Do you remember this line from the movie “A Few Good Men?”   Jack Nicholson’s character was telling Tom Cruise’s character that average folk couldn’t deal with the harsher facts of life.  As a result higher ups would tell them what they wanted to hear.  They would offer excuses, verbal hedges that sidestepped reality and offered the illusion of comfort.

Today we remain stuck in the mire of a severe economic malaise, a situation that is causing enormous employment anxiety, deep concern for the future and perhaps more than a few sleepless nights.  As organizations ponder the question of whether employees can handle the true state of affairs (health and future prospects) they can choose to deal from either the top or the bottom of the deck with their internal communications.

The troubling issues raised could be pending layoffs, reduced or frozen pay increases, hiring freezes, reorganizations or other such “bad news.”

Management messaging can either be straightforward regarding current events – addressing the cause of problems and how economic circumstances would likely affect employees – or they could toss out a series of artful communication hedges (i.e. excuses).  In other words, employees could be fed “corporate-speak.”

Corporate Speak

By this I mean a headquarters-generated sleight-of-hand communications effort, typically prepared by smooth-tongued professional writers instead of subject matter experts.  The prose, approved by corporate legal to insure that no liability is stated or implied, minimizes the negative and accentuates the positive.  The intent is to say little of substance, while at the same time making a self-congratulatory production of their communication efforts.

Content in these communications is usually a combination of feel-good phraseology intended to instill a sense of confidence.   The target of the communications is expected to walk away feeling that, whatever the problem, management is a) doing the best they can, b) not at fault, c) continues to have the interests of the employees firmly in mind, and d) will be providing more details soon.

When these officious corporate pronouncements inevitably provide little in the way of satisfactory answers, most employees turn to their direct managers in an effort to obtain straight information.  However, when the going gets rough (challenging, complex, contentious), many managers will waffle, dribble their thoughts, obfuscate and start to make their own excuses.  They may even point a finger in the direction of Human Resources.  Poorly prepared managers have difficulty facing issues important to employees without trying to pass the buck.  Employees want to know the why, the what next and what about me?, but managers are rarely equipped to offer an effective response.

So when the straight story is not forthcoming, employees will tend to read between the lines and form their own perceptions of the company message, and that perception is less reliable than the grapevine for spreading accurate information.  It is also more skeptical.

What employees “hear” can usually be generalized by the following attitudes:

• “Where are they going to go?”: Employees are trapped in their jobs and have little choice but to remain, because other jobs will be hard to find.  Management has implied, “We don’t need to do anything for them.”

• “Everyone else is cutting back, so we have to as well”: This trite phrase only gets dragged out when the circumstances being described save the company money.  Has the “everyone else” phrase ever been used to support giving something to employees?

• “In anticipation of difficult economic times ahead we are forced to / reluctantly / have no choice but . . . “: This is a pre-emptive strike while the sun is still shining.  It’s a particularly onerous practice if rewards for past performance are cut, and is often viewed by those on the receiving end as a breach of trust.

• “We employ average workers, so they should be satisfied . . .”: Perhaps an after-the-fact rationalization, but sometimes your senior leadership feels that most employees can easily be replaced, like a commodity.

Not surprising, the reaction to such doomsday communication efforts is always negative, planting seeds in your workforce for a bitter harvest of lowered morale and increasing disengagement.

• The ineffective message lacks credibility with an increasingly skeptical audience, as does the messenger and the organization behind it

• As insincerity is recognized employee listening (and attention) stops – like shutting off the TV – so the communication effort is wasted

• Engagement and performance levels drop as trust, confidence and loyalty erode and employees start to ask themselves, “why bother?”

• The supposition gains traction that the company is lying, holding back or not telling the whole story.  It is hard to see the glass as half-full when attitudes have soured.

On the other hand, when the message is honest, straightforward and without guile the opposite reaction tends to occur:

• Organizational credibility is strengthened

• Company loyalty is fostered

• Engagement levels and management support are strengthened

The implication is clear:  employees can handle the truth, should rightly expect it from their employer, and will not take kindly to bland corporate-speak.   So don’t get caught making excuses; it didn’t work when you tried it with your mother, and it won’t work with your employees either.

