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Follow The Leader

Follow The Leader

When I first thought about this idea — that a lot of what we do in the compensation world is to follow the leader — it was the children’s game that came to mind.  Remember – if I’m the leader and I skip in a circle, you do to; if I put my right-hand pinkie finger in my ear, you do too.  Sort of a cousin of Simon Says.

Then my mind went to what really happens when we play follow the leader in compensation.  Maybe some or all of this has been on your watch:

  • We let market data dictate what “we believe” jobs are worth and how employees are paid
  • We design incentives based on how our competitors do it, or how the VP did it at her last company
  • We enable management’s somewhat mistaken belief that benchmarking is the only valid approach to program design

When we play Follow the Leader, we handicap our creativity to align our reward programs and systems to our unique business philosophy, strategy, objectives and values.

Give Up On Benchmarking?

It’s not my intention to totally scrap the idea that we can learn from others.  Some of the best learnings I’ve had in my career have been from people that have faced challenges and found unique solutions that worked.  For years I kept paper copies of presentations I had attended at conferences, industry meetings, consultant presentations, etc.  And I did go back over them to pull out ideas, but I didn’t take that material and just paste my current company logo in the upper left corner.  It did help though to add elements to programs that would fit the needs of the problem I was trying to solve.  For example, should a bonus program have a payout threshold?  Should a vesting component be used?  These are ways to put real value into company bonus, sales incentive and executive compensation plan designs.

Market Pricing

There are other aspects of benchmarking that I am solidly behind (especially when it reinforces my own beliefs!).  Of course, many pay programs are benchmarked to a local market – Seattle, Los Angeles, Phoenix, you name the location and that’s probably right when it comes to certain jobs and levels of pay, for example non-exempt work.  And for example, I see pay practice surveys that show the quantitative metrics participants use in their broad-based bonus plans and the prevalence of that.  (I’d bet right now that not many readers of this know what EVA is, but I worked in a company once where it was the primary metric in the employee bonus plan).  I could easily show how it simply wasn’t appropriate for the level of employee that needed to understand it, but it took an executive departure before we could wrestle that one down.

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(By the way, bonus points if you know the answer to this related quiz question.  What are the two most common quantitative metrics that companies use for their bonus programs?)

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Now with COVID this last year, we’ve all heard (herd?) of Herd Immunity.  One of the more common applications of the compensation ‘herd mentality’ is on market pricing of jobs.  If you are an old-timer like me, you probably know that at one time, job evaluation systems like point factor, classification or factor comparison systems were more prevalent than market pricing.  And if you haven’t taken C2 (the job evaluation class) from WorldatWork, you may never have heard of those.  But much more so than market pricing, they enabled companies to determine how to pay their employees when they selected what was important to them rather than letting the market do it for them.

I still tell my clients that “the market is… interesting… but don’t let it tell you what to do.”  What I mean by that is this: Follow the Leader isn’t always your best choice.  And as a trusted advisor in your company, take heed that if you are going to play that game then you know what you’ve signed up for.

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Quiz Answer: Revenue and Profitability

——Jim Harvey is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

To read other blogs, go here: https://www.alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/

When I first thought about this idea — that a lot of what we do in the compensation world is to follow the leader — it was the children’s game that came to mind.  Remember – if I’m the leader and I skip in a circle, you do to; if I put my right-hand pinkie […]

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Avoiding the Holiday Gift Trap

Avoiding the Holiday Gift Trap

We have all heard stories where a friend or family member received a holiday ham or turkey as a company holiday gift. I don’t know about you but when I first heard about these gifts I was surprised.  These types of company holiday gifts or gratuities will frequently have mixed success but hopefully they are appreciated for their intended gesture.

I was curious what types of holiday gifts are popular in 2020 and according to Connie Chen of Business Insider, these are her top 5 corporate holiday gifts:

  1. A low-maintenance plant to brighten up a desk
  2. A tumbler that keeps nearly any drink at its ideal temperature
  3. A candle that’s particularly giftable
  4. A reusable bag fit for errands
  5. A journal that’s meant for developing ideas.

