Not every employee is capable of selling products or services to potential customers.   The selling process requires an employee to possess a particular set of interactive and persuasion skills, as well as a compatible personality profile (garrulous, self-confident, unafraid of rejection, etc.).   While some employees enjoy the challenge, most want no part of it and only a minority are neutral about the idea.  For those tasked with a selling job it’s typically a reflection of individual personality that would generate success or struggle.

For compensation practitioners having the right person involved in the selling process can be more important than the compensation program itself, because dangling potential rewards in the face of the wrong person can be a waste of money and represents lost business opportunity.

It’s All About Motivation

Success in the selling process depends upon the right motivating elements aimed at the right employee personality.  To do this correctly within a sales compensation program requires the design to take that into account, to focus financial rewards toward whatever engages, whatever motivates the employee to perform in the manner the organization wishes.

Costly mistakes can be made when an organization assumes that all employees will react in the same fashion to the same stimulus.

Have you considered what motivates your sales employees?  Chances are that not everyone would have the same answer.

• Money:  Everybody’s first response is that all you have to do is offer the opportunity for a cash bonus and the employees are off and running.  But in chasing the almighty dollar, employees could also drive your company in the wrong direction – even off a cliff – because they may take the path of least resistance (difficulty) and greatest financial reward.  If those activities fail to align with what the company needs to assure business success, money is not only wasted but used to reward behavior that could be detrimental to the company.

Do you really want to reward the sale of a money-losing or low margin product?

• Mission:  Especially prevalent with not-for-profit organizations, many employees have a “fire in the belly” belief in what the organization espouses, be it products, services or awareness.  This internal value system often provides motivation enough to ensure concerted efforts.  In such a scenario, money is deemed less important (though not dismissed) as a motivator.  Employees are already motivated by the worthiness of the organization’s mission.

Helping others or helping a cause can be reward enough for some employees.

• Brand identification:  If you identify with the organization’s offerings and have a belief in what you are selling, you’re already halfway to becoming an effective sales representative.  For these employees the ingrained belief in what they sell is already present; they just need a  bit of training.

Employees are proud to be associated with a particular product or service.  They’re always wearing the logo shirt and are the organization’s biggest fans.

• Self-motivation:  Here the employee possesses an internal reserve of self worth that helps to make excellence its own reward.  It’s a state in which success in one’s endeavors is self-fulfilling.  The reward system for these employees is often a nice addition, but isn’t necessarily the prime motivating factor.

A certain level of performance would be forthcoming, no matter what financial rewards are offered.

• Challenge:  The mindset here is the joy of climbing the hill, especially if there’s a pot of gold at the peak.  Similar to self-motivation, some personality profiles relish a good challenge, and if you provide a reward for goal attainment, so much the better.

For such employees, the game is always afoot.  They enjoy breaking down barriers, solving problems and grabbing for the brass ring.

• Competition:  The fierce desire to be better than others; where winning (which means that others lose) is critically important.  Note: such employees might not be effective team players.

Sometimes this motivational factor is less about achieving company goals than simply doing better than other employees.  Like a loose cannon, these players may have their own definition of winning, which may not be synonymous with yours.

The takeaway point here is to understand what motivates your employees and then to place your rewards in front of them in a fashion that leads and directs their behavior.

Because if you design your incentive program with the wrong assumptions about what engages your workforce, you’ll risk missing your targets, misspending your financial assets and perhaps not even achieving the required level of success – regardless of the money paid out in rewards.

Designing A Better Carrot

When putting together the elements of your incentive program it would be worth your effort to focus rewards in a manner that recognizes the type of activity and performance you’re aiming for.   That sounds like a simple and straightforward concept, yet is all too often missed by plan designers.

• Change in behavior:  Providing an incentive opportunity should hinge on performance that you would not ordinarily receive.  Don’t waste money paying extra for what you can gain for free.

• Longer term focus:  Building relationships is often just as important as making a quick sale.  Repeat and additive sales are much easier to achieve than finding a new customer.

• Worthwhile rewards:  If the reward isn’t deemed worthwhile (“why should I put myself out for so little?”) the motivational factor will be diminished – leaving you with only employee self-motivation to rely on.  In such a case your incentive plan would be viewed as worthless.

