Compensation Cafe

Cafe Classic: Rewards and the Disruptive, Uncredentialed Misfit

Organizations that are unable to innovate and evolve will likely not survive - let alone prosper.  Few inside and outside our profession would argue the point.  What role can rewards play?

I had the opportunity to hear a great presentation on strategic thinking a few years ago and came away with interesting ideas and an intriguing book on creative invention:  The Medici Effect by Frans Johansson.  The book presents the case that new discoveries -- those that have real impact - will no longer come from within disciplines and established fields of expertise, but will instead spring from situations where ideas from multiple fields and points of view come together.  That is the Medici effect, named for the Medicis, a wealthy banking family in fifteenth century Florence.  The Medicis used their wealth to bring together and fund the work of creators from a wide range of disciplines -- from sculptors to scientists, from financiers to architects.  This diverse group of people who converged, beckoned by the Medici family, on Florence ignited one of the most creative eras in history, known today as the Renaissance.

We've discussed before how deep, specialized education in a field can potentially limit an individual's ability to think creatively.  Innovators are often self-taught (think Steve Jobs, Thomas Edison) or have pursued a broad learning experience that crossed many fields.

Johansson shares the story of Charles Darwin and John Gould as one example.  Darwin was a below average student who (to his father's chagrin) wandered around the English countryside pursuing various botanical interests and meeting with a range of scientists.  He enrolled to become a physician, then a minister, then finally decided to board a boat for a five year trip around the world to study geology on his own.  Along the way, he collected and wrote notes about birds from the Galapagos Islands.  Because they were of little interest to him, he gave the collection to John Gould, one of the most prominent zoologists of the time.  Gould, an accomplished taxonomist, assessed the collection and reported his rather interesting findings back to Darwin: that the birds were a single group of finches yet also reflected 13 distinct species -- one for each of the 13 islands.  Gould, the expert, stopped there.  Darwin went on to use this information to propose a radical notion that became a new theory of evolution, considered to be one of our most significant scientific theories.

In a more recent example, successful venture capitalist Paul Maeder discusses the important role that disciplinary outsiders, often people without formal training, play in generating innovations. For him, identifying these individuals can help pinpoint the entrepreneurial teams worth betting on.  Johansson recalls a conversation with Maeder:

"Take this guy Stan Lapidus," he told me one day.  "He doesn't have an M.D. or a Ph.D., but he has come up with an amazing way of analyzing stool samples for colon cancer pathology.  Put it in a blender, mix, and you can spot cancer with hardly any false positives.  It's really an amazing invention.  Now, why did he think of this?  Because he's not a doc."

Back to us and the organizations we serve.  Many have cultures and embedded practices that inadvertently (or perhaps by unacknowledged design) discourage, punish, even expell the uncredentialed, disruptive misfits.  Because everything we do in compensation is communication and organizations often become what they reward, I believe we have a potential role to play here -- if we can get out of our own disciplinary silos.  A nfew of questions come to mind, including:

• Could linking rewards and promotional opportunities too directly to formal education and credentials create a barrier to those who may have followed a different learning path but could bring a valuable perspective to the table?
• Are our performance management/career development/succession planning processes designed to recognize those with expertise gained in non-traditional ways as well as those who may be counter-cultural and disruptive in a way that's ultimately beneficial?
• Can we do a better job of using non-cash rewards like high visibility assignments, the chance to work on key projects, and the opportunity to participate in exciting product/service development efforts to recognize the potentially valuable "misfits" and encourage a healthy convergence of different ideas and viewpoints.

Your thoughts?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time.

Image "Leader Holding Multiple Color Umbrella" courtesy of hin255/FreeDigitalPhotos.net

Cafe Classic: Compensation Philosophy... It's Not What You Say, It's What You Do

Swiss psychiatrist Carl Gustav Jung once famously said "You are what you do, not what you say you'll do."  

With this in mind, I always smile when someone says: "We've never had a compensation philosophy."  The fact is, they've always had one, since the very first time the organization paid an employee.  They just haven't committed it to writing yet.  Or, perhaps more likely, owned up to the truth of it.  But it's there.

