To what extent is your compensation program transparent to employees, or on the other hand, how much is kept a big secret?

Early in my career I worked for a very successful, decades-old manufacturing company who maintained the practice of posting their salary structures on the walls next to the punch clock machines.  Every grade and salary range up to management positions was available for public viewing.

I was young and unseasoned at the time, hadn’t been around much yet, so didn’t think much of the practice at the time – either way.  It was just the way things were at that company.

Those were the days

Flash forward to today.  In your organization, if an employee asks about the salary range of a job other than their own, do you tell them?  If an employee asks the grade designation of a job not their own, do you answer them?  Or do you say that it’s none of their business?  That it’s on a need-to-know basis.

As my professional career progressed from those early days it often seemed that the disclosure practices of my employers slipped backward into the era of “we – they” management philosophies.  An era I thought long gone.  In one company the employee wouldn’t be told the minimum and maximum of their own salary range.  Another employer would readily inform an employee of their own salary range, but not the range of a job one grade higher.  Say again?

Now of course it’s entirely possible that my own career progression of employers is a unique combination of companies not typically replicated by many of you out there.  Perhaps most of you still post your salary ranges on the break room wall, or the pay grades are simply included within the periodic employer newsletters.

I’m betting that’s not the case.

But why? Why not disclose the key elements of your job evaluation and base salary structure?  What’s the harm in letting employees know where they stand, and what their career progression could look like?  What’s the harm?  What’s the big secret?

Whenever I asked that question, in all innocence and with a guileless question mark on my face, the usual answer was, “that’s the policy.  Always been that way.”  Dumb answer.  Pushing my query further never did get me a decent explanation though, which left me with the obvious conclusion that something was better off hidden from the employees.

Some sort of management discretion that would be challenged by letting too many people know what’s going on.

Hiding the crown jewels

If a company is going to restrict information about their pay programs, it’s common to guard two key elements:

• Salary range – laying out the minimum and maximum, or even just the midpoint.  Letting you know how much you’re paid in relation to how the company has valued your job

• Grade – the designation of a position within the hierarchy.  If you know your grade, chances are you can figure (or guess) the grade of others – including perhaps your boss

Then again, if the grading structure can be manipulated, or job evaluations slanted one way or another, perhaps there are a few skeletons in the closet after all. Perhaps there are little secrets better kept hidden.

If not, then why not post the salary structure of the office wall?  All the grades, all the salary ranges, and all the jobs covered by the compenation program.  For those who like to keep their little secrets, you can cut off the disclosure at the executive level.  No personal data need slip out at all.

Ohhhh, but that would be heresy in most quarters, wouldn’t it?  Because if those jobs have been fairly and objectively evaluated and priced against both internal and external factors, what is the reason for the locked drawer attitude?  If there is nothing to hide, if you can defend, or at least explain your decisions, then why not hang your laundry out in the sun?

What’s the big secret?

I think we know.

I remember a childhood football game we often played, a sandlot sort of thing.  Not much organization, just the quarterback (usually the guy who owned the ball) saying to several of us, “you all go long and I’ll throw it to one of you.”

Like I said, not much organization.  What were the chances he would throw to me?  Crap shoot.  So we all ran long and waved our arms like a bunch of loons, whether we were covered or not.  It didn’t really matter what we did, because the guy with the ball would tend to heave a “Hail Mary” pass – just to get rid of it.  Completion percentages tended to be low.

Is that how your company’s annual incentive program looks to you – like a confused bevy of activity, often seeming to lack rhyme, rhythm or reason?  Less reliance on planned objectives and coordinated efforts; more a bunch of independent agents scrambling around and often bumping into themselves?  Success is often a pleasant accident?

The longer your business career the more times you’re likely to see that scenario play out.  So change the playbook.

It’s all about focus

If you want an employee to be successful, and by extension benefit the company, you need to tell them what to do (objectives).  Steer them in the right direction.  Then you need to focus their attention (the carrot).  Make it worth their effort.  You will find that the combination of knowing the target and knowing the reward is a powerful inducement for constructive action.

However, when you provide an employee with multiple objectives, have a care that something important to you may be ignored.  Anything with a weighting factor of 10% or less is throwing your money away.

