I share my house with a brood of cats and it’s been that way for as long as I can remember.  I love them, but recognize that they are stubborn, stubborn, stubborn creatures, and at times it seems like they’re the ones who run the place.

Have you ever tried to change a cat’s food, or their litter box, or their water dish?  They don’t react well to the new and different, and when they don’t react well their loud and disdainful behavior can really disrupt your day.

These felines are also creatures of habit, preferring a daily pattern of repeated behavior that in their view creates a safe and reassuring environment – where they feel the most comfortable.  Break that pattern and you get the look, or worse.  I can attest to the fact that dealing with the stubborn and habitual can be a real trial.

In the business world there are many companies run by a leadership who possess similar inflexible behavior, an aversion to breaks in pattern.  Those who like things just the way they are.  Whoever coined the phrase “if it ain’t broke, don’t fix it” was probably a charter member in that “blinders on, head in the sand” leadership cadre who likes things just the way they are.

While it’s a truism that yesterday’s strategy and operating principles are rarely a recipe for future success, how often do you see managers hang on to what used to work – until the signs of failure become so visible and so painful that it can no longer be accepted?

Comfort

These folks with their heads in the sand are not necessarily bad managers, or even poor business leaders.  What they are is comfortable, and when we’re comfortable we feel safe, relaxed in our surroundings, familiar with what needs to get done and a bit over confident about our control of our business environment.

When we feel comfortable and confident we prefer to repeat those same actions that brought us to our present state of mental ease.  In other words, we don’t like to rock the boat, we don’t like “change for the sake of change,” and we’re skeptical of new and unproven techniques.  We get stubborn and dig in our heels.

It’s worked before, it brought us success.  Let’s leave it alone.

However, when someone or some event breaks that comfort level (new competition, weakened economy, technological advances, etc.), the first thing we experience is anger that our warm cocoon could be shattered by new business realities.  Soon enough though, that anger will convert to a sense of fear, whether we admit it or not.  More likely we’ll act out in an aggressive fashion that disguises the panic we feel.

Fear

People can be fearful of change, especially leaders.  Because they don’t know the new rules, because there are risks when implementing new strategies, and those who stick their head above the crowd can get it chopped off.  We’ve all seen that happen.

When you must get yourself up and out of your comfort zone it’s a natural reaction to feel defensive and unsure about what you should do next.  Leadership may not have the competencies or the experience to adapt to new business challenges.  It’s not difficult to lead when things are going well.  But when the going gets rough, when the pressure is on to change course, to implement new strategies, not so much.

I’m not sure about what to do; everything has changed.

Pushed out from their safe environment management can find itself unsure, defensive and unsettled about the correct way forward.  And until matters settle down again they can be difficult for practitioners to work with.

You can help them

You may consider managers stuck in the past as living dinosaurs, but have a care because these beasts have teeth.  They don’t like this uncomfortable new world, and they tend to shoot the messengers.  To offer assistance to a leadership challenged by the unfamiliar practitioners need to step up and provide steady, confident and reliable advice.

• Acknowledge the past: Yes, previous strategies have worked well and brought the company success and financial strength, reputation and a strong foundation for the future.  A pat on the shoulders for management.

• Focus on the why: Whenever advocating change, focus your message, your research, your examples and your entire business case on why your recommendations lead to solutions.  Keep your eye on the goal, not that you’re changing patterns of behavior.

• Dangle the carrot: Always point toward the business and personal success that would be the result of your recommendations.  Besides showing the achievement of business success, emphasize that the deciding leadership will gain credit for managing the organization through these difficult times.  Stroking the ego doesn’t hurt here.

The next time someone comes to you with an idea to build a better mousetrap, listen to them.  Keep your eyes, your mind and your options open.  Instead of being afraid of change, embrace the opportunities presented.  It can make for a better tomorrow, and you’ll shake the tag of “stubborn.”

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.

Picture the scene;  you’ve just completed a presentation to senior management, complete with analysis and recommendations for next year’s compensation program.  Now you stand ready for the question and answer session.  Now is the time to defend your proposals.

With a carefully blank expression on his face your COO poses a single question . . . why so much?

Justification Or Excuse?

But you’re prepared.   You’ve anticipated the question.   You know that properly answering the “why” question is your once-a-year opportunity to make your mark, show off your CCP designation and help direct the reward programs for your organization.

