Compensation Force

Time for a Reality Check on Salary Ranges?

With 2010 salary increases expected to come in at an average 2.5% and experts questioning whether they will return to previous levels anytime soon, it's time to rethink salary ranges.

Base salary ranges are administrative tools whose purpose is to guide pay decisions in line with an organization's compensation philosophy. When well designed and used, they impose order on base salaries.   They help ensure that employees are consistently, competitively and fairly paid.

With the exception of broadbanding and other alternative approaches, salary range spreads (the spread from range minimum to range maximum) have followed pretty consistent protocols over the past few decades.  From George Milkovich and Jerry Newman's widely regarded textbook Compensation:

Top-level management positions commonly have range spreads of 60 to 120 percent; entry to midlevel professional and managerial positions, between 35 to 60 percent; office and production work, 10 to 25 percent.  The underlying logic is that wider range spreads in the managerial jobs are designed to reflect the greater opportunity for individual discretion and performance variations in the work.

In my experience and consistent with the above, the most common salary range spread is 50%, with minimum and maximum set at 80% and 120% of midpoint respectively.

Range architecture like this made sense when it first caught hold, back in the 70's and 80's, a time when average salary increases were 8-10%.  With salaries moving at that speed, employees could expect to progress through their salary ranges at a pace which matched their personal skill and performance development.

The times, however, have changed ... and so has the speed of base pay growth.  And yet many - even most - organizations are managing salaries with ranges similar to those described by Milkovich and Newman.  Which means there is (and, frankly, has been) a disconnect between the reality of base salaries today and the tools we are using to manage them.

Consider this:  If the delicate dance of salary structure adjustments versus salary increases continues its pre-recession pattern whereby ranges are typically adjusted annually by an amount equal to 60-70% of the average budgeted salary increase, then projected 2010 increases of 2.5% mean ranges will be adjusted by an average of 1.75%.  A scenario in which the average employee makes about .75% headway in their respective salary range.  A scenario, when coupled with a salary range spread of 50%, in which it would take the average employee about 25 years to progress from the range minimum to midpoint (typically the "market rate" for their position).

Sound like a winner to you?  Me neither.

The answer?  If salaries stay on the low growth path (and inflation doesn't enter the picture to alter the paradigm in any substantial way), I think we'll be forced to consider narrower ranges - ranges which support a more reasonable salary progression relative to the market or "target" value for the job.  It may also, however, be time to begin fundamentally rethinking the kinds of tools we use to manage base pay.

Your thoughts?

Is There a Wave of Salary Adjustments on the Way?

Among other things, the recession has brought us an unswerving focus on restraining fixed costs and record low salary increase levels.  Many believe that slow base salary growth will be a reality for the foreseeable future.

Past recoveries have produced a flurry of salary adjustment activity - a frantic pattern of "catch up" as the labor market turned, recruiting activity and market pay levels picked up steam, and organizations scrambled to keep their salaries competitive.

What can we expect this time as the economy turns? 

Some thoughts on this questions, and some recent research findings, in my post today at the Compensation Cafe.  Click on over and take a read.

Using Downtime for Some Pro Bono Compensation (or HR) Consulting? Here's Some Great Advice!

Compensation (and HR) consultants come in a lot of sizes and flavors these days.  Some of us (the true masochists) have been consultants for most of our careers, others are new to the "fee for service" arena.  Some of us work for large consulting firms, others have hung out their own shingle or simply partnered with a few colleagues.  Some of us relish the unpredictable work-90-hours-one-week-then-10-the-next lifestyle, others are just biding their time until the right corporate gig comes along.

Whatever the profile, there are more of us in the consulting arena than usual, courtesy of the recession.  And many are using their downtimes between and around client projects to give back to the community and gain helpful experience by doing pro bono work.

With this in mind, I wanted to share some wonderful advice to guide your entrepreneurial generosity: The Ten Commandments for Pro Bono Work, courtesy of Jane Pollack's blog Leading Remarkable Women to Uncommon Success(via Terri Lonier's Working Solo Minute).  I present to you below a few of my favorite Commandments (5 through 8) - please click through to read all ten.

Number Five: I shall be 100% responsible for recording information regarding appointments and will honor them as scheduled. If I need to change an appointment, I will let the receiver of my generosity know in a timely manner.

Number Six:  If I'm going to be late for an appointment, I shall call the receiver at, or ahead of, the appointed time to let him/her know of the delay. (See Commandment #4)

Number Seven: I shall take 100% responsibility for maintaining the boundaries of what I will and will not contribute in terms of my vast knowledge.

