Anyone who has ever been involved in a merger or an acquisition team remembers their first time; how green they were, how much they didn’t know and how much of a challenge it was just getting up to speed.   They didn’t know what they didn’t know.  Most neophytes are shell-shocked by the complexities involved, the myriad moving parts – and when the business target is an international concern, or has a foreign footprint, then it’s often a case of “what do we do now”?

Provided below is Part II of a due diligence checklist for international M&A deals, one that I wish I had when I was thrown to the wolves for my first overseas acquisition.  This is not breakthrough material, and is likely a derivation of thinking that has evolved for years, starting from the first time one company decided to take over another.   If you’re new to the process, it is a reminder of critical research steps, what mustn’t be forgotten.

This particular list comes via my friends at White & Case LLP (www.whitecase.com), who make this information available as a service to the profession.  When combined with Part I information it is thorough (some might say “exhausting”).  Though some search elements may not be warranted in every case, I think you’ll find the checklist to be excellent preparation material.

• External agreements:  Do any external agreements (with third parties) limit HR flexibility? (i.e., are there acquisition agreements from earlier deals that limit reductions in force?  Has the seller signed onto any customer codes of conduct imposed on customers’ suppliers?  Is the seller a government contractor who has taken on public-procurement obligations affecting HR?).  Separately, look at outsourcing agreements with HR service providers like payroll, “temp” agencies, benefits and whistleblower hotline services.

• Payroll:  Check the seller’s payroll processing compliance as to deductions, withholdings, reporting, compliance with mandatory payments to unions, and remittances to agencies including tax, social, unemployment and housing funds.  How is payroll issued?  Are there any extra deductions (such as for charitable  contributions or employee loan repayments)?  Does the seller properly pay mandated benefits like premium pay, vacation, profit sharing and thirteenth month pay?

• Wage / hour compliance:  Verify compliance with wage / hour laws, cap-on-hours laws, overtime payments, payments during business travel and exempt-status designations.

• Duty of care:  Get information on duty of care / safety / evacuation and other protocols such as for hazardous-duty work and occupational health / safety law compliance, including for expatriates.

• Discrimination / harassment:  Verify compliance with local discrimination / diversity / harassment laws including laws on pay equity, affirmative action, mandatory training and “bullying”.  Verify compliance with the seller’s own discrimination / harassment policies: many international discrimination / harassment policies go well beyond local laws.

• HRIS:  Look into the seller’s employee data processing and human resources information systems (HRIS).  Investigate transferability of HRIS and how HRIS complies with data protection laws.  Has the seller made all required notices / communications to employees about HR data processing?

• Powers of attorney:  Find out what powers of attorney employees, officers and directors hold.  These are particularly critical in Latin America, where there can be different levels of powers, some of which include the power to dispose of company assets.

• Management oversight:  What controls does the seller’s headquarters use to monitor local management’s compliance with laws and corporate policies?

Using this checklist should provide you with an advantage during the due diligence process, an early on understanding of what to be looking for, what questions to ask.  So if you find yourself with limited time in the “war room” (documents center), have this checklist with you to help ensure that your due diligence is thorough.

A little preparation can pay tremendous dividends.

One of the multiple hats I wear as a Compensation Consultant is working with executives in transition, helping prepare them for the employment offer so eagerly sought.  We look at ways to improve what the employer has put on the table, to position candidates for negotiating the best package they can.

A common misconception among these high-powered executives is that during the interview process they are dealing with only the internal recruiter and the hiring manager.  A more accurate picture however is that, when it comes to developing an employment offer for senior positions the employer’s Compensation function often occupies another seat at the negotiating table, and they have a critical part to play.

The first two participants in this internal triumvirate have well-known roles to play.  However, the third?  Not so much.

• The Recruiter: The face of the company.  These folks screen the candidates, present them to the hiring manager, and as necessary represent the candidate in late stage negotiations.  They do not create the employment offer, but deliver it.

