It’s likely that your pay-for-performance program has a fatal flaw built into it; an inadvertent side effect of the design that, if ignored by management will almost certainly guarantee failure.

But no one wants to talk about it.

Instead, what you’ll hear is a steady drumbeat of, “Oh yes, we have a pay for performance program.  Employees are rewarded on the basis of their performance.”  But what if those merit increases won’t be enough to move an employee from low in their salary range up to the midpoint, the “going rate?”  What if merit increases alone won’t assure competitive pay?

The problem

Over time increases to the external marketplace will outstretch the company’s ability to reward performance – to keep pace.  The company can’t keep up with increasing market values and often enough new hires will find themselves paid more than current experienced employees.

The company usually describes their midpoint as associated with the market “going rate.”  Given that, then any employee who has performed their job responsibilities for a set period of time without performance criticism will reasonably expect that their pay rate should at least equal that market rate.

That sounds like a fair and reasonable expectation.

When that doesn’t happen though, when individual pay remains below midpoint / market, the employee’s disappointment over perceived unfair treatment can fester into lower morale and disengagement, which in turn often leads to separation.  If the employee is a high performer, the company has just suffered a significant loss.

Doesn’t happen here, you say?  Then test yourself.  Ask Human Resources how their pay-for-performance system works over time, over several years.  Ask them how they’re going to move a new employee’s pay from the minimum or low end to the midpoint value.

I wonder what they would say.

Look at the numbers

Let’s look at an example: say you’re hired at the bottom of the salary range, at $80.  The midpoint is $100 and the maximum is $120 (typical salary range width).  Your compa-ratio is 80%.  After three years with the market / midpoint rising at approx. 2.5% per year, the $100 has become $107.70.  Meanwhile, let’s say you’re performing well, receiving 4% annual increases.  After three years your pay is now $90, and your new compa-ratio is 83.6%.

If you believe that three years of satisfactory (or better) performance has brought you to a point where you are thoroughly familiar with the job, and therefore should be paid the “going rate,” guess what?  You’re still over 16% below the company’s midpoint.  You’re nowhere near competitive pay.

And if you’re fortunate enough to receive a promotion?  Chances are your present 83.6% compa-ratio will likely have you starting the new job similarly low in your new salary range.  So the self-defeating process starts once again.

But what if you’re not promoted?  How many more years will it take to get you to competitive pay?  Are you willing to wait that long?  Or will you become another statistic in the company’s turnover rate?

The causes that make the effect

This doesn’t need to happen, but all too often does.

•     When a company is caught up in an “everyone deserves a raise” mentality, there isn’t enough money left over to properly reward the higher performers.

•    Many companies don’t provide significant reward differentials between performance levels.  Is 1% or 2% enough between your stars and “Joe Average?”   Are you motivating through pay, or simply administering?

•    When managers fail to consider employee contributions vs. the evolving competitive market.  When decision-makers ignore external realities and instead focus solely on internal balance (equity).

•    Merit budgets are not designed to address the issue of “market creep.”  It’s as if the company presumes that the external marketplace isn’t moving ever higher.

With the above as backdrop an organization’s internal pay practices can easily become disconnected from an employee’s market value.

Not many companies recognize this inherent flaw in their pay-for-performance program.  Individual managers may notice the inherent weakness, but most organizations tend to turn an official blind eye.  Granted, most don’t have the extra money that would be required to jumpstart employees to match their growing marketability.  They don’t have the money to be fair to everyone; it just costs too much.

Instead, they prefer to take one year at a time, all the while telling employees that the merit system works.

That’s where the cynical viewpoint of some employees is created, suggesting that quitting and getting rehired is a sure way to get the money you deserve.  It’s a risk, but I’ve seen that tactic work.
What can you do?

Build a ring fence and maybe they will stay

Develop a Ring Fence: identify your key employees and make sure that they are both competitively paid as well as appropriately paid for their value to the organization.  Build a protective “fence” around these employees, similar to “franchise players” in professional sports.  These are the ones you can’t afford to lose – so keep track of their compensation packages.

Then every year review your entire staff.  Who is paid properly and who is not.  Having this knowledge is half the battle, halfway toward a solution.  Because from this point individual corrective tactics can be devised.