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.

One of the most debated issues among Human Resource professionals for the past several years has been the back and forth arguments regarding effective performance appraisal processes.  Everyone seems to have their oar in the water, anxious to join the debate about what works and what doesn’t.

What companies should do, and what they shouldn’t.

In one corner you have the performance management crowd who want to divorce pay increases from the performance appraisal process.  Two separate discussions.  They prefer to focus attention on performance improvements and career counseling – issues that tend to have a longer term focus. Looking forward, not backward.  The subject of pay determination (the increase) would come later, during some vaguely defined subsequent conversation.

In another corner you have the so-called traditional practitioners, those who tie rewards directly to the work effort and in doing so tend to combine performance, reward determination and career counseling steps into a single conversation.  Performance improvements and the where-are-we-going? discussion are the epilogue here, not the main topic.

And finally you have the employee perspective, those who have delivered the performance and await management’s assessment and reward determination.  They want to see, and expect to see a direct connection between their efforts (performance) and a subsequent connecting reward (pay increase).

What’s wrong with performance appraisal?

Part of the reason for such active and long lasting debate between often opposing viewpoints is that performance appraisal systems are flawed; we all recognize that they are the object of numerous well-deserved criticisms.

• Managers do a poor job of it.  Whether it’s lack of training, lack of interest or simply an attitude of “I’ve got more important issues to deal with,” the result is often rushed, inadequately thought out and . . . short.

• Should pay increases be tied / linked with performance?  Appraisal conversations run the gamut from emphasizing the past review cycle’s performance to “looking forward for a more productive tomorrow.”  The cause-and-effect pay increase may or may not even be discussed.

• Favored son (or daughter) treatment.  The “I like you” or opposite syndrome, regardless of performance.  Fair treatment can be a casualty if appraisals are too subjective.  Refer again to the training issue.

• Job responsibilities not clarified. When the manager expects performance “A” and the employee thinks “B” is called for, and the outdated description shows a muddled “C” – what follows is going to be an awkward conversation.

• Forms gone wild.  Human Resources and systems people always tinkering with forms, creating ever longer, more complicated processes.  The usual result is a manager’s passive resistance and poorly handled assessments.

• Process evolution.  A good idea evolved into something bad, something feared, something to be avoided.  Other than the potential for a pay increase, almost nobody looks forward to these discussions.

• The focal date review.  “Let’s do these things all at once.”  Procedures that mass produce performance appraisal forms and meetings usually result in a loss of quality – and credibility for the process.  Pity the manager who has ten of these to work on at the same time.

What’s good about performance appraisal?

The process of performance appraisal has been around since the first manager – subordinate conversation, and that learning curve of experience has brought about a number of solid advantages:

• How else are you going to tell an employee how they’re doing?

• If your compensation strategy is to have a pay-for-performance program, you’ll need performance appraisal to assess the employee’s contribution, and to somehow assign a corresponding reward – to pay . . for. . performance.

• Employees expect a connection between performance and pay.  That’s what they’re listening for during the performance discussion.

• It makes sense to periodically review performance, to eliminate the need for employees to stress over when to ask for a raise.

During any performance appraisal discussion the employee’s first question (asked or simply thought) is always going to be, “how much is my raise?”  If you’re not prepared to discuss that, even mentioning your “recommendation,” you’re in trouble.  Because employees tend to pay closer attention to career counseling and next performance steps after the raise for past performance has been resolved.

When an employee expects a performance appraisal discussion to include a reference (at least) to a likely pay raise, and you don’t cover that topic, the meeting will go rapidly downhill from there.

• They won’t be hearing your thoughts for the future, as they’ve stopped listening.  You’re not talking about what they want to hear.

• Frustration and lost engagement are going to seep into body language, tone and perhaps even conversation, with the recognition that pay-for-performance is somehow not viewed as a primary concern by management (by you).