• The Hiring Manager: He who makes the call.  Here is the person with the job opening, the decision-maker as to who is selected for the employment offer.  They hold the purse strings in the form of department budget, and they have an offer number in  mind.

• Compensation: Thumbs up or thumbs down?  This person (Analyst, Manager or even Director+) often plays the role of the gatekeeper or policeman, the one at the table with the policy manual in the left hand and a spreadsheet of employee pay practices in the right.

Like a branch of the federal government, Compensation serves as a check and balance against the other two roles; the objective advisor intent on preventing a blind focus on an individual candidate, to the possible detriment of existing employees or the business.  Here is the “bad guy” cop who reminds the others of budgets, precedence and internal equity issues.

But they’re all professionals, right?  So why does Compensation need to get involved, when they pretty much stay in their offices for the lower level employment offers?

A necessary evil?

Once you reach the upper management / executive level it’s common practice for the recruiter and the hiring manager to talk with someone in Compensation to help determine (or simply review) an appropriate offer.  Why?

First of all it’s likely a matter of policy, a double-check requirement that for senior management roles HR must be involved with setting the compensation package.

Then there’s the matter of heightened sensitivity, where a limited number of key jobs creates an environment of greater visibility and individual impact.  The company can’t afford to make mistakes here, as the health of the business itself may be at stake.  Even senior hiring managers often look for support when they seek to make such a critical employment decision.

What Compensation does

When dealing with Executive offers Compensation would consider:

• where the suggested base salary fits within the hiring range, against candidate expectations, the internal budget, the previous job holder and how large an increase it might represent for the candidate

• the salaries of similar or peer job holders (internal equity) and those at the next level (to make sure the new employee doesn’t create compression issues with those in larger roles

• as may be necessary assist with negotiations, to suggest where opportunities exist to improve the offer without harming internal equity concerns, creating damaging precedence or budgetary difficulties

• serving as counselor to the hiring manager to address the need for balance between immediate staffing demands and likely internal outcomes.  Are we doing the right thing here?

Compensation would typically  not consider:

• Whether the candidate is qualified.  They would not conduct an interview or have any face time at all.

• Organization issues such as title, reporting relationships or job responsibilities.  Any of those issues, and some can be problematical, should be dealt with before candidate selection.

• Would not compare the candidate against other employees except for the potential of internal pay equity issues.

• Typically would not have the authority to prevent an offer, but would have the responsibility to give the offer visibility beyond the hiring manager if a concern is raised.  In other words, if consensus cannot be reached and the hiring manager is adamant, it’s time to raise a red flag for a higher level arbiter.

Comp doesn’t create the offer either, though they may make suggestions if asked.  More typically they react to what the hiring managers are planning to go forward with.

Compensation’s role therefore is one of protection, of making sure that everyone’s eyes are open as to the ramifications of whatever is put on the table for the candidate to consider.  A winning formula is the goal, where equitable balance has been achieved and the new employee is excited and engaged.

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

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

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

The Challenge

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

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

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

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

Why Not?

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

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

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

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

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

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

• Tabulating global statistics when definitions or methods vary

• Identifying global trends based on diverse conditions

• Balancing the impact of cross border movement

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

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

Anyone who has ever been involved in a merger or an acquisition team remembers their first time; how green they were, how much they didn’t know and how much of a challenge it was just getting up to speed.   They didn’t know what they didn’t know.  Most neophytes are shell-shocked by the complexities involved, the myriad moving parts – and when the business target is an international concern, or has a foreign footprint, then it’s often a case of “what do we do now”?

So here’s a due diligence checklist for international M&A deals, one that I wish I had when I was thrown to the wolves for my first overseas acquisition.  This is not breakthrough material, and is likely a derivation of thinking that has evolved for years, starting from the first time one company decided to take over another.   If you’re new to the process, it is a reminder of critical research steps, what mustn’t be forgotten.

This particular list comes via my friends at White & Case LLP (www.whitecase.com), who make this information available as a service to the profession.  What follows is the first of a two-part posting.  It is thorough (some might say “exhausting”), and some search elements may not be warranted in every case, but I think you’ll find it excellent preparation material.

