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When Is Pay . . . Fair?

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 30-04-2014

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Do you think that your pay is a fair reflection of your experience and job performance?  Do you think that the person in the office / cubicle / work station next to you considers their pay fair?  If you asked 100 of your fellow employees, how many would say yes?

Would you be surprised to discover that, at any given moment most employees feel that they’re deserving of more than what they’re receiving? 

So if that’s a common employee perception, are a majority of companies intentionally underpaying their employees?  Or are these employees filling their heads with deluded fantasies regarding their own self-worth and entitlement?

Perhaps we should first understand, what exactly is fair pay?  Most would agree that it’s being properly rewarded for experience and effort.  Not in relation to the employee next to you, but as a reflection of one’s own value to the organization.

You may be nodding your head at this point, but what confuses the issue every time is – what do they mean by “properly”?

Many employees have a tendency to consider themselves underpaid

·         They hear stories about what their friends and associates are paid – and the stories always speak of higher pay.

·         It seems that everyone who quit the company has left for more money.  Shocking. 

·         Employees learn of colleagues whom they consider as less valuable to the company being paid more than what they would consider “fair.”

·         They’re exposed to a steady drumbeat of outside influences (recruiters, the media, those same friends and associates, etc.) suggesting that they could do better elsewhere.

·         An employee’s natural skepticism allows that the company is offering only what it has to.

Even where the pay levels are high in relation to the competitive environment, employees may remain convinced that their pay is average at best.  Unless the company makes a serious effort to communicate the market value of their pay program(s), left to their own devices employees may not appreciate what they have.

So what’s an HR Manager to say when confronted by this most common employee gripe?

Focus on how the individual is being treated, because if you get caught up defending anyone else’s pay you’ll have lost the argument from your opening breath.  Your questioner has only one employee in mind, and they won’t be interested in listening to generalities of how the company has everyone’s interest at heart, how they strive to provide opportunities for competitive pay, blah, blah, blah.

Look at the employee’s pay, their background and experience that preceded their current job, their history of performance ratings and where they stand in their salary range – low, mid or high.  Does their pay  make sense?  Or is something out of whack?

Another factor to consider; most pay-for-performance systems have a critical flaw, in that company reward practices don’t keep pace with the increased external value of employees – thus creating a long term risk of disenchantment and disengagement.

  • Salary ranges are increased in relation to the movement of the marketplace, but individual pay is increased for different reasons, and may not be in sync with the market.  Thus employee growth within the salary range can be painfully slow.
  • Company policies often limit merit and promotional increases for budgetary purposes, restricting the pay growth of high performing employees.

In addition, companies don’t react directly to changes in the cost of living, either by midpoint or salary movement, but employees do react to the COL as a personal barometer of whether their pay is fair.  So pay expectations can be on a different track.

Also, as companies continue to “carry” some employees (continuous reward for mediocre performance) they may leave scant resources available for the reward of high performers.  But it’s these valuable employees who are at risk to leave, while the mediocre ones will remain. 

When a reward system is flawed the average level of performance tends to gradually decrease as good workers leave and other high performers realize they won’t be “properly” rewarded for their efforts.  Over time a broad performance leveling effect takes place, to the detriment of your business.

Testing whether pay is fair

·         If the salary range is known, how does current pay compare to the midpoint?  Significant job experience and consistent good performance ratings would suggest an above midpoint pay level.  Or find out why not.

·         Ask your manager a simple question; what is the competitive rate for my job? Then drop the other shoe; where am I?

·         A caution for those conducting “personal market research” : Internet sites (salary.com et al) offer an inexpensive and often simplistic view of the “market” –  and may be viewed by management as unreliable.

·         If you need someone to tell you that you’re underpaid, then you’re not. 

·         For most employees it’s an act of faith that the company is playing fair – and if they come to believe otherwise it’ll be difficult to regain their trust.

Do you consider yourself to be fairly paid?  What about your employees?  Be honest now.  There’s a line of thought that suggests there’s little to gain in saying yes.  Then the company will do nothing.  But if you said h*** no! then perhaps the company will do something.  Cynical?  Skeptical?  Yes on both counts, but that’s exactly what your employees are thinking.

