In our last post we introduced you to the Seven Step Compensation Diet – to strengthen the internal value of company reward programs while dampening the upward spiral of your labor costs.

Our 1st step focused on the need to identify the organization’s reward challenges (what must be changed) before beginning the effort to establish corrective action plans.  Now that we have taken a look at ourselves in the mirror and acknowledged the current state of flab and flaws we need to move forward to the next stage and start developing practical solutions.  We have to start the diet.

Step #2: Develop a Compensation Strategy

Solutions rarely arrive by whimsy or happenstance, except in popular fiction. In the real world they are the result of planning and forward thinking.  The same applies when the need is to improve your reward programs.  You begin this process by laying out in your mind the general theme of how you plan to reward your employees.  Then you word-smith clear and precise statements that describe your beliefs, and around which you will design, administer and communicate your reward programs.

How important is an effective reward strategy?

• Helps guide and inspire the workforce

• Provides specific, motivating direction for connected actions

• Identifies the focal points for your programs

• Positively brands the company and helps recruit better employees

Whether you choose a formal or informal approach (back of an envelope to a formal document posted on the wall) you should map out in broad terms a vision of how the Company should reward employees.  There is no need to be fancy here, but your series of statements should mark your organization as an advocate of certain Human Resource principles (pay-for-performance, competitive salaries, focus on internal promotions vs. hire, etc.) – to be communicated frequently, be easily understood and viewed by your candidates and employees as credible (trusted).

How does this help?  Like using a Carb counter or a calorie guide, when setting out the guideposts of your reward philosophy you establish critical “do’s and don’ts” and openly communicate your principles.  The organization plants a stick in the ground.  Be careful though, as this is something for both you and your employees to point at – for standardization, consistent treatment and, of course, precedents going forward.

Many companies are reluctant to formalize a transparent strategy (worries over gaining management consensus, strategic effort and required commitment to results).  Others equivocate and muddy the message through generic wording, lack of specific design elements and the look and feel of everyone else.  That result comes across like a vague Mission Statement; broad, aspirational phrases like market leader, shareholder value, supplier of choice, leading edge technology, etc.  Such prose is immediately forgotten by everyone.

Anecdotal examples to illustrate the difference of broad vs. specific:

• We will be market driven; market competitiveness will be given priority over internal equity

• We believe it’s important to share the cost of benefits with employees

• We will provide employees with the opportunity to earn above average compensation for above average performance

• Our compensation and benefit programs will be designed to be competitive within our industry and revenue size

• We reward employees on a pay-for-performance basis; general adjustments are to be avoided

At this early stage of designing reward program transformation you should ensure that senior management is not only supportive of your strategies, but engaged in achieving the vision.  You will need this air cover for the tough decisions and passive resistance to come.  If you cannot count on active and public support, it would be best if you stop your dieting plans here.  You either walk the talk or you sit down.

And yet, you still ask, what if we go without?

• Your largest single company expense would be left without a guiding principle

• Without a governing theme reward costs will rise at a greater rate than planned or desired

• Inconsistent or possible contradictory messages will continue to create difficulties and expense

So, what’s it going to be?

It is an easy thing to lead an organization when the good times are rolling, but during a recession – when challenges assail you from every direction – not so much.   To succeed, to lead under these circumstances will require not only possessing a particular series of technical and behavioral skill sets but the ability to apply them as well.  Effective cost cutting has become a business priority, as well as the imperative to continuously create more efficiency in company operations.  You need to trim down as well as trim back, but in a managed fashion that will strengthen your organization for the future.

When it comes to Human Resources and the management of your payroll dollars, you need to cut the fat and tone the muscles; you need to go on a diet.

In your personal life the decision to begin a weight loss / trim down regimen typically means that you have recognized a problem with your current life style and have committed to 1) stop certain negative-reinforcing actions (eating the wrong foods) and 2) instill a sense of discipline to follow new positive-oriented behaviors (portion control and exercise) that would lead you to a healthier tomorrow.  In a similar vein companies facing a legacy of wasteful spending and misused employee rewards require the same discipline to curtail ruinous business practices and embrace the need for new thinking.

