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Go Ahead and Pay More

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 08-05-2013

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It seems that everywhere you look in today’s still sputtering economy companies are striving to find ways of doing more with less;  jobs are eliminated and the survivors have to work harder, employee reward budgets are trimmed to the bone or pay levels frozen, and the concept of “performance = reward” doesn’t seem to function like it used to.  Across the economy you can hear the constant litany of cut, cut, cut.

As a result, employee morale has plunged off a cliff.

However there is one reward strategy you can employ that doesn’t involve following the popular drumbeat of negative messages and takeaways.   Other functional departments (i.e., Marketing, Engineering, Advertising) have already taken a different tract to deal with the new realities.   Creative minds set themselves apart, pushing brand identification to carve out market niches away from the beaten path.  Perhaps Human Resources could take a page from that playbook and view employee rewards in a more creative fashion.

HR can stand out from the crowd.

A changed philosophy

Companies fear wasting money on employees who don’t perform, so they often limit the administrative increases so often granted by their reward programs.  They feel they can’t afford a strategy that increases payroll without a corresponding increase in ROI.  However, they could increase the amounts paid to key employees while restricting the level of those who perform . . . less well.  That would place the high achievers at a fair or even generous pay level, but these winners would be only those who deliver an ROI back to the company.  You can afford to reward high performers, can’t you?

Employees who produce results are worth the money.  If you’re fearful of overpaying those who aren’t performing, you hold the solution in your hands / policy manual.  All it takes is the discipline to hold employees accountable and to take action against those who aren’t performing, who aren’t worth the money you’re paying them.

But that’s easier said than done, isn’t it?

Do you know what percentage of your workforce is rated at an average or lower level of performance?  50%? 60%?   If you still grant every employee an annual increase, you won’t be able to differentiate and properly recognize your key performers.  You won’t have enough money.  In that case the reward bar is inevitably lowered to cover the most common performance level.   Instead, why not raise the performance bar and get rid of those who can’t keep up?

If a manager has $10,000 for annual increases and tries to balance rewarding both high and average performers, the increases won’t be enough to recognize key players.   While the merit spend is calculated on average performance high performers need larger increases to feel recognized and appreciated.  A request to grant more than $10,000 will be denied, so what do most managers do?  They trim the increases of their best performers, in an effort to spread rewards as broadly as possible and keep everyone happy.

Does that work?

No, it doesn’t.   High performers will be discouraged and may rethink their future efforts as well as their commitment to your company, but your “Joe Average” will be pleased.  As behavior rewarded is behavior repeated, by using this make-everyone-happy tactic you’ll have encouraged more average performance and less high performance.  Does that sound like your reward strategy?

Okay you say, but if this concept is such common sense, why is the practice of holding employees accountable so seldom used?

The Management Fear Factor

Some managers fear what would happen if they took a tough line on performance = reward.

  • They fear that employees are somehow “owed” annual salary increases.  We have to give them something.”
  • They fear their ignorance over how to conduct effective performance appraisals.  Do these forms really measure performance?”
  • They fear alienating  the majority of  average employees (see bullet #1)
  • They fear what would happen if they exercised  the discipline necessary  to manage employees – because they want to be liked.

With a process designed to monitor and weed out the lower performers, and at the same time pay the higher performers well,  over time your new practice would retain more of those you want and rid yourself of those you don’t.  The employee performance bar would rise, fostering a more dynamic work environment that will in turn feed business performance.

You can afford to do this.  Consider the impact of increased performance levels on your bottom line.  Isn’t it worth the initial outlay of money to make that happen?

Caution:  The bean counters (Finance) are perennially afraid of spending a dollar to save two — or in this case, spending a dollar to earn three.  They believe that, while the dollar cost is real the suggested gains are “soft”; promises that can’t be guaranteed.

There’s no easy way around this phobia short of direct intervention from the top.  Lacking senior management support compensation practitioners will face a wave of passive resistance, if not outright defiance by managers tying to “help” the average employee.

Providing high performing employees with greater rewards can create a win-win scenario, a greater attraction for talented outsiders, an improved  team atmosphere focused on pushing the company forward — and less inequities to drag and drain the goodwill you’ve established.

Try it.  Spend a dollar and earn three.  It’ll be worth the effort.

I Don’t Remember That!

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 23-04-2013

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Have you ever found yourself in a situation where someone (usually your boss or a higher-up) makes an announcement or a decision using draft or preliminary figures that you had given them some time ago?  Only today  the correct figures are different from the draft.  Then when you ask why the “old” numbers were used, the finger points back at you? 