Being Hit In The Face With A P.I.E

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 24-04-2014

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 I remember a time early in my career where in one particular company we had an unusual employee working in our department, a Business Analyst who was considered quite a character. He was a long way from being a stylish dresser, didn’t have much in the way of social skills (was a bit of a loner, in fact), wasn’t what anyone would call “attractive” and as a result always seemed to be the odd man out in our group.

Once when I commented about yet another display of public eccentricity my boss chided me with “Bob is brilliant, and a top performer.  Just deal with it.”  The point being made was, this is an exceptional talent that the organization values.  Ours is not a social club, so ignore the surface veneer as simply not being that important to the business .

I learned a lesson that day.

Well, that was then.  It was a while ago.  Today, eccentric Bob might find himself in a less friendly environment, and might even be pushed out the door, simply because management didn’t want to “deal with it.”

In many organizations today if Bob doesn’t fit in, he’s gone.  Focusing on performance and results just aren’t enough anymore.  Or perhaps not considered as important by elements of senior leadership.  Not as important as “fit.”

Defining what “fits”

Each employee can measure themselves, and can be measured by others, in accordance with three elements of a successful employment experience.  The Organization & Development folks call this P.I.E.

  • Performance: Doing the job.  Simple enough.  Doing what you’re paid to do and doing it as well as you can.  Bob excelled here.
  • Image: What others think of you.  When your name is mentioned, what imagery emerges in the listener’s mind?  What do they know about you, what have they heard and sometimes it’s what do they presume?  Call it a reputation index.  Bob suffered here, because his “rep” included both performance and irritating little eccentricities.

 

  • Exposure: Who do you know and who knows you.  What’s the composition of your internal network of personal connections, and how many are in leadership roles?  As a loner Bob didn’t score well here either.  He couldn’t “work a room,” and usually preferred to stay in his cubicle, working.

These elements haven’t changed over the years, and are just as much in play today as when I was told that I would have to deal with Bob.  However, the importance of each element has evolved.

Shifting landscape

In many organizations today, especially amongst the leadership, the combination of an employee’s image and exposure (network) is often more important to their future in that organization than whether or not they’re doing a good job.  That bears repeating, as at first glance it seems like the world has turned upside down.

Time and again we see that “fit” trumps performance.  Those employees who have likes, hobbies and personalities that are similar to the “group think” are increasingly viewed as more successful in their organizations  than other employees who lack a similar persona and who can only offer high performance.

Nahhhh, you say, that can’t be right.  And maybe in your experience  -  well, you’ve been more fortunate.  But what I’m describing does happens.  And it happens a lot.

For example, a colleague of mine doesn’t play golf, and doesn’t gamble.  And while he claims no value judgment about either interest neither are they his “thing.”  He has other “things.”  However, for one employer those personal preferences formed a negative combination that ultimately steered him toward the exit door.  He didn’t fit in.  Senior management loved to play golf, and they’d schedule conferences where gambling was readily available.  My colleague went to the shows.

Now if you’re thinking “there must be more to this,” one week prior to hearing that he didn’t fit in he had received a “high performer” rating on his annual performance review.   Regardless, he was encouraged to look elsewhere. 

Now some might not think that that sample experience was so bad.  Following that vein of thought,  in order to form a collaborative environment companies need people who have a degree of “simpatico” with each other.  Thus if your persona isn’t perceived as “in sync” with the leadership group your Image and Exposure will suffer to the point of damaging your career prospects – at least with this employer.

And doing a great job may not be enough to make up for your other personal failings.

What can you do?

Shoveling sand against the tide is never an effective strategy.  Nor is thinking that an individual can unilaterally change the culture of an organization.  So you either quit or you put up with your status  - just as they put up with you.

For now.

So have a care.  Think about your own working environment in terms of Performance, Image and Exposure.  If you’re comfortable being in a high performance role, perhaps you shouldn’t be quite so relaxed.  It may not be enough.  You just might get surprised with a P.I.E. in the face.

Keeping A Secret

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 18-04-2014

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Are the employees in your organization aware of their salary grade, of the minimum, midpoint and maximum values of their salary range?  Do they know where their job stands in the company’s hierarchy (mine is bigger than “x,” but smaller than “y”)?   In effect, do they know how they and their job are being valued within the company’s compensation program?

If they don’t know, why not?

Is this privileged information, tightly held by Human Resources and only doled out in small drips, when asked?  Is it on a “need to know” basis, and sometimes the employee doesn’t need to know?