Even better is this: "We've never communicated our compensation philosophy to employees."  You don't need to, friend - they know what it is.  Or at least they think they do.  The question is ... do you?

Your compensation philosophy isn't what you say.  It's what you do. 

Like many a politician, it can be easy for us to get caught in the trap of falling for our own rhetoric.  We allow ourselves to believe that the act of saying something makes it true.  We lose sight of the messages that our organizations' actions are sending.  Your employees may or may not know the words in your compensation philosophy, but they are watching it in action and drawing their own conclusions.

Here's one of the lessons we can take from this reality.  Whether "creating" a compensation philosophy or reviewing an existing one, it's a smart move to start the process by taking a good look at what's really going on.  What is the reality of your compensation plans and practices, particularly as perceived by your managers and employees?

To answer the first, you may want to do some traditional compensation benchmarking and analysis.  How competitive are your pay structures, plans and actual practices against the norms of the labor market(s) where you compete for talent?  Does your competitive reality match your competitive intent?  If not, better get a good sense of where it falls short.

Next, it might be wise to get some data on perceptions.  Some of this may be captured in a regular employee survey effort.  Or it may be worthwhile to convene a few manager and/or employee focus group sessions (or engage an outside facilitator to do so on your behalf).  The purpose of this is to understand how managers and employees experience your compensation philosophy, on the ground every day.  What do these groups believe are the top priorities of the current compensation program?  What should they be?  What do these groups believe are the organization's competitive goals for pay -- and how well are those goals being met?  What gets recognized and rewarded?  What should get recognized and rewarded?

A lot of work?  Yes it is.  But a reality check like this can be critical if you want your compensation philosophy to have any hope of credibility.

Actions speak louder than words, as they say.  We all know that employees understand the difference.

Image "Cinema Clapboard" courtesy of renjith krishnan / FreeDigitalPhotos.net

 

Image by DejaVu Designs on Freepik

Cafe Classic: To Innovate in Rewards, Get Outside the Rewards Profession

There appears to be general agreement among reward professionals that the compensation approaches and protocols which have dominated practice for the last few decades are more than ripe for reinvention.  That disruptive change in the field is necessary and inevitable.

I also sense an assumption that we will be the change that we have been waiting for.  That we will lead the revolution, just as soon as we get those year-end budgets and incentive plan changes completed and find the time to get our innovation game on. 

Will it pan out that way?

A while back, Derek Thompson had an interesting article (which continues to pop up in conversation online) in The Atlantic,  Why Experts Reject Creativity, which takes a close look at the bias we all have against new ways of thinking.  Thompson asserts that not only are our brains hard-wired to distrust creativity, but that the more knowledge and expertise we have on the subject, the more hostile we are to new approaches.  And he highlights a number of research studies that support his claim.

In one study, 142 world class researchers from a leading medical school were randomly assigned to evaluate proposals for research funding.  Sometimes the faculty were experts in the subject matter being considered, sometimes not.  The experiment was triple blind, so that evaluators didn't know submitters, submitters did not know evaluators and evaluators did not talk to one another.  What the researchers found: New ideas -- those that "remixed information in surprising ways" -- got the worst scores from everyone, but were particularly punished by experts in the subject matter.

Thompson goes on to demonstrate that, in reality, most of us dislike new ideas, regardless of what we say or believe about ourselves. Ouch, right?  Read on.

Another study found that teachers who claim to enjoy creative children don't actually enjoy any of the characteristics associated with creativity, such as non-conformity.  Research conducted by organizational psychologists at Cornell University examines our bias against creativity and why people desire but reject creative ideas.   The authors of the study, in discussing their findings, note that "Because there is such a strong social norm to endorse creativity and people also feel authentic positive attitudes towards creativity, people may be reluctant to admit that they do not want creativity; hence, the bias against creativity may be particularly slippery to diagnose."  They further state that "If people hold an implicit bias against creativity, then we cannot assume that organizations, institutions or even scientific endeavors will desire and recognize creative ideas even when they explicitly state they want them."

Which means that disruptive change, innovations that move the field of play and introduce new reward management ideas, tools and solutions, might likely originate outside our profession.  It could happen out at the edges and beyond, outside the perimeter of "professional" reward practice.  And so I propose that our mission, if we choose to accept it, will be to discover, devote attention to and learn from what is happening outside the core of our field.  And then to bring those ideas in, adapting and piloting them in our own organizations.