Awkward, isn’t it?

Suddenly you’re on the defensive and your credibility challenged because of an earlier estimate or cautionary advice that perhaps you didn’t want to give out in the first place.

You want to scream at the offending party, “don’t you remember that I told you that the figures weren’t final?”  That your analysis was incomplete at the time, that further checking was required, or that you gave your best estimate based only on preliminary data?

But you are the author of those figures, no matter how wrong they are today.  So why are they still in play?

Selective memory

It often turns out that all that was remembered by the fellow with the frown on his face was that particular damning figure, and all the buzz of qualifier terms and conditions that preceded and followed it have been forgotten.  To your chagrin you may now be viewed as someone who either; 1) gave incorrect information, or 2) subsequently changed your mind without telling anyone.

Unfortunately, you can’t say what you’re thinking.  That wouldn’t be a good career move.  The only card you have to play reads “damage control.”  Roll out those qualifiers again.

Earlier in my career, when I was responsible for job evaluation, I would steadfastly refuse to offer a preliminary evaluation, having been burnt by the same scenario as above.  I found that, if the managers liked what they heard, that’s all that they would hear.  Because if, lord forbid the final analysis differed from the preliminary estimate you’d be hauled up before the Inquisition to explain why you changed your mind.

“I already told the employee,” is a phrase I’ve heard more than once – before I learned to keep my mouth shut.

So be careful when you give a number to management before you’re confident enough to defend it.  For their own purposes they’ll grab what you give and lock it down with their fixated, but flawed memory, while at the same time forgetting any qualifier terms or cautions you might have provided.

It’s human nature to remember what you want to hear, or what you can accept.  So that preliminary figure you surrounded with qualifiers?  Chances are management was OK with the number, or at least could deal with it, and so off they ran to integrate your analysis into their plans.

“I don’t remember you saying that”

In their forgetfulness they might even grow irritated with you, for all the plans they made with “draft” or “preliminary” data (shame on them).  These folks suddenly act like you changed your mind, or gave them wrong information.  All your previous explanations and qualifier comments are lost.

Management memories can be quite selective.

What can you do about it?

This is a situation where your options are limited, because; a) you’re likely dealing with your boss or higher, and any critique of their behavior needs be carried out very carefully, and b) when you’re asked for a number you generally have to give one.  Begging off is usually not an option.

So remember a tactic once described to me by a Training colleague:  you have to tell them, then tell them again, then remind them of what you told them.  So if caught up in a “give me a number” quandry, you need to emphasize whatever qualifiers might later modify the figure(s) being discussed.  Then you have to repeat your concerns again before closing.

Finally, put the worrisome figures in writing, nicely wrapped together with whatever concerns you have about its validity.  Cover yourself.

Will it work?  Will it save you from another awkward moment? 

Life isn’t fair, is it?  So no, even this strategy will fail from time to time.  But at least you’ll have positioned yourself to present an effective response.

Just remember to be polite about it.

Are You Practicing Compensation-Lite?

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 17-04-2013

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An employer’s payroll cost can represent anywhere from 40% to 60% of their revenue.  In most cases it’s their single largest expense.  But when you ask someone in leadership how well that money is being managed, an all-too-typical response is a blank stare.  They really don’t know.

They may not even recognize the value of leadership vs. administration when it comes to overseeing the effectiveness of their reward programs – of receiving an ROI for those dollars spent.   That distinction is a matter of someone either striving to make a difference to the organization’s bottom line or simply holding the fort – keeping a finger in the dike.

Without that value recognition, is it any surprise that many companies have placed administrators in charge of their pay programs, managers who tend to avoid rocking the boat, but instead keep the processes and paperwork moving along smoothly and who don’t look up from their desk to glance around and ask . . . why?  Is there a better way, a more effective way?

How would you describe the behavior that characterizes the leadership of your own company’s pay programs?   Do they seem to be managing the growth and direction of your compensation costs, or are they just managing administrative routines, pushing paper, in effect practicing a version of bare-bones “compensation-lite” as company funds  trickle out the door?

What is Compensation-Lite?

In today’s lexicon the term “lite” usually applies to something that is only a portion of the whole, a watered down version of a fully functioning product or service.  In this case it may represent a failure of management to apply themselves in effectively utilizing their reward dollars to positively impact the business and the employees.

How do you know if this tag belongs to you?  Well, how many of the following reward practices are used by your organization?