The big secret

Some companies don’t tell an employee their grade or salary range; or if they do, that’s all they give out – the employee’s present status as a single, unrelated piece of information within a huge jigsaw puzzle that is the organization’s hierarchy.  In such a case the employee is unable to find out the grade or salary range of any job other than their own.  Without a frame of reference, such a restricted disclosure isn’t very helpful in planning their next career move.

As a side issue, employees also won’t know if they’re being treated fairly.

Limitations on disclosure are strictly for the benefit of the company.  No one will say that the employees don’t want to know, or that such information isn’t important.  Instead,  reluctance to disclose is inherently a management decision meant to advance tactical considerations in support of their own agenda.  In other words, it helps management freedom of action when employees are kept in the dark.

But what’s such a bad idea with informing employees about the broader compensation structure, to let them know where they stand within the organization?

Unless . . . .

  • There’s something to hide
  • Or something that the employee shouldn’t discover
  • Or a policy or practice that can’t be easily defended

Given these potential cautions, while the concept of open disclosure often gets the heads nodding as a grand idea, negative practical implications may point in the opposite direction.  Employees could face the same stonewall that their parents had to deal with;  interesting concept, but not for us.”

What could go wrong?

When the pay structure is posted on the wall for the first time, there for everyone to have a look-see, the phones will start to ring. That signals the start of the “what about me?” questions.   Let’s look at a few common scenarios that managers would dearly love to avoid dealing with.

  • After five years of good performance reviews, why am I still paid at the bottom of my salary range?  This could be the hardest question that a manager receives.
  • Why is that job (go ahead, point at anybody) in a grade higher than mine?  No manager wants to defend job evaluation results, especially as it’s an usually a subjective process.
  • Why is the job I want to bid on only a lateral move?
  • If my job is so important (manager said so), then why is “job x” in the same grade?

Management doesn’t want to get these calls, because often times they’re woefully unprepared to answer the employee’s questions.   And they want to be liked by their employees, to have someone else be blamed when employees are upset.  So wouldn’t it be easier if the employee just didn’t know?  Wouldn’t it be easier to operate the business with employees left in the dark about their grade and salary range status, rather than face potentially awkward questions out in the light?

It does make sense, but for who?

Spreading The Peanut Butter

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 02-04-2014

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This is a term used by one of my international clients to describe a general increase, the granting of an across-the-board pay rise or one-size-fits-all lump sum payment.  The simple visual of spreading a thin layer to coat a surface caught my eye as well as my ear, as I often make peanut butter sandwiches for my granddaughters – and now I stop and think whenever I’m doing it.

The concept is simple, all too simple, and therein lays the danger.  At the time of the annual performance review let’s just give everybody the same base salary increase, either as a percentage or in a pre-established amount. No fuss, no muss, no big project, and everyone is treated the same.  Sounds like a easy and uncluttered approach for being fair to the employees, right?

But “too simple” is rarely an effective solution, especially when you’re dealing with the complexities of employee engagement, morale, productivity and pay-for-performance rewards; and especially when you’re dealing with the dubious motives behind this tactic.  Yet the attractiveness of being able to simply push a button to get all these HR issues behind us (or so we think) can be compelling.

But it happens.  There are advocates out there, whispering in the ears of your senior leadership -  angling to use that EASY button.

When does it happen?

  • When the pool of available reward monies is considered too small.  In the days of 2% merit spend many companies felt a pressure to avoid “splitting hairs” – as the administrators would say.
  • When we want to grant pay or salary increases “just because.”  Perhaps in times of organizational restructuring, or to combat a perceived “brain drain”  of resignations, or when critics feel we have to “do something” to fix an employee problem.

Why do we do it?

  • It’s easy to administer.  Picture the EASY button again.  Now, let’s get back to work.
  • It saves time.  Less time needed for performance appraisal forms, employee meetings, for assessment of performance against objectives.  Less record keeping.

But consider the consequences – and there are always consequences when you choose to do things quick rather than right.

  • High performers get the same reward as “Joe Average.”  That’s probably not the sort of message you want to give your most valuable employees.
  • Recognition of performance is marginalized, as when small amounts are involved choosing and rewarding differences in performance is not considered worth the effort.
  • If you believe that rewarded behavior will be repeated behavior, diminishing rewards for high performers will likely gain you diminished performance.
  • That good performer who is low in their salary range?  They’ll stay there until they quit.  Again, not a good message.