• To make the assessment process work employees need to be engaged in the  conversation.  Otherwise what you’re left with is delivering a lecture, a boring monologue to a half-interested party who only hears bla-bla-bla.

What do I think?

I like to connect rewards with performance, because performance rewarded is performance repeated.

I like to acknowledge the elephant in the room, that employees want and expect that their performance appraisal meeting would cover reward determination as a key component, even if senior management approval remains pending.

I don’t like to artificially separate performance from reward, as if somehow the two aren’t connected.  The employee considers it a solid, direct line connection.

Go ahead and disagree, if you like.  There are many valid points of view on the subject, and no single answer works every time, for every organization.

But now you have my two cents.

Nice guys finish last.  We’ve all heard that phrase before, right?  Which probably means that there’s something to it.

Now why is that?

Because . . . we’ve seen it happen, haven’t we? – again and again.

In the business world all too often the steady and reliable performers, those who follow the rules, who stay on the right side of ethical dilemmas and controversy, the “nice guys” that every manager would like to have on their team – they can come up short when recognition and rewards are being passed about.  They may not fall into last place as the adage goes, but they often don’t gain the credit, the respect and recognition, the rewards to the extent that the “bad boys” do.

Bad boys?  You know them.  Those who at first glance deliver results; however, there always seems to be a “but” or an asterisk accompanying their success.  Annoying little caveats that tend to be pushed aside.

You’ve seen this scene play out time and time again – where these “Golden Ones”, “Favored Sons” or “Teflon Jacks” are recognized, even admired by senior leadership, even though their pedestal may be built on a shifting pile of sand.

Life isn’t fair, the pundits say – but come on!  Are they blind out there?  How many times have you seen the following script play out?

• Personal behavior is ignored and only results are recognized.  This could be arrogance, or unprofessionalism, or even worse.  Employees in this category think of themselves first and foremost, president-for-life of their own fan club.  They are not team players.

• Management beats the drum of “results, not effort” so hard that soon few seem to care how results were achieved.  Just make the sale – or else tomorrow you’ll be history.

• Quantifiable metrics (add up the numbers) outweigh an individual’s style, leadership, ethics, and professionalism.  The focus is more on quarterly results than building for long term success.

• Those who are “connected” (who you know, not what you know) don’t receive the same scrutiny of their efforts that the rest of us do

Do employees see you turn a blind eye to how results were achieved?  They do notice, you know.

Does your management really care if an employee leaves bodies strewn across the corridor on the way to their own personal success?  What does that say about the priorities of the organization, and how they value people?  Does that culture become visible outside the company?  Does that environment become an impediment to attracting the right caliber of people?

Yes, it does – on all counts.  And over time the organization will slowly evolve in a manner that is ultimately harmful to the business.

• External recruiters may change their mind about recommending the organization to otherwise qualified candidates.  When the whispers on the street begin, recruiters take notice.

• As your bread-and-butter contributors see how the organization’s performance-blindness hampers their own career progress, engagement and productivity start to slacken.

• A natural corollary to lower engagement is higher turnover.  The first to go would be those with the most options, those whose performance record would be appreciated elsewhere.

All this is avoidable, of course.  But it takes a certain amount of courage to challenge one of the favored sons.  Especially if your plan is to instead recognize one of the less flashy, steady-eddies you may have in abundance.

So take off the blindfolds and recognize those who are day in and day out helping to move the company forward.  They are the team players.  They are the ones who say “we”.  Your employees know who these winners are.  It would help your organization if you do too.

Most compensation professionals seem to agree; the concept of pay for performance is a good thing.  Providing rewards on the basis of individual employee effort and achievement makes sense.  However, critics do have a point when they describe how it is that many companies have tried – often with dubious results – to effectively link the granting of financial rewards with their performance assessment process.

That’s when the bright and shiny concept becomes a bit bruised and tarnished in practice.  It’s not easy to connect two inherently subjective processes – performance assessment and the individual reward decision – into an equitable pay for performance system.