  • All competitive market data is viewed the same, regardless of the source – and the cheaper the price the more valued that source.
  • Recommendations for annual merit spend budgets are based on the figures that surveys suggest is common practice – what everyone else is doing. 
  • Annual salary range midpoint adjustments are based on how surveys suggest other companies will move.  
  • Perceived reward program effectiveness is based more on whether current problems exist (turnover, morale, burgeoning costs, recruiting difficulties, etc.) than using measurements to gauge developing trends and warning signs.
  • Management actions are commonly more reactive vs. proactive in the face of changing business dynamics.  The organization tends to stay the course until a problem develops.

If your company’s tendency is to follow a similar conservative, half-hearted and reactive path as shown by these examples, then you’re practicing Compensation-Lite, whether you’ve planned to or not.

So What’s Wrong with That?

The administration of standardized policies and procedures is not a bad thing.  In fact, routine processes are critical to providing employees with a sense of equitable treatment, as well as a working environment that values uniformity of decision-making.  But if this is the extent of how you manage your reward programs,  then opportunities are being missed that could maximize the value of dollars spent, that could improve the organization’s ROI from your largest expense item.  Some of the potential liabilities are:

  • Passive administrators are often surprised and unprepared for the unplanned.  They do not anticipate, and stubbornly carry on until a problem develops. 
  • Costs tend to rise when programs are left on auto-pilot.  Reward programs are not self-policing, and if no one is in charge . . . .
  • Effective compensation programs require not only a strategy but a hands-on implementation and communication.  Having neither creates a painful environment of inconsistency and inequity.
  • This is work – it is paying attention, being involved in the business, knowing your employees – as compared with “shut off the lights and wake me when it’s time to retire.”

But let’s not be too critical.  Sometimes the organization provides little opportunity for compensation practitioners to steer the ship, never mind change course.  Management bias is a reality that we all face, and sometimes it takes the shape of “if it ain’t broke, don’t fix it” or simply a passive resistance to new thinking.  Regardless of the significant expense associated with reward programs, there are those in senior leadership who will dismiss cost concerns with “it’s in the budget” or “we have the money” or similar phrases that may fly in the face of good economic sense.

When faced with such roadblocks a compensation practitioner will have to gauge whether senior management can be educated, even over time, or whether should they give up and go with the flow – ultimately becoming part of the problem.  Or perhaps they should start looking elsewhere for the sake of their career.

Providing leadership doesn’t mean you have to stand in front of a freight train when senior management bias kicks in, but it does mean being ready and able to offer professional advice that is good for the business and the employees.  It’s being flexible enough to pick your battles, while keeping an eye on the direction the organization needs to follow.

So now you know.  Are you satisfied with the way your payroll costs are being managed?  Is your senior management satisfied with the way their single largest expense is being watched over?  Who has an appetite for change?

Is it time to provide leadership?  Or is it time to dust off your resume?

Whem Am I Going To Get Mine?

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 11-04-2013

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Over the past several years most companies impacted by the recessionary economy have dealt with the crisis by cutting back on employee reward programs, what with frozen salaries, minimal pay rises, shrunken incentives and even the elimination or reduction of 401(k) matching funds and other benefit provisions.  And of course there have been the layoffs.  So many layoffs.  Even today companies seem resistant to hiring new employees, to expand their business with additional headcount.  Unemployment levels seem stuck on high.

But it’s not all gloom and doom.   With several sectors of the economy starting to show sputtering signs of life we’ve seen some elements of the shrunken workforce actually begin to push back from the period when they felt like replaceable commodities.  When they felt that they were lucky to have a job.  Some of those survivors are now asking when their employers would be reinstating the monies lost through those recessionary restrictions and cutbacks.  Their view is that if an employee’s salary was frozen or if pay increases had been restricted in recent years, when the company begins to regain its financial strength management should acknowledge and recompense payback for the loss of income.  To put a figure on it, that might mean an additional 6% – 7% pay rise in 2013 to simply play catch up – and perhaps more.

Ain’t gonna happen.

That ship has sailed.  As each fiscal year closes your company tallies up the figures, reports the results upward and to the Wall Street financial analysts and then they move on to the new year.  Case closed.  The recessionary years are in the past.  There is no going back.

Unfair?  Do you think that employees are owed those “lost” dollars?  Consider the question as a business problem.  The company cannot afford being burdened with additional fixed and recurring costs just as their operations are struggling to regain its competitive strength.  While they will likely strive to reward employee performance in a competitive fashion, as long as it’s affordable given their financial posture, they will not revise their rewards program to pay for historical entitlement vs. current performance, or on the basis of whether or not they’re doing well in a particular time period.

Ain’t gonna happen.