To paraphrase the wisdom of Gordon MacKenzie, author of Orbiting the Giant Hairball: A Corporate Fool's Guide to Surviving with Grace (and IMHO one of the best book on business creativity every written!), we won't be able to truly push the boundaries of practice until we figure out how to escape tMacKenzie's Hairball -- our entanglement with the policies, assumptions and practices of the past.  Orbitting -- escaping the gravitational pull of the Hairball enough to observe and embrace original ideas and lessons -- will require that we read and interact outside the boundaries of our profession. 

A closing thought.  The fact that the events of the last few years have pushed so many of us not only outside our on-site offices but outside our comfort zones in many ways may position us for escaping our own professional "entanglements."  Does this up our odds of taking the steps to reverse any bias against creativity ... at least as it exists in our own field?

What do you think?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time.

Creative Commons image "Lightbulb in Malta" by Mark M.

Cafe Classic: Faith, Trust and Your Pay Program

Do your employees believe what you say about your pay program?  How do you know?

I've had the chance to work with many organizations that have decent, even quite good, compensation programs and practices in place, but where employees are simply not buying it. They resist "corporate" messages about the pay plans and they invent and spread all manner of rumors about them.

In circumstances where trust issues are focused primarily on compensation (rather than being part and parcel of a larger issue of faith in leadership) and after taking the necessary steps to ensure that the pay program itself isn't necessarily at fault, I find that information - clear, detailed, credible and truthful - can be the compensation or HR professional's best weapon. 

There is often a common thread running through situations like this.  In my experience, communication about the compensation program in these organizations tends to be broad and relatively flavorless.  Buzzwords and platitudes abound; descriptive specifics not so much.  Compensation communication comes off like a sales pitch, and that is the way employees perceive it.  Messages are completely lacking in any of the descriptive detail that might make them believable.

And by descriptive detail, I am not suggesting things like "Jack Brown just got a 10% salary increase, raising his base to $95,000, despite the fact that he was only 'meets' at his last appraisal."

What I am suggesting is that:

Instead of just saying the program is "competitive", tell employees about the market strategy you use in benchmarking, show them the list of surveys you use and explain why each is a good fit, then walk them through how market data is gathered for a sample job.  (This is also a good opportunity to explain to them why you don't use free stuff from the internet.)

Instead of just saying jobs are assigned to salary ranges based on "market and internal equity considerations", walk them through an example of how the market pricing and/or job evaluation process works for a particular job.  Perhaps use this as an opportunity to explain the purpose and use of salary ranges (and hopefully your practice matches the intent here.)

Instead of just saying that every job has a "bonus opportunity", remind them of the objectives of the bonus plan, how it was designed and why, and the purpose of the different mechanics.  Make sure the calculations are clear by going through a couple of "what if" scenarios.

You get the picture.  Specifics.  Truth.  Clarity.

Death by detail?  Perhaps.  Not every employee group wants, needs or will even sit still for this level of detail -- I'll grant you that.  But I have found that spending an hour, or even more, doing this kind of information sharing and straight talking in front of employees who have lost their faith in the program can make a real impact.

That's my experience.  What has yours taught you?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time.

Creative Commons Image "Trust" by Nguyễn Phát

Cafe Classic: Is Your Incentive Plan a Strategy Killer?

Are your incentive plans designed to support or defeat your organization's business strategy?

It's a fair question.  And a passage about tradeoffs from Clayton Christensen's book How Will You Measure Your Life? illustrates just how fair -- and realistic -- a question it can be.  In the passage, he shares the story of SonoSite, founded more than a decade ago to make handheld ultrasound equipment -- equipment positioned to make the diagnostic advantages of ultrasound technology affordable and convenient enough for primary care providers to use in their practices.  The company had two product families: it's principal product, the Titan, which was about the size of a laptop computer, and a smaller, more portable and lower priced product called iLook.  While Titan was the more profitable product, the iLook was the more disruptive and, ultimately, more promising one.