In order to rectify costly and damaging practices that have built up and ingrained themselves over time HR management will need to change the manner in which they reward employees and exercise more prudent behavior – as if the funds came from their own pocket, versus a bottomless well or the company’s money tree.

So how do you do this?  Where do you start?  I suggest that if you follow the Seven Step Compensation Diet you will develop a more effective and efficient HR organization, one that maximizes employee reward dollars while keeping a close eye on the company’s business objectives.

Today begins a series of Compensation Café posts that will describe each of the seven steps your organization should take to turn your pay practices around.

Step #1: Look Yourself in the Mirror

People begin a diet because they need to.   The damning evidence stares back at them in the morning mirror, forcing an acknowledgment that something must be done.

Management and HR professionals face a similar wake-up call as employee-related problems raise their troublesome heads and demand attention; payroll costs grown out of control, an increasing turnover of key talent, lower productivity or perhaps evidence of worsening employee morale.  Something is damaged or broken within the organization, economic and human factor pain is being felt and the need to address the issues has become critical.

Sad to say though, that it’s usually a crisis springing up out of nowhere – not timely self-appraisal – that forces action to replace historic lethargy.  Advance warning for the unwary is a luxury that cannot be counted upon.

The likely sources of this pressing concern are systemic practices rooted in outdated or ill-monitored policies that have out-lived whatever usefulness they might have once claimed.  So ask yourself:

• Do you have an HR / Compensation policy manual?
• When was it last updated?
• Do employees / Managers read it / use it?

Or perhaps it is simply that senior management is shouting at you?

Whatever the catalyst, at this early identification stage you will have a sense of likely problem areas (i.e., out-of-date procedures, lack of standards, policy gaps, poor documentation, training issues, etc.).  Analyze the likely causes (the actions likely feeding the problem) and consider what practices or policies the organization should modify or stop outright, and what activities or programs you need to start.  Then write them down.  Identify those policies or practices that may be causing harm and need to be reviewed, and then which new initiatives would alleviate the problem and strengthen your organization.  You will need to focus on these weak areas, as such components of your pay program become the baseline for your future efforts.  Do not lose sight of them.

Knowing you need to take action is a big step, but only the first.

Next up – Step #2: Develop a Compensation Strategy

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

Most companies (@85%) 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 (hourly, professional, management) 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 equalize 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, and the one-size-fits all way of dealing with far-flung employee groups.  For many companies and international compensation practitioners it is actually the administrators 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?  Here are a few metrics to illustrate what they 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 “XYZ Corporation”, right?  You should consider the following before taking out that cookie cutter.

• Economy:  When you’re dealing with country-specific inflation rates that range from flat to 20%+, do you really want to offer the same percentage salary increases?  What if one country is 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 pay-at-risk 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 uncommon format and methodology, the result could be more than just confusion and local administrative difficulties.  It could also mean the greater likelihood of over payments in some quarters while paying less in others – all for the sake of sameness and common report generation. This would offer up a combination of hurting employees while also hurting the business.

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

For those of us who have spent their entire career in the Human Resources / Compensation arena our pathway likely started at the bottom of the ladder, writing job descriptions, completing survey questionnaires and evaluating jobs.

Eventually you worked your way up the food chain into survey analysis, market pricing, structure design, incentives and program development. You mastered the various formulae, charts and graphs, could make Excel dance on a dime and you would happily debate the various and complex techniques that befuddled your HR generalist colleagues. If you stayed at it long enough you eventually became a master technician on the “hard” side of Compensation. You carried a calculator everywhere.

The Hard Side

The “hard” side?  This viewpoint represents the traditional view of compensation practitioners from the outside looking in.  We are those who manage the technical analysis of impersonal data bites – the black & white world that only deals with neutral and impersonal facts.  We are usually placed in a small cubicle, left to our own devices.    No one stops by to chat.