Picture the scene in the Boardroom when the question comes up – if it even does – of returning to employees those increases that were not granted during the dark times.  How much would that cost, and how big a dent in future plans would be caused by the additional fixed expenses?  Management will consider that the tight fiscal measures put in place for Human Resources, as well as other functional areas, were necessary to get the company through a rough patch.  To keep even more employees from being laid off.  Now that better times are slowly returning it makes business sense to begin reducing those restrictions going forward or otherwise trying to return to normal operations.

The use of bonuses and merit increases will return to more normal levels this year, as will company matches for 401(k) contributions and other temporarily suspended activities. But they will not be made retroactive.  Companies need to look forward, not backward.

To add incremental, unbudgeted funds to reinstate missed salary increases from prior years is not going to happen, as management has its hands full bringing itself back to a healthy financial posture and preparing for the future.  Supplemental “make-up” compensation, especially in the form of fixed costs, is not viewed as a financially sound strategy.

So in case you’re thinking of asking, have a care that you might already know the answer.  Your company has moved on, hopefully toward better times for everyone involved.

The Complete Job

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 26-03-2013

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When reviewing an employee’s performance, what do you as a manager look at?  Results, right?  You’ll try to be as objective as you can, considering quantifiable metrics like deadlines met, sales targets  achieved, projects launched, budget compliance and products or services delivered.  Figures don’t seem to lie.

But is that the whole job?  Is that all you expect from your employees, a targeted end result?  Or is there more involved when you consider what successful performance means to you and your company?  Are you assessing an employee against the “complete” job, or just the visible tip of the iceberg?

How you get it done

For many companies performing the “complete” job encompasses the how as well as the what.  An increasing number of organizations are recognizing that the manner in which results were achieved (the how) has a bearing on the impact of the results (opportunities reached or missed, short vs. long term thinking, building relationships, etc.).  They are coming to realize that employee behavior can also create ripple effects with other employees, as well as with clients, suppliers and even with the organization’s reputation in the community.  And those ripples can have negative consequences.

Have you ever seen a touchdown called back because of a penalty?  The points get taken off the board.

So how we view success is not just about results, or at least it shouldn’t be.  Organizations are considering in the overall assessment “how” the work was done, as sometimes an employee’s behavior can affect not only their own individual results – but the success of other employees as well.

An employee who doesn’t cooperate with others, who displays arrogance, takes undue risks, alienates vendors, or is self-centered and doesn’t have the company’s financial interests in mind – that person is like a bull in the china shop of your business, a time bomb waiting to explode.

What will the casualties look like?

  • Bodies in the hallway: Not literally, but an “end justifies the means” mentality takes no prisoners and can be ruthless with co-workers.  It’s every man for himself and you’d better get out of the way.
  • Nobody likes Bob: This is the employee that no one wants to work with, who doesn’t understand the word “collaborate” and who doesn’t share toys with anyone.  They don’t receive Christmas cards.
  • Ethics?  What are ethics? This is the short-cut artist, who isn’t above bending the rules well past recognition, as long as their tactics gain a short term advantage or deliver results.
  • Loss of respect: Here we have the player who may gain measureable results, but for whom few workers have a professional trust or respect.  And for those we don’t respect we don’t move mountains or go the extra mile.

How managers act

Some managers have a short term focus, anxious to sidestep their own pressures by looking only at results achieved; the monthly or quarterly figures.  But the impact of a “results first and always” business practice plants seeds for eventual ruin as behavioral factors may eventually supersede the value of gaining those quick results.

  • Lost business: The most direct impact, where inappropriate employee behavior has sent a customer or client heading for the exit.
  • Talent drain:  “I’m otta here” is an often heard refrain from employees no longer willing to deal with certain employees.  How many high caliber employees can you afford to lose?
  • Negative press: You don’t want to see your company exposed by the media, unless such self-advertising was orchestrated by your own people.  The company will be splattered by the same mud when employees are caught for their transgressions.

So have a care when considering what you view as successful employee performance. After all, it’s easy to simply look at the figures to assess what results were delivered.

It’s a bit more challenging to tell employees that an assessment of the complete job requires that the behavior surrounding those results is going to get a look-see as well.

Who Are You Talking To?

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 15-03-2013

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Have you ever felt like an outsider in a conversation, when it seemed as if the others in your circle spoke in what seemed  a different language – one that left you struggling to keep up?  They may have been using English words, but the phrases, acronyms and technical references peppered throughout the back-and-forth left you floundering.

What are they talking about?  Not wishing to appear foolish, you likely react by tuning them off and simply standing there as a silent listener – or walking off.