So chances are you won’t respond with, “because that’s what everyone else is doing.”  Uttering that lame comment would suck the air right out of the room – and likely your career with it.   So you won’t say that.  However,  just between us, would that actually be the truth of it?  Are your recommendations based on the unique status of your own organization’s external competitiveness, internal equity, overriding Compensation strategy and financial affordability, or have you simply parroted what the Compensation surveys report that everyone else is supposedly doing?   Have you pushed the EASY button and followed the all-powerful “common practice?”

Beneath the simple question above your senior leadership is really asking whether your proposals set a course to  simply follow the pack, or do they lead toward solutions crafted for your organization’s own needs?  Follow the crowd or strike out your own path?

Are your recommendations for the company’s compensation programs a compilation of “everyone else is doing it” rationale, or are those proposals based on what you feel is necessary for your own organization – regardless of the “average?”

Are Decisions Being Made For You?

Is your view of presenting competitive programs a reaction to the behavior of others, or because certain tactics also make sense for you as well?

• Raising Salary Ranges: surveys will report the projected average increase in salary range midpoints for next year.  But how does that figure relate to the competitiveness of your own situation?  Do your ranges need a similar adjustment?  What would you recommend if you didn’t have a survey whispering in your ear?

• The Average Spend: if survey sources report a projected average spend of 3.0% for next year, is that your recommendation as well?  And when responding to the why question, what else do you have to offer as justification?  Does the 3% make sense for you?  Can you afford it?

• Pay Decisions: is the survey source a reliable indicator you can point to as the prime reason for making individual or group pay decisions, or are external sources only one aspect of your analysis, one element of your reward program strategy?  If the market says $47,512 does that figure become your new competitive target?

So before you make that next reward presentation ask yourself whether your decisions and your recommendations are adding value to the organization.   Or was your analysis complete once the survey data suggested a common trend?  Once you saw the answer.

The easy way is to point at others, to argue the common sense of common action.  However that strategy bespeaks more of a Compensation Administrator than one who is charged with overseeing the proper design, competitiveness and effectiveness of the company’s reward programs.

To be fair, sometimes what everyone else is doing is the right action for you.   I suppose that’s why so many companies are doing it.  Then again, the reported “average” may be no more than an arithmetic exercise that is less a strong trend than rather a convenient manipulation of data points.  Who’s to say?

So be careful before you sign on to tactics decided upon by other companies.  That nameless average of common practice is not responsible for your organization’s compensation programs.  You are.  And you’d better have a better reason for your proposals than that’s what the survey said.

Photo courtesy of pmarella

With the fall of the Autumn leaves the attention of most senior management personnel shifts to the upcoming changeover of the business year.   And that click of the fiscal year calendar is accompanied by the beginning of their new annual incentive plan cycle.  So while the left hand is busy processing performance assessments and award payouts as an end-of-year project the right hand is getting ready for the new cycle.

In many companies this fresh start is automatic, an administrative process not given much thought past doing what they did last year, and the year before.

Here’s a thought.  Instead of issuing another rubber stamp copy perhaps now might be a good time to review your annual management incentive plan and take the opportunity to breathe new life into it.   Because if left on autopilot too long it’s surprising how many extra names find themselves added to the incentive-eligible rolls, slowly adding what can become significant costs, and all without proper review.

Eventually senior management will notice the ballooning costs and clamp down, either by reducing eligibility in a broad-based fashion, and /or by reducing incentive payment opportunities.  Perhaps both.  You don’t want to get to this point.

The Sneak Attack On Your Payroll

Has your company made too many people eligible for the incentive program?  Take a quick look at a 3-year growth curve of positions and employees being included.   Would you consider all these deserving?  Is someone making that decision, or has title or grade designation become the deciding factor?  Meanwhile, can you explain the ROI for the growing total in management incentive pay?

Employees deemed eligible for an incentive opportunity should have a line of sight between their performance against measureable objectives and award payments.   If they don’t, what are you rewarding?  Your plan shouldn’t be a profit-sharing scheme, where eligible employees light a candle in the window and hope that the company does well.

Companies typically use the “Manager” title as an eligibility cutoff, but perhaps what you name a position should not be the sole criteria.  What about those whose responsibilities include managing people, versus individual contributors who manage a budget, or a non-staffed function, or a specific responsibility?  Sometimes they’re all called “Manager.”