• Compensation & Benefits: Using a separate compensation / benefits checklist, check the seller’s compensation philosophy, compensation / benefits “schemes” or plans, severance plans, retirement plans, bonus plans and perquisites (like meals, housing, country clubs and company cars).  Check individual pension promises, special agreements, grandfather clauses, death / disability benefits, cafeteria plans, service awards, profit sharing, savings plans, employee loans and unusual expense reimbursements.  Check compliance with local laws that mandate extra payments and benefits.  Get an accounting of any transferring plans, and study funding: unfunded, underfunded and “book reserve” plans can cause huge problems.

• Equity and Loans: Look at seller stock options, employee ownership programs, officer / director stock ownership, and employee ownership in affiliates and entities doing business with the seller.  Also check into loans and guarantees to employees.

• Employee Insurance Coverage: Look at the employment-related insurance the seller provides, like employee life / health / accident insurance, hazardous duty / kidnap insurance, payments to state-mandated insurance funds (such as workers compensation insurance), expatriate coverage, and “key man” policies naming the employer as beneficiary.

• Performance Management: Study the seller’s performance management system.  Focusing on key employees, collect data on job evaluations, performance appraisals and problem employees.

• Labor Organization Relationships: What labor organizations represent workers?  Collect organizational data regarding in-house or company-sponsored labor organizations such as works councils, and “European Works Councils”, company unions, health / safety committees, staff consultation committees and ombudsman.  Collect meeting minutes and records memorializing labor disturbances and days lost to strikes.

• Collective Agreements: Look at applicable collective agreements and “social plans” with employee groups.  Go beyond trade unions and check agreements with works councils, worker committees and ombudsmen.  Get expired agreements with terms that still apply.  Do any industry (“sectoral”) collective agreements bind the seller as a non-signatory?  Does the seller participate in any multi-employer bargaining associations?

• Individual Employment Agreements: Look at individual employment contracts with employees, including agreements designated as statement of particulars, non-compete, confidentiality agreement, indemnification agreement, inventions agreement and expatriate arrangements – or at least check these for key executives and look at form / template agreements for rank-and-file employees.  Be sure to look at contracts with contingent workers (service providers like independent contractors, consultants, agents).

• Employee Consents: Check individual employee consent forms.  In jurisdictions like the UK and Korea, employees may have consented in writing to work overtime.  European employees may have consented to processing sensitive personnel data.  Employees may have acknowledged a code of conduct or work rules in writing.

In Part II of this International Checklist for M&A deals we’ll continue to break down the HR due diligence process and provide more reminders of what you should be looking for – what rocks you should remember to look under.

It’s a minefield out there, but now you have a map.

More than a few times I’ve stood in front of a podium, either discussing the intricacies of Compensation Management with practitioners and business leaders, or trying to instruct HR Generalists so that those who didn’t give a hoot about Comp could pass a SHRM certification test.

A question that often comes up during such sessions is a matter of strategy;  whether a company’s pay structure should lead or lag the competitive market.  What do companies do?  That’s an interesting question, even from those new to the profession – though often it’s asked because someone thinks the question will be on the test.

But now that I’ve raised the issue here, how would you answer for your organization?  Lead or lag?  Or is there a strategy at all?

Definitions

At first blush the concept is straightforward; if you Lead the market your pay structure (salary range midpoints) are targeted to be better / higher than the competition.  Conversely, to Lag the market is to provide less in midpoints than the proverbial going rate.

But is the decision that simple?  That black-and-white?  Isn’t the market a moving target?  Aren’t other variables also at work?

For those with a conscious strategy, many choose to pin their market competitiveness to a certain calendar date, either the first of the year, midway or the end.   Their goal is to position themselves to either lead or lag the market as of that target date, which means that their competitive situation would fluctuate before and after.

Let’s take a closer look.