Examples of this experience abound.  The circle could be doctors, lawyers, bankers, IT professionals – almost any specialty or interest group that has devised its own short-cut proprietary language.  For example,  if you sat with a group of bankers for more than 15 minutes, see if you aren’t befuddled and “zoning out,” or checking your watch for an early exit.

Now flip the coin.  What if you were one of those from the “inner circle,” someone already comfortable with the specialized jargon, and you were trying to explain an important point to someone not native to your group?  If you’re not careful, while the manner in which you communicate might have the others in your circle nodding their heads in understanding, the object of your discourse could simply stare back at you with a blank look – not following along at all.

If your intent is to reach out to someone, to have them understand what you’re saying, you need to speak the same language.  And that language should be that which is understood by the listener, not the speaker.  Such a concept of effective communications is the root cause of how the message so often goes awry when managers talk to employees.

When I lived in England my British colleagues would often say, “we speak the same language, yet still don’t understand each other.”

Talking isn’t communicating

Perhaps that’s a radical thought, but if your audience doesn’t understand you, then in effect you’re talking to yourself – to an audience of one.  Your message will bounce, not resonate.  But most of us have a default button when it comes to communicating; we automatically talk or write the way we think, the way we are accustomed to conversing within our niche group.  We use the same specialized terms, acronyms and short cut phrases of the group-think.  Have you ever listened to a group of doctors?  For compensation practitioners the sample list of terms could include median, compa-ratio, present value, percentiles, STI, red circles and any of a host of technical terms or “inside” phraseology.

We should remember though, that we’re talking to a potentially uninformed audience whom we need to connect with.  Even if the meanings of our terms are understood, the why they are important can be lost amidst generic corporate-speak language of such throwaway phrases like employee engagement, shareholder value, mission statements and earnings-per-share analysis.  When you’re huffing and puffing about  rewards your employees can easily and quickly become cynical.  Doesn’t everyone think that the company is out to save money at the employees’ expense?

So what happens to your audience when they don’t understand you?

  • They stop listening.  That comes first; the glazed look, the befuddled grasp at understanding, and then finally the tune off.  They start checking their emails, watching the clock or simply staring off into space.
  • They revert to preconceived notions.  Because they haven’t heard you, in terms of comprehension, they’ll likely not change their behavior or their practices.  They’ll carry on as usual, regardless of your message – because whatever you said simply bounced off without impact.
  • They start to mistrust the messenger.  Perhaps the most damaging reaction of all is that your audience can become antagonized by your efforts.  They can feel that they’re being spoken down to, treated by management as poor cousins, and in general become skeptical of the message that you’re trying to sell.

All of which damages the credibility of the message as it becomes lost amidst the distraction over how that message was conveyed.

If your audience doesn’t understand what you’re trying to tell them they aren’t going to respond in the manner you intended.

What are you trying to achieve?

When preparing to deliver a speech the common advice one is usually given is to tailor how the message is delivered in order to suit the audience. That’s how you keep them engaged, never mind dosing off, tuning off or watching the clock while you’re talking to yourself.

If your audience doesn’t understand your message, or if it doesn’t have credibility, you really haven’t communicated – no matter how much effort you’ve put into it.  It’s like sending out a memo that no one reads.

The more technical the topic, or controversial, or even boring the more important it becomes to find a way to reach a connection with those you hope to educate, persuade or simply inform.

How can you test that your message was received and understood?  Have you asked anyone to repeat what you said?  To show that they “got it”?  Try it some time.  You can also test the message with an informal focus group of employees who are outside your specialty circle.

And don’t talk at your employees but to them.  Dumb down the language to common terms if you have to; use pictures, stick figures or colorful designs to illustrate examples and key learning points.  Be a little bit creative, as you have to do whatever it takes to make sure that your audience understands what you are trying to tell them.  Otherwise you’re wasting your time.

Otherwise your employees will feel like outsiders in their own organization.

The Forgotten Employee

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 04-03-2013

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Have you ever walked out of a store because of poor customer service?  Or felt frustrated because the employee at the other end of the phone didn’t seem to care?  Or after enduring a bad experience with an employee at a particular establishment you said, “never again”?

Customers react first and foremost to the employee they’re dealing with, the one they’re facing, whether the transaction is financially significant or not.  To the customer, that employee is your company, and these decision-makers will consider the treatment they receive a reflection on your company, for good or ill.

The forgotten employee

It’s worth noting that the person who just caused you to take your business elsewhere is likely one of the lowest paid employees in that organization.   Does that reward / impact relationship make sense to you?  Perhaps the organization doesn’t recognize / reward (value) the impact that their employees can have on customer relations.