If you’re a recipient of this peanut butter spread tactic, and you’re a high performer, what is going to be your likely reaction?  Would you feel recognized for your efforts?  Would you feel motivated to keep performing at high levels?  Would you feel that the company has taken notice of your efforts in relation to your peers and colleagues?

Nope.

But the bean counters and administrators would be happy.  They’ve already left for lunch.

On the other hand, if you were “Joe Average” and received that same peanut butter spread how different might you react to the same questions?  You might not feel as compelled to be recognized, or feel that you actually pushed yourself beyond the norm.  You might just feel that everything is fine, that “hey, this is a pretty good deal.”

Personally I like a little jam with my peanut butter sandwich, and I’d wager that your high performers would too.  Call it the pay differential for performance.  It’ll taste great.

What Looks Like A Duck And Quacks Like A Duck

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 26-03-2014

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Duck by Canal, by Ed TownendHere they come again, those who question the pay-for-performance credentials of the current executive pay process.  Every spring, like daffodils popping through the warming ground investigative articles appear to challenge the validity of how the executive suite is rewarded.  Critical commentaries by notable Compensation experts, as well as a financial analyst here and there, will question whether job performance has warranted the amount of financial rewards reported in proxy statements.

What follows is usually a series of back-and-forth sound bites and written pieces both criticizing and defending the logic of the executive reward process.  However, those who press their divergent viewpoints seem unable to reach consensus on an equitable process, and so next year the cycle of reward and debate repeats itself.  Such has been the case for years.

In my mind though, it’s the proverbial “man in the street” or “court of public opinion” that truly matters.  And if you take that point, that it is the general public who needs to be convinced that corporate leadership isn’t gorging themselves on financial largesse like hogs at a feed trough – then the multiple explanations that appear each season touting the rightness of executive pay fall disappointingly flat.

Who is buying this story?

Unfortunately it’s not the negative impressions of the general population that’s being addressed by these pundits, but instead you often find complex arguments presented in support of the executive leadership.  This is a circle-the-wagons strategy crafted by status quo enablers to refute challenges to the current executive reward process – by providing a technical defense that wouldn’t be understood by that same general population.

I recall a former CEO once telling me, it’s a matter of optics; the present system of determining executive suite reward looks bad to the general public.  No amount of explanatory formulae or charts and graphs is going to change that impression; the more complex the defense the more skepticism that will be generated. 

Another senior executive cautioned me that if I couldn’t sell my proposal on a single sheet of paper, including a lot of white space, then my arguments wouldn’t convince him.  In other words, keep it simple, keep it clear and keep it brief. 

All too often the defense of executive pay is presented as a series of formulaic methodologies to be utilized by corporate leadership (with the support of consultant intervention) to refute their critics.  However, even as these diverse calculations try to make their point the wider audience remains confused, skeptical and unconvinced, so how has the argument been advanced?   The executive reward process will still look bad.

I support the idea of measuring performance to gauge the amount of reward.  Who can argue with that?  But the convoluted process being described by those who tout the current approach is flawed by its complexity, by its confusing array of acronyms and ultimately by its inability to explain itself in laymen’s terms.

Can you repeat the rationale back to me?

Apologists for executive pay often fail to explain a key element of pay that looms large for the rest of us – determinants of “how high is up” or how much is “enough” reward.  Given that for similar performance non-executives typically receive considerably less reward, it’s disappointing that this disconnect in thinking is so often ignored.  A large portion of the looks bad picture is the amount of the reward.  Should those on “mahogany row” have parameters for their rewards, even maximums or caps like the rest of the population?  That sounds fair, doesn’t it?

The problem with connecting a pay-for-performance concept with examples of executive pay excesses is an optical one – it looks bad!  Attempts to rationalize the practice with complex terms, charts and theorem won’t convince anyone outside of the board room.  The way to change that negative impression is to challenge the convoluted methods that executives use to rationalize their reward structures.  The general population (not the financial analysts, proxy readers or even compensation specialists) wants to see a direct cause and effect (simple, clear and brief; performance equals reward), as that is how they are rewarded in their own lives.