Caution: you may have to forgo some increases for “so-so” employees.  Can you do that?
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The merit pay process usually works well for one full cycle, but for the long term the mechanics don’t provide the compensation level that the employee is worth.   Management touts their merit reward programs as a one-time event, but over time employees will see the fly in the soup, that unless one gets promoted on a regular basis the “system” actually works against you.

But no one wants to talk about it.

Bob has just turned in his resignation, handing you a paper with a single line of text; he was leaving in two weeks.  Cripes!  Bob is one of your best team leads, and his departure will leave a hole in your department that will be hard to fill, especially in the short term.

Is there anything you can do?
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At this point the question of a counter offer will pop into every manager’s mind who has ever faced this dilemma.  Give Bob what he wants and he’ll stay – right?  Find out what’s been offered and promise the same.   Problem solved?

Not by a long shot.  It’s not that simple.

Bob may or may not decide to stay, but meanwhile other discontented employees will note your response, the relationship with Bob has already been damaged by his resignation, and any new “arrangement” might create internal equity trouble.  Productivity and morale could be impacted, no matter what happens to Bob.

Your solution might create even more problems for you.

What to do?  Let’s look at the implications of a counter-offer from both sides.

The Employee Perspective

If an employee has made the decision to leave, and subsequent actions have progressed to the point where an offer has been received, then mentally they have already left.  Any internal debate they might have had over making a change has already been resolved, and they are comfortable with their decision.  They may even be anxious to leave, as the new employer offers a fresh start, with new challenges, new faces, increased responsibilities and of course more money.

They may be enticed to stay by increasing their rewards package, but you can’t be certain.  Their true motivation may remain an unknown, leaving you to deal with only what they are willing to disclose.

If the key catalyst for resignation is not rewards (i.e., friction with the boss, perceived dead-end job, dated technology, long commute, too much travel, etc. etc.) a counter offer focused on more rewards will miss the mark.

The Employer Perspective

If you extend a counter-offer, it will become known and discussed.  Employees may get the idea that such is the way to get a better deal with the company – by threatening to quit.

Those who accept counter-offers often leave within 6 months anyway – that’s all the time you’ve bought for yourself, as other unresolved issues would remain sources of continued dissatisfaction.   More money will not solve those problems, and typically counter-offers address only the quick fix money issue.

Once an employee has resigned, even if later rescinded, their relationship with the company is forever altered.  It’s unlikely that the company will retain positive thoughts about the individual, even if the immediate manager still loves them.  Career prospects will have taken a body blow.

If you extend a counter-offer and it is rejected, the same internal damage will be felt as if it had been accepted – so you better be careful before extending yourself.   In any case, the employee is no longer considered loyal, and cannot be trusted to remain longer term.  They are considered “for sale.”

Could This Work For You?

If an employee tells you they are thinking of leaving, vs. actually having an offer in hand, then you have more room to maneuver.  But the company should examine how they deal with threats – because other employees will be watching.

However, if your world will end if Bob leaves, or you need to buy time until a replacement can be put in place or a project completed, you may wish to consider negotiations.

Caution:  line managers may advocate a counter-offer more because their lives are made difficult by an employee’s departure, rather than the business impact of the separation.

Doing It Anyway

If you are planning to make a counter-offer, prepare yourself in advance by:
•   Learning the nature of the offer you are competing against
•    Ensuring your period of vulnerability is minimized
•    Developing  a backup employee as soon as possible
•    Deflecting employee criticisms over favored treatment, dangerous precedents, etc.  Word will get out, so you should have a story ready that rationalizes your decision.  You don’t want to face a host of “what about me?” calls.

For those companies who may have a policy that allows managers to consider counter-offers, the approval process should be visible enough to ensure that the broader issues of business justification are discussed.  Personally affected line managers should not make the call.

A final caution: like a fine aged whiskey you should only sip at this practice and savor the mutual gain, not gulp it down and feel the burn.

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

What this employee is asking is, shouldn’t my annual increase percentage at least match the cost of living?  And as management is forever touting the company’s ”pay-for-performance” philosophy, shouldn’t my increase be higher than that, given that I’m a good performer?

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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, staying in place without moving forward?  Is that fair?  Where is the reward for good performance?  Shouldn’t everybody receive at least an increase equal to the inflation rate?  And more for the higher performers?

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 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 the desired competitiveness.