Perhaps the title is a gift, regardless of roles and responsibilities.  I’m thinking of a “First Impressions Manager.”

Using a grade designation can have its own problems; is everyone in a grade eligible, and if not how do you differentiate between positions, when the company has already deemed each to be similarly valued?  Slippery slope here.

If you’re suffering from title inflation and have granted puffed-up titles for certain employees, are these Managers actually managing at all, are they only supervising, or are they really only technical experts with a gratuitous title?

Have a care that your pay-for-performance management incentive program doesn’t evolve into an entitlement program.

Where’s My Check, Please?

Something else to look at: is the incentive award at risk?  How many of your eligible employees do not receive an award each cycle?  If practically everyone receives an award, perhaps instead of an incentive plan what you have is a delayed reward program; managers put in their twelve months and expect a bonus payment.

Does your incentive program require behavior above and beyond, with individual objectives linked to broader company goals?  Or are your objectives only finalized at the end of the cycle, simply to comply with some Human Resource assessment form that must be completed?

At the lower limits of incentive eligibility some companies start with an incentive target of 5%.  However that low a reward opportunity is not a carrot for anyone.  For that small amount of reward you won’t change anyone’s behavior, never mind maintain their attention for 12 months, so why bother?   If behavior isn’t going to change, if you’ll receive the same performance as before, but now for an additional  5%+ cost increase, what is your return on your investment?  In my view this money is often wasted.

Now is the time that you should have a look-see at the effectiveness of your annual management incentive plan – and to suggest meaningful improvements.   Because once the current payment processing cycle is complete the pressure will be on to roll-out the 2012 program.  And at that point the die will be cast until the following year.

It will be too late.

You just received an above average performance rating, which put a big grin on your face.  Which was soon wiped away when you heard that you’d receive only one percent (1%) more of a salary increase than “Joe Average” down the hall (there are no secrets out there).

One percent more?  For giving 110% effort for a full year?  Not worth it, you say?

What Does One Percent Gain You?

The pundits say that performance rewarded is often repeated.  So what if good performance is not rewarded?  In the eyes of the recipient.  Likely you won’t see the same level of personal contribution again next year.  Instead, what you’ll see is more of “Joe Average,” or worse.

So how much of a reward difference between you and Joe is enough to keep you and other high performers motivated and feeling appreciated?  Because Joe seems to be content with his lot in life, and you’re not.  Is a fair differential 2%, 3%, or even more?

Does the organization realize that such soul searching is happening among those employees they most want to retain?  Can their recognition systems balance the need to reward better performers against the reality of tight budgets?  It might mean that one would have to take from Joe to pay Bob – because the pool of reward dollars is not likely to expand.

But that idea flies against the practice that most managers follow – of trying to reward everyone – to keep everyone happy.  After all, if you’ve put in your twelve months you deserve a raise at the end, don’t you?  Kind of automatic, especially if the average spend isn’t much.

Have a look-see at how your high performers are being rewarded, then compare that against Joe’s contribution and reward.  Are you being fair?  With Joe, probably, but how about with the high flyers?  You can afford if Joe left.

Can You Make a Performance Decision?

Another consideration for determining fair rewards is the number of performance ratings you have in your appraisal system.  For example, with a seven scale system (from Walks On Water to Show ‘em The Door) the need to provide percentages for at least five assessment scores makes things rather tight.  And if you try to maintain a two percentage point differential between performance levels, the numbers might become higher than what’s affordable (if a 3 rating [Average] gains you 2.0%, then what do you do for a 7 rating?).  And what’s the population density of those receiving a 4, 5 or 6?

And while you’re ruminating over that dilemma, would Joe Average  be satisfied with a 2.0% increase?  He’s going to grumble and complain about what’s “fair” for those twelve months he spent on the job.

So you say, a proper rating scale looks to be three factors, right?  Wonderful, Pretty Good and Needs Improvement.  With three factors it’s easier to provide reward differentials that make a difference.

But then reality bursts that nice fantasy you had going.   Many companies experience managerial ambivalence (can’t make a decision) around performance assessments, where the desire is great to place employees in between ratings, as in 1.5 or a 2.5 score.  Somehow the employee(s) just don’t fit right into those three neat buckets.  “We need more choices,” they say – and so the five scale system was borne.

