – Misuse of advance design techniques.

This flaw is the result of using formula design techniques – linkages, matrices, multipliers – that may be either inappropriate or unneeded relative to the desired selling behavior and performance. Too often we see formula designs used – complex ones in particular – that do not solve the sales performance problem. The most common is to use multipliers or accelerated rates to mask overly aggressive sales quotas. Because complex formulas often add to sales force confusion about incentive pay, it is wise to first validate that a performance problem is solvable through the comp plan irrespective of formula type.

It's the Halloween Edition of the Carnival of HR!

The Carnival of HR is up over at Great Leadership, and - as blogger Dan McCarthy tells us - it's a frightening collection of horror stories guaranteed to scare you into improving your company’s bottom line performance through better HR practices.

Happy Halloween!

Image: Creative Commons Photo "Jack! O'Lantern" by weeta.

A Look at Salary Increase Budgets in the Wake of the Economic Crisis

I'm getting a lot of calls and emails these days inquiring about what organizations - in general - are doing with their salary increase budgets given the continuing economic crisis.  Fortunately (if this is a fortunate side to any of this), a number of studies have been released in the past few days, giving us a glimpse at what is happening here in the U.S.

Bottom line: It's a bit of a mixed bag, but at this point it still looks as though most employers are planning to hold their salary budgets steady for 2009.

From studies conducted by Hewitt (411 organizations), Watson Wyatt (248 organizations), Mercer (190 organizations, based on yesterday's WSJ article), WorldatWork (members only, 698 members responding to a Quick Poll) and BLR (Business & Legal Reports) (518 organizations):

Percent of employers planning to decrease their 2009 salary increase budget -

• Hewitt study: 42%
• Watson Wyatt study: 28%
• Mercer study: 42%
• WorldatWork poll: 33%
• BLR study:  39%

Adjustments to planned 2009 salary increase budget -

• Hewitt study: Down an average of 1.0% to 3.1% for hourly and salaried exempt
• Watson Wyatt study: Down on average to 2.5% from 3.7%
• Mercer study: Down on average to 3.6% from 3.7%
• BLR study: Down on average to 2.8% from 3.7%

Plans for a salary freeze -

• Hewitt study: 15% considering a salary freeze
• Watson Wyatt study: 4% have already implemented a salary freeze, 12% will do so in the next 12 months
• BLR study: 25% considering a freeze on all raises

Postscript: The WorldatWork data on this post was updated on November 1  and for the final time (after the poll officially closed) on November 5, 2008.  BLR (Business & Legal Reports) data was also added on November 5, 2008.

The Role of Culture & Communication in Paycheck Fairness

In a great post at Fistful of Talent, blogger Jessica Lee talks about how culture and communication style impact a candidate's (or an employee's) willingness to negotiate pay, and the influence these factors likely have on the pay equity issues that the proposed Paycheck Fairness Act seeks to address.

Jessica speaks from her personal experience as a Korean-American woman ...

My family is Korean first and foremost, and Confucianism deeply permeates Korean culture. There are influences on morality, societal norms, relationship models, family structure… or simply put, on culture. There’s that deeply embedded sense of obedience and respect to elders or authority figures. Modesty and humility are praised characteristics. And then there’s that whole collectivist attitude where conflict, competition, and self-serving behaviors are discouraged.

... and then considers how this plays out in the workplace ...

I have seen this same theme in others though. In interviews – the ultimate place to sell yourself? There are definitely candidates from similar cultures to mine who have a hard time putting the spotlight on themselves. They may also say "we" all the time in place of "I" because collectivism is deeply rooted in them. Or when offering a job... perhaps the candidate won’t or can’t negotiate because wouldn’t that be pushing back on an elder or authority figure? And out of respect for that figure, they might assume they are getting the fair and just offer, and that the decision maker behind the offer is using their wisdom to craft a package that is deserved.

I love the way that Jessica uses her own personal story to illustrate how culture and communication style can potentially impact pay equity.  I believe that similar factors have played an enormous role in the gender pay gap that we face today.

A recent McKinsey Quarterly article "Centered Leadership: How Talented Women Thrive" discusses recent research aimed at learning what sustains successful female leaders. Based on conversations with 85 women around the world who have achieved success in diverse fields, the research led to the identification of five broad dimensions which provide a foundation for workplace success specific to women's needs and experiences.  Several of these resonated strongly for me (based on my own experience as well as that of my female colleagues), and a few - I believe - speak directly to factors related to pay inequity.

The five dimensions, from the article:

Meaning, or finding your strengths and putting them to work in the service of an inspiring purpose.  Without meaning, the article argues, work is a slog between weekends.  I don't know that I think this is more true for women than men - I think the search, and need, for meaning in our work is a univeral one. 