When assessing their employees, managers hampered by limited performance appraisal training and experience will find themselves challenged to deal with conflicting dynamics:

• A recognition that they should provide high performing employees with larger than average increases

• A desire to grant “fair” increases for everyone who “did a good job” during the performance period

What’s the problem?  The rewarded employees typically comprise over 95% of the population.  If the minimum increase granted is a “fair” or “average” amount (everyone expects at least that much), then in order to effectively provide the higher achievers with a suitable reward you will have to find more money.  But all you have left are the monies held back from the scant number of non-achievers that you’ve identified.  You are giving them zero increases, right?

Do the math.  You won’t have enough money.  When given a finite amount of reward funds you won’t have the latitude of writing checks for beyond that.  And you can’t call Human Resources to say that you need more money – because extra funds won’t be available.

So you have to stand up and make a call about employee performance and reward – because there will be no reinforcements coming to the rescue with money bags to save your promises.

Whoever said that doing the right thing was going to be the easy way?

But this “everyone has to win” attitude is pervasive in some organizations.  And add to that the fact that most managers want to be liked, so they want to give their employees money – as many as they can and as much as they can.  Perhaps for reasons that upper management wouldn’t agree with.  Perhaps for reasons not directly related to performance.

Most managers will readily agree that better performing employees should receive more in the way of individual rewards.  But how should those leaders balance their conflicting needs?  Below is a short quiz, posing questions to illustrate the variety of possible decision-making scenarios – both good and . . . not so good.

• First of all, do they accurately and objectively assess performance?

• Do they recognize higher levels of achievement by providing higher reward amounts?

• Do they penalize with lower or zero increases those who haven’t performed well?

• Or does everyone not under threat of termination receive a raise?

• Do they grant average increases for average performance, in spite of budget limitations?

• Do they blame management that there isn’t enough money for what they want to do?

In effect, do managers take from Peter (lower performers) in order to pay for Paul (higher performers)?

Now some will say, what’s the risk?  What’s the big deal during times of reduced merit budgets?  I would suggest that you consider the impact that your decisions are likely to have on key employee groups.

• High performing employees have employment options outside the company, even during hard times.  Treat them poorly at your peril.  You likely won’t want these folks to quit, because of the direct financial impact that might have on the business.

• Average performers have less options for leaving, and your business can afford their departure.  Hard talk?  Yes, for sure, but when you have limited reward dollars you’d better make the best of it.   Average is more easily replaced than above average.

• Below average performers: you don’t want these folks to stay, do you?  Don’t make it easy by becoming a soft touch.

At the end of the day the question for managers is, are you going to manage the human resources of the company, or will you decide to go through the motions?  Will you make a stand or pass the buck?

Make the performance and reward decision and stand with it.  And don’t throw out a lame excuse like “I’d like to give you more money, but HR won’t let me.”

That’s not management; it’s administration.

Here they come, those who question the pay-for-performance credentials of the current executive pay process?  Every spring, like daffodils popping through the warming ground investigative articles appear and challenge the validity of how the executive suite is rewarded.  Critical commentaries by notable Compensation experts, as well as a financial analyst here and there, will question whether job performance has warranted the amount of financial rewards reported in proxy statements.

What follows is usually a series of back-and-forth speeches and written pieces both criticizing and defending the logic of the executive reward process.  However, those who press their divergent viewpoints seem unable to reach consensus on an equitable process, and so next year the cycle of reward and debate repeats itself.  Such has been the case for years.

In my mind though, it is the proverbial “man in the street” or “court of public opinion” that truly matters.  And if you take that point, that it is the general public who needs to be convinced that our corporate leadership isn’t gorging themselves on financial largesse like hogs at a feed trough – then the multiple explanations that appear each season touting the rightness of executive pay fall disappointingly flat.

Unfortunately it is not the negative impressions of the general population that is being addressed by these pundits, but instead you find that a complex argument is often presented in support of those who are being challenged, the executive leadership themselves.  This is a circle-the-wagons strategy crafted by status quo enablers to refute challenges to the current executive reward process by providing a technical defense that would not be understood by that same general population.

