In our last post we introduced you to Step # 5 of the Seven Step Compensation Diet – the need to set up a pay increase budget and stick with it.  Managers make fewer questionable reward decisions when funds are limited, when they are held accountable and when Finance is double-checking and reporting on transactions.

Hand in glove with this financial tool is the need to obtain Senior Management support for your program re-design strategies.  To gain their support you need to pro-actively make your case.

Step #6: Develop a Metrics Awareness Program

You can grab the attention of your senior leaders by telling them the story of their largest single expense item – your company’s reward program.  They will want to know whether that huge expense (40% to 60% of revenue) is being properly managed.  If there are challenges ahead, or a crisis at their doorstep, you will have their attention.  You will need to tell them what has happened, and why.   They will ask about implications (liabilities, competitive picture, morale, turnover, etc.) and what would it take to resolve the issues being faced.

You had better be ready.

To tell a compelling story that describes real or potential problems with your compensation program(s), you will need to present facts and figures.  You will need to be specific.  Suppositions, theories from management magazines or best guesses based on your years of experience will not make the sale.

You will also face the passive resistance of those accustomed to the laid back philosophy of “if it ain’t broke . . .”   Unless there’s a problem staring them directly in the face, management won’t recognize that the barn is on fire, or that it soon will be.  You will need to instill a sense of urgency by presenting evidence.

Specifics are listened to

To understand the plot points of your story you should establish a series of quantifiable indicators (metrics) that record the factors and activities that impact your compensation programs.  Some examples:

• Average salary / wage

• Compa-ratios

• Count of employees per segment (hourly, non-exempt, professional, management)

• Average performance ratings

• Average pay rise for each performance rating

• Count and average promotional and “equity” increases

• Voluntary turnover (employees who decided to leave)

• Average employee age and length of service

I could go on and on and on (we only have so much space), but you get the point.  Measure what is important to you.  The further refine these and other measures by breaking them down per salary grade, employee segment, male / female, etc.

Once you have the metrics established (collectively called the “dashboard”) and a current status baseline in place, determine where immediate problems might be festering.  I use a simple red light, yellow light, green light code to mark problems, cautions and thumbs up for each criterion.  Follow this by setting specific targets going forward to improve your weak areas, and create periodic milestones to mark your progress.

What to look for

Every organization has different pressure points.  However, if your metrics data indictaes any of the following situations, it’s likely a specific problem that your management would want to know about.

• Average performance ratings that exceed how the business was rated

• A workforce where key segments are approaching retirement age

• Promotion and “equity” increase activity that overwhelms the merit budget

• Low compa-ratios indicate you are not paying your salary ranges

• Any figure that is an unpleasant surprise

Having a series of quantifiable measures will give you a sense of direction, as well as a method to gauge your progress.  Lacking that, your activities would likely spin you around in a circle, achieving little but data collection.  You need to use the data.

Start the ball rolling.  Create quantifiable metrics that will collectively illustrate the well-being of your compensation program(s) – and then establish baselines and targets for each performance indicator.  This key step will help you understand whether your costs are being contained (your diet is working) and whether the ROI on employee rewards is at the level your company requires.

Have you ever watched and wondered how it is that some employees in your organization are recognized and moved upward, while others with more impressive credentials, experience and achievements seem to stagnate – and then eventually move out?

There’s a reason for that counter-intuitive phenomenon; you may have within your management ranks a form of “star chamber” or informal clique that anoints some employees (the chosen ones) while sidelining others.  Which explains why leadership mediocrity is sometimes overlooked, why personality trumps achievement and better qualified employees can be passed over for promotion.  For the select few, middle-of-the-road performance is not a barrier to success – like it is for the rest of us.

Not exactly what you hear in Management 101 training class is it?

What you are witnessing is an evolution of the informal pass-fail rating system that companies have used for generations to decide whether an employee is “one of us”.  Those deemed worthy receive a “get out of jail card” that boosts their career.  Those lacking sponsors are categorized as having questionable value and are liable to suffer a fall at the next organizational bump in the road.

Do you remember the “in crowd” from your high school days?  You may not have escaped them after all.

It’s all about PIE

Psychologists have identified several human factors that describe an employee’s ability to relate to their work environment.  While each may vary in importance from one organization to another, their combination has a critical impact on an employee’s likelihood for success.