Why make rocket science out of a basic concept?

Unless you’re hiding something.

What Looks Like a Duck And Quacks Like a Duck

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 18-03-2014

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Duck by Canal, by Ed TownendHere they come again, those who question the pay-for-performance credentials of the current executive pay process.  Every spring, like daffodils popping through the warming ground investigative articles appear to challenge the validity of how the executive suite is rewarded.  Critical commentaries by notable Compensation experts, as well as a financial analyst here and there, will question whether job performance has warranted the amount of financial rewards reported in proxy statements.

What follows is usually a series of back-and-forth sound bites and written pieces both criticizing and defending the logic of the executive reward process.  However, those who press their divergent viewpoints seem unable to reach consensus on an equitable process, and so next year the cycle of reward and debate repeats itself.  Such has been the case for years.

In my mind though, it’s the proverbial “man in the street” or “court of public opinion” that truly matters.  And if you take that point, that it is the general public who needs to be convinced that corporate leadership isn’t gorging themselves on financial largesse like hogs at a feed trough – then the multiple explanations that appear each season touting the rightness of executive pay fall disappointingly flat.

Who is buying this story?

Unfortunately it’s not the negative impressions of the general population that’s being addressed by these pundits, but instead you often find complex arguments presented in support of the executive leadership.  This is a circle-the-wagons strategy crafted by status quo enablers to refute challenges to the current executive reward process – by providing a technical defense that wouldn’t be understood by that same general population.

I recall a former CEO once telling me, it’s a matter of optics; the present system of determining executive suite reward looks bad to the general public.  No amount of explanatory formulae or charts and graphs is going to change that impression; the more complex the defense the more skepticism that will be generated. 

Another senior executive cautioned me that if I couldn’t sell my proposal on a single sheet of paper, including a lot of white space, then my arguments wouldn’t convince him.  In other words, keep it simple, keep it clear and keep it brief. 

All too often the defense of executive pay is presented as a series of formulaic methodologies to be utilized by corporate leadership (with the support of consultant intervention) to refute their critics.  However, even as these diverse calculations try to make their point the wider audience remains confused, skeptical and unconvinced, so how has the argument been advanced?   The executive reward process will still look bad.

I support the idea of measuring performance to gauge the amount of reward.  Who can argue with that?  But the convoluted process being described by those who tout the current approach is flawed by its complexity, by its confusing array of acronyms and ultimately by its inability to explain itself in laymen’s terms.

Can you repeat the rationale back to me?

Apologists for executive pay often fail to explain a key element of pay that looms large for the rest of us – determinants of “how high is up” or how much is “enough” reward.  Given that for similar performance non-executives typically receive considerably less reward, it’s disappointing that this disconnect in thinking is so often ignored.  A large portion of the looks bad picture is the amount of the reward.  Should those on “mahogany row” have parameters for their rewards, even maximums or caps like the rest of the population?  That sounds fair, doesn’t it?

The problem with connecting a pay-for-performance concept with examples of executive pay excesses is an optical one – it looks bad!  Attempts to rationalize the practice with complex terms, charts and theorem won’t convince anyone outside of the board room.  The way to change that negative impression is to challenge the convoluted methods that executives use to rationalize their reward structures.  The general population (not the financial analysts, proxy readers or even compensation specialists) wants to see a direct cause and effect (simple, clear and brief; performance equals reward), as that is how they are rewarded in their own lives.

Why make rocket science out of a basic concept?

Unless you’re hiding something.

A Little Bit More Makes A Difference

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 03-03-2014

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Cathead, by mightyhorseYou just received an above average performance rating from your boss, which naturally put a large smile on your face.  But which was subsequently wiped away when you heard that for your annual salary adjustment you’d receive what amounted to one percent (1%) more of a salary increase than “Joe Average” down the hall.  Tight budget this year, you’re told. 

Now you know Joe, or his type.  He’s the disengaged clock watcher whose most notable accomplishment has been keeping his chair warm.  Doesn’t do enough to either get fired or stand out above the crowd.  However he’s the standard, and so receives an “average” merit award.

One percent more, they say?  For delivering what your boss described as 110% effort for the entire performance period.  Not worth it, you say?  Some studies have suggested that, if the differential between performance levels isn’t at least 2%, then you’d be better off with a general adjustment.

