Your company is seeking to employ a Financial Accounting Manager, and the leading candidate is currently “in transition”.  Human Resources has pegged the market value of the job at $ 75,000 (midpoint), but it’s known that the preferred candidate (Bob) will accept $ 65,000. A seasoned and experienced professional, Bob was previously paid $76,000 by his last employer, but was caught up in a restructuring staff reduction.  He’s been out of work for almost a year and is getting desperate.  Relocation is not an option, and he’s worried about feeding his family and paying the mortgage.

When the decision point arrives, other less qualified candidates are already making $ 70,000 and asking for $75,000.  Some hiring managers would look at this situation as a no-brainer.  “Let’s hire our “A” candidate and save $10,000 to $15,000” would be the smug decision.

That wasn’t hard, was it?   An exceptional candidate has been gained at a low ball price.  The manager deserves a pat on the back for saving the company money, right?  But, wait a minute.   Perhaps it should be a boot in the butt instead.  You make the call.

A savvy professional like Bob will have a sense of the competitive market, so he’ll be aware of having taken a significant pay cut to land this job.  So how excited will he be with the offer?  Today, he’ll be delighted and will celebrate getting a job and finally having money coming in again.  Tomorrow, not so much.

How long before resentment grows that he was taken advantage of – gotten on the cheap?  What will happen to his enthusiasm, engagement, morale?  What will he come to think of the company, never mind the hiring manager?

What is the likely future for Bob?

It is always safe to presume that how an employee is treated will become known; otherwise you’ll be stuffing skeletons into a closet – and you know how that trick never ends well.  So when Bob confirms the low ball treatment, what reaction can you expect?

• Angered by a sense of being taken advantage of he could continue with his job search – looking for a better opportunity – while still working for you

• His job performance will suffer, dropping from 110% to automatic pilot somewhere south of Satisfactory.  He’ll be going through the motions – not exactly the dynamo you thought you had hired.

• Bob’s attitude will turn negative and he’ll become another disengaged employee – critical of the company and management, doing no more than he must in order to get by

• And yes, he’ll ultimately quit, but on his terms and timing.  His anger will have kept simmering and he’ll likely feel little concern as to how his departure affects the organization.

What you have now is a bad hire, in retrospect; that situation is unnecessary and easily avoidable if you treat candidates fairly.  Look at it from the candidate’s perspective; when your back is to the wall and you feel your “rescuer” is taking advantage, that feeling causes a pit-of-the-stomach resentment that lingers and festers.  And it costs.

Let’s tally up the cost

The manager claimed a cost savings by the hiring decision.  But when you factor in the longer term ramifications of that decision, how do the initial savings hold up?

• The hiring decision saved $10,000 to $15,000 per annum by consciously underpaying the candidate

• What is the discounted value of a disengaged employee who doesn’t perform as expected or desired?

• What is the value of time lost when Bob quits and the job is vacant while a replacement is sought?

• What is the value of hiring a potentially more expensive replacement (plus agency costs) and perhaps relocation?

• What is the value of productive time lost while a new employee gets up to speed?

• Finally, what is the subjective value of a discontented employee in your midst, possibly poisoning other employee attitudes?

So the next time a hiring manager proudly announces how to save a bunch of money on a candidate who’s in transition, take a moment to think it through.  You may want to consider a boot in the butt instead.

It seems that everywhere you turn these days you face a bombardment of professional advice from self-proclaimed “experts”, especially in Human Resources.  These people assure you that they understand your problems and have the right solutions for you and your business.  All you need do is read a book, attend a webinar or better yet contract for their consulting services.

Sounds like a diet pill, doesn’t it?  Simple and quick.

Promises like this cover every aspect of our business and personal lives.  Pick an issue and the answer is out there.  Somebody can help us, and that somebody is our “answer man.”  We only have to listen, watch or read whatever it is they’re offering.

You can’t escape the TV infomercials, the newspaper advertisements, magazine articles or even blog and social media sites without an endless flow of experts telling you that they have the answer you need.

• “Guaranteed to quadruple sales within twelve months”

• “Maximizes HR Effectiveness and value through the use of . . .”