Number Eight: I shall be clear on my own expectations- an opportunity to give back, acknowledgment, gratitude or paying it forward-and not carry a grudge if these are not met.

Great pointers on a timely topic!  And special shouts out to all my friends and readers who are seizing these opportunities!

Beware the Market Pricing Shortcut: Don't Short Shrift Your Review of the Data

I know... this sounds like a post that only a compensation geek could love.  Nevertheless, here I go.

During a recent presentation to a group of HR professionals on building a compensation program, one attendee asked about reviewing and reconciling the market data collected for different jobs.  Is it OK, as she had been told, to follow the practice of removing the highest and lowest data points in the set, as a form of quality control, and simply use the remaining "middle set" to determine market value?

Not the first time I've heard the question.  This quick and dirty approach to "cleaning" a market data set appears to be pretty widely used and accepted.  Perhaps it is even taught somewhere as a best practice.  And I realize that sometimes, when you're dealing with a ton of jobs and a TON of market data, that short cuts are attractive and perhaps even necessary.  But my experience would suggest that a "one-size-fits-all" approach like this is way less than ideal for a number of reasons and in many situations (not the least of which is in those where you only have two or three data sources to begin with).

But more than that, what if it turns out that one of those highest (or lowest) data points...

• Reflects the best fit between survey job descriptions and the scope and responsibilities of your job?
• Represents the most robust set of data (in terms of the largest "n") among all the data lines collected?
• Is the closest fit to your geographical location and the true boundaries of your labor market for the job?
• Comes from the survey source whose participants best reflect your direct labor market competitors?

Might be smart to include it?  Even if it yanks the job's overall market value in one direction or the other?

A data point that appears, at first glance, to be an outlier isn't necessarily wrong or inappropriate.  It might, in fact, be the best in your set.  So indiscriminately lopping off the high and low points without closer review may result in your elimination of the best and most relevant pieces of data for the job. 

Many (most?) organizations use market data as the foundation of their salary structure and the mechanism by which relative job value is determined.  Which makes those market value estimates pretty important.  That being the case, it behooves us to do as careful and thoughtful a job as can be managed in reviewing and fine-tuning the data.

Don't short shrift the quality control process!

Image: Creative Commons Photo "Money Whirlpool" by Patrick Hoesly

Incentives as Your Worst First Solution... & Switch

Today I'm channeling the smartness of my friend and fellow blogger Paul Hebert of Incentive Intelligence.  A recent post of his centered on a positively brilliant statement that anybody in the business of designing incentives (and who actually knows their stuff) should enthusiastically embrace:

Incentives Are Your Worst First Solution

That's right (and yes, I did tip my hand with the title).  It is always a mistake to respond to a performance issue by first developing and implementing an incentive plan.  Why?  Because the root of the performance issue is rarely, if ever, the absence of an incentive plan.  Ignoring the causes and contributions to the issue in favor of simply tossing a carrot into the mix rarely, if ever, solves the problem in a meaningful and sustainable way.  And more often than not, creates its own set of secondary problems (otherwise known as the unintended consequences).

What, then, should be your first response?  To get a better handle on the situation, including the current obstacles to the change you wish to see, as well as any "bright spots" where it may be already starting to happen.  And I found some good ideas and practical tips in a book I just finished, also based on a recommendation by Paul,  Switch by Chip and Dan Heath.

I agree with Paul that this is probably not the be-all-and-end-all of books on change and also that its authors do fall victim to the problem in so many popular business books today of presenting evidence to support their point without always acknowledging that which contradicts it.  All that said, I find it a wonderful resource for compensation professionals in that it helps us - in a very compelling, readable and story-driven way - appreciate and understand the factors involved in successful, transformational change.

And yes, I do still think incentives have a place here - and the Heath brothers themselves acknowledge the important role of rewards.  After, in the words of the authors, the destination and the roadmap there have been clarified, people have felt the need for the change, and the path has been appropriately shaped, we should be reinforcing success along the way and ultimately sharing the value of the victory that our collective efforts have created. 

Rewards play an important role in helping and supporting the well-scripted change effort; they cannot be the change effort on their own.

For more, check out Paul's video with the "money quotes" from Switch...

Switch Money Quotes

View more presentations from i2i.

It's Baaack: Paycheck Fairness Act Returns to Capitol Hill

The Paycheck Fairness Act is back on the table at Capitol Hill.  The Senate Committee on health, Education, Labor and Pensions held a hearing on March 11 titled: A Fair Share For All: Pay Equity in the New American Workplace. 