If you are thinking about what holiday gift or gratuity to provide your employees or co-workers, here are some things you should consider:

  • How to make the recipient feel valued and appreciated and they were not an “after-thought”.  If your gift is being sent from Seattle to Denver and you send it on December 24, chances are it might not have the same effect as if it was received a week earlier.
  • Your relationship with the recipient. Workplace relationships can range from acquaintances to very good friends and even relatives. Make sure your gift shows them they are valued but do not get too personal or you might make them or others in the office uncomfortable.  For example, perfume or cologne is probably not a good idea.
  • What are their interests? It is best to give something they will appreciate, use and remember. A co-worker once gave me a 24-inch-tall Christmas Minion plush toy and I LOVE IT.  Each year it is displayed with our Christmas decorations and it always gets a lot of discussion with guests.
  • How to provide the gift not expecting anything in return. Remember, a gift is not an incentive.
  • How to recognize the recipient knowing not everyone celebrates the holidays in the same way or at all.  Staying away from specific themes can help you avoid this pitfall.

When considering gifts to current or potential customers, be aware of:

  • Company policies. Some companies have very strict policies and you will want to make sure you follow them.
  • Cultural norms.  If you work in a global company it is important to understand the cultural aspects of gift giving and receiving to avoid problems. 
  • Gift Value.  It is best to provide something with a nominal value so you do not inadvertently create pressure to buy your goods/services or become a client. Of course, you also do not want the gift to be mis-interpreted as a bribe.  One very large company I know in Santa Clara even calls this out in their sales incentive plan policies.

Lastly, do not forget to consider the potential tax implications of giving a holiday gift.  Depending on the situation, the Internal Revenue Service (IRS) might consider the value of the gift as taxable income and therefore taxes have to be paid by the company and possibly the employee.  If you are personally providing a gift to an employee(s) and the company is not paying for it, then you probably do not have anything to worry about. However, if the company is paying for and providing a gift, you need to think about it. If you give a gift card with more than a de minimis value then the IRS might consider it income and it needs to be recorded as such. Being conservative might be the best action.

Giving holiday gifts can be a great experience that has a positive effect on the relationship with the recipients.  If done well, it can result in deeper relationships which could turn into lasting friendships. If you choose to provide gifts, try to: have fun with it, be creative, and provide something you believe the recipient will enjoy and value.

To read other blogs, go here: https://www.alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/

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David Adent is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 30 years of experience in corporate and executive compensation roles, and lives with his wife in Spokane, WA.

We have all heard stories where a friend or family member received a holiday ham or turkey as a company holiday gift. I don’t know about you but when I first heard about these gifts I was surprised.  These types of company holiday gifts or gratuities will frequently have mixed success but hopefully they are […]

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New Year’s Resolution (Early Edition)

New Year’s Resolution (Early Edition)

Is it ever too early to start thinking about the New Year?  Especially after the year we’ve had (2020!)??  In most cases, I’d probably say yes, September is way too early. But this time, I’m looking forward to a New Year.

And with the thought of a New Year, who doesn’t start thinking about New Year’s resolutions?  A resolution (loosely defined here for my purposes) is something we think could make change for the positive, something we’ve always been meaning to do but never quite got around to.  A report I read said these were the top 10 New Year’s resolutions for 2020:

  1. Actually doing my New Year’s resolution
  2. Trying something new
  3. Eat more of my favorite foods
  4. Lose weight/diet
  5. Go to the gym
  6. Be happier/better mental health
  7. Be more healthy
  8. Be a better person
  9. Upgrade my technology
  10. Staying motivated

It’s the same list most every year, although I’d hazard a guess that the list might look a little different after having survived 2020.  Might even mention toilet paper.

What about your work resolutions?  If you are a compensation professional, resolutions for work should always include basic yet important resolutions to continue to learn and grow in the profession.  And then there is the ongoing list (referring back to my definition of resolution) of things we’ve been meaning to do but just never got around to.

Here is my HR/Compensation New Year’s Resolution list for 2021, and just maybe a few things that might apply to the end of 2020 as well.

  1. Focus on ways to make good programs even better.

This may include short- and long-term incentive plan designs, but if your programs are already working as planned then consider how effectively are they communicated – are you getting credit with your employees for what you offer?