Companies routinely promise to pay competitive rates, and as such will analyze what they consider the marketplace to learn what other companies are paying for jobs (base salaries) and granting 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.  What their intent is, is to pay employees a competitive wage (including increases), and by “competitive” they mean what others are doing, not necessarily what is happening out there in the world of inflation.

If affordability is an issue for any given year, it’s likely that maintaining competitiveness will have to suffer.  A quick review of salary actions over the past three years will confirm that view.

Fairness In The Eye Of The Beholder

Is that fair?  Well, let’s imagine your name is 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 strategy doesn’t suggest that 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 would not make good business sense to spend more than you need to, either for bricks & mortar, raw materials or employee compensation.

Consider the market for talent similar to the purchase at a retail store.  How frequently would you pay more than the commonly accepted price if your extra money gained you nothing more but the same item?  Chances are you would not often take that approach.

Other Perspectives

Now let’s consider this issue from the employee’s point of view.  What factors weigh heavily on their minds when considering the potential for pay increases?

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

Now this view is not necessarily wrong, from their perspective, and one can certainly not blame employees for a viewpoint that puts their interests first.  However companies typically maintain a “this is a business first” strategy, one that seeks to minimize controllable expenses without losing sight of their competitive pay target.  The goal of paying competitive wages 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 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 increase 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 would want their cake and 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 vs. management strategy?  If companies would do a better job of communicating their pay philosophy they would be able to allay the employee guesses and assumptions that always accompany the grapevine 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.

It used to be a common view that the Human Resources department in large companies was more sophisticated, more professional, and more forward-thinking than what you would expect to find from HR in smaller companies.

We all presumed that the “big guys” knew what they were doing.

However the current pendulum of thought has begun to swing the other way.  Indeed, sophisticated has become cumbersome, professional has become bureaucratic and forward-thinking has created a chasm of credibility between philosophical concepts and the practical realities that managers deal with every day.

Remember the K-I-S-S principle (keep it simple, stupid)?  Many large organizations seem to have forgotten that common sense caution as they saddled their reward programs with ever more forms, procedures and bureaucracy.

The Evolution of Performance Appraisal

A good example of HR systems gone wild is the difference between a small company performance appraisal and the convoluted processes often followed by large companies.  Herein lies a stark contrast not only of styles but of methodologies and core beliefs that a more complex better way will increase the effectiveness of employee reward programs.

This growth of complexity is commonplace; by the time an organization achieves a certain population size HR feels compelled to complicate their processes – usually in the name of increased employee sensitivities and streamlined procedures.  What worked well before (when the business was smaller) is suddenly suspect, deemed somehow less effective, less desirable.

What began as direct cause and effect, performance followed by assessment = reward, suddenly became much more complex, more confusing to some, more aggravating to others.  Critical communications are often flawed and ineffective as both employees and managers question the additional complexity.

Let’s look at a comparative example, using the performance appraisal process.

The Small Company Experience:

• The employee’s performance is assessed against what is expected of them.

• Performance discussions usually take place on the anniversary of either employment or promotion.

• Forms are basic, even simple.  They may not be standardized, and one or two pages are usually enough.

• The process is brief.  Meetings tend to be short and focused, so both parties can get back to work.

• The approval chain is abbreviated; messages from the performance meeting are typically what actually happens.

• The money discussion (pay increase) is front and center, a cause-and-effect dialogue.  You have performed thus and so, and your salary will be changed from “x” to “y.”

How Large Companies Tend to Operate:

• The employee’s performance may be assessed against other employees as much as against what is expected of them (their job description).

• Performance discussions use a Focal Point strategy, where everybody is reviewed at the same time.  For managers with more than two or three subordinates, this represents a challenge in terms of time spent and quality of assessments.

• The forms used are intricate, multi-part, multi-page affairs designed by HR specialists.

• Employee performance as a group may be viewed against a desired bell-shaped curve of ratings.  Individual assessments may be modified to fit the expected / budgeted shape of the curve.

• The boss makes upward “recommendations,”  which may or may not be approved.  Thus the conversation with the employee ends on a “we’ll see” basis where money is concerned.

• Other topics like developing future performance, improvement strategies / action plans, and “where are we going?” discussions may predominate.  Sometimes talk of a pay is deferred, raising the question of whether performance actually relates to reward.   Meanwhile, the employee wants to hear about a raise.

So what has been lost as the organization grew larger?  Has it become more impersonal, forms-centric, process controlled, and standardized?  And is that better than before?  Perhaps more has been lost than gained.