I recall a former CEO once telling me, it’s a matter of optics; the present system of determining executive suite reward looks bad to the general public.  No amount of explanatory formulae or charts and graphs is going to change that impression; the more complex the defense the more skepticism that will be generated.

Another senior executive cautioned me that if I couldn’t sell my proposal on a single sheet of paper, including a lot of white space, then my arguments wouldn’t convince him.  In other words, keep it simple, keep it clear and keep it brief.

All too often the defense of executive pay is presented as a series of formulaic methodologies to be utilized by corporate leadership (with the support of consultant intervention) to refute their critics.  However, even as these diverse calculations try to make their point the wider audience will remain confused, skeptical and unconvinced, so how has the argument been advanced?   The reward system will still look bad.

I support the idea of measuring performance to gauge the amount of reward.  Who can argue with that?  But the process being described by those touting the current approach is flawed by its complexity, by its confusing array of acronyms and ultimately by its inability to explain itself in laymen’s terms.

Apologists for executive pay often fail to discuss / explain a key element of pay that looms large for the rest of us – determinants of “how high is up” or how much is “enough” reward.  Given that for similar performance non-executives typically receive considerably less reward, it is disappointing that this disconnect in thinking is so often ignored.  A large portion of the looks bad environment is the amount of the reward.  Should those on “mahogany row” have parameters for their rewards, even maximums or caps like the rest of the population?  That sounds fair, doesn’t it?

The problem connecting a pay-for-performance concept with examples of executive pay excesses is an optical one – it looks bad!  Attempts to rationalize the practice with complex terms, charts and theorem won’t convince anyone outside of the board room.  The way to change that negative impression is to challenge the convoluted methods that executives use to rationalize their reward structures.  The general population (not the financial analysts, proxy readers or even compensation specialists) wants to see a direct cause and effect (simple, clear and brief; performance equals reward), as that is how they are rewarded in their own lives.

Why make rocket science out of a basic concept?

It hasn’t been that many years ago that the term “business casual” was coined.  To many business leaders though, the phrase meant no more than wearing a red tie, and perhaps only once a week.

Well, that was then.  Today, attitudes and customs are quite different, and typically much less conservative.  For example, it is not uncommon in some circles for male employees to forgo the use of socks within an office environment.  I know, because recently I visited such an office and saw for myself.

But is this clothing revolution a global phenomenon, where everyone is doing it, or are there minefields of differing customs out there, waiting to trip up the unwary business traveler?

According to a new global survey (Ispos / Reuters), clothes still do make the man – or woman.  Depending on where an employee lives, putting a best foot forward – at least at work – is still key to upward mobility and career success.

Or sometimes not.

As you might expect though, customs of acceptance have evolved – though not in a uniform fashion.  Researchers have found that attitudes about the use of proper attire in the workplace differ from country to country, which leads to some interesting and diverse attitudes about perceived workplace “slackers” and “achievers.”

Have you ever arrived at a meeting dressed for the Boardroom, only to discover everyone else wearing collared shirts and slacks?  Awkward, isn’t it?  A scenario you would wish to avoid.

Europeans have been found to have the most casual attitude when it comes to work clothes.  Only 27 percent of Europeans reported that they wore traditional business clothes to work (jackets and ties for men, dress suits for women).  People in Hungary might be the most casually dressed workers in the world.  Only 12 percent of Hungarians reported that they wore “business clothes” to work, while 46 percent said they thought clean and pressed shorts were appropriate office attire.  On the other hand, workers in India might be the best dressed, with nearly 60 percent of survey respondents reporting that they wore business clothes to work.

Many workers worldwide no longer equate dressing well for work with what they consider success.  Approximately 40 percent reported that they wore casual business clothes to work.  However the same percentage of respondents said that people who wore such casual attire in the office would probably not be hired or promoted into senior management positions.  Additionally, 66 percent of respondents believed that senior managers should always appear better dressed than their employees.

For many then, conservative dress is never out of style.  In some circles (usually non high tech) casual dress may even give the “perception” of a lack of professionalism.