Secondly, can your average manager effectively communicate Total Rewards?  If they haven’t been trained, would you expect them to be able to just because they are good at engineering or marketing?

  1. Pay attention to the changing legal and social landscape.

Pay equity is an evolving topic and worthy of your time, attention and priority.  Although all states don’t have pay equity laws yet, all it would take would be a majority vote in your legislature and a like-thinking governor to get your attention.  I speak from experience.

  1. Benchmark something.

A pretty generic statement, but when was the last time you checked to see how competitive your shift-pay differential was?  What percentage of employees can be rated in the top category?  If your pay structures were competitive?  The list is long.

  1. Use Total Rewards statements.

Who of us hasn’t thought about trying to convince employees they are well-compensated, especially in the “hidden paycheck?”  Takes a pretty good data base and good internal and external partnerships though.  You’ll never get it done unless you start asking those partners what their capabilities might be.  And planning, planning, planning.

  1. Get more involved in sales compensation plans.

Sales compensation can be a mystery if you’ve never been involved or immersed in it before.  Might this be a good time – thinking about the new year – to offer to be involved?  If you aren’t confident to take it on you can at least offer market data and be a part of the team.  Sales executives actually value your market data, especially when trying to understand how to pay their best performers.

  1. Write Job Descriptions.

Really?  Job descriptions?  Isn’t that last on everyone’s list – ever?  Just because we don’t enjoy the work doesn’t mean there isn’t value in it though.  Ask anyone who has had to match jobs in salary surveys, write recruitment ads, defend lawsuits, etc. (Besides, it will improve your creative writing skills which you will use throughout your career.)

  1. Write or review policies and processes.

Policies don’t write themselves, unless there are no policies (wow, that was profound).  A policy should be a statement of your intent when it comes to something, plus some explanation.  For example, how do sales people get paid when they are on a LOA.  Usually involves some internal discussion/debate to figure it out, but then you can execute consistently.

Processes are a little different in my mind, generally speaking to benefit you or your team to be able to replicate an approach, an analysis or such.  For example, how is market pricing done – weighting of surveys, how to match blended jobs, etc. 

In my experience, larger companies can generally get these sorts of resolutions knocked out because they have larger staffs that might be able to team up and knock something out.  Medium and smaller companies may be not – maybe you need a hand to take that new ground this year, check that resolution off the list for good.  So try something new — we at Alliance Compensation can help with your list. We have the experience, expertise, and work with excellence to get you your desired results.

And best of all, you don’t have to diet OR go to the gym!

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Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and a trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

Is it ever too early to start thinking about the New Year?  Especially after the year we’ve had (2020!)??  In most cases, I’d probably say yes, September is way too early. But this time, I’m looking forward to a New Year. And with the thought of a New Year, who doesn’t start thinking about New […]

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Big, Hairy, Audacious Compensation

Big, Hairy, Audacious Compensation

A while back (1994 to be exact) a term called a BHAG (Big, Hairy, Audacious Goal) was coined.  Think Boeing in Seattle getting into the jet airliner business as an example.

What do you think the compensation plan was like for Boeing executives and engineers?  Do you think it matched the size, scope and impact of their goal – and accomplishment?

Probably not.  And probably never really entered the mind of those, or most rewards designers since.  Isn’t it time to re-think what rewards should look like when someone really and truly “hits one out of the park?”  I’d say so.  It’s not going to be about what the surveys say, or what percentile you decide to pay at.  It should be differentiation on a scale beyond all those things.

Some might continue to point to their existing plans and programs and say, “That’s what our recognition plan is for,” or “That would be covered in our annual incentive plan,” or “But then they’d make more than the CEO,” or even “We’ve never done it that way before.”

(That last one makes me shudder.)

I recently worked with a client, a small but fast-growing software firm with offices in Silicon Valley and Portland that is making big inroads into data storage and management.  The path to success is clear – create growth and you create value, and being able to do that without outside financing creates exponential value.  Wouldn’t we all agree that creating exponential value would be worth exponential rewards?  Now not something unreasonable, but it has to be impactful.