We don’t receive Christmas cards.

Then it happens; one day you’re asked to walk through the beaded curtain into a new world, a new career in something called Compensation Management. This is exciting, because on the other side is increased pay, a loftier title and finally recognition as a “player” within the HR community.

The Soft Side

You are assigned internal clients, managers who suddenly aren’t interested in your formulae, charts & graphs or technical babble. They want you to solve problems, provide solutions, to talk with them and explain how Compensation can help them achieve their business objectives.   You become an advisor, deeply involved in “what do we do now?” scenarios.

This is the “softer” side of Compensation, where rules become guidelines, policies become politics and the proper answer to most everything is “it depends”.

Not everyone successfully makes it through that beaded curtain, though.  Why?  Because the journey requires a mindset change as well, into a place where your comfortable analtyical tools don’t serve as well and you need something called “relationship competencies” to succeed. I’ve seen many people falter at the curtain; some do not want to pass through – and others have stumbled through, only to eventually burn out like a meteor shooting across the night sky.

Why do some fail to succeed once through the curtain?

• Non-Exempt mindset: some are not comfortable being part of management, as they continue to identify themselves with their former colleagues and find it difficult being labeled “management” and required to support a particular view of employee reward.

• Too comfortable with black & white of technical analysis; figures don’t lie, they just are.  Can’t argue with that.  There’s a comfort in dealing with the neutral, just reporting the facts.  Some prefer to stay in this “safety zone.”

• Not comfortable with multiple answers for the same question – a common problem where differing circumstances result in differing answers.  Like the ground shifting beneath your feet, the certainty of sameness is replaced by “it depends.”

• Preference to let existing policies and procedures make the decisions; some folks don’t like to stick their neck out, to face being challenged and having to defend their recommendations.

• Preference in the safety of the numbers, vs. dealing with the people who are affected by those numbers.  You’re in HR, so you should be at least somewhat of a people person – sensitized by how your recommendations impact employees.  Some aren’t comfortable with this role.

Back when you were an analyst you were not expected to develop tactical strategies and recommendations; you read the surveys, tabulated the spreadsheets and reported your findings.  That was it.  Sound harsh?  Not at all, as proper analysis remains a critical component for the making of informed business decisions.

To be an effective practitioner in compensation management is to straddle both sides of Compensation, to understand the technical aspects of where the numbers come from and what they mean, as well as the brave new world where your role is as an influencer of management decisions.  To be successful you need to breathe the crisp air of business realities and shake up those technical rules that you’ve learned so many years ago; you do not let them rule you.

But you still won’t get Christmas cards.

Compensation management is a challenging role, requiring you to balance the numbers, the people, and business realities – all while sticking your neck out to recommend a potentially contentious course of action.

Or you could sit back and let established policies and procedures do the talking, though that’s probably not the intent of the increased salary and important title.

What’s it going to be?

I once supervised a Compensation Analyst who had learned her craft through professional seminars and workshops.  One result of that education was her favored response when faced with a challenge at work; “the greatest minds in Compensation say that . . . “.  It took patience to educate this budding practitioner in the difference between the classroom / textbook answer and the reality of the workplace.

A while ago I came across an HR blog where the author instructed readers in how to create a merit performance matrix.  Very good stuff, I thought, admiring the technical step-by-step directions, except I knew from long experience that the procedure being described would never work in the real world.

While it is critical to understand the technical foundations of Compensation methodology and practice, first and foremost you need to anchor yourself in the here and now, to know what will work and not work in your own organization – no matter what the finest minds in Compensation think.

Why does Compensation theory often clash with workplace reality?

• Business realities:  management knows more about a particular business situation than you do.  What you provide to the decision-making process as a Compensation professional is limited to your subject area, while management usually has the bigger picture – the perspective of multiple viewpoints.  Your advice may not fit their business reality, no matter how logical your argument.