Why does this happen?

When assessing the dynamics of employees and their work ethic, it’s generally agreed that performance that is rewarded is often performance that will be repeated.  Like the Pavlov experiments of so long ago we tend to repeat that activity which previously gave us pleasure or reward.  We want more of it.  However, if the performer doesn’t feel rewarded, and is certainly not pleased by the company action, does the company gain or lose when that desirable performance is not repeated in the next performance cycle? 

Perhaps your performance reward system isn’t as effective as you would like.

So the question becomes, how much of a performance differential between great and just OK performance is enough to keep your better achievers motivated and feeling appreciated?  A good guess is that it’s not 1%.

A manager needs to manage

As a manager, can you balance the need to reward your better performers against the reality of tight budgets?  If you want to retain the high performers, you’d better find a way.  So then, what if you started by figuring out how much reward to provide those who do the most for the organization?  Then whatever is left can be carved out among lesser performers.  That will protect your “stars” and walk-the-talk about pay-for-performance.

Ahh, but that won’t make you popular among the masses, will it?  And for many managers being liked is a key element of self-worth.  But how high up the priority list should popularity as a manager be marked?  Will you be assessed for popularity when your performance review is due?  I don’t think so.  Likely it won’t be in the top three of what senior leadership is expecting from you.

Your job description probably doesn’t even list this characteristic, and it’s certainly not a factor in job evaluation.  So perhaps there are other criteria for a successful manager that should receive more attention.

If you’re concerned about differentials another consideration is the number of ratings you have in your performance appraisal system.  For example, with a seven scale system the need to provide percentages for at least five makes the division of reward opportunity a bit tight.  And if you try to maintain a two percentage point differential between performance levels, the numbers might become higher than what’s deemed affordable.

Unless you exercise greater discipline over rewards than most managers do.

I don’t personally believe in reward for tenure, but I do advocate increasing levels of reward for higher levels of job performance.  If the merit spend budget doesn’t have enough monies to recognize and reward everybody, each in turn for their contribution, then I’d suggest that you take care of your better performers first.

That won’t make you a bad person, but perhaps a more effective manager.

Which is what you should be rated on.

Nurturing An Anti-Performance Culture

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 21-02-2014

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Whenever an organization addresses their employee merit increase process, a common complaint that’s heard is, “we have too many employees rated too high.”  In other words, the performance rating distribution curve is skewed too far.   Too many employees walk on water, while too few are viewed as not carrying their own weight.

WHAT’S NORMAL?

 

A “normal” distribution curve of performance ratings, using a five point scale,  looks something like this:

  • Distinguished: Up to 10% of employees
  • Superior: 20% to 30%
  • Fully Successful: About 60% or more
  • Needs Improvement: About 10% to 15%
  • Unsatisfactory: Less than 5%

The language used to describe levels of performance differs from company to company, and the percentage guidelines vary as well, but you get the point.  Most performance ratings would normally be expected to cluster around the middle, with increasingly smaller percentages moving out to the extremes.

Is this how your company scores employee performance?Don’t be surprised if it doesn’t.The pervasive problem that fuels inflated ratings can be boiled down to a single question; “what employee wants to tell their mother that they’re average“?We all think that we’re achievers.

But it’s worse at the top.

THE TRICKLE DOWN PROBLEM

 

The problem of skewed performance ratings usually starts with how a company’s management treats themselves.  Leadership sets a particular example in performance assessment that’s inevitably  replicated by the rest of the population, for good or ill.

Usually it’s for ill.

 

And why is that?  Why does management tend to think of their performance as somehow using a  different measurement stick or justification from the rest of the organization? It’s usually because actual performance seems to be less of a criteria for a rating than you would expect.  Sometimes it’s overlooked if not downright ignored.

 

Let’s take a look at some common management reasons for skewed performance ratings.  How many have you heard?

 

Entitlement:  When management feels that at least a portion of their annual bonus or merit increase is due them, “just because.”  It’s been 12 months and they feel entitled to receive their annual reward.  This is sometimes referred to as ‘delayed compensation” – in that the variable element is “how much,” not “if.”

 

Feel good: When you want the employee to feel good about themselves and the company.  When you want to recognize effort instead of results, or when the company has had a tough year and the employee has “hung in there.”  The employee deserves a raise simply for being there.