• “Keeping Leadership Talent Engaged”

• “Designing Employee Policies for an International Workforce”

• “The Five Causes of Low Morale – and how to avoid them”

• Etc, etc, etc

You get the point.

Now, here’s the but . . . .

If that’s the case, that the answer is out there – and for a price waiting for you – why do we continue to face the same problems over and over again?  Why are managers still making poor decisions, wasting money and creating employee morale screw-ups from dawn to dusk?  Why do the business headlines constantly bemoan reports describing litigation over wrongful or illegal management behavior, or the dubious business decisions that send companies spiraling into financial trouble?

Isn’t anyone paying attention to the answer man?  Or is the advice simply a load of crap?  Are these experts really just spouting head-game theories and viewing business problems from an academic vs. practical viewpoint?

Whichever it is, these “I have the solution” messages never stop.   Like a constant propaganda stream radio-beamed across the border – the broadcast light is always on.  The buzz phrases may change from time to time, but our desire for quick fixes doesn’t diminish.

My theory or yours?

If the “experts” do have the answers – color me skeptical – we need to ask why their message is so often ignored.  Several scenarios are possible:

• Subject matter authorities often speak over our heads, using buzz phrases and $100 words

• Reading or listening to this stuff is hard work; the text is dry, boring and not often engaging

• Too much of the advice is contradictory to what you read / heard already – so who is right?

• Academics often lack credibility in the real world; they “just don’t get it”

Whatever the reason, the drumbeat of advice is not being absorbed and acted upon – because the problems remain.

Therefore . . . .

I’m struck by the merry-go-round aspect of constant advice without real solutions.  We see a continuous need to enlighten people and businesses on how to be effective, but it’s a need that never seems to end.

Maybe the analogy to a diet holds some truth; consider how many books are out there on that subject – yet up to 30% of the population remains obese.

There’s an old saying, that if you build a better mousetrap, the world will make a path to your door.   If common sense and up-to-date technical knowledge point the way to a better tomorrow, why do so many companies and their leaders stay in the dumb zone?

If the cure is out there, why is the patient still sick?

I’m thinking that the message is wrong, the audience isn’t listening, or perhaps we’re all being scammed by re-packaged “new” thinking.

Which is it?

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

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

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

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

What are we talking about?

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

• The Grand Giveaway:  Where managers try to give away as much money as they can to as many as possible, not worrying overmuch with distinctions between individual performances.  The key is to build an employee’s appreciation of their manager’s largesse.

• Title inflation: The promise of bloated and meaningless titles that distort organizational structures, for the prime purpose of rewarding employees in lieu of cash.

• Over rated performance:  Play the good guy by over-rating performance during salary reviews.  Culprits are often seen rewarding activity over results.  So look busy!

• Assured compensation: Take the risk out of rewards.  Everybody receives an annual merit raise, everyone earns a bonus.  This fosters an attitude of entitlement.

• Counter-offers: “Let’s make a deal” attitude to keep resigning employees from actually leaving; a dangerous practice that increases costs and lowers morale.

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

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

It’s really kind of a bribe.

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

Why it doesn’t work

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

• Employees see arbitrary equal pay treatment as de-motivating to high performers.  Why bother extending yourself if you’re going to receive the same reward as the guy doing crossword puzzles?

• Employees resent favored-son treatment; the names of those who benefit for non-performance reasons will always become known.  There goes your morale.

• No amount of money replaces the value of honest performance direction and feedback.  Those with an interest in learning and growing appreciate the help.

• Absentee managers lose the respect of their employees, who know what’s going on.  Remember that employees leave managers, not companies.

• While employees will take any money carelessly handed out, the organization will not gain because of it.  So these “rewards” are ultimately wasted.

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

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

When it comes to paying employees for the work they perform, what do you think your workers expect?

__________________________

Does anyone in management ask themselves this question anymore?  Or is the collective attitude these days more typically either 1) “they’re lucky to have a job,” 2) “where are they going to go?”, or 3) my personal favorite, “I pay, you work.”

Where does that indifferent attitude come from?