• Bias of decision-makers:  they may feel that they intuitively know the right strategy (they’ve done it before, if-it’s-not-broke-don’t-fit-it mentality, a friend / relation / old college chum suggested an approach, etc.).  Perhaps they read an article and now are insistent to follow the advice of an author who lacks an understanding of their business.  Years ago I worked for a company whose CEO forced HR to implement a particular benefit plan because he had read a magazine article.

• Problem avoidance: short of killing the messenger, one solution for management is to do nothing (you’ve exaggerated it, the solution costs too much, there’s still time, etc.).  These senior managers avoid major decisions until it bites them in the leg.  It can sometimes be dangerous to your career if you try to force a decision.

• Business culture or model: some initiatives don’t “fit” in your organization.  Managers with a laid back organization style will not be interested in recommendations to document uniform policies and procedures and have standardized forms for every action.  Picture your head banging against the wall.

Sometimes those experts who teach Compensation techniques fail to ground their instructions with a caution: check this process out in the reality of your workplace *before* you take a classroom technique and wave it in management’s face.

For example:

When designing a pay-for-performance merit increase matrix the standard rule is to place the average increase percentage in the cell block most populated by employees (average performance and average position-in-range).   The sound reasoning for this technique is to better manage the costs associated with that year’s annual increase process.

A lot of years ago I followed that approach in my first compensation leadership role.  I still have a little bump where my head hit the wall.

Here’s the rub; such a technique requires that the matrix change every year, as the analysis demands you study where the population averages fall each year.  But management will likely have none of that. They want the same matrix every year, for ease of administration and communication.

Another area that separates the compensation technician from the professional is the ability to deal with what I call the “softer” side of compensation.  Survey statistics, charts and formulae are very good to a point, but management will want to know what it means and what to do about it.  So the answer isn’t simply reporting competitive data, but taking that next step to help management understand and strategize future action.

The contribution you can make to your organization is blending technical knowledge (the how-to) with seasoning and experience to understand what will work for your organization, considering culture and management bias.  Technical knowledge will give you the same answer every time, but knowing how to use that knowledge like a craftsman’s tool to aid in achieving business objectives – that is the key to success as a Compensation professional.

Of course you do.  I’d like one too.  But is it a good idea?  Is it money well spent, or a needless expense providing little benefit?

Clients and colleagues often ask, should we?  How much?  For who?

I’m talking about a one-time cash payment granted as part of the employment offer,  often considered a bonus for accepting the company’s offer.

How it is used

A sign-on bonus is like wallpaper; it can cover a lot of ugly cracks in the employment offer, and is sometimes used to avoid back-and-forth negotiations by cutting a check to call things “square.”

A company offers a sign-on bonus as a replacement for some element of the overall package that the candidate finds lacking, or as an inducement to pump up the candidate’s first year earnings.   It is usually because the candidate is walking away from some element that the hiring manager wishes to replace in-kind.

A sign-on is not common practice, or required as part of an employment offer.   Candidates may routinely ask for one (why not?), but at most levels companies are reluctant to agree.   It is simply one of the negotiating tools used, generally in concert with others, when negotiating complex or challenging employment offers – most commonly with the senior staff.  That is because those candidates are more likely to be leaving something on the table with their former employer.

Some common scenarios:

• When the offered salary is lower than the candidate wants

• When the candidate is not eligible for this year’s annual incentive

• When some benefit or perk with the present employer is not part of the offered package

• When  some portion of either current bonus payment eligibility or stock option vesting is lost to the candidate

• When there are no viable alternate candidates and an acceptance is critical

Below the Executive level the award is less common because of less complex package offerings, though a salary gap (offered vs. requested) often raises the issue.

A good idea?

Offering a one-time check to allay a candidate’s concerns can be an effective strategy to smooth over the bumps of a less-than-perfect employment offer, but like any additive cost it should be used with care and with a view toward a ROI.   Offering extra money when not necessary or not targeted to achieve a specific aim is a waste of that money.