• Lead-Lead:  If you want your pay structure to remain ahead of the market for the entire year (i.e., certain industries, skilled workforce, limited labor pool, etc.), you peg your midpoints to be competitive throughout.   By targeting the end date, December 31st you will stay ahead of the game even as the market slowly catches up.  You will lead the market for both the first and second six months of the year.

• Lag-Lag:  On the opposite scale, if you’re satisfied to remain behind the market for the complete fiscal year (i.e., certain industries, less skilled workforce, abundant labor pool, affordability issues, etc.), you peg your pay structure to be competitive (matched) only for one day, the first of the year.  From January 2nd onward your structure then slips behind the market, falling ever further all the way through to December 31st.  You will lag the first six months and even more so for the second six months.

• Lead Lag: A common practice is to split the difference, because you’re not too worried over six months of slippage.  So you peg your structure to July 1st.  You will then lead the market for the first six months, then lag the market by an acceptable amount for the second six months.

So now you can answer that test question.

The Real World

Often times though, you won’t have much of a choice, no matter what strategy you aspire to implement.  Because where you stand today versus the competitive market may limit your options to take corrective action.  For example, if your midpoints are 10% behind as you plan forward into the next year, trying to move toward a lead-lead approach would be a herculean task indeed.  You would have to advance your midpoints beyond normal annual progression to shorten the gap (normal structure movement percentage plus a catch-up adder).  The size of your movement could create potential compa-ratio issues (employees falling much lower in their salary range) that you might not have the budget – or management will – to correct.

And explaining to an experienced employee why they have suddenly fallen low in their salary range is always an awkward affair.  Thus you will likely be stuck with a variation of the status quo for awhile, on account of the difficulty you’ll experience trying to make improvements (increasing competitiveness).  It can be done, but to avoid disruption  it would take a phased approach over several years.

Conversely, in our example you could let your structure remain behind the market, because that would require little in terms of painful action.  You simply make a smaller annual adjustment, or none at all.  Though how you would handle the employee relations fallout is a different matter.

So going back to the answer from the podium, companies usually strategize and implement an approach if they already have a pay structure close to the market.  If not, the choices will be limited because of the costs involved in making a correction.

Sometimes that choice, to lead or lag the market, is made for us, and we’re left to make the best of it.

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

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

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

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

What is Compensation-Lite?

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

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

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

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

So What’s Wrong with That?

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

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

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

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

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

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

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

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

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

Is it time to provide leadership?

It’s not unusual in the recruiting process for a candidate to balk at the company’s initial offer.  Sometimes in their push back they might say that, having conducted a bit of “research” they feel that their personal value, or perhaps the company’s job pricing, should be greater than what is on the table.

How should a Manager respond?

Back in the day, before the advent of the worldwideweb companies were seldom challenged over how they priced their jobs.  The perceived value of a candidate’s background and experience might be negotiated, and often was, but not the internal value of the position itself.  These days the wealth of information available via the internet offers interested parties an opportunity to attempt their own investigation, to analyze what a company’s job is supposedly worth in the real world.

What do you say when a candidate tells you that your $70,000 job should be priced at $80,000?

What a Manager Should Know

If you haven’t been hit with this scenario yet, consider yourself lucky.  But it will happen.  The challenge could even come from an existing employee, one who feels that they are being undervalued for their responsibilities.

So how good is that “research” you’ve been told about?  Can you take it to the bank, or should it go to the garbage pile instead?  First of all, the online data sources most often quoted are frequently criticized as unreliable (inaccurate), and are seldom used by compensation professionals to base their program recommendations.  These sources often use data provided by the employees themselves, and without adequate filters to assure proper job matches.  Data collection techniques are often challenged by the critics.

Several referenced sources tend to be self-serving, especially those sponsored by firms tied to the staffing industry.  Reporting higher salaries would benefit them in the form of higher fees.

