Compensation Force

Ambiguity in Rewards

Is there a clear place and purpose for ambiguity in rewards?

In a Board level conversation once, I found myself part of a debate about the need for clarity in executive rewards. On the one hand, I had a chief executive expressing a preference for a more structured and clearly communicated compensation package.  On the other hand, I had a Board Chair articulating the belief that it is an executive's role to manage ambiguity and that the compensation package ought to reflect this fact. The details underlying the debate aren't important here - but I think the question at its core is an intriguing one.

I've run into plenty of hazy compensation plans before. I'll bet many of you have, too.  Typically the haze is there courtesy of an unclear strategy, lack of commitment to or certainty around measurement, or just an unwillingness to tackle the full task of plan definition and communication.  This was the first time I encountered plan ambiguity seemingly coming from a place of principle.  Though not a principle whose logic was or is entirely clear to me.  To be honest, it struck a note of Founders Dilemma for me.

I get that we live in an increasingly uncertain world (understatement, yes) and that dealing with uncertainty effectively is part of the job for most of us.  And a key challenge and expectation for those in an executive role.

But I also believe (and I think that this is a deeply held principle for me) in making compensation plans - for any employee and particularly for executives - as clear and unambiguous as circumstances permit.  Where is the value in leaving them guessing - unnecessarily - as to our meaning or intent?  If we need wiggle room in the plan, we can usually highlight where, why and at least the parameters of how in the plan document.

It may just be that I've encountered too many leaders who are simply unwilling to commit to standards and objectives, preferring to simply allocate rewards in whatever way feels "right" to them at that moment.  This repeated experience has turned me into a strong (and, admittedly, sometimes bull-headed) disciple of upfront reward clarity. 

What about you - got a strong opinion one way or the other? Does ambiguity have an important and purposeful place in compensation plans?  For executives?  For anybody?

Creative Commons image "ambiguity" by Lori Greig

Employee Retention: Are You Hard to Leave?

Recent research by global consulting firm McKinsey & Company suggests that employers do not fully understand why employees are leaving. As their article Great Attrition or Great Attraction? The Choice is Yours notes:

Companies are struggling to address the problem, and many will continue to struggle for one simple reason: they don’t really understand why their employees are leaving in the first place. Rather than take the time to investigate the true causes of attrition, many companies are jumping to well-intentioned quick fixes that fall flat: for example, they’re bumping up pay or financial perks, like offering “thank you” bonuses without making any effort to strengthen the relational ties people have with their colleagues and their employers. The result? Rather than sensing appreciation, employees sense a transaction. This transactional relationship reminds them that their real needs aren’t being met.

We should understand that while rewards play an important role in retaining employees, our organizations are best served by attending to the overall employment experience of these individuals and by using a broad toolkit of retention methods.  While true across the board, this is particularly so for those we consider key contributors.

With that in mind, I want to call out a Classic strategy + business article Retaining Top Talent: Yes It Really Is About Them by Susan Cramm.  In it, she suggests five questions to help leaders get to know their top talent in a conversation that can pave the way for finding assignments and opportunities that will build their capabilities in alignment with their longer-term goals.  The questions are:

1. What are your proudest accomplishments and biggest disappointments? Why?
2. What activities energize you and drain you?
3. How would you force rank the following rewards: financial gain, power and influence, lifestyle, autonomy, affiliation, intellectual challenge, competence, recognition, other?
4. If you died tomorrow, what would you want your legacy to be?
5. What is your five-year career goal? If you don’t have one, what’s your “best guess”?

Cramm notes that over the past 15 years, she has yet to meet a leader who could answer these questions about one of their key employees.  She also shares the feedback she receives, time and time again, from the employees who have participated in these conversations.  They tell her that it is the first time any supervisor invested the time to get to know them and to actively sponsor their career development.

Are your leaders taking the steps - beyond putting additional dollars on the table - that will truly make it hard for your top talent to leave?  Are there steps you can take to encourage the connections and conversations that inspire the sense of shared identity and purpose that all of your employees are seeking in their work?

Creative Commons image "Leaving" by muha photos

The Gift of Your Ears: A Listening Primer for Compensation & HR Pros

If we truly want our work to have impact as compensation and HR professionals, one of the area many of us could stand to improve is our willingness to give the gift of attentive listening to those who seek our help.  In considering some of the listening lessons my own work experience has taught me, I came up with a hierarchy of compensation listening levels, highlighted below for your consideration and reaction.  In an effort to connect each level to compensation reality, I have used the example of a manager approaching you with concerns about an employee (John) who has reached the maximum of his assigned salary range.