• Reasonable targets:  If the employees don’t see their performance targets as “reasonably attainable,” their effort and engagement will suffer.  They should have an expectation that they can succeed and that they can reach their target.  Without that belief no incentive plan in the world will be able to stimulate the right degree of motivation.

To motivate sales employees to achieve a win-win solution, where they deliver the right performance and achieve financial rewards, while the company achieves operational success, you have to push the right buttons.  But always be mindful that it’s not as easy as simply waving a dollar bill.

The time will come when you find yourself between a rock and a hard place at work.  Your ability to produce project deliverables will be challenged by staff shortages, multiple projects simultaneously coming due, or the requirement of particular skill sets not possessed by your existing personnel.  And while you’re stressing out those problems Senior Management won’t let matters slide until circumstances are more convenient.

You need help.  You need it now.  But do you need a hired-gun professional, a consultant?

Reaching Out For Help

You could try to find a temporary Compensation Analyst to run some numbers for you, and if that solves your immediate dilemma you need not read any further.

However, if your challenge is deeper and broader than simple spreadsheets, you might seek out the services of a seasoned expert, one who can provide hands-on advice and counsel, who can take data from the analyst and advance your agenda: What does this information tell us?  What can we do now?  Where are the risks?  What corrective strategies can be employed?

The following circumstances are examples of when the use of outside expertise can be beneficial:

• Technical knowledge is not currently available to existing staff (i.e., international, executive, expatriate or sales compensation).  This may not be the time for on-the-job training.

• When the current staff is overwhelmed and you need temporary assistance to take charge and drive your multiple project(s) forward.

• Interim replacement for absent staff (separation, leave, etc.).  Someone to fill the gap, holding things together and advancing the agenda until the replacement is secured.

External professionals have the experience and broad perspective to impact your business, not simply report on it.  If used properly and in a focused manner subject matter experts will save you time, money and sleepless nights.

Caution: many professionals currently between jobs (“in transition”) consider themselves temporary consultants while continuing their job search.  Dependent on your time line these individuals may not be able to provide the focus or dedicated support (staying power) that you need.  They’re still looking for their next permanent job.

As you would expect, specialists cost more than general labor, on account of their broad and deep subject matter capabilities that are available “on demand.”  However, consider whether the expense is justified before you commit.

• An improper one-time “fix” will cost a great deal more over time (dollars, morale, turnover, training etc.) than if the problem was properly corrected in the first place.
• Consultants have the seasoning and long service expertise to look past the figures to the root causes and underlying issues.
• Someone who has a broad background working with diverse industries, geographies and employee segments can provide a richer perspective as to how best to approach your particular challenges.

Or Choose To Go It Alone

Of course you can decide to do the work yourself.  Perhaps you don’t have the budget, have never gone “outside,” or simply feel defensive about admitting you need help.  But that “little engine that could” strategy can present its own challenges.

• Your staff may be slow to focus on projects additive to their full time jobs, plus they will need to overcome numerous day-to-day distractions.  Project time lines will be drawn out.

• Internals tend to focus on easy-to-achieve short term improvements, like low hanging fruit, vs. what core issue decisions are needed to affect a permanent solution.  This is not solving the problem, but shoving it into a closet – with the other skeletons.

• Managers are often in a hurry to check off the project (problem) as completed (fixed) or “addressed” – the so-called “check mark” management style.

• Internal staff is often restrained in their thinking by experiences limited to the What and Why of their organization.  They may not be able to see out of the box into the wider universe of possibilities.

Help Needs To Be Monitored

If you have decided to bring in outside assistance, exercise care that you utilize them effectively to gain the maximum value:

• Proper scoping of the project saves time and money.  Understand the challenge you need addressed, as confusion here leads to greater expense and longer time lines.

• Scrub your data before handing it over; otherwise you’ll be paying for “grunt” work easily completed by inside staff.

• Monitor work progress, lest you end up with charges for unanticipated (though not specifically prohibited) work.  The grey areas will cost you every time.

• Avoid consultants who are themselves incented by billable hours; they may encourage additional steps that render your project(s) more complex / expensive.

• Be cautious of fancy report formats and four-color charts; you’re paying extra for the fluff, which can sometimes disguise a scarcity of core material.

