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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.

Who Are You Talking To?

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 23-01-2014

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January is a busy month with compensation communication, but just how effective is yours?  Perhaps all you’re doing is talking to yourself.

____________________

I read a movie review the other day and noticed that, in the first few paragraphs there were two words that I didn’t immediately understand.  The words “bifurcated” and “atavistic” were used, presumably to help readers better understand what the reviewer thought of the movie.

Well, those two words are not part of my everyday vocabulary, and upon reflection I might be able to explain “bifurcated,” though aren’t sure what that has to do with the subject movie.  As to “atavistic,” I think that I’ve heard the word before, but really don’t know what it means.

Now I consider that my intelligence level is a bit above average, so I have to wonder – who the heck was the reviewer talking to with their review?  I certainly didn’t “get it” as far as whatever points they were trying to make.  And NO, I didn’t drop everything to look up those two words.  What I did do was stop reading the review.

Who are they talking to?

This is especially important when considering your compensation communications.  If you want someone to hear what you have to say, to understand your message or point of view, to learn from reading your words, you have to talk to them at a level they are comfortable with.  Not you.  This is not about you.  Or at least it shouldn’t be.

There’s a lot of information out there, a problem for our times, some would say.  So if you want to get your message across, you need to be able to reach your target audience with as simple a message as you can.  So they all can understand, so they can repeat it to others, so that they’ll remember it tomorrow.

Is your text written at the New York Times 8th grade level?  If not, why not?  Don’t try to impress your audience.  It doesn’t work.

Losing your audience

A similar experience happens when listening to a speaker at a compensation conference, a webinar or even at your local professional  association meeting.  The speaker uses a word or phrase that is foreign to you.  “What did they say?”  Your mind stops listening as it struggles to identify the strange word and what it means – and then to put it in context.  Maybe you’ll figure it out.  Maybe you won’t.  Meanwhile though, the speaker has kept on talking – but you haven’t been listening while your mind was paused.  Now you have a struggle to catch up.  Maybe you can.  Maybe you can’t.

And then it happens again.  Another mind pause while you mentally translate, “what was that again?”  And so it goes, and you never quite fully understand the speaker’s message. 

That’s not communication.  That’s a speaker talking to a mirror.  You’re incidental.

The writer’s club

That’s what I call it, to describe the majority of contributors to professional journals.  I’m on the article review committee for one of those magazines, and I often wonder who these authors are writing to.  If they were trying to educate or explain practical tactics that would assist practitioners with their immediate problems, then I’m afraid that many an article wouldn’t pass muster.

That’s because many articles (check it out) are written by academics and consultants, not practitioners who have dirt under their fingernails from working in the trenches.  As a result practical advice (what can I do now?) is usually in short supply. What we all too often get instead is conceptual “stuff” from the view at 30,000 feet, broad inspirational white papers that you just know your senior leadership won’t even consider.

This isn’t always the case, of course, but how many of those articles are you able to wade through before your eyes glaze over?   Not just read the words, but learn from?  Heavy stuff.  Heavy lifting.

When someone is communicating, is actually reaching you with their message, you listen, you absorb, you learn.  It’s the same for me.

So talk to me, not to the mirror.

Why Do They Do That?

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 14-01-2014

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Bureaucrat, by Delmarva.DealingsHave you ever visited the Post Office, or the Department of Motor Vehicles (DMV), or had the opportunity of spending quality phone time with a government employee?  Of course you have, and it can be a frustrating experience.  You need help, or advice, perhaps a creative solution to your problem – maybe simply someone to point you in the right direction. 

Argghhh!

More often than not what you’ll get instead is a quote from a policy or a regulation that doesn’t help you at all.  And this is usually accompanied by an air of indifference for your circumstances.   Should you dare ask them, why? they stumble, seem a bit startled at the question, and then finally repeat what they said before – usually word for word.

When I was an expat living in England I was able to cruise all over the country for a full year on my international drivers license.  This was driving on the wrong side of the road – and with a manual transmission.  The experience gave me and those with me a few close calls.  But no one questioned the risks I took or shared with other drivers; just get off the plane and drive off was the common practice.

However, after that initial twelve months expired the bureaucrats wanted me to get a British license, which meant a period of driving with Learners tag prominently displayed on the car (L) and taking a written as well as a driving test.  When I asked the clerk why I was required to act like I was 16 years old again the fellow’s eyes glazed over as he parroted the regulations.  When I said, “but that makes no sense,”his only response was repetition.

Though he was very pleasant about it.

Bureaucrats are everywhere

Cute story, isn’t it?  But the humor might wear a bit thin if you find the same experience where you work.  Consider those managers who treat their employees in a similar manner, including that air of indifference.  How do they react when approached by an employee thinking outside of the box; or when a request falls outside the norm?  Too often I’ve seen managers play the bureaucrat card and quote the rules.  That’s against company policy,” or “we never do it that way,” or even “that’s the way it is.” 

