Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 15-04-2010
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
- 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.