Submitting to the "Tragedy" May Bring Darth Vader - and Forced Rankings - to Your Door!

We're gonna take our "Tragedy of the Commons" story and give it one last shake, all.

Kris Dunn, editor and team lead at Fistful of Talent, shares his take on the tragedy ... and its potential consequences here.  Not willing to force - or accept - accountability for honest performance assessment?  Then you may have an ugly outcome headed your way.

Check it out.  And if you aren't already subscribed to Fistful, with its diverse group of bloggers covering all things Talent, get it done.

Recognize and Reward Those Who "Keep the Light On"

A commenter self-described as a "Steady Eddie" in a support role, shared some great thoughts on the importance of recognizing and rewarding performers at all levels of the organization, not just the "fast trackers" or those in management jobs.

From "Niblet" in the comment stream of Can There Be Too Much Pay for Performance?

Not every employee desires to be in management or on the fast track, but that should not relegate a committed steady performer to the dustbin without recognition. There must be some way to recognize those essential cogs in the wheel of any organization.

I love what I do & the people I work with. I just wish that I did not feel like I was recognized as much as the furniture - that is to say "not at all". I may not earn millions, or even thousands, for the company, but I keep things running just like many of my fellow Steady Eddies. After all, someone's got to "keep the light on for you".

A great reminder for all/any of us involved in reward program design and management.

Creative Commons Photo "Keep the Light On" by Vox Efx

Beyond the Compa-Ratio: Other Base Salary Management Tools & Approaches

I posted a few months back about the indefatigable compa-ratio, a simple statistic that can provide a wealth of information about your base salary practices.

A number of readers commented about related approaches and tools; I thought a follow-up post might be in order to address some of the great questions they raised.  Snooze alert for those of you who can't bear much compensation detail; here is a boatload comin' at you.

Salary Range Quartiles

Alan mentions his organization's use of quartiles to manage base salaries.  Sovan asks the question: "I am comfortable with compa-ratio but not with converting the same to quartile or vice versa. Can you suggest an article/post which can be helpful in studying this?"

Dividing a salary range into quartiles is another time-honored method for managing base salary practices, and is an approach often featured in conjunction with a merit increase matrix, as Alan points out.  I urge my clients to define their quartiles as target salary areas for different employee groups; e.g., the first quartile (lowest 1/4 of the salary range) represents the appropriate salary for new, relatively untried and inexperienced employees. 

As a salary management tool, quartiles (or quintiles, or deciles, or thirds/tri-tiles) are less precise than the compa-ratio statistic (as they describe a "chunk" or "portion" of the range, rather than a specific dollar point), but they can serve an important purpose nonetheless. 

In terms of Sovan's question about conversion, I typically define range quartiles using compa-ratio.  For example, a salary range that is 50% wide from minimum to maximum, with a midpoint exactly in the middle, will have a minimum equal to 80% of the midpoint (the same as a compa-ratio of 80%) and a maximum equal to 120% of the midpoint (the same as a compa-ratio of 120%).  You could further use compa-ratio to define quartiles in this particular salary range as follows (not in a perfect geometric sense, but in a simple and straightforward one):

Quartile 1: Compa-ratio of 80% to 90%

Quartile 2: Compa-ratio of 90% to 100%

Quartile 3: Compa-ratio of 100% to 110%

Quartile 4: Compa-ratio of 110% to 120%

Salary Range Percentiles

Lupe says: "At work we use SAP Compensation system which uses compa-ratio, but management uses percentile. As an analyst I always have a problem with translating percentile to compa-ratio. Do you have a formula for this?"

If I am correctly understanding the use of the term percentile here, I believe Lupe is referring to an alternative statistic to the compa-ratio.  A client of mine uses a percentile statistic in lieu of compa-ratio which he calls "point in range", and which he believes is a more intuitive figure for communicating with managers and their employees.  Having never heard of it before, I assumed he invented it (Dave??), but perhaps it is in more widespread use than I realized. At any rate, point in range is calculated using this formula:

(employee salary - range minimum)/(range maximum - range minimum)

And it works this way:

If an employee's salary is at minimum, the "point in range" is 0% (that is to say, he/she has not yet made any progress into the range)

If an employee's salary is at midpoint, the "point in range" is 50% (which indicates that he/she is exactly halfway through the range)

If an employee's salary is at maximum, the "point in range" is 100% (which indicates that he/she is at the top - or highest level - of the range)

The exact translation of compa-ratio to point in range will, unfortunately, vary in accordance with the width of the range - except at midpoint where point in range will be exactly half of compa-ratio.

That's it.  Thanks to all who commented on the compa-ratio post for your willingness to take a deep dive into the quantitative end of the salary management pool!

Follow-up note:  Point in range, or range penetration formula corrected above - thanks, Dan for noting the error.

Image: Jane M. Sawyer

Putting Employees in Charge of Reward Communication: An Intriguing Success Story

In a post from this week's WorldatWork conference in Philadelphia, blogger Ryan Johnson shares an interesting story about an HR department (at Minnesota company Best Buy) that decided to try a different approach to employee communication.