Many companies have long ignored the importance of the customer-facing job (non-direct sales) in determining a position’s value to their organization.  They consider education (what you know), experience (how long you’ve been doing something) and competitive survey data (what others are paid) in setting their pay scales.  The fact that the position also has the power of gaining or losing customers is often lost on them as “just part of the job description.”

Some job evaluation systems may give a nod for those who face customers on a regular basis, but such recognition is not often viewed as a critical factor – nor does it help determine where in the salary range the incumbent is paid.

Oftentimes it’s the position with the least amount of “cachet” that presents the jobholder with the opportunity to influence customer action and reaction.  As an example, the employees most commonly approached by guests at Walt Disney World are the Custodial workers.

Is it not surprising then that these employees can have as great an impact on customer good will and retention as managers?  Studies have shown that having a pleasant experience when dealing with a company often outweighs price considerations and marketing glitz.

What to do

However, that doesn’t mean that you have to pay more to these employees than the marketplace suggests, but it’s in your best interest to ensure that they’re fairly treated:

  • Ensure that actual pay centers on the middle of the range or higher.  Don’t risk having minimum pay scale workers interact with your customers (outside of fast-food outlets).
  • Hire well into the salary range.  This isn’t a time to be cheap.  That dollar you saved today could cause you to lose a great deal more later on.
  • Modify your performance appraisal process to recognize the customer facing role; attitude is just as critical here as know-how and experience.
  • Avoid structuring these as “dead end” jobs.   Offer upward opportunities for higher performing employees.
  • Listen to them; they’re talking to your customers and their suggestions for process improvements – even new products and services – should be considered.

How do you know whether your company is vulnerable?  1) Ensure that these positions are regularly surveyed for competitive pay practices, and then 2) Create a metric that segments the actual pay of your customer-facing employees to determine the average compa-ratio and spotlight the presence of low paid workers.   Then you’ll know how well you’re paying those closest to your customers.

Remember that each scenario of customer vs. employee reinforces the financial and long term impact of those who represent you in the marketplace.  Your reputation and business success hang in the balance.

So don’t be “penny-wise and pound foolish.”

Competitive Pay is not Enough

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 28-02-2013

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You’ve seen your company’s want ads and heard the pitch from your recruiters; you provide competitive wages.  That’s got to be a strong hook for attracting talent.

Big deal.

Pay structures are based on market trends, so the opportunities offered employees support your retention and motivation strategies.

Not enough.

Companies routinely tout the practice (“we offer competitive wages”) and candidates in return expect this of potential employers.  But what happens when your goal of offering competitive pay is finally achieved?  Can companies rest in their efforts to attract, motivate and retain?

I’m afraid not.

What happens when you offer competitive pay is that your recruitment problems don’t suddenly disappear, your employees aren’t satisfied and your compensation programs have achieved little more than being . . . average?  Is that where you want to be, the middle-of-the-road?

If your company does pay “the going rate,” that means that approximately 50% of the companies out there pay more than you.  That’s what average gets you, with half doing more than you.  Is that what your company aspires to?

No one leaves your company for less money – so what you’ll hear from employees is how so-and-so is making more somewhere else.  And as most only hear what supports their own notions, they won’t pay attention to the broader rewards package – just the elements that confirm their opinion that your company isn’t paying enough.

The only way to avoid this scenario is being the premier paying company in your market  – and can you afford the cost?

Lest we forget, it’s important to differentiate between having a salary structure (grades, salary ranges and midpoints) that provides competitive rate “opportunity” and actually paying employees at those rates.  Some describe this as whether the company is “walking the talk.”

For their part, employees relate to what they’re being paid, not the midpoint of a salary range or other such declared “opportunity.”  To them the company’s “competitiveness” is more illusion than fact; especially if they’re experienced and have been with you for awhile.  Thus the company needs to keep its focus on actual vs. opportunity pay.

Why don’t employers pay the “going rate”?  Typically it’s often not a strategy, but a series of practices that have evolved.

  • During difficult economic times some candidates will accept a lower rate than should normally be paid for their knowledge and experience – and managers tend to view this as a cost savings.
  • Once you’ve started down the slippery slope of paying below market rates the practice can be compounded by internal equity.  Managers don’t want to pay similarly qualified new people more than existing employees, so new hires may be offered less pay.
  • Pay-for-performance systems have a hard time keeping up with the increased marketability of employees.  A minimally qualified employee hired at the minimum rate will gain knowledge and experience (marketability) faster than a company’s annual merit system can recognize.