Managing Energy, or knowing where your energy comes from, where it goes, and what you can do to manage it.  The article states, and I am inclined to agree, that actively managing energy levels is critical to success in today's workplace.  This is particularly true for women, who often come home only to punch in for the "second shift".  I agree with the authors that the concept of work-life balance is a myth - and that the best hope women have is to learn to balance their energy flows.

Positive Framing, or adopting a more constructive way to view your world, expand your horizons, and gain the resilience to move ahead even when bad things happen.  Positive framing is different than positive thinking; the former accepts the facts of adversity and counters them with action.  This makes sense to me.

Connecting, or identifying who can help you grow, building stronger relationships, and increasing your sense of belonging.  A number of studies have shown that women who promote their own interests vigorously are seen as aggressive or selfish, and yet this is the very type of behavior that may be necessary to reverse pay inequities. Since "there is power in the many", building strong relationships and support networks can be key to getting women over the proverbial hump.

Engaging, or finding your voice, becoming self-reliant and confident by accepting opportunities and the inherent risks they bring, and collaborating with others.  Many people believe that their hard work will eventually be noticed and rewarded - but the reality is that it's not always so.  I think women, in particular, fall prey to this myth.  We must find our voice and our willingness to speak on our own behalves - and, yes, this applies to negotiating pay.

As those who read this blog regularly know, I am not a fan of the Paycheck Fairness Act, as I believe that its approach to mandating fairness - in particular its use as a blunt instrument to override the influences of the marketplace - will lead to as many harmful consequences as good ones.  I do believe, however, that gender pay inequity exists and must be addressed.  I think that some of the root causes of inequity discussed here are one of a number of good place to begin, and I think that we in HR have a role to play in the process.

What do you think? 

Bicycle Commuter Benefit Introduced Via Emergency Economic Stabilization Act

The Emergency Economic Stabilization Act of 2008 includes an amendment to IRS Code Section 132(f), introducing a new employer paid bicycle commuting fringe benefit.

Effective January 1, 2009, the new law allows employers to reimburse employees, on a tax-free basis, up to $20 per month, for certain bicycle commuting expenses.

The TDM (Transportation Demand Management) blog offers details, initial analysis and some thoughts on implementation of this new benefit.

Image: Creative Commons Photo "Bicycling in the Rain" by Hobvias Sudoneighm

Behind Many Poor Sales Compensation Plans Lurks Poor Job Design

Dig beneath a sales incentive plan that is too complicated and - as often as not - you'll discover a sales job with way too many angles and focal points.

Sales jobs that require constant shifting from prospecting to account management to order administration/tracking to installation/set-up and then back to prospecting may not be the best use of your available sales talent.  Particularly if you've staffed the jobs with hunters.  And, for a profession where variable pay can be a significant piece of the overall compensation package, jobs like this can present real challenges for sales incentive design.

I realize that, particularly in smaller businesses, people have to wear more than one hat.  But even in these circumstances, a thoughtful approach to sales job design can make a real difference in motivation and productivity.

Sales jobs, and sales incentive plans, are most effective when their focus is as clear and singular as possible.

Image: Creative Commons Photo "How Far?" by Alisdair McDiarmid

Addressing Employee 401(k) Concerns in Face of Economic Turbulence

With the market roller coaster ride we've all been enjoying recently, people (including you and me) are rightfully concerned about their retirement nest eggs - specifically, their 401(k) plans.  Given that, and as I posted here last week, it is disappointing to learn that employers are lagging in responding to this concern with information and support.  According to a recent Economic Anxiety Poll (October 1) conducted by Elliot Masie, only 7% of workers indicate that their employers have held workshops or briefings on 401(k) management.  One can only hope that this situation has been remedied a bit in the intervening days.

But.

For those organizations that have not yet responded - or are still mulling their response - to employee 401(k) fears, Capital Associated Industries, an East Coast employers association, shares a few tips for responding to the situation:

1. Don't give financial advice. Employers can give employees the resources they need to make decisions, but CAI advises against giving employees advice on selecting stocks and where they should invest their money.

2. Educate employees on their options. CAI recommends companies talk with their employees on restrictions and penalties if they want to withdraw money from their 401(k). Employees need to be educated on the mechanics of their plan.

3. Bring in investment advisors. Companies should enlist their plan vendor to work with employees on their individual investment strategies. Employers need to make sure their employees are engaged in a conversation with financial and investment advisors about their 401(k).

4. Urge a long-range perspective. Employers need to reinforce to employees that a 401(k) is a long-term investment and help them understand they are investing for retirement.