How did the organization evolve into something potentially less helpful, less effective?  Perhaps the poking and prodding of systems and procedures in the name of improvement went too far, until they created a convoluted and twisted version of their desired state.

Perhaps we’ve let specialists over analyze the psychology of a boss rewarding a good performer.  We’ve exchanged hard decisions with real impact for a muted “everyone deserves something” approach.  The following scenario is common.

• Sub-function specialty groups are created within HR, be they Training, Management Development, Succession Planning or others popularized in prevailing industry jargon.  Each group has advocates that push an agenda of change.

• These specialty groups must justify their existence to validate the worth of their profession, and their mission.  The result is additional layers of forms, procedures and extra time constraints for managers to struggle with.

• Over time these experts lose sight of the managers they should be trying to help.  They don’t understand the beast they’re trying to tame.  By pressing their own agenda they tell management how to assess performance.

• Ultimately these groups become blockers, getting in the way of a smooth-running operation.  Objecting managers tend to respond with a campaign of passive resistance.

So can we make our large companies “feel” smaller when dealing with employees?  How do we reverse the model of increasing complexity and confusion?

When the state of affairs has gone off the tracks, how many times have you heard – or used the phrase, “let’s get back to basics?”

Perhaps that thought could be useful today, no matter what size organization you hail from.  Simply return to the fundamentals of performance management, where performance is assessed, and in turn leads to reward.

It doesn’t have to be any more complicated than that.

K-I-S-S

Let’s face it, the word “discrimination” carries with it a multitude of negative connotations, and is generally viewed as an unacceptable practice.  Likely we have an automatic,  knee-jerk aversion to the word itself.   The act conjures up images of unfair, unethical and in many forms blatantly illegal behavior and business activities.  But perhaps that term isn’t always a bad idea for your Compensation program.

You’re probably doing it right now.

Any organization that espouses a pay-for-performance approach to rewards already announces that they will discriminate in favor of higher performing employees.  This practice of rewarding on the basis of differing levels of performance fairly shrieks with the promise that better performers will get more bucks than those who do less.

Is That A Bad Thing?

But if you’re managing a company, or even a department within, does it make sense to focus your limited reward monies where it will do you and the organization the most good?  Pay-for-performance should not be a giveaway, or else it really isn’t a P4P plan at all.

For example, those employees who are higher up in their salary range (greater penetration) may receive a lesser percentage increase than those lower in the salary range, on account of their range position (their compa-ratio).  The view is, if you’re already paid above the “market rate” (usually the midpoint) your rate of increase should be less than someone with similar performance but currently paid below market (below midpoint).

Another consideration is cost.  With limited reward funds available companies have increased their focus on rewarding their higher performers first; whatever monies remain can be distributed among the average (or lower) performers.    Companies feel that they can ill afford to lose their higher performing talent (impact on results, more susceptible to poaching, hard to replace, etc.), while their average performers have less options to leave – and less impact if they do.

Sound harsh?  Unless you feel that you owe an employee an annual raise, that everyone still on the payroll deserves a raise, the equitable distribution of limited reward monies to the deserving can be a real challenge.  If the organization rewards on the basis of ROI for individual effort, then emotional feel-good decisions (employee wants & needs, retention, keep them happy, etc.) will take a back seat.

Let The Debate Begin

There are those who argue against any form of pay discrimination; those who feel that “taking from Peter to pay Paul” is a harmful strategy.  They would point out the following:

• Legal restrictions: The prohibitions of age, sex, religion, etc. discrimination are already ingrained in the business culture.  However, even though some forms of separate treatment are legally permissible, such as pay-for-performance, some feel that any form of differential treatment is inherently unfair.  We all work for the same company, have the same wants, needs, etc.

• Equitable treatment: Having everyone rewarded in a like manner (percentage, amounts, etc.) helps to foster the team concept.   Here the individual is less important than the group, that a single employee by themselves does not make a difference.  Providing differing levels of pay for individual performance damages morale by pitting employees against each other for those limited funds.  Increase differentials can foster internal competition, threatening the loss of employee focus on the broader business goal.

• Ineffective performance appraisal systems: The method that a company uses to assess and score employee performance  is almost universally panned by those employees, and often by managers as well.  Whatever the system there will be flaws, be they by design or application.  Employees are skeptical of so-called objectivity and what is passed as equitable administration.  So if the scoring system is ineffective, why use one?

