In recent months I have dealt with several US clients who faced an overseas challenge of high employee separations coupled with difficulties in recruiting qualified staff.   These companies were at a loss to understand the cause of their problems, as each felt that they were already paying out a great deal more in Total Rewards (compensation, benefits, etc.) for employees then they were accustomed to in the US.

A quick study revealed that, while the client’s international employees were indeed receiving a great deal more than their American counterparts, in many areas they were in fact being given no more than the minimum benefits mandated by statutory requirement.  How do you attract, motivate and retain quality staff when the message of your actions is that you are only willing to offer what the government says you must?

You don’t.

One client bemoaned having to grant four weeks of vacation upon hire, because it was the law in that particular country, only to find out that the normal practice granted five or more weeks.   By focusing on only statutory requirements and ignoring competitive practice they found themselves paying a steep price in struggling to build a quality staff.  They had also earned a reputation in the local market as a “minimalist employer”.

And like first impressions, a company’s reputation is hard to change.

Human Resources to the rescue?

When American companies first establish operations overseas Human Resources faces a number of challenges that they are unaccustomed to back at home.  Every country is a separate and unique entity, with differences in HR policies, practices and statutory requirements, each of which must be acknowledged and addressed in order to maintain a successful operation.   On top of that you will find that the myriad employment laws (little standardization here) is a major cost and operations consideration, both in complexity, strictness and required documentation.

In addition, you must deal with the vagaries of the competitive compensation marketplace, where the same job is paid differently from Rome to Oslo to Buenos Aires – usually coupled with social charges and benefit distinctions as well.

Operating under the guidance of U.S employment law and US-based corporate practices is a failed strategy.  Maintaining such a US focus (usually for ease of administration) will bring you grief; grief from your employees, from those you hope to hire, and most of all from local governments whose laws you have ignored or bypassed.

If you decide that your business strategy requires you to maintain a staff presence in a particular country, then I would advise you to treat that operation the way you would its US counterpart; provide competitive terms and conditions that will attract and retain the right caliber of employee in that country – and ignore how their reward packages might compare with US or other country counterparts.  If you are not willing to make that commitment, from an HR perspective you would be better off not to engage employees in that country.

I once supervised a Compensation Analyst who had spent a great deal of time attending professional seminars and workshops.  She had attended these instructional sessions to learn about Compensation, as part of her professional development.

One result of that education was a favored response when faced with a challenge at work; she would fall back on her class work experience by saying, “the greatest minds in Compensation say that . . . “.  It took a great deal of patience on my part to educate this part time practitioner / part time student in the difference between the classroom / textbook answer and the reality of the workplace.

A short while ago I came across an HR blog in which the author was instructing readers in how to create a merit performance matrix.  Very good stuff, I thought, admiring the technical step-by-step instructions, except I knew from long experience that the procedure being described would never work in the real world.  Didn’t the author realize that?

Yes, it is very important to understand the technical foundations of Compensation methodology and practice.   But first and foremost you need to anchor yourself in the real world, to know what will work and not work in your own organization, what will be accepted and what will be rejected – no matter what the finest minds in Compensation think.

So you ask, why doesn’t Compensation theory match with compensation reality in the workplace?

• Business realities:  management will typically know more about a particular business situation than you do.  What you are able to provide to the decision-making process as a Compensation professional is limited to your particular subject area, while management usually has the bigger picture – the perspective of multiple viewpoints. Your compensation advice may not fit their business reality, no matter how logical an argument you make.

• Bias of decision-makers:  decision-makers may feel that they intuitively know the right approach to take (they’ve done it before, if-it’s-not-broke-don’t-fix-it, a friend / relation / old college chum suggested an approach, etc.).  Perhaps they read an article just the other day and now are insistent to follow the advice of an author who doesn’t have a clue about their particular business.  Years ago I worked for a company whose CEO forced HR to implement a particular benefit plan because he had read a magazine article.  It does happen.

• Problem avoidance:  short of killing the messenger, one solution for management is to do nothing about a problem (you’ve exaggerated it, the solution costs too much, there’s still time, etc.).  Senior managers can be like politicians in avoiding the big decision unless and until it bites them in the leg.  Have a care, as it can be dangerous to your career if you try to force a decision.

• Business culture or model: some initiatives just don’t “fit” in your organization.  Managers with a laid back organization style will not be interested in recommendations to document everything, standardize policies and procedures and have approved forms for every possible use.  Picture your head banging against the wall.

Sometimes those subject matter experts who instruct in Compensation techniques fail to ground their instructions with a caution to their students;  check this process out in the reality of your workplace before you take a classroom or textbook technique and wave it in the face of management.

Two examples:

1)      Merit matrix:  when designing a pay-for-performance merit increase matrix the standard rule is to place the average increase percentage in the cell block most populated by employees (average performance and average position-in-range).   The sound reasoning for this technique is to better manage the costs associated with that year’s annual increase process.

