Compensation Cafe

Effective Pay for Performance Demands Tools AND Teeth

The defining characteristics of an effective pay for performance culture?  New research from Sibson brings us some answers.

Sibson's Real Pay-For-Performance Study, which draws from a combination of in-depth interviews and a "pulse" survey of almost 140 companies, examines and distinguishes the practices of "best results" companies - the top 20% of respondents rated on their success in creating organizational systems which reward high performance. 

In asking the "best results" companies to select the factors which contribute most to their effectiveness, the following were noted as the top three.

• Leadership support - 86%
• Processes for differentiating performance - 74%
• Processes for delivering pay to high performers - 68%

So, effective performance pay systems require not only the right tools (performance assessment and pay delivery programs) but also - and perhaps most importantly - the right culture (one where leadership truly supports performance pay).  This is not a surprising finding.  Most of us out practicing compensation in the real world have learned the hard way that performance-based pay simply does not happen without leadership support.  Because paying for performance demands a lot from organization, and a particular lot from its managers.  It requires the time, energy and discipline to set and communicate not only performance expectations but also the reward implications of performance.  It requires sharing clear and frequent information about actual performance against expecations. And - perhaps most of all - it requires the courage to treat people differently (from a reward standpoint) based on the performance they deliver.

For a host of reasons, managers will resist doing these things.  It's when that happens that leadership support for performance pay is put to its true test.

In my experience, almost all leaders embrace the idea of paying for performance and will readily describe their pay systems as ones which reward high performance.  This is not leadership support.  Talk aside, true leadership support has teeth.  True leadership support involves holding people accountable for delivering on performance pay and following through with consequences when they do not. 

When managers who game - or ignore - the system experience only positive consequences ("I am able to give everyone a big increase.  I am a hero to my team."), leadership support has gone missing.  When managers who commit the time and energy, who show the discipline and courage to follow through on performance and reward decisions experience too many negative consequences ("I appear to be the only manager not giving his/her team big increases across the board.  My team feels unfairly singled out.") then leadership support is absent.  

Bottom-line:  When leadership support for performance pay is all talk but no teeth, what odds of success do even the best conceived programs have? 

Ann Bares is the Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time.  Follow her on Twitter at @annbares.

Irked Enough to Care

Do you have any “malcontent” employees? The ones who are always complaining? The ones who, no matter what, are never happy with their job, their colleagues, their managers, the company?

What about “vocal” employees? These are different from the malcontents, though "vocal" employees also have no fear about expressing their opinions on how the team, project or company could be better.

A good argument can be made for exiting the true malcontents (those who are thoroughly disengaged). But too often the “vocal” employees are lumped in with them.

How do you tell the difference between the malcontents and the vocals? Listen to the intent behind their words.

A vocal employee will convey an attitude of: “I’m engaged enough to be irked.”

Employees who are engaged enough to be irked still care. If they didn’t care about the success of the project/team/company, they wouldn’t invest effort to complain or even register emotional concern.

The challenge for managers of vocal employees is to listen constructively to what is being expressed and then respond appropriately in one of three ways:

1)    Agree and take action. Acknowledge the employee is right in their assessment and then take action to implement changes.

2)    Disagree and communicate. Hear the employee out, but if the anger is genuinely misdirected (usually due to lack of a complete picture of the situation) explain to the employee more fully why things are the way they are and how the employee can be more successful within those boundaries.

3)    Agree and do nothing.  Acknowledge the employee’s point of view but take no further action.

The first two responses are fair and honest. Either could be appropriate and the best reaction depending on the situation. The third response is a cop-out. Refusing to take action or redirect employee emotion more productively will result in a “vocal” employee becoming a true malcontent.

Why am I writing about this in a blog about compensation and recognition? To employees who care, and “vocal” employees certainly do, truly listening to them and taking action is a powerful form of recognition. Validating employee concerns shows you pay attention to what is valuable to them.

As we near the New Year, I’m adding to my New Year’s Resolutions: Listen to the employees who care enough to be irked.

Derek Irvine is Vice President of Client Strategy and Consulting for Globoforce, helping global companies set a higher ambition for global strategic employee recognition by leading workshops, strategy meetings and industry sessions around the world. Along with Globoforce CEO, Eric Mosley, Derek recently authored “Winning with a Culture of Recognition: Recognition Strategies at the World’s Most Admired Companies,” available through Amazon.com. Follow Derek on Twitter at @globoforce.