Seasoned external experts have the advantage of concentration; they focus on the project at hand, while avoiding the trap of non-productive time (socializing at work, interruptions, meetings, other distractions from the work at hand).

So if you need a bit of help to address your Compensation challenges, to help you achieve your objectives in the face of staffing issues and simultaneous projects, give some thought to calling for roadside assistance.

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

Maybe.

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

What’s The Plan?

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

That should be the plan.

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

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

Some would consider this using pay as a babysitter.

Is There An Advantage For The Company?

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

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

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

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

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

• Is the employee line of sight (performance / business results) direct, or remote?  If remote, what are you paying for?

• Can you quantify the expected ROI?  The wrong answer here suggests a giveaway.

• Can you balance the increased compensation costs against hard financial gains for the company?  Are the bean counters nodding their heads?

• Would the variable pay become strictly an added cost, or would any portion of base salary be at risk?  “No pain, no gain,” or “no risk – icing on the cake?”

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

You’ve seen the company’s search ads and heard the pitch from your recruiters; you offer competitive wages to qualified candidates.  That’s got to be a strong hook for attracting talent, right?

Big deal.

Your pay structures are regularly updated based on competitive market trends, so the opportunities you offer employees are aligned with your retention and motivation strategies, right?

Not enough.

Most employees presume that their company is already meeting (or aspiring to meet) the goal of competitive pay.  Companies routinely advertise the practice (“we offer competitive wages”) and candidates in return expect this of potential employers.  But what happens when your goal of offering competitive pay is finally achieved?  Are employees grateful?  Can companies rest in their efforts to attract, motivate and retain?

I’m afraid not.

What Doesn’t Happen

What doesn’t happen when you offer competitive pay is that your recruitment problems do not magically disappear, your employees won’t be satisfied and your compensation programs have achieved little more than being average – and isn’t that a “C” grade in school?  Is that how you want to position your compensation strategy?

As far as aspirations go, it’s only middle-of-the-road.

If your company does pay “the going rate,” that still means that approximately 50% of the companies out there are paying more than you.  That’s what average gets you, with half doing more and half doing less.  Is that what your company aspires to achieve?  You won’t see that fact pointed out in recruiting campaigns.

No one quits for less money – so all you’ll hear through the grapevine is about how so-and-so left and is now making more somewhere else.  And as it’s human nature to hear only what supports your own notion  –  your employees won’t pay attention to the broader rewards package, just the points that confirm their opinion that your company isn’t paying enough.

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

Lest we forget though, it’s important to differentiate between having a salary structure (grades, salary ranges and midpoints) that provides competitive rate “opportunity” and actually paying employees at those rates.  Some describe this as whether the company is “walking the talk.”  I recall a client who was boastful of the fact that their salary ranges were continually adjusted to mirror market rates, but was later embarrassed to discover that their actual pay practices fell well below midpoints.  The company said one thing by their pay structure, but did another by the way they implemented that structure.

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

Why Don’t Employers Pay The “Going Rate?”

Typically it is not an organization’s strategy to avoid paying out competitive rewards, but more likely a series of practices that have evolved over time.

• Some candidates will accept a lower employment rate than should normally be paid for their knowledge and experience, and managers tend to view this as a cost savings.  Though it is more like putting a skeleton into the closet and hoping it doesn’t jump out at you down the road.  One day these employees will change their minds.

• Once you’ve started down the slippery slope of paying some employees below market rates the practice is soon compounded by internal equity.  Managers don’t want to pay similarly qualified new people more than existing employees, so the new hires can be offered below market pay.

• Pay-for-performance systems have a hard time keeping up with the increased marketability of employees.  A minimally qualified employee hired at the minimum rate will gain knowledge and experience (and thus marketability) faster than the company’s annual merit system can recognize.  This is compounded when you have to hire a qualified worker and discover that the market requires you to pay more than what you’re paying your more experienced employees.

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

And don’t forget to pay attention to your customer-facing employees.  To many a customer, those folks are your company.

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

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

Company management is always asking, “what is the market value of our jobs?”   But just how precise does your market pricing analysis really have to be?  To what extra lengths will you go, or should you go,  to increase the level of precision in your analysis, and would that effort prove worthwhile?   Does the appearance of a more precise figure bring meaningful results for you and for your management?