Workers in India held the harshest views for people who wear casual clothes to work.  Nearly 60 percent of Indians described casual business dressers as “slackers”, and 64 percent said that such casual dressers would never reach senior management positions.

For a contrary viewpoint, in Central Florida business casual is often the proper attire, across the organizational hierarchy.  In fact, wearing a tie would cause co-workers to stop and stare.

When it comes to bosses wearing casual clothes in the office, Swedes appear to have the most lenient attitudes.  Only 27 percent of Swedish respondents reported that they believe that wearing casual clothes on a regular basis would hinder workers from attaining high-level jobs.

Generally speaking though, the higher up you are in the company’s structure, the greater the reluctance to “dress down.”  One Business Unit Head acquaintance in Europe suffered through so many shocked looks when he once wore jeans to work, that he never repeated the experience.

So what’s the takeaway from the survey data for the business traveler?  When in doubt, ask ahead.  Don’t assume.  Getting the lay of the land in advance is always smart thinking.  As a rule of thumb though, remember that you can always dress down by taking off the tie or power jacket, but the opposite won’t work nearly as well.

How many success stories start with the phrase, “I took the easy road”?

Most companies with global operations tend to pay their internationally-based top level executives in accordance with some form of global compensation structure – in order to level the playing field for those with multiple country responsibilities.

However, for the rest of their international population it’s not as straightforward.

The Challenge

Companies with local national employees face a challenge and a risk when it comes to their decision as to how to reward (pay) in each of their operating countries.    Do they “do as the Romans do” and follow local practice, or do they seek to create a standardized global framework in an effort to standardize pay practices?

For those developing strategies to effectively pay employees across the globe, the headache is in dealing with a diverse collection of economies, cultures and competitive pressures – some of which may be moving in different directions.  However, the strategy of recognizing country-specific differences in pay methodology often comes up hard against the interests of corporate staff administrators, those who traditionally look for the easy way, the simple way, the one-size-fits all way of dealing with far-flung employee groups.  For many international compensation practitioners it is actually the administrators whom you have to overcome.

The headquarters staff will ask, what difference does it make?  Unless otherwise required by legislative action or representation, why can’t we be fair to all our employees in the same way?  The metrics below illustrate what they would wish to standardize:

• Value (price) jobs irrespective of locale
• The pay mix of base salary and incentives
• Universal date pay increases
• Average pay increase percentages
• Pay-for-performance vs. general adjustment increases

Why Not?

Why doesn’t one size fit all?  Why can’t you treat all employees in the same fashion – because they all belong to the same company, right?  Consider the following before using that cookie cutter.

• Economy:  When you’re dealing with country-specific inflation rates that range from flat to 20%+, do you really want to offer the same percentage salary increase?  What if one country is in the grip of recession (US), while another remains relatively unscathed (Australia)?

• Culture: in some areas of the world job and income security needs command paramount interest over pay-at-risk, so in the pay mix the base salary dominates the variable portion.  For example, while China has a very aggressive sales compensation environment, in India there is more interest in base salary and their CTC (cost-to-company) package than variable compensation.

• Competition: companies react to the cost of labor vs. the cost of living.  If the market they are in rewards in a certain fashion (pay mix, commission vs. bonus, quarterly vs. annual rewards, etc.), companies who provide a different approach risk lower employee engagement as well as a talent drain.

• Representation: National unions often dictate pay actions that could reverberate up the hierarchy as companies strive to maintain equitable treatment with their other employees.  Works Councils will have their impact as well.

On the other hand, varying your practices according to country-specific conditions could cause a degree of consternation with the back office staff and their computerized systems.  These are folks who like things neat and pretty.  In their defense though, senior management often asks for standardized metrics that may be difficult develop and compare:

• Tabulating global statistics when definitions or methods vary

• Identifying global trends based on diverse conditions

• Balancing the impact of cross border movement

If you force international operating units to convert their practices to an common format and methodology, the result could be more than just confusion and local administrative difficulties.  It could also mean the greater likelihood of over payments in some quarters while paying less in others – all for the sake of sameness and common report generation. This would offer up a combination of hurting employees while also hurting the business.