If considering a sign-on bonus for a candidate, you should know why.  Hopefully it is to resolve a perceived gap within your offer package, not simply because the candidate asked for one – and certainly not because “at this level we always provide a sign-on.”

How much?  Awards are usually in discrete amounts like $10,000 or $15,000, versus a percentage of base salary, as in-between amounts suggest a formulaic approach and may create the illusion of precision.  The offer letter should also state “gross” after the amount, as payroll taxes should remain the candidate’s responsibility.

Caution:  remember that sign-on bonuses only address 1^st year earnings.   If the offered reward package has significant downsides for the candidate, the issues will resurface again after the first anniversary – but then it will be an employee problem.

Points to ponder

Like most effective company policies / practices, it is best to write things down, to establish standards of uniform practice.   Managers need guidance to keep from making expensive mistakes.  Here are a few Sign-On Bonus considerations:

• Eligibility: Is every position eligible to receive an offer, or does the practice begin at certain hierarchical levels?  Can circumstances allow for exceptions?

• Amount of award: Do you use discrete amounts (i.e., $5,000, $10,000, $15,000 etc.) or a percentage of base salary?  Or is it completely discretionary?

• Administration: Is the award a net amount, or grossed up for taxes?   Is a portion of the award recoverable in case of early resignation?  Senior management approval should be required.

Extending a sign-on award as a negotiating tactic to improve an otherwise flawed employment offer can be a sound strategy, but have a care that you’re doing it for the right reasons – and under the right circumstances.

Anybody raise their hand?  Of course not; no one wants to be paid at the minimum rate of anything.

It’s one thing to hold down a minimum wage job, paid the government mandated rate, but it’s another to be higher placed in the organization but only paid the lowest available rate for your job.

How would it make you feel?  Not a warm, fuzzy moment, is it?

Minimum Value[

When you pay employees the minimum rate for a position you’re telling them that their value to you is just that, the least payable for the position – which is not exactly a strong statement of recognition or encouragement.  Quite the opposite.

Of course, there may be several legitimate reasons to pay at the bottom:

• A candidate only meets the minimum qualifications for the position
• The employee being promoted has a salary low in their current salary range, and it would take too large an increase to raise them into the new range
• Other, more experienced employees in the same or similar job are presently paid low in the same salary range.  In other words, internal equity is an inhibitor of higher pay.

Hopefully the company will keep an eye on this employee, so that their status as “minimum paid” will be as brief as possible.

Given the above, what must it mean to an employee when you pay them less than the minimum; less than the announced lowest value for the job?  It lets everyone know that to you (the employer) their value is even less than what you’ve told other employees you would pay for minimally qualified employees.

Studies have shown that low paid employees tend to perform as you reward / treat them.   If you keep someone low paid relative to their internal / external worth, you will receive a similar value from them (performance) in return.

Paying less than the minimum

So why would they do this?  What reasons would compel companies to pay employees at a rate below the minimum of the salary range?

• The employee is newly hired, with minimal qualifications for the position, so the company uses a temporary training rate.  When performance indicates the employee can do the job at the basic level they are raised to the minimum rate – usually in 3 to six months
• For an internal promotion, where the employee is minimally qualified and the company is giving them “a chance”.  Again, a quick increase to the minimum is warranted when performance indicates.
• If a large increase is necessary to move an employee from one salary range to another, some Managers resist granting so much money at once, preferring instead to grant installments that will eventually gain the minimum rate
• Some managers want to see a “stretch” employee actually perform before the pay them the minimum rate.  In this case the manger puts the employee into the position, with full responsibilities – but without paying for it.

The question you’re all asking is, do companies actually follow through and quickly raise such affected employees to the salary range minimum?  I’m afraid the track record is spotty, at best.