Excited about the possibilities of the smaller product, which had generated thousands of leads even before being formally launched, Kevin Goodwin, SonoSite's CEO, accompanied one of the company's top salespeople on a sales call in order to see how customers reacted to the iLook.  The results are instructive.

The salesman sat down with the customer and proceeded to sell the Titan -- the laptop ultrasound.  He didn't even pull the iLook handheld out of his bag.  After fifteen minutes, Goodwin decided to intervene.

"Tell them about the iLook," Goodwin prompted the salesman.  But he was completely ignored.  The salesman continued to extol the virtues of the Titan.  Goodwin waited a few minutes, then leaned over again.  "Take the handheld ultrasound machine out of your bag!" he insisted.  Again, the salesman completely ignored him. Goodwin asked one of his best salespeople three times to sell the iLook -- in front of the customer.  Each time, he was completely dismissed.

What was going on? The CEO of the company couldn't persuade the employee to do as he asked?

The salesman wasn't deliberately trying to defy Goodwin, In fact, he was doing exactly what the company wanted him to do -- sell the product that provided the highest return.

As Christensen notes, the CEO thought he was providing clear instructions to the salesman, but the sales compensation system was shouting the opposite into the employee's other ear.

This problem, which Christensen explored deeply in his earlier classic The Innovator's Dilemma, illustrates the tensions that surround strategy and innovation, when the things that make sense for the long term make no sense for the short term, when the right decision can seem like the wrong one, and when it can appear that "the most important product to sell makes little sense to sell at all."

For those of us who work in the HR and rewards fields, this dilemma is one we need to pay particular attention to in incentive design -- and not just for salespeople.  We need to be sufficiently well-informed about business strategy and objectives that we can identify the tensions and challenges that are inevitably present, and then we must figure out how to bring some sense of balance to the performance levers we tie to incentive awards.  I had this conversation recently with leaders of a client company pushing for growth into new product and customer markets, where another advisor was making a strong case for focusing management incentives solely on net income.  While net income (or comparable measures of profitability) can and typically does play a critical role in plan design, tying awards to net income performance alone can tilt choices and decisions toward legacy products, customers and services in situations where an organization's long term survival may demand moving beyond its legacy.

While incentive plans don't (and certainly shouldn't) manage or execute strategy for us, it's our job to ensure that there is sufficient balance in plan measures to alert employees to the challenges and tradeoffs the business faces in executing its strategy and to communicate the need for balance in their choices and decisions. 

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time.

Creative Commons image "defeat" by ahmet oktar

Cafe Classic: What A Christmas Party Can Reveal About Company Culture

Editor's Note:  It's true that office parties of any type and theme can reveal a lot about the organization and its culture.  Jacque Vilet shares a few enlightening examples in this December Classic!

I’ve attended my share of company Christmas parties --- my employers’ and as a guest at other parties. There were some that I really enjoyed, some that made me uncomfortable and a few that were downright miserable. 

It was not until a few years ago that I realized something.  You can tell a lot about a company’s culture by its Christmas party.  I became aware of this because one year there were two parties at the same hotel on the same floor --- and I was familiar with both companies.   The difference between these two parties was striking.

One company, known for its sophisticated image, was having a formal party with a live band and sit down dinner.  The women wore floor-length dresses and the men wore tuxes.  Very formal and very . . . proper.

The other company was well known for its family oriented image. Entire families attended.  There was face-painting, Santa Claus with a professional photographer, a present for each child, clowns handing out balloons and snack food.   There was dancing in the ballroom and everyone --- men, women and children --- danced.  The CEO was having a great time watching the fun.

The strangest party I ever heard of (and thankfully didn’t have to attend) was held by a CEO who invited all the VPs to his vacation home in Hawaii.   (There was no employee party.) The company paid all expenses --- but each VP was supposed to bring a gift . . . for him!   This company had a brutal culture, and the employees' nickname for the CEO was “Psycho”.

The VPs worried over what gift to buy and competed among each other for the “perfect” one.   The CEO unwrapped all the gifts in front of everyone and made it very obvious which ones he liked and which ones he didn’t.   Woe to the VPs whose gifts did not make the cut.