Should the Boss Always Earn More?

No, the boss doesn’t have to earn more than every subordinate. The boss usually earns more, but there is no rule that requires a manager to be paid more than anyone who reports to them.

In general, each job is paid according to the organization's estimate of the value added by that person in that job. Long service in the same valuable position frequently means that a senior specialist who has earned national recognition in their field might earn a very high salary due to large increases accumulated over the years.  Their pay will frequently exceed that of their brand-new boss hired right out of school but expected to rise in the company. 

One major trucking firm used to hire ex-football players graduating with fresh business degrees from the college known as “Linebacker U” to start out as entry level dock foremen.  The drivers typically made far more money than their nominal “supervisors,” but they would never mess with the kids, who were quite physically and mentally imposing.  Nor did the relatively “underpaid” beginners begrudge the crusty veteran over-the-road long-haul drivers their higher earnings.  After all, this was the mere beginning of the college graduates’ rise to management levels, while the drivers fully deserved their wage for the sacrifices their role demanded.  If the foreman wanted the driver rate he (this was pretty much in the pre-EEOC Stone Age where female dock foremen were rare) could always join the Teamsters or buy an owner-operated rig.

It is common to have overlaps in pay structures; so that the top end of a technical ladder may permit pay higher than the bottom rung of a supervisory scale.  If there is a situation where one career is ending while the other may be starting, no inequity will be perceived by incumbents.  There also used to be a deliberate overlap in bonus-eligible pay structures, creating a juncture point looking like a Y turned 90 degrees to the right where employees whose total compensation included contingent pay packages would have lower guaranteed base pay than their peers ineligible for bonus.  Their base line would have a lower slope, while their intended total compensation line would be higher; but, of course, if they did not perform adequately or produce the desired output, their TC would remain lower than non-bonus-eligibles who might even be their direct-reports.

Sometimes the boss is simply a bureaucrat paid to handle budgets or funding or do other things different from the skills or competencies of the superstars supervised. The most brilliant Nobel-prize-winning research scientists often report to program managers who make less than they do; but their skills lie in different areas. Think of any professional sports team, where the General Manager hires and fires and the Coach directs the subordinate players but both of those senior executives generally earn less than the top superstar players.

Different jobs bring different pay. And having a long distinguished track record of exceptional performance in a position will usually mean that your pay will exceed that of most of your peers and maybe some of your supervisors. That's especially true if the boss is relatively new to their job, even though the lower-earning supervisor may be "worth more" in the long run to the enterprise and may have a higher range of potential pay.

These are all exceptions to the normal procedures that apply when you experience pay compression.

Management positions usually earn more because they have more leverage on the success of the operation. It is the responsibility of the senior executive team to make sure that no one is raised to a position of power without the necessary minimum skills, competencies, experience and knowledge to exercise management authorities. Anyone with those credentials (sometimes called "human capital" or KSAs) will expect a certain amount of pay to take on that job responsibility, and it will generally be a higher rate than the normal wage or salary of their subordinates; but not always. 

Sure, the typical visitor to the Compensation Café knows all this, but much of the rest of the world does not understand this basic tradecraft principle.  The next time someone hits you with a challenge on the topic, send them this link.  By that time, we may have a bunch of comments covering the elements I omitted.  It’s a lot easier to have a reference on hand than trying to remember all the points you need to cover for a comprehensive explanation.

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

Reminiscing with You This Time of Year

All of us like to hear stories this time of year, so I thought I would do my part. 

Did you know that we have a family history that goes back to the 1800's? Pour a glass of wine, nestle into that chair by the fire and I'll tell you the story of Human Resources. (With lots of help from Wikipedia, so remember that this a story could have some misty origins.)

Once upon a time there were people who lived without FSAs, 401(k)s, FLSA, DOL or even Human Resources. And yet their lives were terribly difficult.

"The early development of the [Human Resource] function can be traced back to at least two distinct movements. One element has its origins in the late 19th century, where organizations such as Cadburys at its Bournville factory recognized the importance of looking after the welfare of the workforce, and their families."

Remember that in the late 19th century the Industrial Revolution was in full swing with employees working in ghastly, unsafe sweatshop and factory conditions. The Cadburys had something entirely different in mind for their employees. From 1879 to the early 1900s they pioneered pension schemes, joint works committees and medical service within a culture where factory jobs could swallow most of your life and give back barely basic financials. The Cadburys also developed a community for their employees, building houses in a style that would be used as a model for decades and providing for health and fitness activities. (Any of this starting to sound familiar?) Other employers became uncomfortable as the Cadbury's model turned out to have merit. How could they compete?