When employees feel mistreated you will see the result through lowered morale, mental disengagement, reduced productivity and even separations.   Given the risks involved it’s discouraging that not enough of the people in charge actually consider the issue of pay from the employee’s perspective – the people doing the work.

Such an important question should generate a better response than guesswork and bias, shouldn’t it?

Any manager worth the title should anticipate employee issues, especially those with the power to make or break the business.  It’s all about knowing your employees, about being prepared.

Because isn’t payroll your largest single expense?  Depending on the industry it could represent 40% – 60% of total revenue.  Shouldn’t how you handle pay be carefully considered the same way you would the cost of raw materials, the acquisition of a new business, or the financing of more brick and mortar?  You should look at this expense from every possible angle, to better understand the underlying causes, and how you can make it work for you.  To better manage your reward dollars, without harming the business you need to understand those factors that impact employee pay.

Taking that hard look will mean trying to understand the employee perspective – the human factor behind the cost of labor.  It will mean understanding how company pay decisions are perceived by those on the receiving end.

It does help when you think of pay from the other side of the desk.  Employees provide a service and you pay them for it, right?  That shouldn’t be the end of the equation, because money doesn’t manage people – you do.

So, do you know what employees expect from managers, and from the company?  Their basic wants and needs have a direct connection to their performance, and their commitment to your organization.

What do employees expect?

While circumstances among individual companies and employee groups might vary somewhat, it is safe to say that employee expectations fall into several broad categories:

• Competitive pay – no surprise here, because that’s probably what you want too.  You don’t need to be a high payer, and should avoid the label of “law baller,” but you should ensure that the pay opportunities you provide are consistent with market practice

• Opportunity to earn more – employees should be aware that more money is available to them, through pay increases, variable compensation, even overtime as appropriate.

• Regular pay reviews – don’t let employees hang in the wind; avoid the stereotype of employees worrying over how to ask the boss for a raise.  You don’t have to grant anything, but let employees know up front that you’ll be scheduling a review.  Anniversary or focal date is less important than that the employees know to expect a review.

• Timely and accurate payroll – anything less than 100% performance is a problem, as perfection is guaranteed – especially by those lower paid employees who live paycheck to paycheck.  Payroll providers will tell you that you never hear from the 99%, but only from those with problems.  And the calls are always accusatory.  No one ever has a question about their pay; if something’s wrong, you messed up.

• Fair treatment – employees don’t like “favored sons” or special treatment cases – especially if the perception is that they are not deserved.   Recipients will become known, so don’t think of putting any skeletons in the closet.

Do you understand these expectations?  Not so earth shaking, are they?  Do they make sense; do you consider them reasonable?  Are they the expectations that you have yourself for how you want to be treated?

How you and other managers react to someone’s expectations, by either actions taken or in some cases lack of action (ignoring), will set the tone for your employees; you dismiss their concerns at your peril.  You don’t have to do anything, of course.  But your eyes should be open and your decisions should be based on knowledge of what your employees are thinking – and expecting.

Otherwise you’re making decisions in the dark, and how many gems of wisdom come from that process?

Think about whether management treats employees as “we” vs. “them.”  Are they viewed as boxes on an organization chart or as real people?  Are they considered an important asset to the business, or a cost item to be managed (dealt with)?  Whatever the answer, these attitudes will become known.

So take the time to understand where your employees are coming from.  That bit of research will provide dividends down the road – no matter how you choose to pay your people.

When you’re trying to grab the attention of Senior Management, remember this; they like a good story, especially one with pictures.

If you’re addressing your company’s single largest expense, its employee pay programs, the pictures become charts & graphs that illustrate the points being made.

Pictures capture attention and build memories much better than text or even the spoken word.  Show a picture and the image is locked in, while reliance only on text is a risk.  The drone of dry prose can grow boring and is liable to lose the attention of all but your strongest supporters.

Attention grabbers that work: 1) speedometer style formats that graphically indicate the current situation against the target; 2) the green light, yellow light, red light approach, again to colorfully paint a picture that stays in the mind; and 3) pie charts, tables, even regressed lines that tell a story.