A Bitter Harvest

Without off-cycle intervention an employee at the minimum almost never reaches the midpoint of the salary range.  Consider this:  an average performing employee paid at 80% of the midpoint (a standard minimum rate for a 50% salary range spread) will receive a series of 3% – 4% annual merit increases, while the salary range will likely raise @2% or more each year.  Under such circumstances how long will it take for the employee to move a net 20% to reach the midpoint?  8 Years or more.  How long will it take an average performing employee to gain enough knowledge / experience in the job to warrant being paid the market rate?  A lot less time than 8 years.

Low paid but satisfactorily performing employees will see their market value increase faster than most employers raise their pay – thus making this group more susceptible to being lured away by competitors, or any employer willing to pay them what they are worth.

When you promote an employee whose resultant pay is near the bottom of their salary range, be careful to avoid creating problems for yourself in the new salary range; it will be very difficult to move a low compa-ratio employee to a higher ratio in the new range – without providing an eyebrow-raising increase.  Who has the budget for that, even during good times?

So look to the bottom quartile of your salary ranges and find out who is there.  Marginal performers likely deserve no better, but you had better ensure that higher caliber employees are moved along and further into the salary range before soured morale and disengagement set in – or they simply quit.

When you first look to purchase compensation surveys for your international population, it’s going to be a real wake-up call.  For those accustomed to only US surveys you will find that the available data in many countries is more limited than what you’re accustomed to seeing, as are the number of companies involved.  What won’t be reduced though is the expense.  Quite the opposite.  If you have multiple countries to deal with, your budget for credible compensation data will likely become a multiple of your US experience.

When I worked overseas my budget for compensation surveys was 3-4 times my previous US budget – and I only had to worry about Europe.  What a shock that was – spending much more and arguably receiving less.

Think on it, though: each country is a separate USA, a unique national entity having country-specific labor laws, employment regulations, tax structure, competitiveness challenges and variations of economic strength.  For each you will need a country-specific survey to assess the local competitiveness of your employees.

International HR practitioners will need to adjust their thinking to react effectively in smaller countries, where the working population is limited and so is the number of survey participants.  It will be difficult to slice surveys by geography, industry or employee segment, as the data points grow smaller and smaller with each criteria.  For example, a well-regarded Mercer survey for Sweden showed 202 participating companies, while the Netherlands counted 81.  Meanwhile the US survey totaled 500 companies.

To compound this dilemma of accessing credible data you will typically be required to pay “list” costs for each survey, as compared to the US where I was able to gain lower 2^nd copy costs and often times managed to wheedle discounts or “anticipated” participation rates.  Such tactics are not as readily available overseas.

Availability of locally-grown survey data is another challenge.  I have tried to locate such sources, even those provided in the local language, in order to create a greater “buy-in” sense from management, but with very limited success.   Even global companies with non-US headquarters tend to use the multi-national consulting firms.

Accessing International Resources

Should you require information for international compensation practices, below are a number of useful sources, each of which can be tapped via a Google search.  Note: many of the non-US sources focus on limited employee segments or functional areas, which may limit their usefulness during a general search.

Should you only have a few positions (2-3) in a given country you can reduce costs through individual job pricing, vs. the purchase of an entire survey.  More than a few positions though, would render this tactic economically unfeasible.  A few notable sources (though others from the above list may also be able to help):

• ER Limited
• ORC
• Birches Group

Note that I have not included sources from the current vogue of online surveys, like PayScale and Salary.com.  To my mind these sources still have credibility problems to overcome before they would be accepted by senior management as a viable resource.

Another effective strategy for reducing costs is to age current data forward, coupled with the use of biennial purchasing.  However, if utilizing this strategy have a care to limit its use to countries with stable economies.  Using such standard growth figures would miss the mark in countries showing greater volatility.

The Cost of International Operations

Too many HR practitioners and their Managers fail to take into account the expenses involved in keeping their international compensation programs competitive, especially where the organization has a small footprint in a given country.  For companies new to the international scene, and for those with small populations in several countries, the shock of survey costs could be daunting.  Many times the result is a reluctance to purchase the data, in some cases letting matters on the ground continue to fester – potentially overspending and / or creating debilitating equity problems for themselves.