For example, would you consider that a market rate of $47,512 is an accurate reflection of current national trends for the subject job, or is that figure simply an arithmetic average that looks precise?  Would you fall on your sword over the accuracy of your analysis?

Regardless of need, how precise can you be?

The competitive “marketplace” is an imprecise animal, not often well defined and subject to numerous variations and interpretations.

• One survey doesn’t use the same companies as the next survey.

• The job matching spectrum swings from easy (benchmark) to difficult (unique jobs).

• Surveys provide different mixtures of industries and revenue (size).

• Weighted Average / Average / Median / 50^th Percentile formats are not always consistent, and they are not the same.

• International data is often a shadow of what is available in the U.S.

Meanwhile, the market itself is a moving target, never static, always changing, and the use of aging factors to bring it up-to-date will add a degree of guesswork.   For icing on the cake many practitioners round their analysis to the nearest Currency 100, in order to emphasize the “pulse” of the marketplace.   A minor distortion, I’ll admit, but exactitude is often an illusion anyway.

Each of us, in our respective roles, needs to ask of ourselves, what degree of precision is necessary?   Not what is attainable, but what is necessary to achieve our goals.  Is it sufficient to report the pulse, or does your organization require a digital thermometer that slices whatever data is available to a much finer degree?

When survey data is not robust (limited participation and scant industry and / or revenue segments) the extra effort expended in the search for precision can result in short cuts, assumptions and questionable (stretch) job matches – all to deliver a data capture anomaly that has only the appearance of exactitude.

Remember that the average of two survey sources doesn’t necessarily indicate a market trend, but only an arithmetic average – in effect, a splitting of the difference between two credible, or incredible figures.  That’s not a sign of anything.

A useful rule of thumb to consider is that any incumbent figure within +5% to -5% of a reported “market rate” is close enough to be considered as “on target.”   There are some who think that figure should be 10%, but to my thinking that leaves too wide a range for a so-called “going rate.”

Caution:  lots of analysis – paralysis jockeys out there advocate increasingly precise techniques to zero in on what they call your true market rate.  Toward that end several vendors have built a business model around encouraging organizations to slice and dice available information, trying to define and refine exactly what a “market” is, what jobs are exact matches and after a fashion how their singular survey source is the answer to your needs.

Part of that marketing strategy is to use custom designed evaluation techniques and their proprietary job matching system.  Such a strategy effectively marries the organization to the vendor, as one cannot easily co-mingle proprietary language and techniques with methodologies used by other survey sources.  Apples and oranges.

The hunt for precision can deliver less perceived value

Sometimes the pressure to report ever more refined analysis might actually result with the opposite effect; weakened credibility as the figures face challenges.

• When too few companies are reporting data.

• When having to stretch survey descriptions to match unique job content.

• When dealing with locations having volatile inflation spikes.

• When management doesn’t need to “dot the I and cross the T.”

At the end of the day, what does the client or your company management desire from your view of the competitive marketplace?  Chances are they simply want an understanding of approximately what the job is worth.   To gain a “ballpark” figure that could be used in planning, in recruiting, in assessing their reward programs.  You won’t have to report $47,512 to paint that picture.

On the other hand a simplistic sore thumb analysis is not an effective solution either, but instead let me suggest that a balance of time, effort and cost be used when conducting market analysis.  The key question is, what level of precision is really necessary?  What level will deliver credible results?

Do you really need such analytic exactitude to make a business decision?

I think you don’t, no matter what the over-analyzers suggest.  But then again, it may be rocket science in your organization.

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

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

But current thinking among some practitioners now challenge that presumption.

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

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

The Evolution of Performance Appraisal

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

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

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

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

The Small Company Experience:

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

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

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

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

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

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

How Large Companies Tend to Operate:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

K-I-S-S

Are the employees in your organization informed of their salary grade, or 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 viewed by the company’s compensation program?

If they don’t, why not?

Is this privileged information, tightly held by Human Resources and only doled out in small drips, when asked?

Is it a secret?

Some companies don’t tell an employee their grade or salary range; or if they do, that’s all they give – the employee’s present status as a single, unrelated piece of information within a huge jigsaw puzzle.  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 is not very helpful in planning that next career move.