People remember images because they capture the imagination.  They have a harder time recalling (and taking to heart) what you said or what you wrote.  So concentrate on your supportive imagery.

Make the story a short one.  I once worked for a CEO who thought any proposal could be reduced to a single piece of paper, with plenty of white.  “If you need more than that,” he would say, “it’s not such a grand idea.”

You need a plan

However, before you settle on the visual format best suited to sell your case you should focus on the data points necessary to make that case.  Remember the old adage that a dream without a plan is only a fantasy?  If you don’t take action steps to convert ideas to reality, what you’ll be left with is smoke & mirrors – with no results to show for your efforts.

For those of you who have ever been on a diet, you treat it like a project plan, right?  Experts advise that participants write down everything they eat, have goals to strive for and milestones to gauge progress.  It helps to have a plan and to keep score – to know where you stand and where you’re headed.

To accomplish this you should create quantifiable metrics that will collectively illustrate the well-being of your compensation program(s) – and then establish baselines (current state) and targets for each performance indicator.  This key step will help you understand whether your costs are being contained and whether the ROI on employee rewards is at the level your company requires.

Commonly used HR metrics:

• Average salary / wage

• Compa-ratios (comparison of pay to a range midpoint)

• Count of employees per segment (hourly, non-exempt, professional, management)

• Average performance ratings

• Average annual pay rise for each performance rating

• Count and average promotional and “equity” increases

• Voluntary turnover (employees who decided to leave)

• Average employee age and length of service

We could go on and on, but you get the point.  Refine these and any other quantifiable factors by further segmentation – per salary grade, employee group, male / female, etc.  Make sure each metric is measurable, because accuracy counts.  A compelling argument demands precision.

To make these metrics work for you, to avoid a series of make-work arithmetic exercises that do nothing more than capture minutiae, be certain to measure what is important to your business – not simply what data you can capture.  Make sure the importance of the metric is clear to management (or can be made so).  Management needs to grasp the importance of success, to understand why the metric is important and what achievement would mean.

Once you have the right metrics established (collectively called the “dashboard”) and a baseline in place, you will readily see where the problems lie.  Then set specific targets going forward to improve these weak areas, creating periodic milestones to mark your progress.

What to look for

Every organization has different pressure points.  However, if your metrics data indicates any of the following situations, management should be informed.

• Average performance ratings that exceed how the business was rated

• A workforce where key segments are approaching retirement age

• Promotion and “equity” increase activity that overwhelms the merit budget

• Low compa-ratios that indicate you are not paying your salary ranges

• Any figure that is an unpleasant surprise

When you’re telling a story to management, make it compelling – with facts and pictures that feed off critical metrics analysis that form the pulse of your business.  Then bring home the sale by showing how to solve the challenges being faced – with practical strategies designed to end your story on a happy and successful note.

You’ve seen your company’s want 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.

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

Not enough.

Most employees presume 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 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 where you want to be?  As far as aspirations go, it’s only middle-of-the-road.

If your company does pay “the going rate”, that means that approx. 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?

No one leaves your company for less money – so all you’ll hear from your employees is about how so-and-so is making more somewhere else.  And as employees only hear what supports their own notions –they 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 being the premier paying company in your market / industry – and can you afford that cost?

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

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

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

• Some candidates will accept a lower rate than should normally be paid for their knowledge and experience, and managers tend to view this as a cost savings.  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 are 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 a 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 flexibility into your pay practices.  Consider targeting key jobs (highly skilled, difficult to replace, etc.) and make sure those jobholders are well paid for the market.

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

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

What is the competitive market price for a particular position?

It’s a simple question.  If you work in Compensation, this is what you do.  And if you’re in the US the survey sources you can call upon are numerous and well stocked with participating companies and benchmark matches – the blessings of a large country.  In fact, it is a common practice to segment the data (report separately) on the basis of industry, revenue size, or geographic region.  In some instances you can further refine your analysis by operating budget, staff size or even years of experience.