Performance: your demonstrated ability to perform the job you were hired for.  How well do you handle your role?  Do you achieve results?  The rating scale is the traditional range of from wonderful to woeful.

Image: do you “fit” within the organization?  Is the image you project (personality, interests, clothing, demeanor, etc.) accepted by the rest of Management?  This rating scale ranges from “one of us” to “one of them”.

Exposure: to what extent are you known or would be recognized in the hallways by senior management?  Who are you rubbing shoulders with?  Here the rating scale ranges from “You are known” to “Who?”

The Way it Was

It wasn’t that long ago that Performance was King; that no matter what eccentricities you brought to the job, as long as you performed well no one bothered you.  Idiosyncrasies and personality quirks were overlooked; “oh, that’s just Bob”, you would be told.  “Don’t mind him.  Just deal with it.”  Your value was measured by getting the job done.

Management training classes would use a “scruffy-looking dude” as an example of a brilliant engineer buried beneath a beard, long hair and mismatched clothes.  Such employees possessed little in the way of social skills, no interest in office politics or traditional business hours, and never wore the company logo.  Their job performance, their contribution to the business was their defining identifier.  It marked them as a valuable human resource.

Image could be important, but was considered more as icing on the cake, not the critical ingredient.  Exposure was even less important, as long as you performed.  “Being seen” was more for those who lacked a strong performance record.  They were the ones who needed the help and support of others.

Btw, the classroom answer?  Treat each “dude” the same as you would anyone else.

The Way It Is

Today, good performance is not enough to ensure success.  Today you must also be a “player”.  You must be able to fit in, to blend with your other playmates, be liked as a person, adroitly play at office politics, be seen with the right people and have the same outside interests.  Your capabilities should not be a challenge to your boss.  How you dress is scrutinized for the image you present.

Of course, if you don’t perform well and you’re not in with the right group, your career with that firm will suffer.  You will shrivel on the vine, if not ultimately chopped off.  However, if you are considered to be in with the right group, that association will step in to help should your performance leave something to be desired.  This assistance can vary from softening the blow to overlooking shortcomings (accusations never stick) to shooting the messenger on your behalf.  Club mates stick together.  They circle the wagons when attacked.  They get even.

What to do?

Sound fair?  That’s the way it is when Performance is valued less than Image and Exposure.  But does that strategy have legs?  I don’t think so.  Leadership and a cadre of high performing people are critical requirements to drive your business forward.  You need such outwardly focused success drivers, not those more concerned about internal group dynamics.

Should you find yourself working for an organization where your personal interests and hobbies are valued more than performance and results, your options will be limited.

• You can try to re-invent yourself according to someone else’s value system, but how much success will you have?

• You can try to stay under the radar screen, lest you be judged – but that doesn’t seem a good career plan, does it?

• You can try to change the culture.  Good luck with that!

• Or you can leave

If you believe that your job performance is your best calling card, that employees should be measured and weighed by their contributions, you may need to reconsider the long term prospects of your current environment.

Leave the mediocrity behind.  Change can be a good thing.

In our last post we introduced you to Step # 4 of the Seven Step Compensation Diet – the need to control the headcount and type of jobs in your organization.  Reward dollars can be maximized by operating a lean organization.  Only staff those jobs required for operational success.  At the same time avoid back door cost increases by refusing to play “title games” that add expense without providing a fair performance “return.”

Success here depends on your ability to track reward dollars and measure your spend against a plan.  To do that you need to have an allowance.

Step # 5: Have a Budget and Stick to it

Have you ever played the board game Monopoly?  Players start with a given pile of money and then it’s spend, spend, spend and hope for the best.  When it’s not your own money it’s fun to see what you can do, because it’s only a game, right?

When Managers have the Keys to the Kingdom though, the authority to spend the company’s money, it’s a different matter.  Your company probably doesn’t look at management spend on employees in quite the same manner as a wheedle-dealing board game.  The costs are real; the implications long lasting.  As management considers effective methods to rein in uncontrolled spending (cutting the fat), they should set up some form of restrictions to which managers must adhere.  No more strolling past Go and Collect another $200.  Thus the budget is born.

An established annual reward budget (pool of money) can be an effective gatekeeper and measurement tool for managers, limiting their largesse and forcing better decision-making.  On a regular basis they can also track the level of spend, as well as the corresponding progress toward adherence to an annual goal.  The basic tenet here: making a series of one-off decisions over time without having a cost meter running will drain your financial resources before your annual needs are met.