Why?  Would you change your behavior and focus that new behavior for a protracted period of time for 10% of the targeted reward?  Not likely.  You’d chase the 90%.  But what if that 90% is split nine ways, each being 10% of the total reward opportunity?

Most employees would either;

1) continue about their business (read that, perform in the manner they would have anyway, before there was an incentive opportunity)

2) focus their attention on the easy-to-accomplish

3) focus on what they like to do, whether that’s important to the company or not

What has weight has attention

The natural tendency for most is to attack the problem with the highest reward and least resistance first.  They may even decide to ignore other objectives – no matter the value to the company – if the reward for other objectives makes up the difference.  So if you have an objective with a weighting greater than 50%, in some instances, for some employees that will become their only goal.  Because they’ve figured out that hammering the prime objective would pay out nicely enough, thank you.

It’s not unusual for sales employees especially to ignore small payout objectives in favor of focusing on the bigger ticket reward goals.  Do not assume that minor payout opportunities will provide sufficient motivation to change behavior.  A body at rest tends to stay at rest, unless you make their action and concerted effort worthwhile.

So you’ll need to put your money (the carrot) where it would do the most good, and that means weighting goals so employees know what’s important to the organization.  Drop anything that’s worth less than 15% to you.

Instead of creating a mad dash from scrimmage, your incentive plan(s) should coordinate the planned activities of those you’ve offered variable pay.  Lead with clear objectives and targeted reward opportunities, and they will follow.

It’s easy to waste money.  Making effective use of your reward dollars takes a bit more planning.

I’m often asked at speaking engagements or during webinars what key takeaways, what gems of wisdom have I learned during the course of my career.  Well, like most of you out there I’m still at it, learning something new every day, but I have gained a valuable perspective from what I’ve seen and experienced.  I’ve learned that professional wisdom comes to each of us in two ways; 1) what you learn to do (what works), and 2) what mistakes you’ve seen or made (what doesn’t work).

It would be wonderful if your career development manages to stay on the straight and narrow with positive role models and good experiences, but all too often we learn our most valuable lessons from failures, from tactics or decisions that didn’t work.  Or from failed managers whom we’ve worked for, those who made repeated mistakes a personal career choice.

In that situation you find yourself saying either, “yes, I should do that, when the decision is mine” or conversely, “no, I’ll never do that.”  Both experiences can offer valuable lessons and help shape your career.

One man’s gems . . . .

Putting together an all-inclusive list would become an endless affair, given the myriad scenarios, personalities and business circumstances that could be involved.  So instead we’ll try to highlight the big mistakes.

These are provided in no particular order of importance, and only reflect my own experiences.  No doubt I’ve missed a few; thus the never ending list.

• General Adjustment vs. Merit: granting all employees the same pay raise, instead of varying increases on the basis of performance delivered.  Easy to administer is rarely an effective strategy.

• Performance vs. Entitlement: rewarding management with a more generous hand vs. other employee segments – simply because they’re management.  Leadership is no more entitled to rewards than any other employee group.

• Overuse of Discretion vs. Objectivity: or the reliance on subjective measures in lieu of quantifiable results.  When assessing employees on a subjective vs. quantifiable basis management discretion can sometimes lead to abuses (favored sons, “halo” effect, or even discrimination).

• Abuse of FLSA Exemptions: avoiding overtime by treating non-exempt employees as if they were exempt.  Managers try this tactic all the time, for numerous reasons.  This is when you need to put on your policeman’s hat.

• Surveys says!: using a title and a generic catch-all write-up for matching jobs against “the market”.  It’s the easy way.  Anyone can do it.  There’s nothing to interpret, is there?  And then there’s the matter of quality surveys vs. . . . the others.

• The Performance Distribution Curve: using a process that assigns individual assessments of employee performance in a manner set to adhere to a bell-shaped graph.  The operative word here is “assign”.  Nobody likes this tactic, except perhaps the lawyers.

• Ignoring Internal Equity: hiring new employees without consideration of how other like-qualified employees are paid.  There are no secrets, so pleasing one while angering two is a dubious strategy.
• Title Inflation: that meaningless “bone” you toss employees whom you can’t otherwise reward.  This tactic will raise fixed compensation costs without providing a corresponding benefit to the company.  You will eventually regret the decision.