Remember that ease of administration is rarely an effective rationale for making good business decisions.

An employer’s payroll cost represents anywhere from 40% to 60% of their revenue.  In most cases it’s their single largest expense.  But when you ask someone in leadership how well that money is being managed, an all-too-typical response is a blank stare.  They really don’t know.

They may not even recognize the value of leadership vs. administration when it comes to overseeing the effectiveness of their reward programs – of getting an ROI for those dollars spent.   That value is a matter of someone either making a difference to the organization’s bottom line or simply holding the fort – keeping a finger in the dike.

Without that value recognition, is it any surprise that many companies have placed administrators in charge of their pay programs, managers who don’t rock the boat, keep the processes and paperwork moving along smoothly and who don’t look up from their desk to glance around and ask, why?  Is there a better way, a more effective way?

How would you describe the behavior that characterizes the leadership of your own company’s pay programs?   Are they managing the growth and direction of your compensation costs, or are they just managing administrative routines, paper pushing, in effect practicing a version of “compensation-lite” as your money trickles out the door?

What is Compensation-Lite?

In today’s lexicon the term “lite” usually applies to something that is only a portion of the whole, a watered down version of a fully functioning product or service.  In this case it may represent a failure of management to apply themselves in effectively utilizing reward dollars to positively affect the business and the employees.

How do you know if this tag belongs to you?  How many of these reward practices are used by your organization?

• All competitive market data is viewed the same, regardless of the source – and the cheaper the price the better
• Recommendations for annual merit spend budgets are based on the figures that surveys suggest is common practice – what everyone else is doing.
• Annual salary range midpoint adjustments are based on how surveys suggest other companies will move.
• Perceived effectiveness is based more on whether current problems exist (turnover, morale, burgeoning costs, recruiting difficulties, etc.) than using measurements to gauge developing trends.
• Management actions are reactive vs. proactive in the face of changing business dynamics.  The organization will stay the course until a problem develops.

If your tendency is to follow a similar conservative, half-hearted path as shown by the examples above, then you’re practicing Compensation-Lite, whether you planned to or not.

So What’s Wrong with That?

The administration of standardized policies and procedures is not a bad thing.  In fact, routine processes are critical to providing employees with equitable treatment, as well as with a uniformity of decision-making.  But if this is the extent of your management of reward programs,  opportunities are being missed that could maximize the value of dollars spent, that could improve the ROI from your largest expense item.  The potential liabilities:

• Passive administrators are more often surprised and unprepared for the unplanned.  They do not anticipate, but carry on until a problem develops

• Costs tend to rise when programs are left on auto-pilot.  Reward programs are not self-policing, and if no one is in charge . . . .

• Effective compensation programs require a strategy and hands-on implementation and communication.  Having neither creates an environment of inconsistency and inequity.

• This is work – it is paying attention, being involved in the business, knowing your employees – as compared with “shut off the lights and wake me when it’s time to retire”

But let’s not be too critical.  Sometimes the organization provides little opportunity for compensation practitioners to steer the ship, never mind change course.  Management bias is a reality that we all face, and sometimes it takes the shape of “if it ain’t broke, don’t fix it” or simply a passive resistance to new thinking.  Regardless of the significant expense associated with reward programs, there are those in senior leadership who will dismiss cost concerns with “it’s in the budget” or “we have the money” or similar phrases that may fly in the face of good economic sense.

When faced with such roadblocks a compensation practitioner will have to gauge whether senior management can be educated, even over time, or whether should they give up and go with the flow – ultimately becoming part of the problem.  Or perhaps they should start looking elsewhere for the sake of their career.

Leadership isn’t standing in front of a freight train when senior management bias kicks in, but being able to offer professional advice that is good for the business and the employees.  It’s being flexible enough to pick your battles, while keeping an eye on the direction the organization needs to follow.

So now you know.  Are you satisfied with the way employee costs are being managed?  Is your senior management satisfied with the way their single largest expense is being watched over?

Is it time to provide leadership?