Then there was one company (and yes, this was a few years back) that hired strippers for their party.  What does that tell you about the company?

I don’t know why this Christmas party/company culture issue was so interesting to me but it was.  What kind of image does your company party reflect?  Family oriented?  Fun-loving?  Zany?   Chic and formal? 

Final thought:  I recognize that there are many unemployed people right now, to whom any kind of a company Christmas party might seem like a dream come true --- even a miserable one.   Let’s hope they all enjoy a party next year at a company with a great culture.

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, Texas Instruments and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology plus an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.

Cafe Classic: Are You Paying for Peripheral Vision?

We seem to love to get granular with incentive plans. So many compensation professionals are tasked with not missing anything, they include darn near everything in their incentive plans. Increase revenue? CHECK! Manage safety? CHECK! Grow new clients? CHECK! Maintain old clients? CHECK! Focus on the newest product? CHECK! Sell through the old inventory? CHECK? Improve your Net Promoter Score? CHECK! Keep aligned with long-term objectives? CHECK? Meet this month’s sales goal? CHECK! Dang! What was that first one again?

With so many objectives it can be hard for people to focus on what is important. If they focus on the highest priority, they must keep track of everything else out of the corner of their eye. Peripheral vision is a great evolutionary trait in people. It is not a great evolutionary trait in incentive plans.

Most of the multi-measurement plans include steep scaling of the incentives involved. The main metric may account for 50% or more of the potential payout. The next metric may be 25-30%. The smallest level goals may account for less than a single-digit percentage of the total payout. I have seen plans with 9 or more metrics, each with specific goals and payouts. Are we asking too much?

Imagine Mary has a $50,000 base pay. This person may have 15-20% available in potential annual incentive pay. We’ll be generous, so let’s give her $10,000. Of that 50% ($5,000) is dedicated to the most important metric. 25% ($2,500) is dedicated to the next most important metric. Combined, the next three metrics eat up another 20% ($2,000). The final metric covers the remaining 5% ($500). This means the final metric adds about 41 bucks a month to Mary’s pay. I am pretty sure that this isn’t creating the “incentive” intended.

I try to use the “rule of three.” No more than three incentive plans for any individual. No more than three metrics for any plan. It’s not always feasible, but this clear objective helps weed out the metrics that are nice to have, but are unlikely to have any impact.

There are rearview and side mirrors on every car for a reason. Our peripheral vision does not allow us to see everything ahead of us and beside us at the same time. We have evolved for millions of years, and this is still not something we do very well. Incentive plans may be something entirely new or unfamiliar for your staff. Asking them to focus on everything at once is kind of like asking them to focus on nothing at all. Use great communication, recognition and occasional spot awards to perform the role of the mirrors on your car.

What is your limit for metrics? How many incentive plans do you feel are effective for a given individual? What is your experience with these programs breaking? More importantly, what is your experience in seeing the best level of success? I’d love to hear from as many readers as possible. With enough results, I will write a follow-up article providing some of your best practices.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Vice President for FutureSense. Dan is a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Cafe Classic: A Practitioner's Recipe For Success

Editor's Note:  Interested in a successful compensation career?  Chuck Csizmar shares some Classic tips!

Whenever I come across self-help materials intended to assist Compensation practitioners with their professional growth I often notice an overly large emphasis on the technical side.  And when reading internet blogs meant for the same audience there again seems a constant litany of how-to guidance on, again, technical issues.

That's all well and good, but . . . .

It seems to me that becoming a master technician in the compensation "science" is not by itself going to be an effective strategy for success in the corporate world.  In fact, sometimes that technical prowess can prove somewhat of a hindrance, as it could limit upward opportunities.

Checklist of Useful Competencies

If you rely solely on your technical capabilities, while remaining in your cubicle all day, and if you're saddled with the personality of a troll, you're going to have an uphill struggle toward success.  You're going to need more to work with, so print this checklist and tape it to your office wall.  It could save your career.