Chances are, you can’t go back for more money.

When under pressure Managers are notorious for first reluctantly agreeing to trim their merit spend (note the nodding heads and muted voices of support), only to circle back later with promotions, adjustments and job re-evaluations that more than replace the initial savings.  It is this form of passive resistance and end-around tactics that a fixed budget is designed to defeat.  If you factor in that Managers will always attempt to circumvent whatever system you put in place, you might be able to stay one step ahead.

So save yourself some angst by ensuring that your budget pool includes promotions and adjustments, as well as the annual merit increases.   Some use two separate budgets to better categorize and track activities.  But whatever the case, be careful to limit and track.

By the way, those granted the authority to spend the company’s money should be held accountable as to how that money is spent.  You can measure it.  Adherence to a spending plan should become an assessment factor in a managers personal performance appraisal, an objective indicator of the demonstrated ability to actually manage.

Finally, to ensure that you achieve greater management focus, ensure that the Finance function regularly monitors and reports on those activities (management spend decisions) that impact budget targets.  Managers who know how much money they have, and how much remains, are more careful with it.

If no one is watching, no one is caring.  It is not easy to become a lean organization, and even harder to stay there.

In our last post we introduced you to Step # 3 of the Seven Step Compensation Diet – the need to establish written operating instructions for your Managers.  These policy and procedural guidelines will clarify the company’s strategy, educate those making reward decisions and help minimize aberrant behavior and damaging precedents.  Now let’s really get our arms around things.

Step # 4: Establish Position Control

When developing the business model for your company or department the number and type of positions required for successful operations was likely laid down somewhere.  “We will need three of these, five of those, a manager there, etc.”  This Table of Organization (TO) is similar to a floor plan for your business, carefully describing the human factor blueprint necessary for efficient and profitable operations.  The plan creates first critical, and then necessary positions.  You won’t find “nice to have” jobs here.

The trick though, is to stick with your plan.

And of course the problem is that most companies don’t.  For those less careful a slow job creep inevitably slinks in, whereby other titles (or additional headcount) become added that are not on the original TO.

The Chinese have a phrase, “death by a thousand cuts”, which is an apt description of how a company’s fixed costs can grow – one little action at a time.  After awhile you’ll look around and wonder how your cost structure became so bloated.   While there are many culprits, a particularly insidious practice that adds no ROI – only increased costs – is the use of inflated job titles.

Have a care to avoid this nasty virus, a subtle backdoor practice that needlessly increases only costs – not value.  These are typically additive positions with incremental titles like Senior, Lead, Assistant, etc., where the job description barely changes at all.  Or they may take the form of important-sounding titles that really mean something else. My personal favorite is the First Impressions Manager, who is really the Receptionist.

If management feels that they need to offer an employee a more expansive title, remember that job holders will soon claim that such titling deserves greater reward (higher grade, higher salary range, increased base salary).  Again, more cost with no ROI.

The process of Position Control is like an old-fashioned girdle for organizations.  It forces you into shape, to control the number and function of jobs within your organization.  Here’s what you do:

• Understand what jobs your business requires (as compared to wants), and the number of positions (employees) per job

• Allow only those approved jobs and that amount of headcount to be filled

• Establish strict procedures for recommending and approving changes to the job list

Some companies tag each position (headcount) with a unique code, to better track where employees are being placed.  For example, you may currently employ five senior engineers, but perhaps your organization only requires four.  “You are where you are,” the Brits would say, but once you know the problem you can plan remedies.

The Position Control process can help you re-establish and then maintain the organizational requirements you need for operational success.  This process will help educate managers on the difference between required and superfluous jobs.

Make sure you have complete and accurate job descriptions, and then hire / promote to those specifications.  A critical test is that you fill only required jobs, not simply because an employee has gained certification or additional experience.  If the business requires four senior engineers, paying for a fifth delivers no additional ROI – only higher costs.

Begin with the low-hanging fruit.  Start a spring cleaning campaign by first eliminating from your systems any position title without an incumbent.  Then nip the backsliding problem with procedures that tighten up the new position approval process.

Congratulations!  You’ve moved from the planning and consideration phases to actually having a cost impact.  Well done.  Now, stay the course.