In a Down Economy, Centralization May Be Where It's At

I finished the newest edition of workspan (the monthly publication of WorldatWork) this weekend.  In reading through a number of the articles on various reward topics, I was struck by a repeated theme of centralization - partly because it was there and partly because it's been on my mind lately as well.

For example ...

In their article "10 New Rules for Managing Compensation in a Recession", Brad Hill and Christine Tande of Tandehill Human Capital identify Centralize compensation management as Rule #1 and it's difficult to argue with their logic.

Immediately take a more macro perspective on performance and pay to ensure that the right dollars get allocated to the right areas of the organization in the timeliest manner.  To that end, human resources needs to flex its cost control muscle to ensure that local managers are making pay decisions that best serve the entire organization and not just doing what's best for them.

Addressing sales compensation in their article "Business as Usual: Making Global Compensation Work for You", authors John Bremen, Marcus Minton and Jon Randall of Watson Wyatt Worldwide advise readers to embrace the opportunity for central assessment and re-alignment offered by the economic crisis.

During times of robust economic growth and aggressive entry into new markets, companies often employ a more decentralized management approach in order to provide flexibility and nimbleness to respond to local market and/or business unit opportunities. ...Today's business environment provides the ideal opportunity to take inventory of current plans, assess them against best principles and identify legitimate opportunities for streamlining, realigning and common sizing.

I made this point myself several months ago, as the economic picture grew progressively ugly, with Tough Times May Demand a Centralized Pay Inventory.  In that post, I advocated a centralized assessment of all reward programs to ensure that our increasingly rare and precious pay dollars were being used well.

Decentralization is fine in good times when not only salaries and incentive payouts but also jobs themselves are not in jeopardy.  Today, those making tough decisions need to have access to all information on where dollars are being spent.

The time has arrived for all cards to be laid on the table, and that requires centrally coordinated effort.

Image: Creative Commons Photo "Monitoring Room" by Matti Mattila.

Comments

[Darcy Dees]

It is human nature to try and protect what is yours. Decentralized pay during this time of scarcity unfortunately leads to many managers trying to take care of their people without much thought for the whole. This is a very timely post, and it is more important than ever to make sure that pay decisions are made based on what's best for the entire company, and not just one division.

[Ann Bares]

Very well said, Darcy - thanks!

[Paul Weatherhead]

Something just isn't sitting right with me on this discussion. Mind you I'm not being critical; but just trying to get rid of that uncomfortable feeling. Would anyone with budget authority ever admit that they were being spendthrift in good times as opposed to bad? Shouldn't we be just as careful with compensation dollars in an up economy as in a down economy?

[Ann Bares]

Paul:

Always important for any of us to hold up our hands and say "wait a minute" when a concept or assertion doesn't sit right. Half of my blog posts are me doing exactly that. Sometimes I'm on to something, sometimes I'm just missing a key angle (and then, hopefully, one of my readers will leave a persuasive comment that shines a new light on it for me - and everyone else).

In this case, I don't know that anyone is consciously being spendthrift in good times. What I have observed, though, is that decentralization leads to different standards and approaches on rewarding employees. And often, as a bottom line result, one part of the organization rewards more generously than another. (I'm not talking about bad practices or plan design, I'm just talking about a different approach.) In times of sacrifice, I think it is important that any sacrifices are shared as equally as possible, but accomplishing that can be difficult unless we can establish a common understanding of all reward practices across the organization.

Does that make sense - or still sit funny?