So, what’s the answer?  Management won’t agree to become a premier payer, so you should consider instilling flexibility into your pay practices.  Consider targeting key jobs (highly skilled, difficult to replace, etc.) and make sure those jobholders are well paid for the market.

Other positions less skilled and more easily replaceable could continue with your “competitive opportunity” strategy.  Such a dual approach is akin to ring-fencing key talent, protecting them against poaching while recognizing / rewarding those with the most potential impact on your business.

Bottom line?  Be careful when you claim how your company provides competitive wages.  You may not be correct, but even if you are – big deal.

Don’t Use Pay as Your Babysitter

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 25-02-2013

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Have you ever used a babysitter?  This is when you have someone else assume your responsibilities while you take a break and focus on something else.  The babysitter stands in for you, becomes you during the period of your absence.  Someone else does your job.

Typically we think of babysitting when there’s actually a dependent child involved, but it’s not uncommon for ineffective managers in the workplace to use the same concept when dealing with their employees.  These managers seek to use the pay that their employees receive as a surrogate for leadership – for keeping those workers complacent, retained and generally “in line.”

The practice of manipulating rewards presumes that the employee will chase the money and will be happy with their lot, while at the same time not requiring much in the way of supervision, periodic direction or even meaningful conversation.  The thinking here is that, if provided with enough rewards, an employee will act as desired in order to not jeopardize those rewards.  The goal is to place the employee’s attitude and performance on automatic pilot while the manager is engaged elsewhere.

So far, so good.  Not necessarily a problem, right?  The red flag goes up when you ask whether these monies are warranted by either performance or business need, or are they simply bribes?

What are we talking about?

Scenarios where pay is used in lieu of actual management are easy to spot.

  • The Grand Giveaway:  Where managers try to give away as much money as they can to as many as possible, not worrying overmuch with distinctions between individual performances.  The goal here is to build an employee’s appreciation of their manager’s largesse.
  • Title inflation: The promise of bloated and meaningless titles that distort organizational structures, for the prime purpose of rewarding employees in lieu of cash.
  • Over-rated performance:  Play the good guy by over-rating performance during salary reviews.  Culprits are often seen rewarding activity over results.  So look busy!
  • Assured compensation: Take the risk out of rewards.  Everybody receives an annual merit raise, everyone earns a bonus.  This fosters an attitude of entitlement.
  • Counter-offers: “Let’s make a deal” attitude to keep resigning employees from actually leaving; a dangerous practice that increases costs and lowers morale.

What’s the cause of this behavior?   Managers typically receive inadequate training (if any) on how to use their company’s pay programs, so many use pay as a crutch instead.  Spending the company’s money effectively and efficiently isn’t on the radar screen.  They use employee pay like a club to get an employee’s attention.  And once they have that attention the manager is off doing something else – with the presumption that pay will substitute as supervision and motivation while the manager is absent – kind of like a babysitter.

Weak and ineffectual managers don’t actually manage their employees when it comes to things like performance direction, leadership, setting good examples and decision-making.  Instead, they want to be liked.  They want to avoid conflict and they don’t want anyone to quit.  They want employees to get along, and to help foster a friendly team atmosphere they try to manipulate pay in support of their efforts.

It’s really kind of a bribe.

So what is “managing” to these people?  It’s not about making hard decisions.  Too often it’s trying to get the most for their employees, deserved or otherwise, whether the organization gains in the process or not.  The manager is focused on their own interests, and is using someone else’s money in the doing.

Why it doesn’t work

Relying on pay as a replacement for management has a short term effective life cycle, at best.

  • Employees see arbitrary equal pay treatment as de-motivating to high performers.  Why bother extending yourself if you’re going to receive the same reward as the guy doing crossword puzzles?
  • Employees resent favored-son treatment; the names of those who benefit for non-performance reasons will always become known.  There goes your morale.
  • No amount of money replaces the value of honest performance direction and feedback.  Those with an interest in learning and growing appreciate the help.
  • Absentee managers lose the respect of their employees, who know what’s going on.  Remember that employees leave managers, not companies.
  • While employees will take any money carelessly handed out, the organization will not gain because of it.  So these “rewards” are ultimately wasted.

For managers who need a crutch to help motivate and retain their employees, to help them do their jobs, the above cautions likely won’t make a difference.  Their goal is not to manage, but to get-by, to be liked by their employees and to avoid disruptions to their routine.  This is not leadership.

But for those managers who wish to make a difference, who understand that managing employees is a challenging and rewarding role, abrogating responsibility through babysitting is not an option.  They recognize it as the opposite of management, a damaging practice that will not enhance anyone’s long-term career prospects.