Level One: Pretend Listening (aka the tune out)

At this level, the listener is only pretending to hear what is being said, having essentially tuned out the manager after her opening line because it's the same old complaint the listener has heard time and again.  You know your program is right and the manager's concerns are simply a factor of her not understanding.  So you do your best to assume an interested listening pose and then, when she stops (or perhaps just stops for a breath), you plug and play your standard tape on salary range design and overpaid employees.

Here I go again, explaining our salary range and salary increase programs to another manager...

Level Two: Defensive Listening (aka listening with an agenda)

Here you are listening, but for the purpose of picking up enough of the context and key facts to tailor your talking points to the manager's circumstances and concerns.  You're hearing her, true, but not at a deep level because your intent is simply to understand well enough to hone your message in explaining and defending current policy.

Now that I understand John's work and performance history, I can better explain why we have a policy - via salary ranges with set maximums - of holding base salaries to a level of 20% above the market rate.  And I can make some informed suggestions regarding what the company believes are options that employees in this situation should consider.

Level 3: Learning Listening (listening to learn and understand)

At this level of listening, you put aside the urge to explain or defend current policies and practices and focus on deep inquiry and understanding. Try to escape the bonds of program ownership and adopt a beginner's mind.  Be curious and inquisitive; seek to see the situation through the eyes of the manager and employee.  Not because they're right and you're wrong, but because it's a learning opportunity for you. You may not discover anything that changes the short term reality - the employee may still face a capped base salary - but practicing this level of listening may bring other benefits.  It will help you gain the trust and respect of those who bring their concerns to you.  It will also broaden and sharpen your understanding of the larger talent management system in which your pay programs operate.

We have lots of employees in John's shoes.  What levels of engagement and motivation are they bringing to their jobs?  What are these employees seeking from their careers - and is there a business case for the company to take extra steps or make extra investments to retain them in their roles?  What challenges and opportunities do such employees present for managers, and how can we best support those managers in responding?

My own observation here: It takes a certain amount of self-confidence, professional maturity and courage to move from Levels 1 and 2 to Level 3.  As young professionals, many of us struggle to escape Level 1 because we believe that the ability to explain and defend policy is the first test of our competence as professionals.  Conversely, and somewhat ironically, it is often through experience and "seasoning" that we become comfortable admitting we don't have all the answers and can open ourselves to listening and learning.

What are your thoughts about listening as a career skill?  How do we develop better ears to hear?

Creative Commons Image "I'm all ears" by Flickinpicks

What Would Einstein Do? Getting to the Heart of Pay Problems

If there is one universal lesson that we learn as we gain experience in the discipline of employee compensation, it's that there is a knee jerk tendency -- from front line supervisors to senior managers -- to assume that all employee issues can be resolved by throwing money at them.  And so the litany, from those who come knocking at our office doors or lining up in our email in-boxes, often goes like this:

"My employees are dissatisfied, so we need to give them raises."  Or "my employees are not motivated, so we need to increase their pay."  Or "my employees are leaving, so we need to pay them more."

The correct course, if we can manage to pursue it in the face of pressure for the quick pay fix, is to gather enough information to get to the heart of the (so-called) pay problem.  To get a bead on what's really happening.

To get there, let's consider a bit of advice from renowned physicist and Nobel Laureate Albert Einstein on solving tough problems under pressure.

If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.   Albert Einstein

How to get to the proper question?  Maybe start with the basics:  Who, what, where, when and why?  If a turnover issue, what do we know about the leavers?  In our age of data mining and analytics, we are in a better position than ever before to access the information necessary to better diagnose organizational problems.  Or to work them through until, as Dr. Albert advises, we arrive at the proper question, which might end up as something like:

Why are nearly all of the highest rated performers working under Manager X in the Customer Contact Division leaving within their first two years of employment when turnover through the rest of the division is relatively low?

Now we're getting somewhere.

So the next time someone corners you with an urgent employee issue along with a demand for a quick pay solution, ask yourself:  What would Einstein do?

Creative Commons image "Einstein" by renjith radhakrishnan

Leadership Commitment to Performance Management: Priceless

Performance management has evolved enormously over the years I've been involved with these programs. When I think about the situations where I saw performance management program have a real and tangible impact on the organization's success, however, there is one common factor.  What they all had in common was an extraordinary level of leadership commitment.

One particular case comes to mind.

I once worked with a large retail company that had a very strong and charismatic CEO.  Let's call him Vinny.  Vinny kept a close eye on everything his HR department (which reported directly to him) did.  He didn't seek a lot of hands-on involvement in program development or review, but he insisted on final approval - or veto - of any changes, updates or new program components.  As so, as we moved to final recommendations for a new performance program, the VP of Human Resources and I found ourselves in a long meeting, presenting the new program details to what first appeared to be only a semi-engaged Vinny.  I recall him sitting there, silhouetted in profile against his floor-to-ceiling office window, eyes nearly closed as he listened in silence to his VP talk through each element of the recommended program. 