The second movement combined politics with business -- a theme that is with us still. 'The employment of women in factories in the United Kingdom during the First World War lead to the introduction of "Welfare Officers". Meanwhile, in the United States the concept of human resources developed as a reaction to the efficiency focus of Taylorism or "scientific management" in the early 1900s, which developed in response to the demand for ever more efficient working practices within highly mechanized factories, such as in the Ford Motor Company. By 1920, psychologists and employment experts in the United States started the human relations movement, which viewed workers in terms of their psychology and fit with companies, rather than as interchangeable parts.'

"During the middle of the last century, larger corporations, typically those in the United States that emerged after the Second World War, recruited personnel from the US Military and were able to apply new selection, training, leadership, and management development techniques, originally developed by the Armed Services, working with, for example, university-based occupational psychologists. Similarly, some leading European multinationals, such as Shell and Phillips developed new approaches to personnel development and drew on similar approaches already used in Civil Service training. Gradually, this spread more sophisticated policies and processes that required more central management via a personnel department composed of specialists and generalist teams."

Yes, Virginia, we have an honorable and interesting family history with a common thread of facing stark realities with innovations. Work has gotten more interesting, more fulfilling and less physically threatening and we've had a piece of this progress.  We learned and keep on learning. It's a great story.

 Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communication to the dialog at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret earned her M.S. and Ed.S. in Instructional Technology at Indiana University.  Creative writing is one of her outside passions, along with Masters Swimming.

Keeping Santa Out of Your Bonus Plan

It's that time of year again.  The end of the business year, when managers everywhere turn their thoughts to - bonuses!  The calculators are out and every eligible soul from Marketing to Manufacturing to Sales, IT, HR and the Executive Suite tries to figure out how fat that check will be.  For many, it's the gift receiving season.

And thus the same bad script repeats itself for the annual management bonus process, year upon year upon year: objectives created at the last minute, embellished accomplishments dutifully recorded, problems and shortcomings diminished or forgotten and assessment forms looked at with disdain - as in, how do I fill out this thing to pump up my results?

More than the mechanics are at fault

Oh yes, the process is flawed, yet the foxes are in charge of the chicken coop - and they offer little hope for reform.  Why?  For those in charge the process works, and self-interest pays its own rewards.  Picture Santa Claus with a very large bag of goodies.

Cynical?  You bet.  For many of us in the trenches true pay for performance is an elusive concept best remembered from Compensation 101 textbooks, suitable only for life as it should be, not as it is.  Sad to say, but senior management is often the worst offender.  I've seen senior executives manipulate, excuse me, adjust financial results to ensure that their own bonus awards wouldn't be reduced.  Senior staff deserves competitive bonus awards, don't they?  How can you not reward your senior leadership for their efforts?  And so once again entitlement trumps performance.

Studies suggest that the I-deserve-it mentality has weakened through this recession.  However I'm convinced that it's still alive and well wherever rewards are viewed as payment due for time served, not for effort and results.

But we go on hoping, one company and one client at a time, trying to persuade leadership that it's primarily good performance that should provide rewards; that tenure isn't a compensable factor, that incentive payments should be deserved, not simply an automatic gift of delayed compensation.  Lower level employees are expected to earn their rewards; shouldn't the same case be made for management?

End of year expectation

Have you ever told an executive that their annual bonus might be reduced because of either corporate or - dare I suggest individual performance didn't meet expectations?  They would look aghast at the possibility.  I've taken calls from spouses asking when the checks would be cut (something or other was going on sale) - and then grew upset when told of the review process and that the Board of Directors has to approve.  The common attitude was, times up! - where's the money?

Will the situation be any different for the bonus cycle in 2011?  I hope so, but bucking the trend of human nature is far from a sure bet.

To change those dynamics, as well as the effectiveness of your incentive plans you need to stand up and speak up.  The process is starting now, so it's not too late to have an impact, to instill a management pay-for-performance philosophy in your company - even if it's only one step at a time.

• Performance appraisal shouldn't be an activity list (I was very busy), but a focused statement of achievement against quantifiable and measureable objectives

• Let the assessment tell you the rating, not the other way around (how do I fill out this form to give a 4 rating?)

• Confirm that the language on the assessment form corresponds to the performance rating.  Oh yes, you have to check.