• The Absent Safety Valve: it’s often said that a good Compensation program should cover 85% to 90% of contingencies; and that for the remainder a degree of flexibility and common sense should guide the decision-maker in a different direction.  For those more rigid in their thinking, for whom the policy manual is gospel, or those who avoid stick-out-your-neck decision-making, authorizing of exceptions can be a struggle.

To be successful over time, your program should be able to bend, but not break.  This means that sometimes exceptions have to be made, for good business, compassionate or even political reasons.  Not every circumstance will fit into your mold.

Can you see possible rationalizations for each side of the above?  Of course, depending on a litany of possible circumstances, individuals and . . . whatever.  Just have a care that your rationalizations don’t become a pattern of excuses, and that you document.

Another man’s errors

Then there are those decisions that over the course of one’s career you continue to regret – wishing you had the time to reboot your thought processes.

• Hiring a friend / relative: if you would hesitate to sell them a used car, why would you ever think that hiring them would be an idyllic experience?  Correcting this mistake can be painful.

• Ignoring Office Politics: “I’m not very good at politics” is a poor response to an important reality that all managers need to deal with.  It’s all around us, so to pretend you’re above it all, or otherwise ignore it, is likely counter-productive.

• Performance will take care of everything: no, it won’t.  Not anymore.  In today’s work environment image and exposure have grown in importance, to the extent that just doing a good job is no longer enough to ensure career progression, or even longevity.

• “I was too busy for networking“: I usually hear this from people in transition, from those who failed to connect with colleagues, peers and industry insiders while they were still inside themselves.  You build a network when you don’t need it, so it’s there for you when you do.

Have I missed anything?  Are there other ill-considered practices or policies that you’ve experienced during your own career?  As I said, no doubt the list(s) could be expanded.

Let me know.

It’s fairly common these days to find articles written by those who advocate increasing the eligibility of employee incentives.  Their recommendation is to push inclusion further and further down the organization’s hierarchy.  What a grand concept!  Everybody wins, right?  The argument is that all employees affect a company’s success, that each and every will chase the almighty dollar of variable pay, and that the opportunity for ever larger rewards will motivate them to do great things.  All of which would in turn deliver improved financial results for the company’s bottom line.

Maybe.

And maybe it’s not such a good idea after all, when you think on it.  Perhaps it’s a bit of a crap shoot as to whether the corresponding higher compensation costs (which would be a certainty) will result in improved financial gains (possible, but certainly not a slam-dunk).   Let’s take a look at the challenges to be faced when you consider a broader eligibility for your annual incentive program.

What’s the plan?

Start with a re-examination of the basics.  What do you consider an incentive element when designing a compensation program?  My definition is a reward for performance that goes above and beyond the norm, or beyond what is expected.  Thus it shouldn’t be a reward for performance that would have occurred as a matter of course.  The intent for offering an incentive is to prompt a change in behavior, to get employees to do something they wouldn’t ordinarily have done, and to get them to do it solely because they have been offered a financial reward to perform both their regular tasks and to accomplish stated business objectives that go beyond the norm.

That should be the plan.

And because these objectives are noteworthy, you would expect that they would differ from year to year, as the needs of the business evolve and adapt to changing business conditions.  This emphasis on annual objectives reinforces the intent that incentives should be designed to reward effort that goes above and beyond those duties listed in the job description.  They should not be repetitive, year after year.  That’s what the job description is for.

Incentive rewards should also not be provided simply because an employee performs their job well.  That particular carrot should be the role of the annual merit increase.  In fact, such an exercise would be considered “double-dipping”, or paying for the same performance twice.  You should not be using an incentive as an inducement to get employees to perform their expected duties.  Again, that’s paying twice to reinforce the same behavior.  It’s also using compensation to replace the leader’s own responsibility to manage their staff.

Some would consider this using pay as a babysitter.

There are times you win, and times you don’t

When deciding on whether to add a variable pay opportunity to an existing base salary compensation model, you need to ask yourself, “what will the company receive in return for the increased costs (variable pay) of an incentive program?”  If you are planning to increase your targeted compensation costs by 5% or 10% of the base salaries of an affected group, how will you answer the ROI question?