The Act could have far-reaching implications for the design and management of pay programs, so it behooves us to pay attention, as tired as many of us are of watching Washington these days.

A few good summaries of the current state of the Act can be found at John Phillips' Employment Law blog (via Jon Hyman) and Workforce Management. 

Some of my own thoughts and concerns about the bill when it first came forward more than a year ago can be found in the following posts (and you will note from the comments that there are those who think my concerns are on target and those who clearly disagree):

Pay Legislation Leaps to the Top of the House Agenda (Interview with WorldatWork's Cara Welch)

On Comparable Worth, Pay Equity and the Paycheck Fairness Act

Summary thoughts on the Paycheck Fairness Act

More to come, I'm certain...

Does/Should "Management Discretion" Have a Future in Rewards?

My experience would suggest that the discretionary "bonus" award is alive and well today, but I wonder about its life expectancy over the longer term.  Given the shift in pay mix that seems to be underfoot, with the possibility of an increasing proportion of everyone's compensation being put at risk, how acceptable will it be to let bonus/incentive awards hang on management discretion?  On management's "feeling" about how well things went?

Some thoughts about these questions in my post today at the Compensation Cafe.  Hop over, take a look and share your take on the matter!

Show Me the Money! Talking Comp at The HR Happy Hour

Come along with me and my Compensation Cafe cohorts Becky Regan and Margaret O'Hanlon as we join this week's HR Happy Hour show, Thursday 8 pm EST on blogtalkradio.  We promise a lively discussion on all things compensation!

Details in the link - or simply call in at 646-378-1086.  Or give us a listen via the show archives after the "live performance".

Special thanks to show hosts Steve Boese and Shauna Moerke for the invitation!

 

Line of Sight: Framing It Right, Taking it Beyond Rewards

We compensation specialists love to throw around the phrase "line of sight", particularly with respect to variable pay design.

Line of sight is an expression that I am told has its origins in the military.  In this context, it means "distance to target".  In a reward design scenario, we use it to describe an employee's perceived ability to impact the performance measure(s) on which an award is based.

In a sense, I think our use of this phrase misframes the challenge.  Taken too literally, it may propel us on a search for measures that are closer to the confines of an employee's responsibility - when the real question should be centered on how we can help the employee understand the connection between what they do day-to-day and what the organization needs to succeed.

Ultimately, shortening an employee's line of sight is about helping them understand how their work can help move the company performance needle.  It's an "education and coaching" thing ... as much as, probably moreso than a "find the right measure" thing. 

While this has the obvious implications for making employee incentive plans work, it should take on importance above and beyond rewards.  It should be an essential part of what a good first-line manager does in the regular course of things.

So, time to move that phrase out of the realm of reward lingo and into the general talent management sphere.

(And ... for some great thoughts on first-line managers as a "peerless strategic opportunity", I point you to Tom Peters' post on the topic.)

Image: Creative Commons Photo "On Target" by vizzzual

Communication, Influence Insiders & Tough Pay Conversations

Communication can make or break work relationships ... and, ultimately, reward programs.

I had a first hand opportunity to get better educated about communication tendencies and techniques when Jon Wortmann - advisor, speaker and author of Mastering Communication at Work: How to Lead, Manage, and Influence - joined the March episode of Influence Insiders blogtalkradio show.  During a fun and fast-paced conversation, Jon:

• Described different communication styles and helped each of us quickly diagnose our own approach and consider whether it changed when we are stressed, and
• Used stories to illustrate how diagnosing and responding to our audiences' communication styles can help us build trust and understanding.

Since the show, I've thought more about the suggestions Jon offered for better communication and, specifically, how we might take advantage of them to improve conversations we have with employees about their pay.  I am often in the position of coaching my clients on how to approach a difficult compensation conversation with an employee; however, I tend to focus on the content (via talking points) rather than the process of these exchanges.  I'm guessing I have a lot of room for improvement.  Jon and I had a quick conversation about this topic before the show formally kicked off, but didn't really have a chance to circle back to it within the time constraints of the one hour show.

So, perhaps a follow-up request for a blog interview is in order...  What pay communication questions would you ask Jon?

Miss Jon's guest gig on Influence Insiders?   You can listen to the archived edition here.  And be sure to check out Jon's manifesto/ebook The Best Communicator in the World on the Change This site.

And, finally ... don't forget to put the next Influence Insiders show on your calendar today.  On April 7, noon EST, our guest will be Brian Ahearn, Caldini Certified Influencer and specialist in the psychology of persuasion.