• Assessment forms should be required before an incentive payment is made - negating an old procrastination trick (oh, just process the check.  I'll get the form to you . . . tomorrow or the next day)

• For the 2011 cycle, start by having objectives established early in the year, not in an after-the-fact rush at the end

Granted, you'll need more than a steely look and a waving flashlight to stop a speeding freight train, so you should educate management about these ineffective and wasteful practices before the cycle starts.  Because afterward may be too late; discipline as a learning tool is best used to prevent problems, not when Santa is already reaching into his bag of checks.

It's Christmas, the season of light, cheer and new beginnings, so let's be optimistic.  Prove me wrong and get it right.  Or at least start.

Merry Christmas and Happy Holidays to you and yours

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Image: Creative Commons photo by finsbry

Gender Pay Equity in 2011: The Devil Is In The Details

During 2010, gender pay equity was a hot topic - everyone was talking about it. And just because the Paycheck Fairness Act didn't make it through the Senate doesn't mean the gender pay equity discussion is over. Labor Secretary Hilda Solis said "I am deeply disappointed that the Senate did not pass this important piece of legislation, but the issue of pay equity is far too important to give up." Rest assured that gender pay equity will continue to be at the top of the regulatory agenda during the coming year - the National Equal Pay Enforcement Task Force will make sure it is.

But what should employers be thinking about with respect to gender pay equity? As the old saying goes, The Devil Is In The Details. This couldn't be more true when it comes to compensation. Here are the key details employers should be examining:

Having That One Key Piece Of Paper

Document everything. Everybody says it, but are you really doing it? The Wal-Mart case is a great reminder about the importance of documenting your pay decisions and retaining that documentation.There's no way anyone is going to remember ten years worth of how compensation decisions were made for millions of employees. So document your decisions, keep signed copies of performance reviews, document what criteria were used in evaluating performance, and maintain industry statistics and market survey information you used in setting pay.

Philip Miles, an employment attorney at McQuaide Blasko, suggests you ask yourself the following question before purging documentation - for every document you destroy, ask what decision will go unsupported in a lawsuit. How will that affect your defense? If in doubt, keep it. It just might be the one piece of paper that has the details to save your company from going bankrupt as a result of a pay discrimination claim.

Communicate the Details To Avoid Feelings of "Unfairness"

You could have the perfect “best practice” compensation policy in the world, but if your employees don’t know – or don’t understand – the details of the policy, there's an opportunity for feelings of unfairness. This is particularly true for variable pay. And these feelings of unfairness can lead to a claim of discrimination. Even if your compensation practices aren't discriminatory, if you're faced with a claim of discrimination you're going to have to spend time and money defending yourself.

It's essential that the details of the compensation policy are communicated to your employees, and your workforce needs to understand what's expected of them in order to achieve the next merit increase, bonus payment, etc. If you don't communicate the details, your compensation system might as well be a "black box" system. 

How Big is Big Enough?

This is one of the fundamental questions of looking at pay equity. If you find a disparity, is it big enough to matter? In answering this question, you need to consider statistical significance and practical significance. Statistical significance has a precise meaning within both statistics and the law. I'll spare you the painful details - the key takeaway here is that if the disparity is 2 or more units of standard deviation, from a statistical and legal perspective, it's big enough to matter. Your statistical consultant would infer that the disparity is attributable to something other than chance.

But what if you find a statistically significant difference of $0.01 in the annual earnings of men and women? Would you take corrective action for a one-cent per year difference? This is where the idea of practical significance comes in - it asks whether the difference big enough to matter. Unlike statistical significance, there is no firm "rule" for practical significance. It's open for interpretation. A one-cent per year difference is probably not practically significant. But what about 10 cents per year? A dollar per year? 100 dollars per year? You're pretty much on your own when it comes to determining whether a gender difference is big enough to matter from a practical significance perspective. It's one of those devilish details that can bite.

It's About More Than Just Systemic Discrimination

When we think about gender pay equity, we typically think of systemic discrimination - ABC Corp has a pattern and practice of discriminating against women. But not all discrimination claims are on the order of magnitude of Dukes v. Wal-Mart with millions of plaintiffs - individual claims can be brought under the Equal Pay Act and by various regulatory agencies. And these agencies have stated that they are broadening their enforcement efforts to include identifying and resolving individual cases of discrimination.

