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.

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 # 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.

In our last post we introduced you to Step # 2 of the Seven Step Compensation Diet – the need to lay out in your mind the general theme of how you plan to reward your employees.  Without such a governing plan or broad strategy individual manager actions will continue to push your reward costs upward at a rate greater than anticipated or desired.

At the same time, if you don’t know where you’re going (i.e., the Yellow Brick Road), any path will take you there, and odds are you’ll end up right back where you started.  So you had better set up some signposts along the way.

Step # 3: Prepare Compensation Guidelines

By “guidelines” we mean a series of written policies, procedures and how-to instructions that guide your management in dealing with compensation / reward issues.  These compensation policies, programs and procedures should reflect and support the strategies you developed in Step #2 – The Strategy.   Commit them to writing and distribute widely to managers and employees.  Have everyone get the word and don’t let ignorance become an excuse.

This primer should be the policy and procedural instructions your managers will rely on when called on to make spending decisions.  Educating your managers on the tactical application of your company’s pay programs is a critical step; one that will help modify actions and decisions in a way that will support and encourage the enduring change your organization needs.

As you would anticipate, left to their own devises Managers tend to fill an information vacuum (no guidelines) with precedent-setting decisions that will increase costs, foster inequitable treatment and over time alienate segments of the population.  Guidelines (or rules, if you’re strict) serve to rein in these ineffectual leaders by establishing parameters to their freedom of action and limits to their authority.

While aberrant behavior by rogue managers will cost you in terms of money, morale, and productivity,  giving managers policies and procedures to operate by will save you money, as well as time and trouble.

A suggested Table of Contents might look like this:

• Compensation philosophy (Role of compensation function, pay for performance, compensation strategy [as available])
• Brief description for each of your direct and indirect pay programs
• Step-by-step instructions to process every type of pay change
• Approval process for every type of pay change
• Hiring, promotion and pay adjustment procedures
• Administrative issues (pay dates, overtime, new positions, job evaluation, etc.)

You should create a greater visibility for the inevitable exceptions-to-the-rule by establishing a one-up approval process.  Such a technique will highlight remarkable performance through transparency of reward.  If you include templates and sample forms you can help ensure consistency of message while assisting managers to administer the reward programs.

When you shine a little light into those darkened, special interest corners the employees will notice – and applaud.

Having a rulebook-of-sorts will also help provide standards and structure to your reward programs, which in turn will foster greater employee engagement.  As you begin to improve how reward programs are designed, implemented and now communicated you will inevitably:

• Reduce your overall labor costs
• Increase effectiveness of money spent
• Increase ROI of reward dollars
• Improve morale, engagement and productivity

Final note: Make sure that all managers receive a copy of the compensation guidelines, and then periodically update and use them.  Refer to them constantly and let employees see that they are to be followed.

Let no dust gather on these pages.

When an employee is promoted to their first manager’s position, they are given the proverbial Keys to the Kingdom – your company.  They now have the authority to spend your company’s money.  From hiring, to promotions, to salary reviews and equity adjustments they are now able to make the decisions that directly impact (increase) your labor costs.

However, most of these managers turn out to be, at best, well intentioned amateurs at the process of making pay decisions that are appropriate for the needs of the business.   Fresh from being anointed they often lack the basic internal education necessary to make business vs. emotional decisions – and their actions commit you and the company to costs that may not be in your company’s best interests.

Actions taken by these managers not only increase direct costs, but often irritate other staff members as the circumstances become known, creating morale and internal equity problems at the same time.  The net result is usually a corresponding lack of engagement and ultimately separations by disenchanted employees.

Note:  Most employees leave managers, not companies.  Thus actions do have consequences.  Likely this is not what you envisioned when you made that promotional decision.

Now, how did (fill in the name of your company here) get themselves into this mess?

First of all, no one *really* trains managers on how to properly attract and reward employees via base salaries and incentive pay.

A few anecdotal examples:

• Just because some bloke is a good “XYZ Operator” does not mean they will be an equally good “XYZ Manager”.  The skill sets for success are dramatically different.
• How many managers understand your company’s philosophy about pay?  Do you?  How many understand the workings (the what and the why) of the company’s pay practices and methodology?  These are the folks responsible for spending 40% to 60% of your revenue in the form of employee pay, and even the most well-intentioned is prone to make mistakes.
• Managers want to be liked; they do not wish to pick favorites, do not want to discriminate on the basis of performance and definitely do not want to have their decisions challenged.  They would rather point a finger at HR and assign the blame to them for having to assess performance and distinguish one employee from the other.  Left to their own devices they would give everyone as much as they can.

If you were a high performing employee, would you like to work for this sort of Manager?  If you were coasting at work, barely putting your time in, would you want to work for this sort of Manager?  Which sort of employee do you think will eventually tire of being undervalued, and quit?   Leaving the Manager with a staff of . . . .  You get the picture.

Ineffective managers are always afraid that an unhappy employee will decide to quit, but that is usually a selfish thought.   Their prime concern is more often what your departure would mean to their deliverables, to their reputation as a manager.  Your departure is typically viewed as an inconvenience to them, not an avoidable loss for the company.  A reflection of this is when managers resist a transfer that is clearly in the employee’s career interests.  The manager’s concern is how that transfer affects their department – and whether their personal success becomes that much more difficult to attain.

Ineffective Managers can be a defensive lot, challenging attempts at reform.  Why?  Because of their fear that spotlighting reform action will demonstrate their ineffectiveness (make them look bad), and that is unacceptable.  Typically their advantage within the company is that the more ineffective the manager, the stronger their political connections.   And as senior management oftentimes surround themselves with those most agreeable to their own way of thinking, it’s not surprising.

Assuming the company’s willingness to make key decisions and the presence of the all-important support from senior management, companies can correct the problems that they’ve created.  They can:

• Select candidates for management positions on the basis of their skills / potential for actual management (dealing with people, managing projects, business-oriented, professional demeanor, etc.)
• Educate Managers in the philosophy and methodology of the company’s pay programs, ensuring that this information is shared with their staff
• Construct job specifications that call for a Manager to manage, as a prime accountability, limiting or even eliminating the retention of individual contributor responsibilities.
• Measure and reward the performance of the Managers  primarily on the basis of how they have actually managed their employees, or on the performance of their unit
• Encourage Managers to develop the potential of their employees, to the point that a staff member being promoted / transferred upward is a mark of success for the Manager
• Ensure that procedural checks and balances are in place to ensure that pay decisions are reviewed by at least one higher level
• Hold Managers to an annual salary budget; let them develop the budget and monitor / adhere to it during the year

Consider the above as a checklist that can be used to test your company’s vulnerability to wasted money, employee morale problems / turnover and avoidable cost increases.

Would you be comfortable with how your own company would score?

My advice to clients is to face these issues straight on, to implement policies & procedures that save money without penalizing high performers or mistreating their employee base.  But the challenge will always remain, as there is an inherent reluctance on the part of many managers to make the tough decisions, because we do want to be liked, we do like to give good news, and we do not like to play judge and jury with an employee’s career.

But that behavior is not managing is it?