5. Release benefits statements. Employees often underestimate the value in their hidden paycheck. CAI recommends employers share with their employees all the benefits they offer to help them learn the value of their paycheck and what vacation and holidays are worth.

6. Reassure employees of safeguards. Make sure employees know their 401(k) is audited and heavily regulated by the Department of Labor and the IRS. Employees need to be reassured the money they are investing is segregated from the company's general operating funds.

Readers:  Those of you who have already taken steps to address employee retirement concerns, what advice can you add to this?

Image: Creative Commons Photo: "Thunderbolt Roller Coaster" by Jamie Lantzy

Your "No-Ob" Chance to Check Out Sales Performance Management Tools

Are you involved with designing, managing and/or administering your company's sales compensation program?  Wouldn't it be great to have a complimentary, anonymous, no-obligation opportunity to check out some of the different sales incentive software solutions out on the market?

OpenSymmetry, a consulting firm focused on sales performance management and business intelligence, is presenting their First Annual Anonymous Vendor Demo Series, an free opportunity to preview some of the leading solutions offered in the market - and even interact with the vendors - in an anonymous setting. If you are interested in finding new ways to improve the way you manage your sales compensation program or about to start a formal vendor selection… this series is a great chance to do just that!

Here are the details:

Webinar Demo Events will take place at 8AM PST on the dates indicated below. Each webinar demo event will last approximately 60 minutes with Live Q&A allotted at the end of the event.

Participating software companies include: Callidus Software, Merced Systems, nGenera, Varicent, Versata, Xactly, and ZS Associates.

Webinar Schedule:

• October 16th, Varicent
• October 20th, Merced Systems
• October 23rd, ZS Associates
• October 27th, Xactly October 30th, Versata
• November 3rd, nGenera
• November 6th, Callidus Software

Register here for any and all of the series webinars.  I am signed up for several, and I urge any of you with responsibilities in this area to do the same!

Peer Group Selection for Benchmarking: Overcoming the Obstacles

Like all other aspects of executive compensation management, the competitive benchmarking process is coming under harsh scrutiny.  This poses particular challenges for the selection of an organization's competitive peer group, the group of similar businesses that are selected and used for the purpose of compensation and performance comparisons.

Jim Heim, managing director of Pearl Meyer & Partners, in an article "Peer Group Pitfalls" published in the October issue of WorldatWork's workspan magazine, hones in on the five most common obstacles we encounter in this process and provides some advice for overcoming them.

From the article, in summary:

Obstacle No. 1:  Our Competitors Are Generally Larger (or Smaller).  Ideally a peer group should include somewhat larger and smaller companies, such that your firm's size approximates the group median.  When this doesn't hold true, consider a couple of alternatives.  First, use regression analysis techniques to determine "predicted" pay levels for a company your size.  Second, select a reference point (e.g., the 25th percentile) that is either above or below the group median, but reflective of your company's size and place in the group.

Obstacle No. 2:  We have Outperformed (or Underperformed) Our Competitors.  Year-to-year performance can vary significantly, and using annual performance as a key to peer group selection can result in substantial churn in the group roster from one year to the next.  For a more consistent set of comparisons, use longer-term (e.g., a three-year aggregate) financial performance measure(s), preferably those that are most meaningful to your investors and analysts.

Obstacle No. 3:  We Generally Recruit Executive Talent From Larger Firms.  "Aspirational" peer groups (groups that include larger, more complex, higher-performing firms which the company wishes to target for recruitment) have been rightly criticized when used as the sole reference point for benchmarking executive pay.  A more acceptable approach might be to develop and utilize two separate peer groups; one of aspirational peers and the other of size-relevant companies.  If strong financial performance is sustained over time, the aspirational peer group will become increasingly size relevant.

Obstacle No. 4:  We Have Few Clear, Direct Competitors for Our Product or Service Offerings. It may be that direct competitors are foreign-based, privately held or subsidiaries of larger companies, or it may just be that your company operates in a pretty specialized niche.  In such situations, the best approach may be using firms from "like" industries - in the way that brewers, distillers and winemakers may be considered like industries.  Be mindful of any particular differences in financial performance, choice of pay vehicles, etc. from one like industry to another.

Obstacle No. 5:  Our Industry is Consolidating and Several of Our Competitors Were Acquired. Industry consolidation makes it difficult to maintain a consistent year-to-year frame of reference.  Companies should establish a thorough, rules-based process of revisiting their selection every year to determine whether new firms should be added and any current firms removed.  This will ensure that the peer group used each year is valid for external benchmarking, even if there has been turnover in the group roster.

With all that is happening in our world and markets these days, this challenge will only get tougher.