5 Lessons for a Compensation Department of None

Over the last few years, we have seen a rise in attention to the all too common, “HR Department of One”. These jacks-and-jills-of-all-trades, (and master of many), must be the policy maker, recruiter, trainer, confidant and much more for many companies. Often, on this very site, we talk about “compensation departments and compensation professionals” as if every company has one or both. But, what if, as is often the case, a company has NO compensation professional on staff? Or, what if the company has a great compensation analyst with little or no training in executive compensation, sales compensation or some other important specialty?

Many successful companies operate with a compensation department of none. What do the people know at these companies that allow them to continue to move forward without internal compensation expertise?

1. They try and keep things simple. These companies seldom use a wide range of compensation elements. The elements they use usually refrain from a lot of bells and whistles. This allows them to manage the programs effectively, even when the programs may not fully support their needs. They know that a limited program that works is better than an amazing program that doesn’t.
2. They stick to a schedule. They have limited periods to think about and act on compensation issues. They intensely work on pay during these periods and put little focus on it during the rest of the year.
3. They delegate. They tend to ask (and trust) more of finance, managers and the employees themselves. There isn’t a lot of time for handholding. People from multiple areas of the company often perform analysis, communication and management of programs as a series of small projects.
4. They focus on the big things. Another compensation plan or a small tweak to an incentive program may make things better or more interesting, but getting salaries and bonuses right is the priority. Since compensation and HR are part of the same job at most of the companies, the approach is more holistic than at many larger companies.
5. They know when to ask for help. They have less of their ego involved in the pay programs. This means they reach out to colleagues and consultants earlier and more often. They are comfortable leaning on others’ expertise (and are usually willing to share their own in return.)

What should they know?

1. Survey data is useful, but it is not compensation consulting or compensation planning. Compensation departments of none may only have access to a single data source. Often that source is an aggregated or “scraped” data set. This data does not have the nuance and detail available from more comprehensive data sources. This may be fine for a while, but it can result in long-term pay policies that cannot be supported when better data or analysis expertise does become available.
2. Variable pay programs are harder than they seem. The ongoing management and communication required for these programs is often not possible. Poorly designed, managed or understood plans can result in actions, decisions or payouts that can irreparably damage a company.
3. Without a compensation philosophy and strategy, things will get very messy (but it may take a few years.) Operating without a set of rules is operating without a safety net. Even a simple list of two or three objectives is enough to help ensure consistency.
4. Payroll isn’t really the same thing as compensation. Payroll is a result of compensation. Many people confuse the two. Compensation is about everything that happens before someone gets paid. Payroll is about everything that happens because someone gets paid. It is absolutely essential both are done correctly, but each can exist and be performed to perfection even if the other is in disarray.
5. Pay usually eats up more company revenue than any other piece of your budget. Even small improvements can have a huge impact. That’s right, companies with no internal compensation expertise, often have the greatest need for expertise. Compensation can consume more than seventy cents of every dollar your company brings in. This leaves thirty cents for every other department and activity at your company. If you can increase compensation effectiveness even by 5%, it can be a game changer for the success of your company. In mist of budget discussions, you are the most important person in the room.  Respect that incredible responsibility.

It would be great if every company could have a team of compensation experts in the office, but that simply isn’t possible for many companies. The lack of internal compensation expertise does not need to result in a lack of compensation excellence. Are you, or have you been, in this situation? Is there anything you can share to help others succeed?

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. Do you want to know more about Performance-Base Equity. Dan was written a new comprehensive issue brief on the topic. Dan has also contributed to “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And if youp;re still not bored with Dan, he has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.