When the managerial ambivalence is acute, more than a few companies have decided that even five performance ratings aren’t enough to accurately reflect employee performance; thus the seven scale system was created.

And in each case the ability to differentiate performance with rewards  has lessened.  How do you reward a 7 or 6 rating, vs. a 5, vs. a 4, vs. a 3, etc,  when the average spend for everyone might be only 3.0% – or a tad less?

You don’t.  At least not if you try to reward everyone.  You won’t have enough money.

Recently I was asked by a U.S. client why I recommended that they create an international assignment letter for their expatriate employees.  After all, they only had a few employees overseas and previously had resisted the call to “play the lawyer card.” They felt that management could effectively deal with the circumstances of expatriate situations as matters came up, and were reluctant to lose what they considered their prerogative – to set terms and conditions as they thought appropriate for each employee.

This is not the first time I’ve been asked that question, as it’s not unusual for small companies or non-profit organizations to send an employee overseas with little more than a verbal agreement and a series of vague assurances.  These organizations wish to avoid bureaucracy and move quickly.  However, often these casual and hurried arrangements have proved painful and expensive experiences:

• The shock faced when coming to grips with actually living in a foreign country, vs. visiting.  The realities of daily life, combined with cultural differences compared against “back home” become quite a wake-up call when no longer insulated by the transitory nature of a business or vacation trip

• The constancy of unforeseen and confusing local situations (medical claims, driving licenses, bank accounts, schooling, language, etc.) proved such a frustrating distraction that employees lost focus on the job – the reason they were there in the first place.

• Relationships with headquarters suffered as the employee asked for repeated consideration (increased payments) to redress what they considered coverage gaps in their terms & conditions.  The trust element was weakened as employees felt they were being short-changed by management.

Coming from an environment where every expatriate was given a detailed assignment letter “before” getting on the plane, I was at first taken aback by the client’s question – because the absence of mutually agreed terms and conditions is almost certain to prove expensive to companies trying to take a “short cut.”

So why is providing an assignment letter a good idea?

• Protection:  Like any contract, confirming the terms & conditions of the assignment protect both parties from misunderstandings, misinterpretations and assumptions – before expenses are incurred.

• Clarity:  Accepting an overseas assignment is a major step for any employee, as well as for family members.  The more you clarify the terms and conditions of the assignment, the more likely you are to ensure a smooth assignment for all parties.

• Cost control:  Defines expenses that the company will pay for and conversely what they will not.  An agreement here will mitigate issues rising once the expatriate is on the ground in the host country.  Concerns raised once the assignee is relocated usually result in increased company costs, as negotiating leverage is lost and the company feels compelled to avoid alienating an expensive investment.

• Standardization:  Your international policy should strive to treat expatriates in the same fashion.  Unique circumstances do occur but the basic principles should be followed for every assignee.

So how bad can it be, playing it by ear and leaving terms & conditions to be developed over the duration of an employee’s assignment?  Aren’t flexibility and quick thinking positive management traits?

Yes, but when courting the inherent risks that accompany an undocumented assignment, you should be prepared for:

• Higher and unbudgeted costs.

• Frequent negotiations to improve the expat’s situation.

• Disgruntled assignees and / or affected family members.

• Greater risk of failed assignment.

Short cuts usually limits the financial and emotional protection the employee and their family will rely on, while the company has committed  substantial monies to place them overseas.  That is not a good management practice.

Terms and Conditions

When preparing an international assignment letter, the following  key elements should be included.

• Title, compensation and assignment duration – critical elements of status and reward in the host country.

• Housing and cost of living allowance – should include the amounts involved and frequency of review.

• Benefit coverage (medical, dental, life, vacation, holidays etc.) – how will home country benefit protections be handled in the host country.

• Relocation –coverage for the employee’s home country residence, to include overseas movement of household goods.

• Property management (as applicable) – what will happen to the home country residence?

• Tax preparation – employee obligations in both countries.  Usually a statement of company liability for “additional” taxes.

• Home leave – how often, and under what circumstances?

• Schooling, language, cultural orientation (as applicable).

• Repatriation – a balance is usually struck here between the employee’s strong concern and the company’s natural vagueness for what the future might bring.

