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.”

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.

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

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.

Once your company decides to send an employee overseas on expatriate assignment the danger of imminent waste looms large.  The problem usually begins with management not understanding or even choosing to ignore the real costs of the international assignment.  The looming money pit is then deepened by having only a weak business reason to support the assignment.   If you lack a compelling business justification for why an employee is needed overseas, it’s likely that you won’t be able to measure whether their assignment will be a success or not.

Below are some of the major reasons for the cost spiral of money slipping out of your hands; however, this is by no mean an all-inclusive list.  I have no doubt that you can provide your own reasons as well.

• Don’t worry about the ROI

For some companies it’s easier for a manager to have an international assignment given a green light than it is to have a piece of hardware or software approved for purchase.   Where is the business case?   Where is the justification via projected financial return that management should be held accountable for?  Is anyone being held accountable that an ROI is achieved?

You should think twice before agreeing to pay out 2-3 times annual salary (per year) to provide for an expatriate assignment.  “It’s in the budget” is never a good business reason.

• Tell the employee that they are the only one who can do the job

Once an employee realizes that they are the only, or preferred choice for the assignment, you lose all negotiating leverage.   I recall one fellow who insisted that he and his family live in Inner London (meaning: uber expensive) – though the office was 35 mi. north – or else he wouldn’t take the assignment.   Don’t expect someone holding leverage to be reasonable and accommodating when discussing the terms & conditions of what you are willing pay for.

Strive to develop a stable of qualified candidates.   It would also help if you remember that the ability to perform the job should not be the only criteria for selection.  A bad cultural “fit” would be a painful and expensive experience for everyone.

Note: an employee who displays an attitude of doing you a favor, versus appreciating the career opportunity being offered, is a bad bet.  Count on it.

• Don’t bother to create an international assignment policy

Unless you enjoy living in a “let’s make a deal” world, you would be advised to lay down an international assignment policy, and then adhere to it.  You will still be challenged by the employee / spouse to make improvements in their terms & conditions, but without the support of a policy you will be hard pressed to stand your ground.

Note: make sure all terms & conditions have been confirmed before the plane departs.  Once you have an expat on the ground in the host country you have lost whatever leverage you might have had.  From there you will agree to term revisions, because senior management will conclude that having already made the investment you have to keep the expat happy or risk the assignment.

• Focus on the employee; don’t worry about the family

Even an otherwise contented expatriate will be rattled if every night they come home to complaints about life in the host country.  Such a situation will distract the employee from concentrating on their assignment, and eventually you will face the need to further revise terms (increase costs) and / or the employee will throw in the towel and the assignment will be deemed a failure.

Thus you should be sensitive to potential family issues and include everyone in cultural orientations.  The family is the expat’s support group, and if they are unhappy . . . well, you know the rest.

• Confuse assignment costs by using multiple budget categories and line items

This tactic makes it very difficult for someone to follow, or understand the full extent of the costs involved.  During my own five years spent overseas on assignment, neither Corporate nor local Finance was able to explain the full costs involved.   They had assigned expenses into so many diverse costs centers and budget line items that the confusion never cleared.  Imagine the drip – drip – drip of your money if no one is even asking – or looking.

If no one is watching the costs of the assignment, those costs cannot be controlled.  It would be like handing over a blank check – with no guarantees of gaining anything in return.

Finally, watch out for the manager who tries to “save money” by circumventing HR assignment policies.  These creative thinkers consider that short cuts save money, but typically such “cuts” do little more than alienate the expatriate (and / or family) by treating them as second class citizens.  Bad idea.

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.

Over the past three years a litany of bad economic news has been the daily fodder of economists, corporate managers, the politicians and of course the media pundits.  Collectively we have slogged our painful way through reductions-in-force (RIFs), wage freezes, hiring freezes, benefit cutbacks and in general having to do more with less while we looked over our shoulder for the next axe to fall.

And of course we’ve all experienced the painful shrink of our 401k down to a 201k.

So there hasn’t been a lot to smile about.  But perhaps this is finally the year when the freeze starts to thaw, just a bit.  Salary increases are slowly trending upward toward pre-recession levels, according to first results coming out of the latest WorldatWork Salary Budget survey.

• Salary budgets increased by 2.8% in 2011 and are projected to rise by 2.9% in 2012.  Not much, but in the right direction.

• Base salary increases were awarded to 88% of employees in 2011, vs. 86% in 2010 and only 80% in 2009.

• Only 3% of employers are planning across-the-board salary freezes in 2011, vs. 10% in 2010 and 43% in 2009.