Hint:  You had better provide a business (financial) rationale, and not some subjective phraseology like “survey says” or “everyone else is doing it” or even “it’s the right thing to do.’  Management tends to frown on such trivial rationalizations.

It’s also worth noting that employees lower in the hierarchy have a greatly reduced line of sight between their actions and business success.  This entails having to create quantifiable objectives for performance (you are quantifying, right?) that should integrate vertically with department, functional and / or organization objectives.  If you don’t integrate what you’re telling employees to do, you may find yourself paying out incentive rewards when the company as a whole has not been successful.  Keep questioning:

“Yes, you did it, but was it important?”   Did your accomplishment support the broader organization’s objectives?

As a counterargument to the eligibility question I’m often asked about gainsharing programs.  These initiatives can be a useful method of introducing incentives to select employee groups, who have a direct line of sight to potential savings.  They can affect real change.  However, successful plans eventually kill themselves off as viable gains are achieved (low hanging fruit) and payments becomes less and less robust after the easy pickings are collected.

So, to recap, let’s review the business urgency for lowering incentive eligibility to below the management ranks.

• Is the employee line of sight (performance / business results) direct, or remote?

• Can you quantify the expected ROI?

• Can you balance the increased compensation costs against hard financial gains for the company?

• Would the variable pay become strictly an added cost, or would any portion of base salary be at risk?

If you have a reasonable doubt on any of the above points, I suggest you think long and hard before implementing such a program.  It would be very difficult to dig yourself out of that hole.

Nice guys finish last.  We’ve all heard that phrase before, right?  Which probably means that there’s something to it.

Now why is that?

Because . . . we’ve seen it happen, haven’t we? – again and again.

In the business world all too often the steady and reliable performers, those who follow the rules, who stay on the right side of ethical dilemmas and controversy, the “nice guys” that every manager would like to have on their team – they can come up short when recognition and rewards are being passed about.  They may not fall into last place as the adage goes, but they often don’t gain the credit, the respect and recognition, the rewards to the extent that the “bad boys” do.

Bad boys?  You know them.  Those who at first glance deliver results; however, there always seems to be a “but” or an asterisk accompanying their success.  Annoying little caveats that tend to be pushed aside.

You’ve seen this scene play out time and time again – where these “Golden Ones”, “Favored Sons” or “Teflon Jacks” are recognized, even admired by senior leadership, even though their pedestal may be built on a shifting pile of sand.

Life isn’t fair, the pundits say – but come on!  Are they blind out there?  How many times have you seen the following script play out?

• Personal behavior is ignored and only results are recognized.  This could be arrogance, or unprofessionalism, or even worse.  Employees in this category think of themselves first and foremost, president-for-life of their own fan club.  They are not team players.

• Management beats the drum of “results, not effort” so hard that soon few seem to care how results were achieved.  Just make the sale – or else tomorrow you’ll be history.

• Quantifiable metrics (add up the numbers) outweigh an individual’s style, leadership, ethics, and professionalism.  The focus is more on quarterly results than building for long term success.

• Those who are “connected” (who you know, not what you know) don’t receive the same scrutiny of their efforts that the rest of us do

Do employees see you turn a blind eye to how results were achieved?  They do notice, you know.

Does your management really care if an employee leaves bodies strewn across the corridor on the way to their own personal success?  What does that say about the priorities of the organization, and how they value people?  Does that culture become visible outside the company?  Does that environment become an impediment to attracting the right caliber of people?

Yes, it does – on all counts.  And over time the organization will slowly evolve in a manner that is ultimately harmful to the business.

• External recruiters may change their mind about recommending the organization to otherwise qualified candidates.  When the whispers on the street begin, recruiters take notice.

• As your bread-and-butter contributors see how the organization’s performance-blindness hampers their own career progress, engagement and productivity start to slacken.

• A natural corollary to lower engagement is higher turnover.  The first to go would be those with the most options, those whose performance record would be appreciated elsewhere.

All this is avoidable, of course.  But it takes a certain amount of courage to challenge one of the favored sons.  Especially if your plan is to instead recognize one of the less flashy, steady-eddies you may have in abundance.

So take off the blindfolds and recognize those who are day in and day out helping to move the company forward.  They are the team players.  They are the ones who say “we”.  Your employees know who these winners are.  It would help your organization if you do too.