Then suddenly he snapped to attention. 

"Wait a minute, wait a minute," Vinny said, wheeling around to face us.  "I have an idea!" 

The VP and I, caught off guard by his sudden outburst, just stared at him in surprise.

"This program!"  he said.  "Why couldn't this program be the way that I communicate to all employees my vision and plan for the year?  Why couldn't I use this program to lay out what we have to accomplish as a company, and then what each department, and - ultimately - what each employee has to do in order to help us make that happen?"

At this point, he stood up and began pacing with excitement around his office.  "This could be just the kind of program I need to get important information to everyone who works here, and get them all on board to get the things done that will make us all successful!  And to help them see where they can grow and improve their performance, and even their career, with us!"

"What," he said, turning back to us, "do you think of that?"

In what I thought was a stunning display of self-restraint, the VP of Human Resources managed to hold back any response except, "What a good idea!"

With that, Vinny sat back down, grabbed his copy of the performance management recommendations that had been sitting ignored on his desk, took out his pen and began editing them.

Long story short, Vinny helped us tailor the program in a way that reflected his management style and communication preferences.  The program that we rolled out shortly afterward not only had his mark on its design but also - more importantly - had his full unqualified support. 

And the impact of this was nothing short of remarkable. 

A number of other organizations and stories come to mind, including the CEO of a financial services company who took the time to sit in on every single one of the six management training sessions and the ten or twelve employee orientation sessions that we held in preparation for the roll-out of the new (potentially controversial) performance program.  Not just for the initial five minute intro, but through each and every hour-and-a-half session.  Not because we begged and pleaded, but because he instinctively understood that this was necessary in order to make it clear that 1) this was for real, 2) he meant it, and 3) there would be consequences for those who didn't follow through on their responsibilities for the new program. 

And I am convinced that it was this gesture - a huge investment of time for a very busy and, yes, important person - more than any other thing, that made the program have the incredible impact it did for this company.

Life and these lessons in particular have taught me to be an evangelist for executive commitment to performance management.  And really, this is true for many if not all key Human Resources initiatives. 

Creative Commons image "leadership" by Roberto 

Is Your Profit Sharing Plan a BINO (Bonus in Name Only)?

Jack Stack - author of The Great Game of Business and considered by many to be the father of open-book management - has this to say about discretionary profit sharing plans (drawn from an Inc. article The Problem with Profit Sharing):

By profit sharing, I mean the practice of taking a percentage of a company's profits, putting it into a pool, and disbursing it to the company's employees, usually sometime after the close of the year. Understand, I'm not saying that this is a bad thing to do, just that the benefits of doing it are limited. For openers, the recipients seldom know exactly how they helped generate the profits, beyond just doing their jobs. No doubt, they enjoy getting the money. They may even be grateful for it. But they aren't likely to think or act differently because of it or to be greatly motivated by it.

What's more, if they keep getting it, they will eventually come to expect it, depend on it. If they don't know what they've done to deserve the extra money, they will begin to view it as part of their regular compensation--that is, as an entitlement program. At that point, the profit-sharing check is a bonus in name only, no matter how much the amount may vary from year to year. Meanwhile, you're getting results that are the opposite of what you're paying for. You're promoting the same attitudes you had hoped to change by moving to variable pay in the first place.

Many thanks to Mr. Stack, not only for the variable pay wisdom, but for coining a useful new term for us reward professionals.

Has your profit sharing plan become a BINO?

Creative Commons image "profit sharing" by H. Michael Miley

Thinking of Your Reward Programs as an Investment Portfolio

We in the profession like to use the acronym ROI (Return on Investment) in talking about the efficacy of our reward programs. 

To really put this concept (and those reward dollars) to work, I find it helpful to look at total rewards as a portfolio.  Like the elements of a sound investment portfolio, each reward element can and should be designed to accomplish a specific objective or purpose.  Taken together, there should be a sense of balance in the design and interaction of the different reward plans. 

To help illustrate this idea, I find that a picture like the one below to be helpful in generating good discussion about overall reward program design.

Consider, for example, the organization that retained our firm to review its current management incentive plan and make recommendations for improving it, as appropriate.  After examining their plan in the context of their overall reward program, I drew a diagram like this:

All elements of their current reward program were designed to recognize and reinforce individual performance.  In an organization that claimed teamwork, particularly among its senior managers, was essential to its success, this was a strategic gap.  As an initial step in addressing this gap, we introduced a set of organization-wide performance measures to the management incentive plan, so that this reward element served the purpose of signaling the importance of the top team working together to accomplish organizational goals.