In other words, they don’t seem to know the reasoning behind their own response, so they parrot a rule or a policy or even a common practice – all without stopping to think whether what they’re saying makes sense or is helpful to those who have come to them for assistance.  It’s like a parent saying, “because I said so.”

Why do they do that?

Let’s face it, it is easy to say, “That’s the policy” without taking the time to understand the reasoning that goes behind the policy.  Kind of a knee-jerk response.  It’s safe, you can’t get blamed, and the questioner goes away.  But is that the right answer for the circumstances?  And is that what you want, for your employee to simply go away?

What do employees think when treated in such a fashion?  In polite terms they’ll write the manager off as a waste of time.  Won’t go there again.”  And so goes morale, engagement, collaboration, team effort, productivity and every other positive aspect of employee relations.  Poof!  Just like that.  Blow them off and they do the same to you.

So don’t do that.  Don’t make decisions – just because.  Don’t parrot what you can’t explain.  Have a reason for what you tell employees.  They don’t have to agree with you.  But you owe them the courtesy and respect of considering their point of view and to respond in a thoughtful manner.  They deserve a proper answer, not something taken off the shelf.

Btw, I never did bother getting my British driving license.

Christmas Is Over, Isn’t It?

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 09-01-2014

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Gifts by stevendepoloIt’s that time again.  The end of the business year, when managers everywhere turn their thoughts to – bonuses!  The calculators are out and every eligible soul from Marketing to Manufacturing to Sales, IT, HR and the Executive Suite tries to figure out how fat that check will be.  For many, it’s the gift receiving season.

And thus the same bad script repeats itself for the annual management incentive process, year upon year upon year:  objectives created at the last minute, embellished accomplishments artfully recorded, problems and shortcomings diminished or forgotten and assessment forms looked at with bureaucratic disdain – as in, how do I fill out this thing to pump up my results?

More than the mechanics are at fault

Oh yes, the process is flawed, yet the foxes are in charge of the chicken coup – and they offer little hope for reform.  Why?  For those in charge the process works, and self-interest pays its own rewards.  Picture a belated Santa Claus with a large bag of goodies.

Cynical?  You bet.  For many of us in the trenches true pay for performance is an elusive concept best remembered from Compensation 101 textbooks, suitable only for life as it should be, not as it is.  Sad to say, but senior management is often the worst offender.  I’ve seen senior executives manipulate or adjust financial results to ensure that their own incentive awards wouldn’t be reduced.  Senior staff deserves competitive incentives, don’t they?  How can you not reward your senior leadership for their efforts?  And so once again entitlement trumps performance.

Studies suggest that the I-deserve-it mentality has weakened through this recession and slow recovery.  However I’m convinced that it’s still alive and well wherever rewards are viewed as payment due for time served and effort, not results.

But we go on hoping, one company and one client at a time, trying to persuade leadership that it’s primarily good performance that should provide rewards; that tenure isn’t a compensable factor, that incentive payments should be earned, not simply an automatic gift of delayed compensation.  Lower level employees are expected to earn their rewards; shouldn’t the same case be made for management?

End of year expectation

Have you ever told an executive that their annual incentive might be reduced because of either corporate or individual performance didn’t meet expectations?  They would look aghast at the possibility.  I’ve taken calls from spouses asking when the money would be available (post Christmas sales) – who then grew upset when told of the review process and that the Board of Directors has to approve.  The common attitude was, times up! – where’s the money?

Will the situation be any different for the bonus cycle in 2014?  I hope so, but bucking the trend of human nature is far from a sure bet.

To change those dynamics, as well as the effectiveness of your incentive plans you need to stand up and speak up.  The process is starting now, so it’s not too late to have an impact, to instill a management pay-for-performance philosophy in your company – even if it’s only one step at a time.  

·         Performance appraisal shouldn’t be an activity list (I was very busy), but a focused statement of achievement against quantifiable and measureable objectives.

·         Let the assessment tell you the rating, not the other way around (“how do I fill out this form to give a 4 rating”?).

·         Confirm that the language on the assessment form corresponds to the performance rating.  Oh yes, you have to check.

·         Assessment forms should be required before an incentive payment is made – negating an old procrastination trick (“oh, just process the check.  I’ll get the form to you . . . tomorrow or the next day”).

·         For the 2014 cycle, start by having objectives established early in the year, not in an after-the-fact rush at the end

Granted, you’ll need more than a steely look and a waving flashlight to stop a speeding freight train, so you should educate management about their ineffective and wasteful practices before the cycle starts.  Because afterward is usually too late; discipline as a learning tool is best used to prevent problems, not when Santa is already reaching into his bag of checks.