So much for the good news

Given all that employees have suffered through is it any wonder that those still employed (and especially those under-employed) are cynical, agitated and teeming with unresolved anger over their treatment?  How many have heard the attitude voiced by “where are you going to go?” or “you’re lucky to have a job.”  Attitudes like that stay with a person, and they burn deep; those phrases are remembered, to be acted upon when the time is right.  Because the worm will eventually turn.

The clock is ticking for organizations who have mistreated or taken advantage of employees on the back of the bad economy.

What are we seeing now?  While the economy continues to sputter along this year amid mixed labor reports and market volatility, US employee confidence related to pay raises, job security and the labor market fell to levels last seen during the height of the 2008-09 recession, according to the Glassdoor Employment Confidence Survey.

According to their report, 48% of employees reported that they did not expect to receive a pay raise in the next 12 months – the highest level of negativism seen in almost two years.  On the other hand 36% do expect a raise in the next year, but that figure is down 4% since the same time last year.

They don’t like their jobs either

Mercer reports (What’s Working Survey) that 32% of US employees are seriously considering leaving their organizations, up sharply since the 23% from the good times of 2005.  Meanwhile, a further 21% were not looking to leave but viewed their employers unfavorably and had rock-bottom scores on key measures of engagement, reflecting diminished loyalty, commitment and motivation.  So you have 44% of employees actively dissatisfied with their job and their employer.

How many of those do you think are silent about their discontent?  How many are your better performers?  How many can you afford to lose?

Overall scores were consistently down across critical engagement measures, while intention to leave was up across all employee segments.  The youngest workers were most likely to be considering the exit: 40% of employees aged 25 to 34 and 44% of employees 24 and younger were thinking about leaving.

A lone light in the window?

One hopeful light in the gloomy picture I’ve just painted is an uptick of activity in market pricing studies commissioned by management.  Even with an uncertain future ahead more and more organizations are coming to the realization that you can’t hold down employee pay forever.  At some point you have to move forward, or risk seriously damaging morale and forcing a mass exodus of talent toward the first competitor who says “Come work for us.  We value you, and we’ll treat you right.”

Of course, studying the marketplace, understanding how competitive pay levels have changed over the last few years is not a solution in itself.  Companies can still decide not to take action.  They may still not be able to afford to take corrective action.  But at least more of them are asking the questions, which means more are growing worried that this leaner workforce of theirs needs to be valued and rewarded competitively for their efforts.  Just like companies did before the great recession.

But the clock is ticking; employees are growing less patient.  Those who have options to leave are already starting to do so.  Be careful that those left behind are not merely a combination of “average” performers and the unmotivated who only occupy a chair.

“Why doesn’t my Company consider inflation when determining my pay increase?”

Have you heard this question before?  What this employee is actually asking is: “Shouldn’t my annual pay increase percentage at least match increases in the cost of living?  And as management is always talking about the company’s ”pay-for-performance” philosophy, shouldn’t my increase be higher than that, given that I’m a good worker?”

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Have you ever been in a situation where an employee complains to you that their pay increase is no better than the inflation rate?  Or worse, that it’s lower?  As a further aggravation they might ask you how the company can say there’s a pay for performance policy when all they do is grant increases that no more than match the inflation rate?  Isn’t that like treading water, just staying in place without moving forward?  Is that fair?  Where is the reward for good performance?  Shouldn’t everybody receive at least the inflation rate?

The truth of the matter is that it’s common practice for companies to only give a side look at inflation (cost of living) when determining their annual pay increase budget.  They do make note of it as a reference point, and to compare against a final decision, but what they’re actually focused on are two prime considerations: 1) competitive market survey data that tells them what everyone else is paying for like jobs in their area; and 2) the expense (annual grant and fixed costs) to maintain competitiveness.

Competition and affordability

Companies routinely promise to pay competitively, and as such will analyze what they consider the marketplace to learn what other companies are paying for jobs (base salaries) and standards for increases.  Their so-called “promise” does not include the granting of inflation-proof increases, or even to reflect the cost of living in their analysis.  Their intent is to pay employees a competitive wage – including increases – and competitive means what others are doing, not necessarily what’s happening in the world of inflation.

If budget is an issue for any given year, it’s likely that maintaining competitiveness will have to suffer.  Consider the past two years of layoffs, wage freezes and reduced increases as recession gripped the country.