A long time ago I followed that approach in my first compensation leadership role.  I still have a little bump where my head hit the wall.

Here’s the rub; such a technique requires that the matrix change every year, as the analysis demands that each year you study your population averages.  But management will likely have none of that.  They’ll want the same matrix every year, for ease of administration and communication.

2)      Cost of living as a basis for pay increases:  I once watched over a fascinating exchange on a Compensation bulletin board, where a debate raged on for several days.  The dispute was over the appropriate formulae to use for calculating the cost of living vs. cost or labor as it affected average pay increases that management would approve.  Each side of the argument provided formulae, charts and graphs and quotes from notable experts to press home their opinion.

The underlying reality behind this exchange is that management does not use the cost of living as a prime determinant in their decision-making.  They are more likely to roll their eyes at the technical debate and focus on competitiveness and bottom line cost (affordability) – and why can’t we do the same as we did last year?  If their ultimate decision relates to the cost of living in some way, that’s only a nice coincidence that they can use with their employee communications.

A skill-set that separates the compensation technician from the compensation professional is the ability to deal with what I call the “softer” side of compensation.  Survey statistics, charts and formulae are very good to a point, but management will want to know what it means and what to do about it.  So the answer isn’t simply reporting the data, but in taking that next step to help management understand and strategize their next move.

The contribution you can make to your organization is to blend your technical knowledge (the how-to) with seasoning and experience to understand what will work for your organization, considering culture and management bias.  Technical knowledge will give you the same answer every time, but knowing how to use that knowledge like a craftsman’s tool to aid in achieving business objectives – that is the key to success as a Compensation professional.

Have you ever found yourself in a situation where the competitive market price for your sales employees didn’t make sense?  Where the numbers didn’t add up?  Usually it’s the incentive piece that has you double-checking; you’re expecting an incentive value of 25% or 30% of base pay, and the survey reports much less.  How can you report those figures back to management?  Your credibility, as well as that of your data source, would be under serious question.

An uncomfortable feeling, isn’t it?

Management wants to see competitive total cash compensation.  At the end of the day what a reasonably performing sales employee should be paid.  How much should we be paying someone for hitting their quota figures? That total cash amount would include the incentive portion added to base salary.   But sometimes the market picture isn’t quite that clear.

A distorted view

Surveys typically report incentive amounts that were paid out, vs. a target or expected amount.  Which is okay, because the large amount of respondents within the survey tend to average out the better vs. weaker performers (high incentive payments vs. low) to present a reasonable approximation of target.  Which in turn is helpful when comparing your company targets against market realities.

However, to find a useful incentive figure presumes that the respondent payments represent an overall average.  And nine times out of ten that presumption is valid.  For sales jobs though, there is the likelihood that a much broader swing of actual payments would depress the average payment figure to something less than what the plan designers had intended.  Employees receiving little or no incentive would be counted along with those who have hammered their plans and received very generous awards.  The survey will report zero incentive payments in the results.

This creates a distortion, effectively low balling average incentive compensation (and total comp), as well as altering the view of competitive marketplace incentive targets.  This scenario is especially problematic when the sampling of participating companies is more scant than robust.

For example, if your sales job pays 40% of base salary for on-target performance, you would be somewhat concerned to see that the market reports a 20% incentive being paid for a well matched comparison.

Now look to your own organization.  How many of your sales employees achieve 100% target?  Does your average payment (including all sales employees) approximate the target payment percentage from the sales compensation design?  Likely your own number is markedly less.  If it’s not, then perhaps your sales targets are too easily achieved.

This reporting situation is made more awkward (to explain) when instead of a compensation analyst it’s a wannabe HR generalist flipping pages through a survey and writing down as gospel whatever number they find.

So what is a survey user to do?

Be careful to check whether your survey source(s) is reporting paid incentive, target incentive, or both.  When using multiple surveys remember that blending target amounts with actual paid incentives (which may be unavoidable, based on survey formatting) may distort your results, at least somewhat.

So if the results you get look a bit squirrely, you need to use a little common sense before making any competitive pronouncements.  The same sense you would use when reading results from a good year’s performance (economy flying high) vs. bad results (the great recession).  Both can distort how the market relates to your plan design and target total cash.

You might wish to factor in an adjustment percentage (5% or 10%) when assessing market results against your plan design target.  To counterbalance the impact of the zero payments.

Or leave it alone, but don’t forget to tell (and periodically remind) management that the incentive cash figures for sales employees are likely lower than what your own organization is experiencing – and what are common practice plan designs.

So have a care when market pricing your sales staff.  And keep an open eye on whether the sales job incentive figures make sense.