Statistically looking for possible systemic discrimination is, in some respects, a lot easier than for individual cases of possible discrimination. With systemic discrimination, you essentially have one disparity estimate for a given protected group for each of your groupings (by job function, department, etc.). For individual cases, you need to look at the difference between actual and expected compensation for each individual in each of your groupings. It requires a different statistical technique, and likely will involve a lot more in terms of follow-up efforts. You'll be looking at the details of each one of your employees. But the effort is well worth it - from a litigation avoidance perspective, it's important to be looking at the individual details.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than a decade, she's been working with businesses and government agencies providing expert EEO analysis. Stephanie has published several articles on examining compensation systems with respect to equity. She is the host of The Proactive Employer, and is the owner of Thomas Econometrics. Follow her on Twitter at ProactiveStats.

Powered by Recognition

A recent Towers Watson report Turbocharging Employee Engagement - The Power of Recognition from Managers demonstrates the significant impact manager recognition has on engagement.

There are three components of engagement: rational (employees understand what they're supposed to do), emotional (they are passionate) and motivational (they voluntarily work longer hours).

Not surprisingly, an engaged employee who understands his or her job, cares about the company and works weekends creates more business value than a disengaged employee.

Engagement is primarily driven by three things: 1) leadership quality; 2) development opportunities; and 3) a feeling of autonomy (aka 'trust').

We know this.  Few companies have a plan in place to increase shareholder value by acting on it but it's fairly common knowledge.

Less well-known is the  significant role direct supervisors play in the engagement mix, which was the key finding of the Towers Watson report:

Even companies that do nothing to stimulate employee engagement in terms of skilled executive leadership or providing development opportunities can boost engagement by almost 60% if managers recognize and appreciate employee performance.

So, this is where I tell you to go recognize your employees, right?  Not exactly.

First of all, employee recognition is an acquired leadership skill just like any other and requires a bit more discipline and effort than saying, 'Hey, Bob, nice job on that, uh... thing you did.' 

The kind of recognition that drives employee engagement requires managers to comunicate frequently and candidly with employees, define clear performance objectives, trust people to do their jobs, hold them accountable, praise sincerely and reward performance consistently and fairly.

So, manager skill is one potential barrier to employee recognition that can be addressed with training, mentoring, experience or if necessary, removal.

The other barrier is where most organizations miss the boat when it comes to employee recognition: They focus on the how of recognition rather than the who.

Imagine an employee who just completed a critical project with high quality.  The manager praises the employee's work both privately and publicly and refers the employee to executive management as a high potential.  The employee feels highly engaged and ready to work even harder next time.

That's really great but what happens next?

A.  Executive management smiles on the employee for being a high potential and starts thinking of possible career paths that include the manager's job.

B.  Executive management smiles on the manager for promoting employee engagement and starts thinking of possible career paths that include a larger span of control.

If you chose A over B, I'm afraid you just killed your recognition program.

In today's competitive economic climate it takes an unusually secure manager to hold a high performing employee up to the limelight where someone might start wondering if the employee could do the manager's job.

It isn't enough to recognize employees. The key to a successful recognition program is to recognize managers who recognize employees.  

Picture courtesy of pixabella.com.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

A Holiday Medley: Special Cafe Podcast

In celebration of that special time of year, my Compensation Cafe colleagues and I are pleased to offer our readers a Holiday Medley podcast - a festive thirty minute turn through a number of seasonal reward topics.

Our Holiday Medley podcast was produced in partnership with Human Resources IQ, as part of the lead-up to their Online Compensation & Rewards Summit 2011 (January 18 through February 10), in which I and others are participating.  (Note that the early bird discount for event registration is extended through this week.)

We hope you enjoy!

Image: Creative Commons Photo "Christmas Time!" by L*u*z*A

Too Heavy for Any Amount of Money

Happy Monday! Were you excited and ready for work today? Was the weekend long enough?

I keep hearing from people that they are putting in more effort and longer hours than ever before. Workloads are increasing, but companies aren’t hiring. We all know that overworking employees leads to progressively diminishing returns.  But, when is more work simply too much?

Compensation professionals are always working on the next salary increase and bonus pools. We fret over the most advantageous way to allocate these precious funds while keeping our employees productive and engaged. Perhaps we should step back and ask ourselves if we are spending our money on the right people. Maybe it’s time to hire a few more people rather than paying more to our increasingly thin and exhausted teams. Can we, and should we, really try to squeeze out a bit more work?