Is that fair?  Well, let’s imagine that your name is the one on the company door.  How would you plan to spend your money?  Likely you would seek to pay the least that you can, while still attracting, motivating and retaining qualified talent for your business.  That doesn’t mean you would lower pay levels, but as the owner you would want to allocate your substantial payroll expense as effectively and efficiently as possible to staff your business with qualified and engaged employees.  It wouldn’t make good business sense to spend more than you need to, for any overhead, be it facilities, raw materials or employee compensation.

Consider the market for talent as similar to making a purchase at a retail store.  How frequently would you pay more than the advertised price if your extra money purchased nothing more than the same item?  Chances are you wouldn’t often take that approach.

The view from the other side of the desk

Now let’s consider the employee perspective.  What factors weigh heavily on their minds when considering the potential for pay increases?

Most employees expect management considerations to reflect the inflation rate (cost of living), the average increase for their industry / geography (typically as pointed out by newspaper “factoids”), and – if the company had a good year – a share of the financial success.  You can be sure that the figure employees have in mind is the highest number calculated from the three possibilities just mentioned.  And, lest you forget, that figure is for the average performer; better employees should receive more.

Now this view is not necessarily wrong, from their perspective, and one certainly can’t blame employees for a viewpoint that puts their interests first.  However companies typically maintain a “this is a business first” strategy, that seeks to minimize controllable expenses without losing sight of their competitive pay target.  The goal of paying competitive wages, a concept hard to argue against, is not likely to be overturned by changes to the cost of living, newspaper snippets or a feel good moment following company success.

Another factor to consider is that employees are comfortable with changing their reasoning from year to year, while companies are stuck on the same track.  So when inflation goes up or down, or the company has had a good (or not so good) year, or the media is touting higher or lower industry averages, employee expectations may likely swing from one argument to another, rationalizing a consistently more aggressive pay increase strategy.

Now a little tongue-in-cheek: turnabout is not considered fair play.  Employees would not want the size of their increases to fall with their chosen economic indicator.  It should only rise.  They would object to smaller increases if the company hit a rough patch, or if inflation nosed downward.  You shouldn’t be surprised that they want their cake and want to eat it too.

However management strategies tend to be consistent over time, continually focusing on the marketplace and its affordability to maintain their posture of providing competitive pay and pay opportunities.

So how do you avoid a clash of employee expectations with management strategy?  If companies would communicate pay philosophy or strategies they would be able to allay the employee guesses and assumptions that always accompany the grapevine and rumor mill.  Employees would know in advance what to expect.  They might not like what they hear, but the employer / employee relationship would be improved by some straight talk about how the company determines pay increases.

How many success stories have you heard about or read about that started with the phrase, “We took the easy road?”

It doesn’t work that way, does it?

Yet again and again we see examples of companies trying to push that “Easy” button, often in the face of business logic.  That’s especially true when dealing with the diversity of an international workforce.

Most companies with global operations tend to pay their internationally-based top level executives in accordance with some form of global compensation structure.  They do this to level the playing field for those with multiple country responsibilities, or for those whose assignments take them from country to country.

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

The Challenge

Companies with local national employees (hourly, professional, management) face a challenge and a risk when it comes to the decision as to how to reward performance  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 somehow equalize pay practices?

For those charged with developing strategies to effectively reward 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.   This strategic desire to recognize 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, and the one-size-fits all way of dealing with far-flung employee groups.  For many companies and international compensation practitioners it is actually the administrators whose resistance 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?  Here are a few metrics to illustrate what they wish to standardize:

• The value of jobs (price) irrespective of locale (same pay, just different currencies)

• The pay mix of base salary and incentives (80/20, 70/30, 60/40, etc.)

• Universal date pay increases (everyone’s performance is reviewed on the same date)

• Average pay increase percentages, regardless of local conditions

• Pay-for-performance vs. general adjustment increases (whose culture is it, anyway?)

Why Not?

That’s the easy way.  But 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 “XYZ Corporation,” right?  I would suggest that you consider the following before taking out 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 increases?  What if one country is suffering through a recession and sluggish recovery (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 pay-at-risk compensation.

• Competition: companies react to the cost of labor, not so much the cost of living.  If the local market rewards in a certain fashion (pay mix, commission vs. bonus, quarterly vs. annual rewards, etc.), companies who provide a non common practice 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.  It’s not unusual for management employees to receive increases based on what the national contract dictated for the rank-and-file.

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 uncommon 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 damaging combination of employee inequities and additional expenses – both of which are not helpful to the company’s bottom line.

So it would be worthwhile to remember:  ease of administration is rarely an effective rationale for making good business decisions.