These sources are also convenient and inexpensive, another reason for their popularity.  But quality costs; you get what you pay for.  Here you get straight arithmetic, plain and simple.  The data cannot know the internal importance of a specific job within an organization.  It cannot interpret, cannot assign subjective values the way company decision-makers do when assigning a grade among peers, among like valued jobs.  Thus it is easy to miss the mark by not understanding the company’s job in terms of true market comparators.

So How Should the Manager Respond?

When the time comes and you’re exposed to this under-priced research tactic, step with care.  Your willingness to debate the issue hands at least a partial victory to the challenger, who will no doubt boast far and wide about their successful “strategy.”  So if you engage, be prepared for more of this as word spreads.  Don’t be put on the defensive.

You might consider several possible reactions.

• I didn’t hear you: As suggested above, you could ignore the gambit, refusing to engage in speculation, as discussing the matter gives a degree of credence to the challenger’s viewpoint.  Simply state your confidence that the job has been properly priced – then drop it.

• The push back: You could ask the candidate or employee what their professional credentials are for such research, as your company pays good money for compensation pros to keep you abreast of the market

• Push back II: You could challenge the “research,” but that of course gives more credence to the point being made.  Likely you will not win the argument, as whatever you say would be viewed with skepticism.

• I’ll pass:You could skirt the issue and refer to HR, saying that you’ll “have them take a look.”  this fools no one, but it does give you the opportunity to move the conversation in a different direction.  Note: this will not work with an external candidate trying to negotiate.

Your reality is that the company has already determined the value of the subject job, and will not welcome outside second opinions.  The job will have a grade, salary range and a midpoint – none of which will be changed because someone claims to have done a better job of “researching” how it should be valued.

I’d recommend the “I didn’t hear you” response, and be firm.

Btw, managers and executives have asked me which sources should they use to research the market value of the job they’re interviewing for.  They’re planning tactics for reacting to an employment offer.

Do they really think that the company is going to listen?

I tell them, “don’t do it.”

You’re interviewing for a new position and prospects are looking good.  You feel that they’re going to extend an offer. You know what salary you want, what you need, what you deserve, but you don’t know whether your prospective employer sees your value in the same terms.   You can’t read their signals.

When they do present an offer of employment the starting salary may be a good figure, or it may not – but where did that number come from?   And could you have anticipated it?

The employment offer that a company extends a candidate doesn’t drop from the sky like a brainstorm of intuitive thought.   Oh-oh, let’s try this!  Nor does the offer necessarily mirror what you think you deserve.  It does relate though, to what the company feels is appropriate for the position they have, what they can afford to pay, and what amount fits within their internal pay structure.  If the figure is also the amount you desired,  that’s icing on the cake.

Candidates often think that what they’re offered has a direct connection to what they were making before, or what they asked for.  If that’s the way you feel, you’d only be partially correct – because it’s not always about you.

Every company has a decision-making process they follow as a guide in constructing an offer.  This process is applied to some extent for every candidate, no matter what final figure is ultimately used in the offer.

First and foremost, the company will have either a hiring range or at least an estimate of what they want to spend (what they were paying the last incumbent, pay rates of similar jobs or peers,  what has been budgeted, etc.).  Thus to the company the job under search already has a value, so they can anticipate what they will likely pay, even before they’ve met you.

So they have a number in mind.  Now you come along and seem like a strong candidate.  They will need  to know how your numbers (wants and needs) compare with what they are prepared to offer.   Bear in mind that they may be reluctant to offer too small or too large an increase over your previous compensation.

Do not attempt to withhold your compensation history – or in any way confuse the issue, as this tactic might explode in your face.   The employer might simply say “fine”, and move on without you.  As they never like surprises, especially when it shows that they didn’t know enough about you before making the offer, any reluctance to explain your compensation history would be a huge red flag.

While hiring guidelines are usually set up for recruiters to follow, exceptions can and will be made, but they’ll likely require some justification, some “selling.”

Offer amounts can also be restricted by policy or precedent:

• Starting salaries may not exceed salary range midpoints

• Hiring below range minimum may be prohibited

Internal equity is also very important, and may dictate an employer’s degree of flexibility.  They cannot afford to anger two employees in order to please one – and they don’t know you.