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

• Something the employee should not discover

• Some policy or practice that cannot be 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.  It’s the old “but not for us” ploy.

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 hearing about.

• If the midpoint is 100 and the employee is at the minimum, say 80 (-20%), even after five years of good performance reviews, how does the manager explain that?

• Why is that job (point at anyone) in a grade higher than mine?  No manager wants to defend job evaluation results, especially as it’s an inherently subjective process.

• Why is the job I want to bid on only a lateral move for me?

• 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, to have someone else be blamed.  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?

When it’s time to fix your Compensation program, and you’re the one in charge, what do you do?

Suppose you’ve just been promoted to the Compensation leadership role in your organization, or you’ve just been hired and inherited someone else’s legacy.   Perhaps you already have ownership, but have recently experienced an epiphany that demanded corrections and adjustments, or maybe you simply have the boss’s enraged shouts still ringing in your ears.

Whatever the catalyst, suppose you suddenly face a situation where you need to fix your compensation program; how would you go about it?  Where do you start?

What would you do?

Check your points of pain

First things first; where does it hurt?  The clarion call of action is coming from . . . somewhere, so find out and determine what those burning platform issues mean for your business.

Typical problem areas would include the following favorites:

• High turnover: have your avoidable separations (excluding deaths, retirements, relocations, etc.) reached a level that has attracted senior management attention – and concern?

• Recruiting: has the Staffing section complained that it’s become increasingly difficult to attract the right caliber of candidate?  That you aren’t paying enough?

• Payroll: is the cost of labor considered too high?  Too many FTEs?  Cumulative employee expenses are out of control?

• Morale: has your organization flunked the latest employee engagement survey – and fingers point at Comp?

Or is it something else that is poking you in the eye, causing the organization to consider its compensation programs as more a problem than a solution?

Look and learn.  It’s the first step toward a solution.

Take a health examination

Next, extend your research beyond the obvious and look under a few rocks for what you aren’t being told.

Start asking questions of key management personnel regarding their views about how healthy (effective, efficient, performing as intended, etc.) are your reward programs.  Talk with line managers (those who operate in the trenches) to gain a perspective from the other side of the desk, where employee friction points make the most noise.

Then review your compensation metrics (you are using metrics as a statistical aide, aren’t you?) to determine whether the numbers are telling you a story that you might not have noticed before.

For example:

• How competitive are your actual pay levels?   When was the last time you conducted a competitive analysis?  What did it tell you, and more importantly, what did you do about it?

• Is grade and title inflation boosting costs without adding value?  Bogus titles and inflated evaluations, often used to salve an employee for whom you can’t provide cash rewards, are not  harmless gestures.  Those backdoor tactics cost real dollars, without providing a corresponding return in performance, productivity or engagement.

• What is the average performance rating, and how does that correlate with the success of the business?  If the employees tend to be rated as above average performers, while the business is having an average year, that disconnect is costing you money.

• Do you segment your employee population?  Not everyone’s external value changes at the same rate, nor does the market move in lockstep.  Find out how different employee groups (non-exempt, exempt, professional, management, sales, executives) are being treated (pay rates and trends).  You may have problem pockets, not universal trends.

Chances are that the statistics from your metrics database will validate the concerns raised from your interviews – and focus your corrective actions.

Reinforce the existing infrastructure

Likely you already have in place a salary structure, complete with grades and salary ranges.  You may even have multiple structures, based on employee segment, specialty departments or geography.  Make sure they are up-to-date.

Consider preparing a Compensation Administration Guidelines document for your managers, as a aid in applying standards of consistent treatment for your employees.  These guidelines would lay out in a single voice the policies and procedures to be used in managing your reward programs.

When are performance reviews conducted, how large are promotional increases, how are exception requests processed?  How are jobs evaluated, who is eligible for incentives, and how do you use geographic differentials across the country?  Who has to approve what actions?

And what are doing about Management training?  How do you ensure that those empowered to spend the company’s money (hiring, promotions, performance increases, etc.) actually understand the intent of your compensation programs?  Or are they making a series of well-intentioned emotional decisions that spend the company’s money without concern for financial operating pressures?

