Tipping Points – 5 for Pay Professionals

stickman Pay Tipping Point“The moment of critical mass, the threshold, the boiling point.1” This is how Malcolm Gladwell describes the tipping point. It is the moment when things truly change and return to the prior state becomes hard, or even impossible. Responding to major changes like these tend to drive evolution or revolution. The results can be more volatile than expected and occur more quickly. There have been many compensation-related changes happening over the past couple of decades. I make the case for five elements that may be nearing a tipping point.

1. Pay for Performance.

Pay for performance is incredibly popular right now. I am one of its biggest proponents. But, as the use of P4P rises, so does the lack of verification of effectiveness, structure and communication for these programs. There is real potential for the abject failure of these programs as a whole. P4P is filled with potential risk. Failure will likely be seen in angry employees and struggling companies.

2. Pay Disparity.

It has been almost one hundred years since we have had wealth disparity in the United States like we are currently experiencing. Not all of the disparity is driven by pay, but as the wealth gap has grown, so has the pay gap. We are already seeing attention from the media, scrutiny from the government and discontentment among employees. While the first two get the most attention, it is the employees who will drive the tipping point. Unless they are given some path to correction, they will find a more volatile way to drive change.

3. Retirement Shortfalls.

The way we currently look at retirement has been around for just about the same amount of time as our oldest citizens. These senior people had a lot of help in preparing for retirement and we still have huge problems with poverty among the elderly. It is expensive to be alive. The shortfall between retirement funds versus needs has been well documented. We have built a society where people live a long time and can do so knowing that they are supported by funds that were designated long ago. As retirement funding changes and social security fails to keep up with the cost of living, will we see new “families” where employees spend as much time and effort supporting their parents as they do their children? Can the two-income work structure we have built support this additional need for time and money?

4. Pay Survey Use.

Pay surveys are useful ingredient in delivering proper pay. But, like sugar, overuse can be unhealthy. The flaws of the data and how we use it have been documented for years. Search on the term “survey” on this site and you will see what I mean. Pay surveys help make our decisions “feel” better. Sometimes at the expense of them actually “being” better. Are we prepared for the moment when the overuse of surveys becomes a rallying cry for those people outside of our profession?

5. Equity Compensation.

Many of you know that I believe equity compensation is an incredibly important element of pay. But, like other forms of pay for performance, it has often been used without a thorough understanding of its impact. The growth of equity compensation easily aligns with the growth in executive / employee pay disparity. Pay disparity is itself nearing a potential tipping point. Without thoughtful planning and better use of equity compensation, we may see it disappear like so many other formerly useful pay programs (defined benefit plans anyone?).

1 The Tipping Point: How Little Things Can Make a Big Difference

 

Pay for Performance Lessons from the Tour de France

Stickman Tour de France P4PThe 2014 Tour de France is 2276 miles (3664 K). It is a grueling race that covers 21 stages that include mountains, hills and flats. The “winner” is the individual with the lowest total time at the end of the final stage. How they accomplish this goal is very enlightening and applies directly to pay for performance and corporate culture.

Every rider is part of a team. Every team has a designated leader. The leader is generally very good at multiple disciplines, while other team members may have specific skill sets that are important during different stages. The final trophy is presented to an individual, but no one rides alone.

Like the employees at most companies, many of the team members work hard but are fairly anonymous. And like corporate executives, the lead rider gets most of the glory, money and fame. The top riders on each team can make more than $1,000,000. The average salary is around $200,000 and there is even a mandatory minimum wage of $52,000. In addition to these amounts, there are performance bonuses, appearance fees and other considerations. So, in general, the riders are paid much like employee of most companies.

Individual performance is lauded. The specialist riders have specific goals throughout the race. The sprinters, hill climbers and young riders all get recognized from day one through the race completion. They compete in races within the race even as they help their teams.

We all know it can be hard to see how each employee contributes to the success of a company. The Tour de France is great because the teamwork involved in winning the Tour can be easily seen every mile of the race. The teams mostly ride in groups to make the race easier on the team leader. They protect the key players and they allow for a team to control the pace of the race. When everyone is riding well it is similar to an effective software development or manufacturing team. It’s when things go wrong that we see our real pay for performance lesson.

When an average rider crashes or has a mechanical problem, they can quickly fall behind the peloton (or pack of riders). The lower level riders may get help from a teammate or may be left to work their way back to the team. But, when a team leader goes down, a multi-person escort immediately falls back to ensure their path back to the front is as easy as possible. Yes, this is the guy who is paid the most, but he is also the guy who is most likely to get every team member a win. There is a team manager riding in car who decides who gets help and how much help will be given.

Rather than build an all or nothing environment where an individual must perform perfectly or be left by the roadside, the teams understand which individual gives them the best chance to win. As long as the team leader provides them with the best chance in the long run, the team will do anything to support them. As pay for performance becomes the new normal this is a lesson we must all remember.