 

Retention:  When the rationale for the increase is that the company  has identified a particular employee as a talent that the company needs to retain.  This card is usually played when the increase / bonus process coincides with a time of reorganization.  Thus the reward is less about recognizing what the employee has done and more about not wanting to lose a valuable resource.

 

Please don’t quit: A close cousin to the above, when the manager fears that the employee will quit if they don’t receive a proper annual reward. This tactic is more about the manager not wanting to deal with the aftermath of a resignation vs. whether the employee’s performance deserves recognition and additional compensation.

 

Leaders need competitive pay: This is usually a fall-back position for the desperate, when no other logical argument seems to work.  The philosophy is that in order to retain leaders the company has to ensure that their pay is competitive.  This is not about performance at all, but keeping up with the marketplace.  Another example of simply sitting there as justification for regular increases in compensation.

 

Cannot or will not use the “2″ performance rating: Here is a problem as old as the performance appraisal process itself.  Most companies use a five or seven scale rating system.  A few more use three, and even less often seen is the four-scale.  But whatever the system, some managers simply can’t or won’t rate an employee less than “average” – unless that employee is already pegged for termination.  The excuses are legion, but the result is that objective performance assessment frequently takes a back seat as the vast majority of employees are rated average or above.  And if marginal performers are bumped up into “average,” how do you think the average performers are rated?

 

Leadership is always rated higher than the regular folk: I put this last because it is rarely voiced out loud – though again and again we see it played out in the statistics.  For some reason, if you’re a leader and not being readied for termination, then you must be pretty good.  Having poor performing leaders is a strong self-criticism of senior management, and we can’t have that!

 

WHAT CAN YOU DO?

 

Training sounds like a nice problem resolution strategy, but is often a throwaway thought – like “let’s push the EASY button and then go to lunch.  In my experience behavioral change rarely results from sitting through a “training” session or by sending out a bunch of memos.

You need a bad guy.

 

In a nutshell you need  to inject a healthy dose of discipline into the performance rating process.  Calibration sessions are useful, but you need someone both in HR and at the top of the organization who demands a performance-related reason for each rating.

 

Someone has to say “stop!” when ratings no longer make sense; when in summary they don’t correlate with how the business performed; when performance appraisals are poorly written, and when excuses are offered instead of objective assessments.

 

Lack of managerial discipline enables bad practices to continue, to even flourish and spread throughout the rest of the organization.

That culture change you might be hoping for could morph into the very opposite of your goal; you could be developing an anti-performance culture.

 

Deer In The Headlights

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 12-02-2014

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Surprised! by Rockin' RobWhenever I ask a client senior manager to describe the company’s Return On Investment (ROI) from their employee compensation programs they usually react with a blank stare.  Like a deer in the headlights.  Is that because the question is unique, or it’s confusing or perhaps it’s simply an issue they hadn’t considered before?  Perhaps no one has ever asked them.

Eventually though, if you wait long enough, they’ll recover their glazed over look and stumble through an answer.  What they usually say is something related to employee turnover, that because not many employees are leaving their reward programs must be working “okay.” 

If I push a little and ask how they maximize the value of their reward dollars, they’ll hand me the good-old reduced merit increase budget story or perhaps reference a recent general adjustment or reduced payroll rise percentage. In other words, it’s often painfully clear that they really don’t have a handle on controlling their payroll costs. 

Unless prompted by more probing questions it’s fairly common for senior managers to consider their compensation expense challenge as only the incremental cost of doing business.  Which means that when it comes to the matter of monitoring or controlling such costs the “pool” of money under discussion is only the annual increase budget.

However, if you compare your company’s total employee payroll against the impact of reducing the annual merit budget by even one full percentage, you’ll see how far off the mark the respondent was.

I would submit to you that every dollar spent for employee labor is a compensation expense.  Using that premise a company’s labor costs typically range from 40% to 60%  of their company’s revenue (excluding benefits). That’s a huge number, and playing with the cost of the annual pay rise pales by comparison.

Trying a different tact

When I ask that same client whether their compensation program is working for them, doing what it’s intended for them, I usually get served back that same befuddled look.  Sometimes they actually resent the question.  How dare I!  Eventually though they’ll again bring up their turnover statistics, as if somehow that percentage (if being used as a metric in the first place) has a 1:1 correlation to compensation program success.