From Ryan's post:

At Best Buy, the HR department decided to try something a little different to increase employee participation in the 401(k) plan. They took a page out of the YouTube phenomenon and offered $1,000 cash to any employee or employee team that created the best short video encouraging employees to enroll. They were astounded to receive more than 30 entries, but they were even more astounded when the winning video was so effective at promoting 401(k) enrollment that their budget for match was reached.

Cool, eh?

Any readers from Best Buy who can weigh in with more info?

More on The Tragedy of the Commons: Holding Managers Accountable for Good Stewardship

In yesterday's post, I shared a comparison between the challenge of making merit pay work and the classic dilemma The Tragedy of the Commons.  The tragedy is played out - and the prospect of performance based pay ultimately doomed - when individual managers put their short-term interests and those of their employees (i.e., everyone gets the maximum increase available) ahead of the longer-term interests of the overall group (the organization).  Addressing this particular version of the tragedy, I maintained, requires holding managers accountable for being good stewards of the organization's resources.

Andres Acosta, a reader and HR blogger in his own right posed some great questions in the comments to that post.  If I may paraphrase Andres:

1. How do we do it - hold managers accountable for their roles as stewards?
2. What are some processes, tools and practices that can help motivate managers to put company long-term success before the immediate compensation pressures of their team?

I know my readers will have some great thoughts on these questions.  Here are a couple of mine just to get the ball rolling:

1. I hold that accountability starts with consequences.  If, as a result of putting his/her immediate interests ahead of those of the organization, a manager encounters only positive consequences (I am a hero to my team!) and no negative ones, I would say that nobody is holding that manager accountable for doing otherwise.  Alternatively, if that manager's superior were to challenge and express concern about the action or if the manager were called to defend his/her action by/to a forum of peers or if the manager's performance were assessed as "needing improvement" directly as a result of the short-sighted and self-serving nature of the action, these negative consequences might cause the manager to rethink his/her approach.
2. One practice that I would suggest considering is incentives based on group performance (I'm a compensation consultant - what did you expect?).  Seriously, I wish I had a nickel for every senior management team (or even middle management team) I have encountered who are incented largely or entirely on individual performance, but whose CEO (or Board or HR Manager/Director) complains loudly about silos and a lack of cooperation.  Want them to act like organizational stewards?  Then pay them like organizational stewards - not individual contributors!

Let's hear what you think! 

The Tragedy of the Commons and Merit Pay

The topic of pay-for-performance came up in a recent meeting, and someone drew a comparison between the challenge of making merit pay work and the classic dilemma The Tragedy of the Commons.  It was a beautiful point and I'm not sure I can do it justice here, but I am going to give it a shot.

A little background.  The theory underlying the Tragedy of the Commons dates back as far as Aristotle, but it was popularized in modern times by the essay of the same name written by Garrett Hardin for Science.  Essentially, it describes the dilemma that occurs when the short-term interests of individuals are at odds with the long-term interests of the group. 

I like Wikipedia's summary of Hardin's article:

This story describes a group of herders having open access to a common parcel of land on which they could let their cows graze. It is in each herder’s interest to put as many cows as possible onto the land, even if the commons is damaged as a result. The herder receives all the benefits from the additional cows but the damage to the commons is shared by the entire group. Yet if all herders make this individually rational decision, the commons is destroyed and all will suffer.

As Hardin and others point out, the "tragedy" plays itself out in a wide range of modern day "commons" - beginning (but not ending) with our use of resources such as water, parks and wetlands, fish stocks and oil.  I believe we often see a similar dynamic at work among managers when it comes time to assess their subordinates' performance and hand out merit increases.

The actions of many managers would suggest to me that they see their role and their primary objective in the merit pay process to be getting the highest possible increases for each of their reports, however that might be accomplished.  If gaming the pay system is the most expedient way to get there, then so be it. 

The outcome of this behavior is that the ability of the group (the organization) to pay for performance, to differentiate and reward the employees who truly go above and beyond in their roles, is compromised in favor of the individual manager trying to maximize the pay levels of his/per particular group of employees.  Peformance-based pay ultimately fails.

Addressing this "tragedy" requires more than simply training managers in the nuts and bolts of how the performance management and pay systems work.  It requires directly dealing with the definition of what it means to be in a management role.  And I would submit that the role of a manager is one of stewardship; of being good stewards of the organization's resources - both human and economic.  Stewardship involves actively balancing the needs of both employees and the organization.  What it isn't is putting the short-term interests of their reporting employees above the longer-term interests of the larger group.

Until we hold managers accountable for their roles as stewards, we will be unable to conquer this particular Tragedy of the Commons and our pay-for-performance efforts will never really leave the starting gate.

   

Selecting Survey Data: Follow the Labor Market

When you are market pricing jobs and find yourself in the enviable position of having multiple surveys and/or multiple survey cuts to select from, the question becomes what data do you use?  Do you focus on the local geographic area where the job is located?  The industry?  Organizations similar in size?  Some combination of the above?  The right path may not be clear, particularly when you are new to market pricing and/or compensation.