Designing a plan that pays all or nothing creates many issues. It magnifies a single failure into what may seem like complete failure. It can leave an individual feeling like they have no support to get back to the front, even when they provide the best chance for everyone else to win. It can inspire people to display bad behaviors. The leaders may “bend” rules in order to win. The next layer of players may be inspired to sabotage the leader to capitalize on their own opportunity. In long-term incentives, the focus on the end of the race can distract from the day to day strategy and tactics required to stay in contention. In short, providing for small wins and measured success along the road is a far more effective way to win a race.

The Tour’s focus on the team work, interim goals, long-term planning and execution make it a great example of how to do many things right. Of course, it has had many ignoble problems over the years, which also shows the need for great oversight and management. Let’s discuss “all or nothing” plans that have worked or failed in your career.

Small Companies Deserve Compensation Excellence

Small Company Compensation-imageOften your HR person is also your benefits, recruitment, training, organizational development, problem resolution and party planning resource. Even though pay is just a small part of an HR professional’s expertise, your company should have access to the same experience and expertise as the larger companies you compete with. Why should your company be at a disadvantage?

Consider the following:

Liz, a CEO at a quickly growing company wants to make sure her company is paying its staff competitively. Her VP of HR / Office Manager, Tom, has been great at his job, but is swamped with other critical projects. Tom has also told Liz that he hasn’t had a ton of experience in dealing with compensation issues.

The company wants to pay its staff fairly. It also wants to make sure that pay levels are in line with the returns delivered to its owners and investors. There have also been rumblings that Continue reading

When Considering Pay: Everything in Moderation, Including Moderation

Stickman Moderation in EverythingCompensation professionals do a lot of moderating. We work to moderate expectations. We work to moderate misunderstandings with incentive pay. And increasingly, we seem to be working to moderate pay itself.

Someone once told me that when animals are in a big herd only those at the edges have a decent view of what’s really going on. Those in the middle just have to trust that everyone around them is moving at the right pace and in the right direction. While others often decry Continue reading

Don’t be Your Employees’ Grandma

Stickman Paying Like GrandmaGrandmas are awesome.  They are sweet, loving and great listeners with too many other good things to list. But, they consistently have one flaw. I know it’s mean to talk about Grandma’s flaw, but it is the same flaw many HR and compensation people also have.  While it may be totally endearing in a Grandma, it’s completely counterproductive and infuriating when found in compensation professional.

Remember when you told your grandma you loved silver dollars and couldn’t get over the pair of gloves she gave you on your fifth birthday?  The next thing you know, you are receiving a pair of Continue reading

Predicting the Next 10 Years of Compensation

Stickman 2013 3 5 10 yrAs someone who spends a lot of time designing and honing long-term incentive programs, I thought I’d skip 2014 and make some predictions about time frames that compensation people really have to worry about.

3 Years from now, 2017: The durations used to measure past and future performance for executive compensation. The most common service-based vesting for restricted stock and restricted stock units. Most frequently used forecast for performance plans that use Total Shareholder Return as a metric.

What can we expect? First, more of Continue reading

Defining Exemplary – Better than Great

Stickman UPS TruckPerformance reviews and ratings are tough. When I work with companies that are new to the concept, I always start with a basic three-tiered scale. This scale is easy for anyone to understand, but admittedly a bit crude for fine-tuned performance management.

I ask people to define three acceptable performance levels. Good, Great and Good Enough. Good should be a stretch. We aim for that as the target. Almost everyone has a feel for this. Great sets the edge for reasonably expected performance by an Continue reading

Exceeding Expectations is Like Having Super Powers

Stickman Exceed Expectations SupermanA while back I wrote a post titled “It’s the Little Things” where I discussed how seemingly minor details may completely change the perception of something great. Well, I went back to that resort, this time with my wife, and was reminded that the opposite can also be true. In a world of tight compensation budgets and limited flexibility it is good to remember that exceeding expectations by just a bit can make an enormous impression.

I once again attended a compensation event at a beautiful resort in Southern California (why can’t all of our events be at coastal resorts?). I Continue reading

Communicating Pay Increases

communicating pay increasesOnce your company has decided on pay increases, the issue of communicating those raises to the employees becomes paramount.  The natural expectation is that it should be easy, right?  Pay increases are good news, after all.  However, certain considerations should be taken into account when discussing compensation with employees.

Here are the “Dos”

  1. Create a communication plan. Schedule Continue reading

Enthusiasm Can Trump the Details

Stickman Enthusiasm Trumps Details(Orig post at www.compensationcafe.com)

We discuss communication a lot here at the Compensation Café. We know that if people do not understand their compensation they are unlikely to be attracted, motivated or retained by it. But, recently I was reminded of a simple lesson that is often missed in the rush of deliverables and priorities. When you’re enthusiastic about something people listen.

I went to dinner with some colleagues two nights in a Continue reading