For those accustomed to such robust analysis it can be a real wake-up call when asked to conduct a similar analysis for operations in another country.  Suddenly your content-rich environment has disappeared, and in its place you find that the availability of good information can no longer be taken for granted.  Now what do you do?

Your large country database is gone.  Instead, you face a limited selection of survey sources and each offers only a fraction of your normal participant count – a far cry from business as usual.

Such is the key challenge when pricing international jobs – the limited number of companies included in surveys, even by the major vendors.  For example, Mercer Netherlands has 81 participating companies.  So it is not unusual for a market pricing analysis to include only 4 – 5 “matches” – but is that representative of common practice?

If you’re the one on the asking end of the original question, let me share the challenges that your analyst is likely to encounter.

Impact of Reduced Participation

• Limited industry segmentation: reported data will likely cover multiple industries, with limited or no segmentation.  If you’re in either a high or low paying industry, surveys will provide inflated or discounted  information

• Hard to segment by revenue size: to the extent that larger companies pay more than smaller you lose that distinction as well.  This can be especially problematic if you’re a small company.

• Global responsibilities vs. strictly national: the distinction is often blurred between national, regional and global responsibilities

• Combination jobs not well represented: you will find yourself matching against jobs “close to” your own, just to gain a “feel” for pay levels.  If your job content varies from benchmark descriptions, reported data might not capture such idiosyncrasies.

• Poor matches and / or no data when less than 5 respondents: surveys tend to provide an “n/a” when they do not have enough participants.  When you start with limited companies it’s not unusual to find unreported jobs.

• Forget Regional variations:  while it is often the case that certain geographic regions have higher pay levels, the reported data is usually national.  You may assume that participants are in the higher paid region, at your risk.

What to do?

Frustrating, isn’t it?  You can’t very well throw your hands into the air, complain about poor survey quality and move on to something else.  The limitations are there and you have to play with the cards you’ve been dealt.  Management is waiting, wondering what is taking you so long.

Working with limited resources is a test.  Your challenge is to balance an understanding of the subject position, the industry and the vagaries of limited data points in order to determine which figure best represents your position’s competitive value.

To succeed you must utilize subjectivity and your professional judgment to consider the available data and gauge which figures best reflect the job under review.  The correct answer will no longer jump off the page at you.  Compensation has become an art, not a science.

• To improve your matching, consider either the 25^th or the 75^th percentiles instead of the median or 50^th percentile to reflect your position: this can be effective with poor matches, or concerns that the reported job is either larger or smaller than your own.

• You may have to add or subtract from a benchmark job to gain a more appropriate figure for your position.  For example, if your job is a VP but the survey matches stop at the Director level (or converse), you may have to adjust up or down to create a better “guesstimate.”  Note: in such a case don’t forget that the incentive percentages will likely differ as well.

• There is no formula in making adjustments, but changes in organizational level are usually around 15% – 20%.  Within-level description changes are usually around 5% – 15%.

• If dealing with only a few positions you might have greater success by individually pricing jobs through a vendor’s database of multiple surveys, government sources and local surveys.  Vendors like ORC, Birches Group and a few others offer this select service.

• Be careful of the arithmetic exercise (averaging averages, inappropriate matches, assuming numbers, etc.) that delivers a figure you cannot validate later.  Caution: a number is remembered, while often the qualifiers that follow are forgotten.  Make sure that you document such concerns before providing specific data.

All this subjectivity means that your judgment might suffer from more skepticism, even criticism, as you cannot simply point to a survey page and say, “there it is.”

Does all this subjectivity ruin the value of your analysis?  Not at all, as long as you inform management about how limited survey resources have impacted your analysis.  They expect an answer to their question (market value?) and you need do the best that you can with the resources you have available.

In our last post we introduced you to step # 6 of the Seven Step Compensation Diet – the need to create quantifiable program metrics.  Such tools are used to help understand (measure) whether costs are being contained, where the problems areas lie and whether the ROI on employee rewards is at the level you want them.

At this point in your compensation diet you’re well on your way to establishing successful cost reduction / effective spend program(s), but your struggle isn’t over yet.  All can still be lost, as most dieters will attest, if you fail to stay the course.