The items listed above represent only a portion of the questions that your expatriate candidate will have.   So should your company consider taking a casual approach to sending an employee overseas, unsupported by a signed assignment letter, be aware of the risks involved.

Job Evaluation:  an assessment of job tasks and responsibilities in order to create a top-to-bottom hierarchy reflective of the relative value that the company places upon its jobs.

Throughout my Compensation career I have never enjoyed having to evaluate jobs.  Quite the opposite.  As soon as I progressed high enough in my organization I delegated responsibility to a subordinate and washed my hands of it.  Job evaluation is a thankless task, with the evaluator subject to criticism from all sides.

• If you agree with an evaluation request, you are only admitting to the obvious.

• If you disagree and value the job different (lower), you clearly do not understand the key duties and responsibilities.

• The subjective nature of the process is viewed with suspicion by everyone.

• Job evaluators do not receive Christmas cards.

In spite of my disdain for the process the act of evaluating jobs has been found useful by companies since the 1930′s.

• They need a method to establish a hierarchy of job importance (A is bigger than B, B is bigger than C, etc.).

• They need to explain the relationship of jobs, one to another (A is how much bigger than B?).

• They want to set employee expectations and manage the Reward process (price the jobs).

Job Evaluation does have other purposes as well.  The internal assessment sets career progression steps and assists with organizational development (which jobs are necessary).  It also allows the company to avoid criticism that the competitive labor market (external forces) has dictated which jobs should be paid more or less than others.

Despite these worthy contributions the criticism of the process continues to come from many directions:

• Job descriptions are often poorly written, with content manipulated by managers to gain advantage.

• Pressure is often brought to bear on the Evaluator to increase (almost never the opposite) a rating.

• Evaluation language, forms  and procedures are often complicated and confusing to employees and managers alike.

• Senior management support for the integrity of the process is often limited.

• Employees are skeptical of an inherently subjective process where decisions are made by someone from outside their functional area.

For those who use a job evaluation process (whole job or quantitative), a further step of valuation is to place a price tag on each position – and to do that you need to conduct a study of the competitive marketplace.

Market Pricing

Here is the one process that gets you straight to the core of the matter – placing a monetary value on your jobs.  Some of its advantages as an evaluation process are:

• It is more objective, especially if using multiple survey sources.

• It is easier for management to accept, vs. the judgment of “some analyst in HR.”

• It is easier to defend results to otherwise biased managers.

• The evaluator is subject to less criticism (a personal favorite).

Most companies follow both processes, job evaluation and then market pricing.  Does that two-phased effort add value?  I have my doubts, especially if the prime goal is to establish a salary structure.

Sometimes the competitive market conflicts with your hierarchy.

What if the marketplace indicates a job is worth @$50,000, but as a result of your evaluation process the current midpoint is either much higher or much lower?  Ignoring the market could prove costly, in terms of either dollars or employee disengagement.  But if you follow competitive practice – then what is the point of your internal, job content-based evaluation process?

When faced with a choice most companies would make the change.   Dealing with reality, they would say.  So at the end of the day the true indicator of the value placed on your hierarchy is through market pricing.

Another concern is that, while Job Evaluation can be a long and tedious process it isn’t a sufficient end in itself.  You still have to price the jobs to create an effective salary structure.  The external survey data needs to be “interpreted” by a skilled analyst in order to ensure position matches are appropriate and the subsequent data properly integrated.  We call this “massaging the data.”

Some examples of how market data can be massaged between the survey source(s) and the salary structure:

• When you cluster diverse market data points into a graded salary structure.

• When you are not able to afford competitive rates you may lower the value of each position and create a below market salary structure.

• When you move jobs into certain grades to reflect the organizational realities of your company (the senior analyst must be either one or two grades higher than the core analyst).

• There will also be “favored sons,” positions that must be slotted a certain way in your hierarchy, regardless of market data.

If your goal is to price the internal and external value of your positions you do not need an involved job evaluation process, but you do need market pricing.   I would suggest a market pricing effort first, to establish competitive pay levels, and then if desired for other purposes follow up with some form of whole job evaluation process (keep it simple).  Finally, the evaluator(s) should recommend a degree of massaging to ensure that the final results “make sense,” both from an internal as well as external viewpoint.