• Splitting pocket change: When only limited pay increase money is available, why try to force a questionable distinction between employees that only pays out a pittance?  Is it worth the hassle?  Wouldn’t it be better, or certainly easier, to give everyone the same amount?

Considering the above, what’s the suggested alternative?  Provide a general increase where everyone receives the same increase.  However, who among your employees would be motivated by that tactic?  The high performers you can’t afford to lose, or the average performers who have fewer options and would stay with you anyway?

Let’s Discriminate

For those who advocate putting their money where the performance is, here are the primary arguments in favor of pay discrimination:

• Behavior rewarded is behavior repeated: If you want to encourage the right form of performance, offer to pay for it.  If you want to impact that employee’s choice of effort.

• More bang for the buck: Small merit budgets encourage managers to focus limited resources on higher performing employees, vs. the average (or less).

• Rewards encourage behavior:  Similar to variable pay, offering a carrot encourages behavior above and beyond.  Otherwise, you’ll only get what they feel like giving.

• Focus on the deserving:  Avoid the entitlement game.  General increases do not encourage performance, but reward tenure.  No one is owed a raise for simply sitting on their butt for 12 months.

They focus rewards on those employees who by their personal efforts deserve to be recognized.  Because they have performed, and performed very well.  They are the ones who have helped the organization succeed.

I would suggest though, that you avoid using the word “discriminate”  in your policies, procedures or even Compensation Strategy.  Before you get a chance to explain what you mean you’d likely have lost your audience, such is the immediate negative reaction to that word.  So play a little of the word game and use “differentiate” or “distinguish between” instead.

We’ll know what you mean.

“What does the survey say?”

This is a common question, and one that Human Resource practitioners hear all the time.  Whatever the issue might be in the office, the boss usually comes around to ask, “what is everyone else doing?”

It could be regarding the value of your jobs, through competitive market pricing, or wondering about common practice benefit provisions or even how other organizations handle various HR policies.  But the theme remains the same; the questioner wants to know about “common practice.”   What is everyone else doing?  Why do they ask?  Because they want to do that too?  Because they want to follow everyone else?

I guess we’re all too accustomed to pushing that EASY button.

Why We Want To Know

There’s a natural curiosity to learn what everyone else is doing when we face an issue that is important to our business.  I get that.  Maybe you don’t need to reinvent the wheel, especially if others have already completed the work for you.  So the thinking goes, grab the benefit of someone else’s research and tag along , going with the flow.   Common practice suggests the popular answer, and it’s hard to offer criticism for doing what everyone else is doing.

It can also be considered a mistake if you don’t know the common practice answer.  Because how can you make a decision without knowing?  Your analysis would be incomplete.

At the same time it’s a natural defensive mechanism to point fingers at the “market” or a “most companies” comment and say, “see, others with the same challenges as we have are doing the following.”  The reporting of survey results doesn’t require creative thinking, risk taking or even sticking your neck out by recommending an original thought.  It’s a silent recommendation that you can offer without comment.

Marching To The Beat Of A Different Drummer

But have you forgotten something important in the rush to follow along?  Have you considered what may be the unique (or perhaps merely uncommon) circumstances within your organization, the nature of your own employees, your own situation?  Are you a boiler plate organization with only the same challenges and circumstances as everyone else?  Is the answer to your particular challenge(s) to be found simply by recommending what everyone else is doing?  But wouldn’t that tactic really become the absence of decision-making?  The abrogation of responsibility?  Passing the buck?

Is it your intent, or just happenstance that you decide to let someone else, someone from outside your organization make key decisions for you?  And make no mistake, tagging along is a decision, in the sense that even non-judgments eventually turn into a course of action.

And if you’re challenged to explain your actions?  The lament of “I’m just doing what everyone else is ,” doesn’t sound like an effective rationale, does it?  Probably isn’t what senior management is expecting from you.

What Do You Think?

Following another’s footsteps  does seem to be the safe approach, though.  It’s likely the path of least criticism, at least in the short term.  At least until that common practice answer that seems to works for everyone else ultimately doesn’t work quite as well for you.

It’s easy to deflect criticism of your recommendations by pointing to “common practice.”  You’re not sticking your neck out, you’re not advocating something different.  You’re reporting on the activities of other organizations, ones who seem to already know the answer.