Step # 7:  Stay the Course

Consistency of effort is the key to long term success, whether you are trying to lose a few pounds, save money for your company’s bottom line or build a more effective and efficient organization.

Your success will not be achieved via a quick-fix cure, but through the steady application (repeat, steady) of the constructive re-design steps we’ve been discussing.  You must keep firm control of both the gas pedal (keep moving, keep moving) and the steering wheel (minimize distractions).

By carefully applying each of these steps a side benefit will develop – that of a stronger trust relationship with your employees – demonstrating that management is intent on fair and equal treatment for all its workers.  That trust will take time to grow, and it needs to be nurtured through visible and repetitive actions that continue your message.  Like a steady drumbeat, the continued application of uniform policies and procedures will pay dividends that grow with time.

Your employees should also see that their senior management team is “walking the talk”, adjusting their own behavior to match that of newly trained lower level managers.  Leadership is critical to ensure organizational success, as a shared effort among all employees will invigorate and motivate group activity into doing the right thing.  Conversely, playing with internal politics, favoring special interests and / or displaying executive arrogance (us vs. them) will doom your dietary efforts as employees will lose faith with a message that’s only talk.

It is also worth noting that not everyone will agree that the steps you’re taking are the right choices.  Those who disagree will likely employ one of several tactics in an effort to render your initiatives ineffectual; you should anticipate such reactions and plan your counter-measures.

• The Naysayers – those who whisper dark thoughts in the hallways and cubicles, shaking their heads with the knowledge that “of course it won’t work”

• Passive Resistance – offering little in the way of upfront objections, these folks will not actively assist the process but will do what they can behind the scenes to delay, discourage and otherwise weaken your efforts

• This too will pass – especially prevalent with those who have been around for a while; these folks will sit back, offer neither help nor active discouragement, but will simply wait you out.  They figure that the existing culture will overwhelm your initiatives, especially if support is minimized

Forewarned is forearmed.  Enlist senior management for visible support from above, frequently communicate your positive messages to employees, reward performance over personality, be fair and consistent in your decision-making – and keep at it.

To close out the dietary analogy remember that most weight loss efforts do not work in the long term, mainly because the dieter is unable to achieve long-lasting behavior change.  We all want that quick fix diet pill!  Similarly, if your company is unable to change its practices it will suffer the same discouraging result (cost increases, inequitable treatment and worsening employee relations) as ruinous business practices creep back into play.  You might even be worse off than before.

Or not.  Make your choice.  Get out there and shake things up.  You can do it.  We’ve just shown you how.

In our last post we introduced you to Step # 4 of the Seven Step Compensation Diet – the need to control the headcount and type of jobs in your organization.  Reward dollars can be maximized by operating a lean organization.  Only staff those jobs required for operational success.  At the same time avoid back door cost increases by refusing to play “title games” that add expense without providing a fair performance “return.”

Success here depends on your ability to track reward dollars and measure your spend against a plan.  To do that you need to have an allowance.

Step # 5: Have a Budget and Stick to it

Have you ever played the board game Monopoly?  Players start with a given pile of money and then it’s spend, spend, spend and hope for the best.  When it’s not your own money it’s fun to see what you can do, because it’s only a game, right?

When Managers have the Keys to the Kingdom though, the authority to spend the company’s money, it’s a different matter.  Your company probably doesn’t look at management spend on employees in quite the same manner as a wheedle-dealing board game.  The costs are real; the implications long lasting.  As management considers effective methods to rein in uncontrolled spending (cutting the fat), they should set up some form of restrictions to which managers must adhere.  No more strolling past Go and Collect another $200.  Thus the budget is born.

An established annual reward budget (pool of money) can be an effective gatekeeper and measurement tool for managers, limiting their largesse and forcing better decision-making.  On a regular basis they can also track the level of spend, as well as the corresponding progress toward adherence to an annual goal.  The basic tenet here: making a series of one-off decisions over time without having a cost meter running will drain your financial resources before your annual needs are met.

Chances are, you can’t go back for more money.