• Flexibility: Be willing to listen and keep an open mind.  Become known as a problem solver. Don't quote policy except as a last result.  Have a reason for your actions that can be easily explained.
• Understand the business and how Compensation impacts it:  You're not on an island cut off from the rest of the business.  Learn how what you do interacts with and has an effect on the business. What you do should relate to and support organizational objectives.  If not, know why not.
• Have a personality:  Basic stuff, but have a ready smile, greet people, shake hands and in general show a warm side to those you interact with.  Become an engaging person.  Oh, and try to be sincere about it.
• Don't be a Geek/Nerd: Don't spend all your time spouting technical language and showing off charts & graphs.  As if all those figures are self-explanatory and you're merely the spokesperson.  That data should be the backdrop to your explanations, not the focus.  Don't be an analyst when you need to be a leader.
• Be able to work a room: Leave the introvert at home and develop the skill of being comfortable holding multiple conversations in a room of strangers, colleagues or even senior leadership. That will build your image in a positive way.  If you're an introvert, work on it.
• Be persuasive:  You will not get too far by dictum, so work on your reasoning and communication skills.  You need to be able to influence others, to gain agreement on the strength of your rational arguments.  "My way or the highway" doesn't generate a warm response.
• Become the one who gets lots of Christmas cards: That's your goal for next year, to be someone that colleagues think of when preparing their lists.  That is usually a good sign, because they like and/or respect you. 
• Play (a bit of) politics:  I don't like this one, but it's true.  Politics exist in every organization, so you need to be able to play the game at least a little.  Don't think that you can "stay above the fray," as you're a professional or some such rot.  The powers that be will eat you alive. But as best you can try to remain neutral and project yourself as someone that all sides can trust.
• Yes, be technically proficient:  Of course, you still have to know what you're talking about, but the higher up you climb the food chain the less reliance you'll need on your personal technical capabilities.  You will become valued and judged for what else you bring to the plate.

Nowhere on this list will you find the ability to rattle off the overtime exemption criteria for the FLSA, or the key rating descriptions in your point-factor evaluation scheme.  And nobody is going to swoon when you describe linear regression, correlation coefficients or the difference between the Cost of Living and the Cost of Labor.  Your audience, your clients, your senior management will expect more.

But if they like you, if you have an engaging personality and can work well with others, well then, you're halfway there.

Don't Limit Yourself

Unless you want to.  Unless you are someone who prefers the technical work, to the exclusion of the managerial side of the craft. 

Those employees are out there.  I've met them.  They 're happy with what they do.

But if your repertoire of competencies leans too heavily toward excel spreadsheets and data analysis your ability to "pass through the curtain" from the hard side of Compensation (technical) to the soft side (managerial) will be limited.  Because Master Technicians tend to remain just that, both by competency and by interest.

Likely you have seen your own examples of individual contributors (technicians) who have been promoted beyond their capabilities - or their interests.  Those employees are rarely successful.

So pick and choose.  If you want to go through the beaded curtain be certain to bring more along with you than a calculator and a spreadsheet. 

Warm up that smile!

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.

Creative Commons image "Vintage Recipe Box" by Laura Stokes Estrada

Cafe Classic: Merit Pay and the Tragedy of the Commons

Editor's Note:  What wisdom can Aristotle offer those of us who endeavor to make merit pay work?

In a conversation about pay-for-performance a number of years ago, one of the participants drew a comparison between the challenge of making merit pay work and the classic dilemma the Tragedy of the Commons.  It was a great point, one I've borrowed countless times over the years.

A little background.  The theory underlying the Tragedy of the Commons dates back as far as Aristotle, but it was popularized in modern times by the essay of the same name written by Garrett Hardin for Science.  Essentially, it describes the dilemma that occurs when the short-term interests of individuals are at odds with the long-term interests of the group or, as Aristotle puts it "... what is common to the greatest number of people gets the least amount of care..."

I like Wikipedia's summary of Hardin's article:

This story describes a group of herders having open access to a common parcel of land on which they could let their cows graze. It is in each herder’s interest to put as many cows as possible onto the land, even if the commons is damaged as a result. The herder receives all the benefits from the additional cows but the damage to the commons is shared by the entire group. Yet if all herders make this individually rational decision, the commons is destroyed and all will suffer.