One could argue that focused training is a minimal cost solution to the problem of managers wasting the company’s money through ill-advised pay decisions.

Get your message out

Once you have determined where the problem areas are, their magnitude (impact) and the prioritization of gaining solutions, you should consider taking the offensive to make sure that your message is the one employees are talking about.

Note: most other corrective steps are defensive in nature, like putting your finger in the dike.  Survey analysis, salary structure redesign, performance appraisal modifications etc. are all reactive in nature, fixing a problem.  They don’t by themselves attack what could be your most serious challenge – employee perceptions.

• Explain out competitive you are.  Employees will never assume that you’re paying competitively.  At best they consider you average.  If you’re doing better than that, you’d better be telling folks.  Repeatedly.  Because paying above average rates to employees who think you’re average – is a waste of money.

• Use reward statements to show how much the company does for employees.  Have you ever added up how much your organization spends for the betterment of employees, for everything – not just cash?  Consider voluntary as well as required benefits, statutory obligations like social security and workers compensation, vacations, perquisites, recognition programs, company-sponsored programs, cafeteria, employee discounts, tuition reimbursement, stock purchase plans, community involvement programs, the parking garage . . . the list can be quite extensive.

Get your arms around the issues, identify your pain and priorities, communicate with employees and get started.

Have you heard this complaint before? “The Company would rather pay more to a green outsider than give one of us insiders a decent promotion”?

How have you responded?

The reason for the gripe is that, when considering two individuals for the same job the employee on the inside oftentimes will be offered a lower salary than if the company went outside to hire a stranger.  To compound the insult, it is not unusual for managers to ask insiders to train and orient the new ‘wunderkinde” to learn how the company operates.

Aggrieved employees feel that an insider already knows the company, the people, the products / services as well as the relevant policies and procedures.  That knowledge and experience is an advantage, they say, shortening any learning curve and cultural orientation.  And the “fit” has already been established. Taking on the role and responsibilities of the new position and not being paid the “going rate” seems unfair – actually a penalty for being an insider.  It’s as if the company realizes they don’t have to pay as much for an existing employee, that the time spent in the company somehow reduces their market value and limits a willingness to pay a competitive wage.

Some insiders may feel that the technical experience they have gained in their current job could be used in the new position, so that in effect they have already prepared for the new role.

However, the prevailing practice seems to be that, when a company looks to the outside recruiters will be instructed to search for someone who already meets all the qualifications of the job; an experienced candidate who has already performed the job, whose only learning curve would be a short term acclimation to the new company’s policies and procedures.  They can hit the road running.

Outsiders are considered to be free of “baggage”: no biases, preconceived notions or internal social network, and are thus considered more able to become immediate agents for change / improvements within the company.

You should also note: if someone already has performed the subject role the chances are good they are already being paid at or about the competitive or going rate.  If that is the case then the company would be compelled to pay a premium in order to attract such a qualified person.  The offer of employment would likely have to be above the going rate (or above the midpoint in some companies).

Here’s another common office complaint: “I’d be paid more money if I quit and the Company rehired me”

Unfortunately there is some truth to this gripe.  Over time the external marketability of good performers is rarely matched by annual performance awards within the organization.

Merit increases averaging 3.0% (less for satisfactory performance) may not keep pace with competitive wage growth, especially for in-demand skills.  Thus over time a company would find the prevailing external wage greater than what they are already paying experienced people.  And if you have to hire an experienced person you would likely have to pay more than the going rate, thus potentially creating internal equity issues.

You can do the math; if market pay increases at a faster rate than annual performance rewards, employee pay will fall behind.  At some point this will become a serious problem.

The cumulative impact of annual merit increases is a difficult issue to resolve, in that all employees are likely being reviewed at the same time (focal date).  Special treatment requests might create equity or precedent challenges for managers – both of which Human Resources would have warned against.

Managers should therefore take periodic stock of their staff; assess their backgrounds, experiences and performances, with a weather eye toward whether current compensation is both competitive and internally equitable.  To do less would run the very real risk of disengagement and separation – of likely your better performers.

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

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

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

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

It’s all about focus

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

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

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

Most employees would either;

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

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

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

What has weight has attention

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

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

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

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

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