When under pressure Managers are notorious for first reluctantly agreeing to trim their merit spend (note the nodding heads and muted voices of support), only to circle back later with promotions, adjustments and job re-evaluations that more than replace the initial savings.  It is this form of passive resistance and end-around tactics that a fixed budget is designed to defeat.  If you factor in that Managers will always attempt to circumvent whatever system you put in place, you might be able to stay one step ahead.

So save yourself some angst by ensuring that your budget pool includes promotions and adjustments, as well as the annual merit increases.   Some use two separate budgets to better categorize and track activities.  But whatever the case, be careful to limit and track.

By the way, those granted the authority to spend the company’s money should be held accountable as to how that money is spent.  You can measure it.  Adherence to a spending plan should become an assessment factor in a managers personal performance appraisal, an objective indicator of the demonstrated ability to actually manage.

Finally, to ensure that you achieve greater management focus, ensure that the Finance function regularly monitors and reports on those activities (management spend decisions) that impact budget targets.  Managers who know how much money they have, and how much remains, are more careful with it.

If no one is watching, no one is caring.  It is not easy to become a lean organization, and even harder to stay there.

In our last post we introduced you to Step # 3 of the Seven Step Compensation Diet – the need to establish written operating instructions for your Managers.  These policy and procedural guidelines will clarify the company’s strategy, educate those making reward decisions and help minimize aberrant behavior and damaging precedents.  Now let’s really get our arms around things.

Step # 4: Establish Position Control

When developing the business model for your company or department the number and type of positions required for successful operations was likely laid down somewhere.  “We will need three of these, five of those, a manager there, etc.”  This Table of Organization (TO) is similar to a floor plan for your business, carefully describing the human factor blueprint necessary for efficient and profitable operations.  The plan creates first critical, and then necessary positions.  You won’t find “nice to have” jobs here.

The trick though, is to stick with your plan.

And of course the problem is that most companies don’t.  For those less careful a slow job creep inevitably slinks in, whereby other titles (or additional headcount) become added that are not on the original TO.

The Chinese have a phrase, “death by a thousand cuts”, which is an apt description of how a company’s fixed costs can grow – one little action at a time.  After awhile you’ll look around and wonder how your cost structure became so bloated.   While there are many culprits, a particularly insidious practice that adds no ROI – only increased costs – is the use of inflated job titles.

Have a care to avoid this nasty virus, a subtle backdoor practice that needlessly increases only costs – not value.  These are typically additive positions with incremental titles like Senior, Lead, Assistant, etc., where the job description barely changes at all.  Or they may take the form of important-sounding titles that really mean something else. My personal favorite is the First Impressions Manager, who is really the Receptionist.

If management feels that they need to offer an employee a more expansive title, remember that job holders will soon claim that such titling deserves greater reward (higher grade, higher salary range, increased base salary).  Again, more cost with no ROI.

The process of Position Control is like an old-fashioned girdle for organizations.  It forces you into shape, to control the number and function of jobs within your organization.  Here’s what you do:

• Understand what jobs your business requires (as compared to wants), and the number of positions (employees) per job

• Allow only those approved jobs and that amount of headcount to be filled

• Establish strict procedures for recommending and approving changes to the job list

Some companies tag each position (headcount) with a unique code, to better track where employees are being placed.  For example, you may currently employ five senior engineers, but perhaps your organization only requires four.  “You are where you are,” the Brits would say, but once you know the problem you can plan remedies.

The Position Control process can help you re-establish and then maintain the organizational requirements you need for operational success.  This process will help educate managers on the difference between required and superfluous jobs.

Make sure you have complete and accurate job descriptions, and then hire / promote to those specifications.  A critical test is that you fill only required jobs, not simply because an employee has gained certification or additional experience.  If the business requires four senior engineers, paying for a fifth delivers no additional ROI – only higher costs.

Begin with the low-hanging fruit.  Start a spring cleaning campaign by first eliminating from your systems any position title without an incumbent.  Then nip the backsliding problem with procedures that tighten up the new position approval process.

Congratulations!  You’ve moved from the planning and consideration phases to actually having a cost impact.  Well done.  Now, stay the course.