And then there's the case of the organization with the overloaded incentive plan.  The diagram I drew for them looked something like this:

Every behavioral change and performance outcome possible was written into this incentive plan.  It was as if this plan, and this plan alone, held all responsibility for steering and managing employee performance.  All other reward elements had been overlooked.  It was way too heavy a load for one plan to carry.  Our task there was to reach a clear consensus on the one or two objectives that we could reasonably expect the incentive plan to accomplish, and to assess whether other objectives could be assigned to other elements of the overall reward program.

To make things more interesting, the diagram can be expanded on the right side to include other elements of total rewards (i.e. benefits, training opportunities, etc.) and on the left side to include other desired outcomes (i.e. skill/competency development, cultural change, etc.).

What would a reward diagram for your organization look like?

Creative Commons image "Return on Investment" by Lightbox

Line of Sight: Is it About Reward Design or Good Management?

Compensation professionals love to throw around the phrase "line of sight", particularly with respect to incentive pay design.  What do we mean when we use it in regard to rewards?

And are we using it correctly in understanding reward effectiveness?

Line of sight is an expression with 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.

I think our use of this phrase in rewards often misframes the challenge.  Taken too literally, it may propel us on a search for incentive measures that are closer to the immediate 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 less about finding the right measure than it is about education and coaching. It's about communication.

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.

Perhaps its time to move that phrase out of the realm of reward lingo and into the general talent management sphere.  What are your thoughts?

Creative Commons image "Line of Sight - Cobble Hill, Brooklyn" by Marco

Caveat Emptor: Not All Compensation Research is Created Equal

Research can be found everywhere and compelling research findings can make for profitable clickbait.  We in the HR space, however, would do well to become careful consumers of what is often presented as rewards and productivity research.

One example would be an article with an attention-grabbing headline like this one:

Do You Work Until You've Earned Enough, or Until You're Just Too Tired to Work More?

As an HR or compensation pro, you might feel curious to learn more about these purported discoveries on our motivation as wage-earners and our drive to make more money.  Only to discover that the University of Chicago research team behind this headline is drawing conclusions about pay and earnings levels, even work-life balance, from a study involving chocolate consumption. 

No kidding.

Similar concerns about reward-related research and statistics have been raised before.  Over at the Compensation Cafe, my colleague Dan Walter has written about the growing power of statistics in our lives, noting how easily (and often) they are distorted to seem as though they are telling an important story or yielding new insights.  Guest author Gerry Ledford called our attention to the dangers of putting too much faith in "truths" that stem from research findings manufactured in a lab setting that may (and often do) disappear in real-world conditions.  And I wrote a post myself warning about our tendency to over-value academic research and knowledge and under-value our own capacity for experiential learning.

My objective here isn't to discourage us from being enthusiastic consumers of reward-related research, but simply to call out this particular example as evidence of why it is critical to bring some care and discernment to that consumption.  Not all reward research is created equal, in terms of its applicability to real world compensation work and decisions.

Chocolate and compensation:  Both very good, but not the same.

Creative Commons image "Chocolate!" by Sammie Vanderstappen

Tripwires, Hurdles and Gates... Oh My!

On the plate today: an incentive plan design primer covering the topic of performance gates.  

Performance gates (also referred to as "hurdles", "tripwires", "qualifiers" and "knockouts") can play an important role in incentive plan design.

When an incentive plan includes a gate, there is no award payout unless a key measure -- usually not a measure included in the core plan design -- reaches a certain level.  In other words, the organization must "pass through the gate" in order to activate the incentive plan.  Gate measures are typically financial in nature; e.g., requiring a certain level of revenue, net income or EBITDA.  In these cases, the purpose of the gate is to ensure that the organization has adequate funds to meet its most critical obligations before awards are paid out.  For example, an incentive plan which rewards executives for accomplishing a set of individual objectives that reflect each role's contribution to the strategic plan might have a net income gate.  This net income gate, in essence, dictates that the organization must attain a certain level of profitability before the executives earn awards for their individual achievements. 

The opposite, in a sense, can be true as well.  An incentive plan which is primarily driven by financial measures might have a customer satisfaction, customer retention or employee engagement measure as a gate.

Used thoughtfully, a gate is a design mechanism that can provide a sense of balance and security to an incentive plan.  However, the use and establishment of gates must be handled with care and sensitivity.  Setting a performance gate at too high a level can engender employee cynicism and mistrust, creating the perception that management can (and does) manipulate the plan to avoid paying out.