It doesn’t.

Managers, especially the mid-level variety, are commonly ill-equipped to understand the dynamics of their compensation costs, never mind monitor and control them. This is not surprising though, given that the cadre of newly minted managers are routinely given authority to spend the company’s money (hiring, promotion, pay rises, etc.) without the benefit of any managerial training.  Is making the right pay decision supposed to be intuitive, like learning to operate a new Smartphone?  Often times these new managers fail to make decisions that are in the best interest of the company; theirs are more commonly on the basis of subjective emotions, a desire to be liked, an exercise in personal power or for a host of other reasons that may or may not relate to an individual employee’s actual job performance.

The net result from these well-intentioned amateurs is a rising fixed expense of running the business – as illustrated by ever increasing payroll costs.

This can be a huge problem for any organization, but even with this stark reality it can be very difficult to get many in senior management to face the challenge.  Most are reluctant to take concrete and perhaps painful steps to gain more value from their payroll dollars, until they’re finally led to understand what constitutes the controllable elements of employee cost – and how to impact that expense.

Ignorance of the law is not a valid defense, I’m told.  Perhaps we should challenge our leadership, our management, to actually manage what is usually the company’s largest single expense item.

It can be done.  But not if you ignore it.  Not if you keep looking for that EASY button.

For Want Of A Nail

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 30-01-2014

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For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the message was lost.
For want of a message the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.

This proverb has come down in many variations over the centuries, yet the principle it embodies remains as true today as when first recorded.  If you ignore the small stuff long enough it will eventually become the big stuff; big problems, big expenses, big challenges to fix.  And big headaches.

Examples are legion; forgetting that simple oil change for your car; not taking the time to brush your teeth or take your daily medicine; delaying the install of free virus protection for your computer; or simply procrastinating as a way of life.  The little things can get lost in the midst of our active lives, but we ignore them at our peril.

Lack of action, lack of attention will bite you in the butt, eventually.

For compensation practitioners the “little things” are often not so much the “I can do it later” catch-all busy work we all seem to have too much of, but the fundamental building blocks that anchor the foundation of your rewards philosophy, your programs and ultimately your cost structure.  Screw up the details here and the consequences can be serious.

For example, if you ignore your salary structure (“oh, we looked at it a couple of years ago“) you run the risk of it becoming irrelevant.  And an irrelevant structure becomes a recipe for inequitable treatment, special deals and increased payroll costs. As does ignoring the blinking danger signals from your dashboard metrics.

And while managing job descriptions is usually relegated to the junior staff, inaccurate or out-of-date documentation can be the bane of your existence, from cost control to employee morale issues to court action.

Little things aren’t always unimportant things

How can a fundamental building block become a “little thing”?  It’s all in the attitude.  Folks like to focus on the exciting projects, the sexy initiatives and those experiences that can help build and polish their resume.  Routine tasks are often given short shrift while we look elsewhere for the interesting, the challenging, the more visible aspects of our jobs.  Or the jobs we’d like to do.

Ask yourself, who would want to work on a merger or acquisition project?  The hands go up.  Who wants to work on an international project?  The line of those  who are interested quickly forms.  But if you would ask, who wants to work on maintaining the existing reward system?  That is, worrying about documentation, about record-keeping, about the fundamentals. 

Not so much interest there.  Boring!

But somebody has to do it.  Because if you don’t, the wheels will come off the car, sooner or later.  And then senior management will be asking, “who’s responsible“?

Perhaps the answer is to mix it up, to have a bit of the humdrum blended in there with the exciting stuff.  So maybe you’re working on job descriptions and job evaluations part of the week, and then an HR Transformation initiative later on.  You can be market pricing surveys on Monday and Wednesday, but on Tuesday and Thursday you’re re-designing the management incentive scheme.

Ahhh, but I know what you’re going to say.  Who among us has the option of picking and choosing our projects, so that we’d be able to unilaterally design our work schedule, to blend the routine with the exciting?  That never worked for me when I was in Corporate America.

But isn’t there something to be said about doing the job, any job, well?  Doing so says a great deal about you as a professional, and as a person.

Don’t lose sight of what you might consider the “little things,” the basics and routines that need to be completed “just because”  in your work.  Think of it like changing your oil.

You and your car will be better for it.