Flexibility: Your Salary 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 serves as a two-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 the newly honed focus on potention pay discrimination that the Lily Ledbetter Act and other prospective pay legislation are bringing to our lives change this?  Should it?

At a minimum, I think it may be time to take a close look at the role that "flexibility" plays, particularly in the administration of our wage and salary programs.  Are we giving managers the rope they need to do the right thing ... or just enough to hang themselves?

Comments

[Darcy]

This is something we're also struggling with as we have ranges of possible merit increases based on performance review scores. We've decided to address this in our training by requiring additional commentary about why the increase was chosen using rationale based on contribution, growth, etc.

We want our managers to have some discretion with this since the performance score is partially based on financial results and if we have someone doing a lot of good at a struggling location; we want to be able to reward them properly to maintain motivation.

Although I've started thinking about the idea of everyone receiving the same base pay and all differentiation occurring in incentive pay. Probably not very realistic, but it would require employees to re-earn their pay every year instead of creating an annuity that they receive for the rest of their employment based on long ago performance, and that we might have to defend 20 years later!

[E James (Jim) Brennan]

The issues don't stem from flexibility but from the longer time window during which past errors are actionable. The LLA just raises the pressure to minimize flubs and assure managers know how to manage properly... or how to avoid getting caught "dirty."

Because if they "hang themselves," the company gets hung out along with them.

[Ann Bares]

Darcy:

There are sound business reasons as to why it makes sense to provide the kind of discretion you're talking about - so that managers can address some of the "intangibles" like someone making an exceptionally strong contribution in a struggling location. The key, I guess, is training, supporting and holding them accountable for doing this for the right reasons.

I've heard your second idea raised in a few different venues, including this post at Mike Haberman's HR Observations Blog -
http://omegahrsolutions.blogspot.com/2009/02/merit-pay-going-way-of-dinosaur-fallout.html

Interesting discussion - thanks for commenting and sharing your thoughts!

Jim:

I understand that LLA in particular only serves to extend the time window, but I mean to include that as an example of what I sense will be a trend of greater pressure brought to bear on the defensibility of pay decisions. To the extent that there are managers out there misusing their flexibility and discretion, it's past time to address the problem. I'm just saying.

[E James (Jim) Brennan]

You are quite correct, because LLA turns up the heat on bad-actors and entities with them. Makes no difference if you merely suffer them or permissively enable them, you are more likely to inherit the consequences of their misbehaviors than ever before. Darwin requires we correct their offenses and/or flush them out before they pull us down.