One of the challenges in compensation design and management is building programs that reward workers fairly, competitively and in ways that engage them in the success of the enterprise -- without creating a sense of entitlement. Especially when it seems as though entitlement is hard-wired into our culture.
That's why I read Whitney Johnson's Harvard Business Review blog post Battling Entitlement, The Innovation Killer with such interest.
She speaks of all the ways we inadvertently reinforce that sense of entitlement -- with our children, with our employees, even with our executives. And she points out that accountability, and the act of holding people accountable, is the direct opposite of entitlement. Then she shared a claim that really stood out for me, about innovation and about the downside of protecting people from limits and consequences:
Boundaries and challenges can empower and embolden us.
This got me to thinking. Practically speaking, our reward programs tend to be full of boundaries. Just a few examples:
Salary Ranges (Underlying Boundary Message: This is the highest fixed salary we are willing to pay for the job you are currently performing.)
Performance Goals (Underlying Boundary Message: Your performance will not be considered to exceed expectations unless you accomplish X.)
Salary Increase Guidelines (Underlying Boundary Message: This is the largest salary increase you can earn at your current level of performance.)
Group Incentive Plan Structure (Underlying Boundary Message: No awards will be earned unless the company achieves a net income of X.)
The question is this: Are we positioning and communicating these boundaries in a way that empowers and emboldens employees? Are we presenting these limits in a way that inspires employees to accomplish the things necessary to move beyond them?
Could we do better?
Creative Commons Image: "Fence" by Wildcat Dunny
Hi Ann
Great article, some good points. It's a pretty strong underlying message to send out.
As a sidenote, I was hoping you could advise on something related to base pay management and salary ranges. In the past we've created our salary ranges in the standard way, i.e. median (control point) at 50% spread (80-120%). However, the senior leadership have now requested we create our salary ranges by using median TTC and backing our variable pay out of it to reach our median effectively. My concern around this is consistency, as we have so many commission plans and bonus plans across the business that it's quite time consuming to back out each one and be confident that you've reached the right result. Have you ever encountered this and if so, what would be your advice?
Thanks in advance.
Carmen.
Posted by: Carmen Arico | January 17, 2012 at 03:57 AM
Carmen:
It is a strong underlying message - and my hope here was to generate some reactions to it. Does it hold water? Is it off base?
On the sidenote, it sounds like you've been requested to follow an interesting approach. The question I'd want to have answered, and I would think your senior leadership would want to know, is where does this position you competitively? A pre-decision competitive analysis, which parses out the salary versus variable pay pieces of your TCC, would have been a wise step (and perhaps you've taken that step). How do your TCC and variable pay targets/actuals compare to competitive norms? And to what extent is this uniform - or different across the business? When you back your own variable pay targets/actuals out of median TCC, what are you left with? Base salary levels that are consistently above market median? Consistently below market median? All over the map competitively? Does this match senior leadership's compensation strategy and intent? Does it create any talent or equity risks?
It isn't a step I'd want to take without the information that comes from a careful competitive analysis.
I'm not aware of any organizations that have designed their program this way, but it wouldn't surprise me to find a number out there. I have a few clients who have chosen to use TCC ranges rather than salary ranges to guide compensation decisions - but these choices were in response to very specific situational circumstances and were based on careful pre-decision competitive analysis, which is repeated every few years to assure that the program is delivering pay in the manner intended.
Can others weigh in?
Posted by: Ann Bares | January 17, 2012 at 07:10 AM
Think of those "boundaries" as HURDLES. They can be overcome and surpassed, in one way or another. They supply context to content. For each they "constrain", another is challenged to break through (or achieve above) those frequently arbitrary parameters. They only limit those without imagination and courage.
Posted by: E James (Jim) Brennan | February 01, 2012 at 11:32 PM
Good points Jim - thanks!
Posted by: Ann Bares | February 02, 2012 at 07:12 AM