Many candidates lose sight of the company’s perspective, thinking of their own value in the marketplace – what they deserve, given their personal background and experience.  For its part the company is trying to fill a job for which they already know the value.  That is what commands the offered salary, not what the candidate is necessarily worth in a universe of possibilities.

Consider a hospital seeking to hire a general practitioner, and a brain surgeon applies for the position.  The brain surgeon may well be worth the going rate for their skill set, but the company is hiring a different position, with a different (lower) value.  They don’t need to pay, and likely can’t afford the services of a brain surgeon.

What to do?  Ask about the hiring range, how much the company expects to pay for a qualified candidate.   They will have a number in mind.  Best you know up front in case there is a disconnect in valuing your services, lest you both waste time.

I don’t get it.  Can someone help me understand?  Why are some organizations interested in what other companies are planning to do with their midpoints next year?  I presume that’s the case because there are surveys out there compiling and reporting such data.  But who really cares?  Aside from anecdotal information I have never understood the importance of this reporting.

To be fair, perhaps my experiences are the exception, because I’ve never used that data in program analysis, or even reported it.  But somebody must be using it.  Somebody.

I can only guess that I’ve missed something ; maybe I should have taken another WorldatWork class, because the issue has never arisen from any employer I’ve dealt with, either as  an employee or an outside consultant.  Which leads me to ask, do some companies actually recommend raising their midpoints on the basis of a survey(s) announcing what other companies are doing?  Is that metric as important as what is being paid for particular positions, or what the average merit spend might be next year?  How does projected average salary structure movement relate to my company’s unique situation?

Can you envision  recommending  to senior management that midpoints be raised by X% because that is the projected average midpoint increase of other companies?

For me the focal point of survey analysis has always been to determine the competitiveness of our current  midpoints.  In planning for next year we should adjust those midpoints to either remain competitive (our midpoints are already there),  to improve our standing (our midpoints lag the market), or freeze them (midpoints already pegged above market rates), no matter what a survey reported was common practice.  Am I wrong here?  I have always thought that my company’s salary structure should move in relation to our own competitiveness, regardless of what anyone else is doing.  Otherwise we could be making improper adjustments – either too much or too little.

And what about the expense involved?  Contrary to what some pundits have assured me from time to time, midpoint growth can create costs.  There is no free ride.

• When an employee’s base pay drops below salary range minimum on January 1st, do you cover that amount – or wait until the next review?  Whenever that might be.  The fair thing to do would be to raise the employee to minimum and then (or later) grant a merit increase on top of that.  Extra cost though, right?

• Higher midpoints push experienced employees further from the internal “going rate” – creating pressure to restore the balance.  Have you ever explained to a long service employee why they weren’t being paid at least the midpoint?

When are these midpoint estimates made, and how accurate are they?  They’re really guesstimates, and many times the questionnaire is filled out without due consideration, just to get the form completed and sent away.  After all, most companies won’t confirm their new structure commitment until  @ November (senior management sign-off), while the survey questionnaires are completed in mid-summer.  So how good a guess do you make in August?

Btw, a company’s salary structures (grades and salary ranges) are usually segmented along the lines of hourly, non-exempt, exempt professional, and management employees.  To gain a clear picture of your competitive marketplace you should consider that each segment is moving at a different rate.  For example, it’s likely that management pay is growing at a different rate than for hourly employees.   Suggesting that only a single number would reflect your entire population would distort the reality of your multiple markets.

Now I suppose there may well be companies out there that have changes to their reward programs contractually tied to “market movement” or even structure (midpoint) growth, but do you think there are that many so governed?

So, can someone  tell me why analyzing other company’s guesstimated midpoint movement  is important?  I’d really like to know.

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

Employee morale has plunged off a cliff.

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

HR can stand out from the crowd.

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

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

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

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

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

Does that work?

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

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

The Management Fear Factor

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

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

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

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

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

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

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