So while it’s always a useful strategy to know the common practice that covers  your particular challenge, have a care to look outside the box as well.  Sometimes that survey you relied on provided only anecdotal information, while a more viable solution lies in understanding your organization’s particular dynamics;  the culture, the politics, management biases, what had been tried before and whether what everyone else is doing makes common sense for you as well.

So whatever your recommended course of action might be, make sure that your rationale includes more thought than simply following the leader.  That’s a child’s game, and may not be a career enhancing move for you.

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

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

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

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

What are we talking about?

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

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

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

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

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

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

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

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

It’s really kind of a bribe.

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

Why it doesn’t work

Relying on pay as a replacement for management has a short effective life cycle.

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

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

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

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

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

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

I’d like to say a kind word about the job evaluators out there.  You know who I mean; those unappreciated, oft-criticized and generally disrespected Human Resource analysts who have been given (because no one volunteers) the thankless task of deciding which jobs in your organization are more or less important than others.

These practitioners are often viewed by those on the receiving end as displaying the behavior of a smug know-it-all, a blind follower of the rules, and having a general attitude of superiority, all wrapped up in a God complex.  Unless they agree with you.

They don’t receive Christmas cards.

Somebody Has To Do It

But job evaluation is a task that needs to be done.  It’s critically important to the organization.  Somebody has to establish order amidst the organizational chaos, to sort out a viable stepping stone hierarchy of jobs, from minor to major – and by how much.  For most of us it’s Human Resources who establishes and maintains this internal objectivity; the alternative (having managers decide on their own jobs) would be like having the fox in the chicken coop.

Practically all companies of any size and complexity have some sort of a rating system to establish relationships between jobs and to maintain the credibility of that valuation process.  Employees are trained in the application of that rating system / process, and as such are charged with its administration.

For their part Managers don’t like evaluators; the independent valuation process keeps them from doing whatever they feel like.  The system keeps order, while maintaining equity and fairness through objective application.  Many Managers though, have a “what have you done for me lately?” mentality.  When they approve of an evaluation result, there’s silence – because the result was obvious.  When they don’t agree with the result the evaluator is a blind idiot.  So all the evaluators hear from their audience, their clients, is criticism, anger and disrespect.

True enough, mistakes can happen, especially in an inherently subjective process, but in a worst case scenario how far off can an evaluator be?  One grade?  Usually there’s an appeal process.  As it is, evaluators can only work on the basis of the information provided (what they’re told) before the evaluation.  With no skin in the game, without even knowing the names of the affected employees, they try to do what’s fair, and that’s to report (to make the decision) as objectively as possible on the internal value of a job. To remain as unbiased as possible.

But the art of evaluation remains the butt of jokes, the kicking boy of every complainant out there who doesn’t like the score.

• You don’t know the job as well as I (manager, employee, department head, etc.)

The criticism is that the evaluator can’t possibly understand, and therefore accurately rate a job they’re only told about, or after reading a job description.  So the (biased) view of the job holder(s) should sway the evaluation.

• Evaluation is subjective; so is the result.  Why should I trust you?

Every job evaluation system is subjective.  Even the point factor formulae are simply a compilation of a series of scored subjective decisions.  The key here is the standard and consistent application of criteria, no matter which job is being evaluated.

• Job descriptions are the problem

The forms used for evaluation purposes are criticized as old, outdated, inaccurate, incomplete and generally not reflective of what is truly going on.  However, this complaint is usually heard after the result is reported.

• Squeaky wheels get greased; outside pressures negate objectivity and credibility

Because of the subjectivity element evaluators are perceived of as easily manipulated by pressure points; politics, favored sons, avoiding controversy, want to be liked, etc.

Who would want such a job?  I didn’t.  As my own HR career progressed I passed off this no-win responsibility as soon as I could.  It was like being the medieval tax collector, reviled by all – just for doing your job.  So I’ve been there, know what it’s like to be responsible for making those decisions and facing the wrath (never the thanks) of angry managers and employees.

So give the job evaluators a break and cut them some slack.  They’re doing the job that you wouldn’t want.  They mean well, and they’re doing the best they can under trying conditions.  Instead of criticizing them, help them to better understand the job being evaluated.

And next time around, send them a Christmas card.