Everywhere you look these days companies are striving to find ways of doing more with less;  jobs are eliminated and the survivors have to work harder, employee reward budgets are trimmed to the bone or frozen, and the concept of pay-for-performance itself is coming under challenge.  Across the country you can hear the constant litany of cut, cut, cut.

Employee morale has plunged off a cliff.

However there is one reward strategy you can employ that doesn’t involve following the popular drumbeat of negative messages and takeaways.   Already other functional departments (i.e., Marketing, Engineering, Advertising) have taken a different tact from that “me too” philosophy.   Instead, creative minds set themselves apart, pushing brand identification to carve out market niches away from the beaten path.  Perhaps Human Resources could take a page from that playbook and view employee rewards in a more forward thinking fashion.

HR can stand out from the crowd.

Why not create a pay philosophy of greater rewards coupled with greater expectations?

Companies fear wasting money on those who don’t perform, so they often limit the opportunities provided by their reward programs.  They can’t afford a reward strategy that balloons payroll without an adequate ROI.  To take a different road they could increase the amount paid to key employees while restricting those who don’t perform.  That would place the high achievers in your organization at a fair or even generous pay level, but the winners here would be only those who deliver an ROI back to the company.  You can afford to reward high performers, can’t you?

Employees who produce results are worth the money.  If you’re fearful of overpaying those who aren’t performing, you hold the solution in your hands / policy manual.  All it takes is the discipline to hold employees accountable and to take action against those who aren’t performing, who aren’t worth the money you’re paying them.

Do you know what percentage of your workforce is rated at an average or lower level of performance?  50%? 60%?   If you still grant every employee an annual increase, you won’t be able to differentiate and properly recognize your key performers.  You won’t have enough money.  In that case the reward bar will be lowered to cover the most common performance level.   Instead, why not raise the performance bar and get rid of those who can’t keep up?

If a manager has $10,000 for annual increases and tries to balance rewarding both high and average performers, the increases granted won’t be enough to recognize key players.   Why?  The merit spend is calculated on average performance, but high performers need much greater increases to feel recognized and appreciated.  However, a request to grant more than $10,000 will be denied, so what do most managers do?  They trim the increases of their best performers, in an effort to spread rewards as broadly as possible and keep everyone happy.

Does that work?

Of course not.   High performers will be discouraged and may rethink their future efforts as well as their commitment to your company, but your “joe average” will be pleased.  As behavior rewarded is behavior repeated, by this make-everyone-happy tactic you will have encouraged more average performance and less high performance.  Does that sound like your reward strategy?

Okay, but if this concept is such common sense, why is the practice of holding employees accountable so seldom used?

The Management Fear Factor

• Fear that employees are somehow “owed” annual salary increases.  We have to give them something.
• Fear of not knowing how to conduct effective performance appraisals.  Do they really measure performance?
• Fear of alienating  the majority of  average employees (see bullet #1)
• Fear of exercising  the discipline necessary  to manage employees (they want to be liked)

With a process designed to monitor and weed out the lower performers, and at the same time pay the higher performers well,  over time you would retain more of those you want and rid yourself of those you don’t.  The employee performance bar would rise, fostering a dynamic work environment that will feed business performance.

You can afford to do this.  Consider the impact of increased performance levels on your bottom line.  Isn’t it worth the initial outlay of money to make that happen?

Caution:  the bean counters (Finance) are perennially afraid of spending a dollar to save two – or in this case, spending a dollar to earn three.  They believe that the dollar cost is real, while the suggested gains are “soft”; promises that can’t be guaranteed.

There is no easy way around this phobia short of direct intervention from the top.  Lacking Senior management support compensation entrepreneurs will face a wave of passive resistance, if not outright defiance by managers tying to “help” the average employee.

Providing high performing employees with greater rewards can create a win-win scenario, a greater attraction for talented outsiders, an improved  team atmosphere focused on pushing the company forward – and less inequities to drag and drain the goodwill you’ve established.

Try it.  Spend a dollar and earn three.  It’ll be worth the effort.