Maybe this can be your New Year’s resolution?

Merit Pay’s Fatal Flaw

Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 30-12-2013

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It’s likely that your pay-for-performance program has a fatal flaw built into it; an inadvertent side effect of the design that, if ignored by management will almost certainly guarantee failure.

 But no one wants to talk about it.

Instead, what you’ll hear is a steady drumbeat of, “Oh yes, we have a pay for performance program.  All our employees are rewarded on the basis of their performance.”  But what if those merit increases won’t be enough to move an employee from low in their salary range up to the midpoint, the “going rate?”  What if merit increases alone won’t assure competitive pay?

The problem

Over time increases to the external marketplace will outstretch the company’s ability to keep pace through rewarding performance.  Annual performance awards can’t keep up with increasing market values and often new hires will be paid more than current, experienced employees.

The company usually describes their midpoint as associated with the market “going rate.”  Thus any employee who has performed their job responsibilities for a set period of time without performance penalty will reasonably expect that their pay rate should at least equal that market rate.

That sounds like a fair and reasonable expectation.

When that doesn’t happen though, when individual pay remains below midpoint / market, the employee’s disappointment over perceived unfair treatment can fester into lower morale and disengagement, which in turn often leads to separation.  If the employee is a high performer, the company has just suffered a significant loss.

Doesn’t happen here, you say?  Then test yourself.  Ask Human Resources how their pay-for-performance system works over time, over several years.  Ask them how they’re going to move a new employee’s pay from the minimum or low end to the midpoint value.

I wonder what they would say.

Look at the numbers

Let’s look at an example: say you’re hired at the bottom of the salary range, at $80.  The midpoint is $100 and the maximum is $120 (typical salary range).  Your compa-ratio is 80%.  After three years with the market / midpoint rising at approx. 2.5% per year, the $100 has become $107.70.  Meanwhile, let’s say you’re performing well, receiving 4% annual increases.  After three years your pay is now $90, and your new compa-ratio is 83.6%.

If you believe that three years of satisfactory (or better) performance has brought you to a point where you are thoroughly familiar with the job, and therefore should be paid the “going rate,” guess what?  You’re stuck at 83.6%, while the moving “market” remains at 100%.

And if you’re fortunate enough to receive a promotion?  Chances are your present 83.6% compa-ratio will likely have you starting the new job similarly low in your new salary range.  So the self-defeating process starts once again.

But what if you’re not promoted?  How many more years will it take to get you to competitive pay?  Are you willing to wait that long?  Or will you become another statistic in the company’s turnover rate?

The causes that make the effect

This doesn’t need to happen, but all too often does.

  •  When a company is caught up in an “everyone deserves a raise” mentality, there isn’t enough money left over to properly reward the higher performers.
  • Many companies don’t provide significant reward differentials between performance levels.  Is 1% or 2% enough between your stars and “Joe Average”?   Are you motivating through pay, or simply administering?
  • When managers fail to consider employee contributions vs. the evolving competitive market.  When decision-makers ignore external realities and instead focus solely on internal balance (equity). 
  • Merit budgets are not designed to address the issue of “market creep.”  It’s as if the company presumes that the external marketplace isn’t moving at all.

With the above as backdrop an organization’s internal pay practices can easily become disconnected from an employee’s market value.

Not many companies recognize this inherent flaw in their pay-for-performance program.  Individual managers may notice the danger, but most organizations tend to turn an official blind eye.  Granted, most don’t have the extra money that would be required to jumpstart employees to match their growing marketability.  They don’t have enough resources to be fair to everyone; it just costs too much.

Instead, they prefer to take one year at a time, all the while telling employees that the merit system works.

That’s where the cynical viewpoint of some employees is created, suggesting that quitting and getting rehired is a sure way to get the money you deserve.  It’s a risk, but I’ve seen that tactic work.

What can you do?

Develop a Ring Fence: identify your key employees and make sure that they are both competitively paid as well as appropriately paid for their value to the organization.  Build a protective “fence” around these employees, similar to “franchise players” in professional sports.  These are the ones you can’t afford to lose – so keep track of their compensation packages.

Then every year review your entire staff.  Who is paid properly and who is not.  Having this knowledge is half the battle, halfway toward a solution.  Because from this point individual corrective tactics can be devised.

Caution: you may have to decrease or even forgo some increases for “Joe Average” employees.  Can you do that?

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The merit pay process usually works well for one full cycle, but for the long term the mechanics don’t provide the compensation level that the employee is worth.   Management touts their merit reward programs as a one-time event, but over time employees will see the fly in the soup, that unless one gets promoted on a regular basis the “system” actually works against you.

But no one wants to talk about it.