When working with a client new to the international stage, or an organization with only a small employee footprint overseas, one of the pressing challenges that compensation practitioners face is educating leadership as to what to expect when dealing with international rewards.  Of special note is the quandary of obtaining reliable sources of foreign compensation data.

For most U.S.-based companies determining the market price of their employees is a consistent need; to determine the competitive, comparative value of local jobs.  To do this you need to know what similar jobs are paying within each country.

Many corporate practitioners begin their global study not anticipating a problem, as they’re accustomed to working with U.S. compensation surveys.  How much different can it be? they ask.  We’ll have a look at competitive pay in, say . . . Austria, or Argentina or Thailand, get ourselves a couple of survey sources, flip a few pages and – there we are.

And while we’re at it, the fantasy continues, let’s make sure we focus on data relevant to our industry.  Segmenting jobs by revenue size would also help.  Then, while we’re at it, let’s consider the geographic location of our operations to make sure we can nail down local information for the lower ranked jobs.

It should be a straightforward process.

But it’s not.

Reality Bites

Instead of a smooth pathway for the compensation answer man, a role you’ve grown accustomed to playing with U.S. surveys, the road ahead is not only bumpy and pitted, but in some sections the upheaval has taken out the entire road.  Let’s look at the why.

• Country size: Compared to the U.S. there are simply less companies in the survey database from each reporting country – sometimes not many at all.  Most countries are either much smaller or have less developed economies, and the fewer companies who participate in a survey the fewer data points that will be available for analysis.

• National data only: You may want industry data, or a specific size of organization (revenue), but most times what you’ll find available is only national data.  Again, this is because there are too few participants to support data segmentation.

• Basic job matches: Another reflection of limited data is that there are fewer benchmark positions available for matching.  Specialty jobs may not be included, and even those simply labeled “senior,” “assistant” or other steps within a job family might not be listed.

• Secrecy:  Confidentiality can be an issue, especially among emerging market countries.  In some regions a cultural reluctance to share information further restricts survey participation, and a tight labor market for skilled positions can create a fear of employee poaching – so they’re not talking.

You can elect to conduct a custom survey of selected companies, but custom surveys may not be an effective strategy either, as the process is both time consuming and expensive, especially if outsourced.  And this strategy would still have the issues of confidentiality and reluctance to participate, as well as a need to provide those participating with at least summary results.

So what you’re left to deal with is an environment of less certainty, less assurance of what the “market” is paying and more reliance on a “feel” for reasonable compensation.  That subjective “sense of the marketplace” can be a tough sell to a skeptical management, especially if they don’t understand or even accept the limitations you’re struggling with.

How many compensation practitioners are comfortable with sticking their neck out with recommendations when they don’t have the smoking gun of multiple survey sources handing them the common practice answer?  Would you?

The Struggle To Adapt

Those who experience such scarcity of data struggle to adapt their mindset in order to present a reasonable assessment of diverse country-specific competitiveness.

• Limited data weakens reliability: Practitioners cannot rely on survey data with the degree of confidence they’re accustomed to with U.S. surveys.  The phrase, “survey says” carries less certitude.

• Damaged credibility: Concern over selling so-called “results” to senior management when the data is scarce, job matching is more tentative and the “marketplace” is not well represented.

• Job family gaps: Certain levels (senior, lead, “x” yrs of experience, etc.) may not be reported, leaving one with a choice of making arbitrary adjustments to benchmark jobs or bypassing (ignoring) the job with a “n/a” code.

So, what are you going to do?

Accepting the limitations of what data is available for analysis is not an easy pill to swallow for those accustomed to robust U.S. information sources.

• Adjustments: When your job is not identified in the survey you may need to select a similar role (larger or smaller) and adjust the figures up or down – or you could “pass” on trying to match the job, though non-answers rarely help.

• Get off the median: When revenue brackets are not available (common) and you’re dealing with a small to mid-size company you should consider using the 25th percentile of available data as a representative market, instead of the higher median or weighted average.

• Educate management: It’s essential that management is led to understand the limitations of international compensation data in determining “the answer.”  Your recommendations, while based on sketchy information, are coupled with your professional experience and judgment.  You have to sell this.

Determining marketplace values for overseas jobs is not an exact science.  While you’re often left to “feel the pulse” of the country-specific environment you’re not telling management how much to pay someone, only what the generalized “market” seems to be paying for similar jobs.  They have to take it from there.

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.”