As Hardin and others point out, the "tragedy" plays itself out in a wide range of modern day "commons" - beginning (but not ending) with our use of resources such as water, parks and wetlands, fish stocks and oil.  The point made by my colleague during the aforementioned discussion is that we often see a similar dynamic at work among managers when it comes time to assess their subordinates' performance and hand out merit increases.

The actions of many managers would suggest that they see their role and their primary objective in the merit pay process to be getting the highest possible increases for each of their reports, however that might be accomplished.  If gaming the pay system is the most expedient way to get there, then so be it. 

The outcome of this behavior is that the ability of the group (the organization) to pay for performance, to differentiate and reward the employees who truly go above and beyond in their roles, is compromised in favor of the individual manager trying to maximize the pay levels of his/per particular group of employees.  Peformance-based pay ultimately fails.

Addressing this "tragedy" requires more than simply training managers in the nuts and bolts of how the performance management and pay systems work.  It requires directly dealing with the definition of what it means to be in a management role.  I would submit that the role of a manager is one of stewardship; of being good stewards of the organization's resources - both human and economic.  Stewardship involves actively balancing the needs of both employees and the organization.  What it isn't is putting the short-term interests of their reporting employees above the longer-term interests of the larger group.

Until and unless we hold managers accountable for their roles as stewards, we may be unable to conquer this particular Tragedy of the Commons and our pay-for-performance efforts will suffer accordingly.

Maybe Aristotle's got some ideas for us...

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time.

Creative Commons image "Grazing Cow" by Matthijs Meeuwsen

Cafe Classic: Motivation 101 (or, Pass the Motivation, please)

Editor's Note: Motivation is a key objective for many of the plans and programs we devise.  But how well do we really understand and work to appreciate the variations and complexities of motivation?  Jim Brennan share some insights and conclusions in this Classic post.

No one can motivate anyone else.  People already come with their own motivations. As an employer, you must deal with the actual people who do your work rather than artificial stereotypes stamped from an identical mold formed by the creative imagination of some speechwriter.  All you can do is offer reinforcements and consequences that hopefully align with the actual motivations of your employees.

Herzberg's refinements of Maslow's hierarchy of needs is a starting point, but individual motivations run the gamut. The starving poor need basic necessities and money; the prosperous rich have the luxury of pursuing other goals like affiliation, recognition or self-actualization. What works best with a particular group depends on what they need and want.  One cannot generalize that cash is always superior to other rewards nor that individual recognition will always create more productive output results than group awards.  In the immortal words of the ancients, it depends.  Motivation is a diagnostic process rather than a universal lever that can be quickly identified and easily pressed for instant results. You don’t inject motivation into your people like a serum; they already have their own, thank you.

The most effective managers are those who know the actual key motivations of each of their subordinates and therefore customize their contacts, output consequences and reinforcements to the actual motivations that drive each individual. Those who believe "everyone is just like me" are gambling on a broad oversimplification. They will find occasional success with their clones but will experience failure with the majority of people who have different circumstances, different priorities and different motivations.  Research has proven that the most effective supervisors are those with the best understanding of the motivations of their individual subordinates, not those whose direct reports have the exact same motivations as the supervisor. 

A boss motivated by status can’t safely expect a crew of workers desperate for money to want the same rewards he wants; their decisions are driven by different desires.  A supervisor who wants to Do Good For Mankind better not project her motivations onto her starving subordinates who are struggling to make ends meet; their enthusiasm is currently best excited by cash.  In academia, where the subjects studied are comfortable in regard to their hygiene factors, the forces that motivate behaviors are quite different than those operating among twenty-somethings with growing families to feed.  There is a wide disparity of motivations encountered in a typical work group, and the effective supervisor needs more than one tool in his or her kit.

Bottom line: your employees will determine which consequences are more effective with them. Personal responses depend on the preferences of actual individual persons and cannot be reduced to a binary choice between A or B, cash or non-cash, personal or group, individual or team, intrinsic or extrinsic, etc.  Life is more complicated than that.  Actually, the ideal situation is to offer some of all:  the most effective total remuneration systems encompass both cash and non-cash elements in a tremendous variety of forms. 

Universal prescriptions tend to be specifically ineffective.  There is always more than one way to skin a cat.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in most industries.  After corporate HR posts and consulting CEO roles, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review.