Call it the cost of doing business, but if you’re going to maintain effective operations overseas, and you want to provide a competitive reward package (of course you do!), it would be unwise to shortchange the process by guesstimating or otherwise trying to make-do without credible information.

The cost of surveys is a fraction of the possible financial impact that could result from retaining non-competitive reward programs.

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

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

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

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

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

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

A few anecdotal examples:

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

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

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

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

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

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

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

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

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

But that behavior is not managing is it?

Have you ever walked out of a store because of poor customer service?  Or felt frustrated because the company representative at the other end of the phone did not seem to care?  Or after enduring a bad experience with an employee at a particular establishment you said “never again”?

Customers react first and foremost to the employee they are dealing with, the one they are facing, whether the transaction is financially significant or not.  To the customer, that employee “is” your company, and these buy / not buy decision-makers will consider the treatment they receive a reflection of your company, for good or ill.

It is worth noting that the person who just caused you to take your business elsewhere is likely one of the lowest paid employees in that organization.   Does that reward / impact relationship make sense to you?  It would seem that the organization does not recognize / reward (value) the impact that their employees can have on customer relations.

Does your company acknowledge and measure the value and impact that these employees can have?  Or is this skill set a compensable factor at all?  Have you ever checked?

Many companies have long ignored the importance of the customer-facing job (non-direct sales) in determining a position’s value to their organization.  They consider education (what you know), experience (how long you have been doing something) and competitive survey data (what others are paid for a certain set of skills) in setting their pay scales.  The fact that the position also has the power of gaining or losing customers is often lost on them as “just part of the job description.”

Some job evaluation systems may give a nod for those facing customers on a regular basis, but such recognition is not often viewed as a critical factor – nor does it help determine where in the salary range the incumbent is paid.

Oftentimes it is the lower paid employee or the position with the least amount of “cachet” that presents the jobholder with the opportunity to influence customer action and reaction.  As an example, the employees most commonly approached by guests at Walt Disney World are the Custodial workers.

Is it not surprising then that these employees can have as great an impact on customer good will and retention as your executives?  Studies have also shown that having a pleasant experience when dealing with a company often outweighs price considerations and marketing glitz.

However that does not mean that you have to pay more to these employees than the marketplace suggests, but it is in your best interest to ensure that they are fairly treated:

• Ensure that actual pay centers on the middle of the range or higher.  Do not risk minimum pay scale workers interacting with your customers.
• Hire well into the salary range.  This is not a time to be cheap.  That dollar you saved today could cause you to lose a great deal more later on.   It pays to remember that it costs a great deal more to gain a new customer than to retain an existing one.
• Modify your performance appraisal process to recognize the customer facing role; attitude is just as critical here as know-how and experience.  Your customers place great value on the smile and pleasant demeanor they receive from your employees.
• Develop a point of pride for these workers, coupled with fair and competitive pay, to encourage that the right caliber of employee applies for these positions.
• Avoid structuring these as “dead end” jobs.   Offer upward opportunities for higher performing employees.
• Listen to them; they are talking to your customers and their suggestions for process improvements – even new products and services – should be considered.

How do you know whether your company is vulnerable?  1) Ensure that these positions are regularly surveyed for competitive pay practices, and then 2) Create a report segmenting the actual pay of your customer-facing employees to determine the average compa-ratio and spotlight the presence of low paid workers.   Then you will know how well you are paying those closest to your customers.

Now we should have a final word about direct sales, which is perhaps the ultimate customer-facing job.   Be careful that your training and recognition programs remember to acknowledge the importance of the customer-facing relationship – beyond an immediate financial impact.  Rewards should not be all about short term results.  A customer made unhappy by your sales rep can decide to; 1) not place an order, 2) limit their order and split their requirements with another vendor, and / or 3) spread a negative comment to their professional associates that reflects poorly on your company.

Each unfortunate scenario reinforces the financial and long term impact of the individual employee.

Such would be a hard lesson indeed.