It used to be a common view that the Human Resources department in large companies was more sophisticated, more professional, and more forward-thinking than what you would expect to find from HR in smaller companies.

We all presumed that the “big guys” knew what they were doing.

But current thinking among some practitioners now challenge that presumption.

The pendulum of thought has begun to swing the other way.  Indeed, sophisticated has become cumbersome, professional has become bureaucratic and forward-thinking has created a chasm of credibility between philosophical concepts and the practical realities that managers deal with every day.

Remember the K-I-S-S principle (keep it simple, stupid)?  Many large organizations seem to have forgotten that common sense caution as they saddled their reward programs with ever more forms, procedures and bureaucracy.

The Evolution of Performance Appraisal

A good example of HR systems gone wild is the difference between a small company performance appraisal and the convoluted processes often followed by large companies.  Herein lies a stark contrast not only of styles but of methodologies and core beliefs that a more complex better way will increase the effectiveness of employee reward programs.

This growth of complexity is commonplace; by the time an organization achieves a certain population size HR feels compelled to complicate their processes – usually in the name of increased employee sensitivities and streamlined procedures.  What worked well before (when the business was smaller) is suddenly suspect, deemed somehow less effective, less desirable.

What began as direct cause and effect, performance followed by assessment = reward, suddenly becomes much more complex, more confusing to some, more aggravating to others.  Communication becomes critical but is often flawed and ineffective as both employees and managers question the additional complexity.

What follows is a brief comparison between how small and large companies approach the critically important performance appraisal process.

The Small Company Experience:

• The employee’s performance is assessed against what is expected of them.

• Performance discussions usually take place on the anniversary of either employment or promotion.

• Forms are basic, even simple.  They may not be standardized, and one or two pages are usually enough.

• The process doesn’t take a lot of time.  Meetings tend to be short and focused, so both parties can get back to work.

• What the boss says is what is going to happen.  The approval chain is abbreviated; messages from the performance meeting are typically what actually happens.

• The money discussion (pay increase) is front and center, a cause-and-effect dialogue.  You have performed thus and so, and your salary will be changed from “x” to “y.”

How Large Companies Tend to Operate:

• The employee’s performance may be assessed against other employee’s, as much as against what is expected of them (based on their job description).

• Performance discussions use a Focal Point strategy, where everybody is reviewed at the same time.  For managers with more than two or three subordinates, this represents a challenge in terms of time spent and quality of assessments.

• Managers are often required to use intricate, multi-part, multi-page forms designed by a specialty section within HR.

• Employee performance as a group may be viewed against a desired bell-shaped curve of results.  Individual assessments may later be modified to fit the expected / budgeted shape of the curve.

• The boss makes upward “recommendations,”  which may or may not be approved.  Thus, the conversation with the employee ends on a “we’ll see” basis where money is concerned.

• Other topics like developing future performance, improvement strategies / action plans, and “where are we going?” discussions may predominate.  Sometimes talk of a pay is deferred, raising the question of whether performance actually relates to reward.   Meanwhile, the employee wants to hear about a raise.

• Employees could feel lost in the bureaucracy, a faceless ID number trapped within a huge spreadsheet.  For them, cause and effect becomes a pep rally concept, with little connection between individual performance and reward.

So what has been lost as the organization grew larger?  Has it become more impersonal, forms-centric, process controlled, and standardized?  And is that better than before?  Perhaps more has been lost than gained.

How did the organization evolve itself into something potentially less helpful, less effective?  Perhaps the poking and prodding of systems and procedures in the name of improvement went too far, until they created a convoluted and twisted version of their desired state.

Perhaps we’ve let specialists over analyze the psychology of a boss rewarding a good performer.  We’ve exchanged hard decisions with real impact for a muted “everyone deserves something” approach.  The following scenario is common.

• Sub-function specialty groups are created within HR, be they Training, Management Development, Succession Planning or a host of others popularized in prevailing industry jargon.  Each group has advocates that push an agenda of change.

• These specialty groups must justify their existence, to validate the worth of their profession, and their mission.  The result is additional layers of forms, procedures and extra time constraints for managers to struggle with.

• Over time these experts lose sight of the managers they should be trying to help.  They don’t understand the beast they’re trying to tame.  By pressing their own agenda they tell management how to assess performance.

• Ultimately these groups become blockers, getting in the way of a smooth-running operation.  Objecting managers tend to respond with a campaign of passive resistance.

So can we make our large companies “feel” smaller when dealing with employees?  How do we reverse the model of increasing complexity and confusion?

When the state of affairs has gone off the tracks, how many times have you heard – or used the phrase, “let’s get back to basics?”

Perhaps that thought could be useful today, no matter what size organization you hail from.  Simply return to the fundamentals of performance management, where performance is assessed, which in turn leads to reward.

It doesn’t have to be any more complicated than that.

K-I-S-S