Imagine workload as a series of stones ranging from small to inconceivably large and heavy. With basic motivation most people will choose to pick up a small or medium stone. Combining the motivation of good pay and the potential risk of job loss can get the majority to strain to pick up the heaviest rock they can. What if the next one is even heavier? What if it’s simply too heavy to lift?

Many of us may already be at this point. We may be asking people to do more work, at a higher quality, than is physically or mentally possible. They may be able to lift the load once or twice, but not on a consistent basis. If this is the case more pay will not fix the problem. The only way to lift the rock is to bring in help.

We may forget that many people have been performing at the edge of their capacity for a long time. Even the best employees will succumb to exhaustion. Corners will be cut. Small tasks will be avoided. Random steps in critical processes will be skipped. Nothing will be immediately noticeable, but the results will accumulate. Unexpected things will start going wrong. Your best employees will trickle away to competitors and your worst employees will simply throw their hands up or choose smaller rocks to lift.

Now is the time to start addressing the number of staff members you should be paying, rather than the amount each person is paid. Instead of adding a few more dollars to everyone’s pay, add a few people to every team. You may need to ask your executives to step up and make a “donation.” In many industries executive pay has recovered. In some industries it even exceeds pre-crash levels. Explain how dollars spent augmenting your staff today will result in better compensation for everyone tomorrow. This is seldom a fun or enjoyable conversation, but it beats the alternative. 

Sometimes the stone is too heavy for all the money in the world. If you’re already there, you need to act now. 

Dan Walter is based in San Francisco, CA and is the President and CEO of Performensation an independent compensation consulting firm focused on the executive, equity and performance compensation needs of companies not in the Fortune 1000. Dan is on the boards of the National Center for Employee Ownership, HR.com’s Institute for HR, and the Chief Learning Officer Business Intelligence Advisory Board.  He also helps produce ShareComp, a virtual conference addressing equity compensation and is the founder of Equity Compensation Experts. Dan is in high demand as dynamic and humorous speaker at events around the U.S. Connect with him on LinkedIn or follow him on Twitter @performensation.

photo: zacheven-esh.com

Who Decides? Who Has a Voice, Who Has a Vote and Who Makes the Call?

There is a movement toward increased pay program transparency.  I don't mean a movement toward revealing or publicizing employee salaries (although this may be trumpeted in some remote corners).  Rather, I think this is a movement toward soliciting more input and involvement in pay program design as well as toward more sharing of information on pay program intent, mechanics and administration.

The reasons behind this are many and they include - but are not limited to - the following.

-Transparency and openness are part of the culture and values of a growing number of organizations.

-Today's workforce is more demanding of information and less tolerant of secrecy.

-Tough times and austerity measures pushed many organizations to a new level of information sharing in the past few years.

-Organizations with solid, competitive and well-managed pay programs are realizing that there is little to lose and much to gain by providing more information to their employees.

This trend, however, does change the pay program management game for us.  More involved and informed employees are more likely to raise questions, voice concerns and even challenge elements of the pay program.  This can be disconcerting for HR and compensation professionals who have worked hard not only to make the programs better but also to involve and push more information out to employees.  Instead of appreciation and gratitude, we find ourselves facing a barrage of questions from a testy, skeptical crowd.

Here's the thing.  Transparent, participatively developed pay programs are messier and more complicated to manage than programs whose inner workings are closely held between HR and top management. They are ultimately better - to my mind - for rising up and meeting this challenge.  But transparent pay programs also require clear communication of rules and roles.  About who has a voice, who has a vote and who - ultimately - makes decisions.

At the end of the day, the organization and its governing bodies (the Board and top management, and whoever they have empowered in this regard on their behalf) retains the right and the responsibility to set employee compensation.  Period.  There are benefits to everyone if they choose to do so by providing thoughtfully considered opportunities for manager and employee input and if they take steps to make the pay program appropriately transparent.  Nonetheless, they and they alone make the decisions on the programs and policies by which people are paid.

In the interest of truth and transparency, it is incumbent on us to remind our more strident and outspoken employees of this reality.  Part of our responsibility in bringing more transparency to pay practices is to also make the boundaries themselves clear. 

A delicate balancing act ... encouraging and considering employee feedback and concerns while reminding them of the limitations of their voice and role?  You bet it is. 

Are you up for it?

Ann Bares is the Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides practical, operational and business-oriented compensation advice to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time.  Follow her on Twitter at @annbares.

Image: Courtesy of communitysouth.net