I'd like to suggest a rule of thumb to guide you in your selection:  Follow the labor market.

The labor market is your particular market for talent.  It represents where you draw your talent from and where you potentially lose it to.  And, most importantly, it is the external "stake in the ground" against which you set and assess your pay practices.  Which makes its definition a key philosophical question underlying the design of your compensation program.

For most organizations, the labor market is not a singular one-size-fits-all-jobs phenomenon.  The typical organization draws from different labor markets for different job groups.  Executives might come strictly from within your industry, from organizations comparable in size/scope, but from anywhere in the nation.  The labor market for specialized jobs like sales engineers, alternatively, might be any size/scope organization within your industry, but strictly the local or regional geographic area.  Administrative support staff, on the other hand, might be drawn from the local geographic areas, from any industry or organization size.

If these represent the labor markets for your different job groups, then your selection of survey data should mirror this to the extent possible.

I sometimes find it helpful to chart out an organization's labor markets in a matrix, like the one shown below, to guide survey selection and market pricing efforts.

Clearly defining your organization's labor markets can provide helpful guidance through the all the choices involved in the market pricing process.

Creative Commons Photo "Arrow" by Paul Downey

Just Take Your Damn Seat at the Table

That's what Dan McCarthy, of the Great Leadership blog, says.

I've posted recently about HR's quest for a seat at the table, and some of my blogging colleagues have also rightly scolded us for our collective whiny attitude when people talk about how HR stinks.

But Dan has nailed it.

Well, I’ve learned over the years that if you want a seat at the table, you need to assume it’s yours, just barge in, and take it. Grab a cookie, have a seat, pour a glass of water, and contribute to the success of the business. Executives aren’t stupid people – if you have something substantial to offer, they listen. And if you don’t – if you try to get away with shoveling fluff at them, they are quick to size you up and dismiss you. Take your cookie and go home.

If you aren't already reading and subscribing to Dan's blog (great opinions and information on leadership and leadership development), do it now. 

Pay Program Participation & Transparency: a Voice or a Vote?

I have had some great conversations with a few of my clients recently as part of ongoing efforts to "open up" their compensation programs - giving employees and managers opportunity for input to program development and working to better inform and educate them on program purpose, intent and mechanics.

A funny thing happens in the course of moving these compensation programs to (hopefully) a better place.  More involved and informed employees are more likely to voice concerns, question and even challenge elements of the program.  That's right.  Which, to the HR or reward professional who has invested so much time and energy (and sometimes even political capital) in making the programs better and more open, can feel like taking two steps back after taking three steps forward.  But it's not.  This is simply part of the new paradigm that the organization has entered.  Transparent and participative pay programs can be messier and more complicated to manage than secret, dictatorially designed programs.  But they are ultimately better for it.

However.

I also believe that, in these circumstances, there is an important message that must be sent and repeated about who is in charge at the end of the day.  About who has a voice and who has the vote.  And the message is this:  The organization and its governing bodies (management and/or the Board, typically) retain the right and the responsibility to set employee compensation.  Period. 

Now, they do everyone - including themselves - a tremendous favor if they choose to discharge this responsibility by providing well-considered opportunities for employee/manager input and if they seek to make and keep pay programs appropriately transparent.  But this doesn't change the fact that they hold the right to make the final decisions on the programs and policies by which people are paid.

We occasionally need to remind our most strident and outspoken employees of this fact, even while encouraging their (constructively expressed) ideas and feedback.

That's my stand.  I posted some time back about pay democracy, after reading a Wall Street Journal article featuring a company that had allegedly arrived at that place.  I have to confess that I just don't see it.  Others may have a different point of view.  What say you?

Free Salary Data Resource

The Bureau of Labor Statistics has just released its May 2007 Occupational Employment Statistics Survey, which provides mean and median wage data for more than 800 occupations across 375 MSAs (metropolitan statistical areas). 

This is essentially a free salary survey, and one which I have found it to be a good supplemental source of data.  My experience is that it syncs up well with other sources that cost me a lot of money, and it has the additional benefit of covering metro areas and occupations that are not well covered by other professionally published compensation surveys.  I have found it particularly valuable for its wide range of unskilled and semi-skilled "hourly" occupations, which I often have trouble locating in other sources. Further, it can be a limited but helpful source in examining geographic differentials for select groups of jobs.

So, something very good created with our tax dollars ... and a no-cost addition to your bag of tricks.  Cheers!

Post update:  Just want to add to the body of this post - a couple of savvy readers (thanks, Carla and R) have noted some limitations to this data that are worth mentioning here.  First, there are no "levels" for any of the jobs covered.  In other words, there is an Accountant, but not a Junior/Associate Accountant and not a Senior Accountant.  One level only.  Second, the data is not broken out by company size.  For most jobs, I think that this is OK - but I do not use this source for management jobs for this reason.  Otherwise - a gold mine of free salary data.  Enjoy!