The Few and the Brave

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 17-02-2013

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When it comes to the design of performance management programs and processes most companies play it safe.  Right smack in the middle of their employee assessment scale is the word “average”; or perhaps they use “meets expectations,” or “solid performer” or something similar.  Each term holds a similar meaning, though – middle of the road.  And isn’t that where managers expect most employee to fall?  After all, the height of a distribution curve peaks at “average.”

Surveys show that over 80% of organizations who use a rating scale to assess employee performance have chosen a three, or five (most popular) or seven scale system.  The common denominator of each system is a middle rating category, the average.

But what if you were one of those odd ducks who chose not to have an “average” rating in your performance review process?  What if you told your managers that they couldn’t call anyone “average;” that there would be no middle ground; that employees would have to be designated as either “successful” or . . . less than successful?

We can’t do that!

Which is exactly what you’ll hear.  Many managers will balk at having to choose between rating someone as either what they consider an under performer, or as an over performer.  That’s the way they’ll see the decision-making process – as forcing them to select what is for them an incorrect rating.  Because they think the majority of employee performance falls between those ratings.  Because they think most folks are average.  They’re doing the job that they were hired to perform.  And “average” is a safe word.

But there are some companies out there who have decided that they want their performance review process to be a less than a passive administrative tool (looking backward).  They want to couple development dialogue into the assessment process and encourage employees to stretch themselves – to look forward.  They want to improve the performance culture in their organization, and they feel that in order to achieve that goal they need to better identify exactly what level of desired performance their employees have been delivering.  Which means that they take away the middle ground.

I’m not here to say that managers are always wrong in their overall perception of employee performance, but perhaps there’s a different way to look at the rating process, a less “easy button” approach that doesn’t provide a default selection for the manager.  Perhaps there’s a method that might help drive employee performance – instead of administering it.

What if the performance review process asked a different question?  Instead of asking how an employee’s performance compared against  a common-man average, what if the question became whether the employee was “successful” in their job?

Successful

Now here’s a word that implies achievement, the gaining of favorable results.  Compare that against what the dictionary would describe as common, ordinary, typical – the average.  An argument can be made that an “average” employee is not necessarily a successful one, and that a successful employee is a better performer than an average one.  For the good of your business I’d suggest that you’d want to encourage more successful employees than average ones.

A common management view of “average” employees is that “we’re not going to get where we want to go with this group.”  The desired goal of a high performing organization will not be achieved on a foundation of common, ordinary and typical employees.

Needs Improvement

What if, instead of saying an employee’s performance was below average (a rating usually seen as just below the middle ground) you turned things more positive, saying that the employee was “on track” but not quite yet successful?  This can be a different, much less negative perspective.  If you want your performance review process to help drive performance, then encouraging employees (“you’re almost there, keep it up“) is a better strategy than negativism.  And if you believe that performance recognized is performance repeated, then you want to make sure that you focus on a glass that’s half-full, not half-empty.

Those who take a risk

Choosing to design a performance review process without designating a middle rating for your performance scale is taking a risk, which is no doubt why most companies steer clear.

  • Too many employees could be ranked as “successful,” merely to avoid the negative connotation of “needs improvement.”
  • Over-rated employees would be given (or at least they would hear) the wrong message, inflating their perception of performance without delivering the same caliber to the organization.
  • The bottom two (of four) rating categories would see little use as “Needs Improvement” retains its strong negative connotation.
  • The organization wouldn’t have sufficient merit increase monies to appropriately reward the great majority of employees rated “successful”  – thus leaving little room (or motivation) for lower ratings.

Such a scenario, if left unchecked, could weaken your performance review process to the point of being ineffective – almost pointless.  Those rated less than “successful” would likely fall below 10% – 20% of your workforce – which for most organizations is not a true reflection of current performance.

In that all-too-common scenario many of the ratings might even become reluctant “gifts” meant not so much to recognize performance but rather used by the manager to avoid having to face uncomfortable conversations with disappointed employees.

This is where management training, coupled with a careful and continuous monitoring of the performance review process, would be key to success.  When you don’t provide a default “easy button” you need to make sure that the decision-makers not only understand the rationale of the four-scale rating system, but are on board with it.

One doesn’t create a new HR program and launch it via a few memos and a deck of slides and then expect compliance and success.  Not if you want managers to think and act differently today than they did yesterday.

So kudos to those with a four scale performance rating system.  They’re trying to walk the talk of performance management and pay-for-performance.  I wish them luck.