In my client’s case (software as a service) we discussed the real drivers of value in that SaaS space where they play  – long-term contracts, pre-paid business and attracting logo business.  Other industries will of course have other value drivers that are specific to their type of business, competitiveness, and where they are on the business cycle (start-up, growth, maturity or decline).  Now here’s the thing about rewards under the BHAC thinking.  The amounts can’t scare you, no matter your industry or experience.  They are, by design, BIG AND SCARY (and of course, hairy but that’s not something I’m going to blog about)!

What might a $2M, 2-year contract be worth under a regular commission plan?  5%?  So $10,000, and if structured like most plans, pay that out over the life of the contract.  $416.67 a month – THAT’s exciting!!

This isn’t necessarily intended to just get you thinking about sales incentives though.  And as I said earlier, it isn’t going to help if you get caught up in percentiles.  A BHAC plan is about VALUE.  Who would look back 2 years after landing a logo client in Los Angeles that doubles your revenue and increases your market value by $5M and say, “Gee, it was probably a mistake to pay Colleen that $50,000 bonus, don’t you think?”

Let’s pivot to a favorite value creator, product designers.  Could be software engineers in Santa Clara or apparel designers in Beaverton.  I may be wrong, but from my experience, those roles typically come with a caveat on who owns what, i.e., intellectual property.  One company I worked for years ago had a very talented stable of design engineers who over the years created product after product that were patented.  Their reward?  A nice plaque, an original copy of the patent with their name, maybe a promotion, maybe a few percentage point increase in their merit increase that year.  If the company also did well that year, maybe a somewhat larger bonus (say 20% instead of 15%).  Again, how exciting is that?!

We do need to be a little careful though, BHAC isn’t necessarily for everyone.  Some occupations (engineering being one) attract the type of person who may get enormous satisfaction just from the accomplishment.  Some cultures (no matter what the occupation) have a much stronger aversion to individual recognition than others.  Still, it can’t hurt to think bigger than where the data usually lands, right?

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Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

A while back (1994 to be exact) a term called a BHAG (Big, Hairy, Audacious Goal) was coined.  Think Boeing in Seattle getting into the jet airliner business as an example. What do you think the compensation plan was like for Boeing executives and engineers?  Do you think it matched the size, scope and impact […]

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I Could Tell You, But Then I’d Have To…

I Could Tell You, But Then I’d Have To…

I have enjoyed teaching a couple of compensation certification classes for WorldatWork, the association for total rewards professionals. I would get a lot of questions about a lot of topics, but one that frequently surfaced – whether in a module or not – is “this is great, but would you tell your employees that?” And this isn’t some super-secret recipe for the incentive plan funding that makes you an insider, this is some of the compensation basics like pay grade, pay range, that sort of thing.

So just to get it out of the way let me say that I am a believer in sharing more openly about compensation than most people I’ve met. That belief doesn’t come from a beating I took or something I learned when I was young, it comes after seeing what happens when you don’t share more openly. The best thought-out programs with the most strategic elements and execution can still fail when not properly communicated. As a matter of fact, I’d say the two things that most often are an anchor around the neck of an otherwise successful program are the lack of management training (related topic, different time) and the lack of effective communication.

Think of it another way. What if for one of the biggest investments most people ever make (like your house) all you were told was, “it has a total of 11 rooms. Sorry, I can’t be more specific.” Is that enough information for you to be all-in as a buyer? Should the seller, who really wants to unload the house reasonably expect to sell it?

Compensation is a huge investment your company makes, and if you are keeping secrets you probably aren’t getting the most from your money. Here are my Top 5 reasons you should communicate as much as possible about your compensation programs:

  1. Employees will make up the part they don’t know.
  2. Missing information is a constant negative and anxiety producing reference point.
  3. Most of your employees are adults and you expect them to act like adults in all other ways.
  4. Underlying problems don’t require secrecy, they require fixing.
  5. Put accountability where most of us want it anyway, in the hands of managers.

Making it up. This is a very real outcome of not communicating compensation. For example, a base pay program is typically the largest ongoing investment an employer will make, yet one of the areas that can be shrouded in greatest mystery when pay grades and ranges exist but are closely held secrets in HR. And the associated HR strategy implications in areas like succession planning and career development can’t be overstated if an employee doesn’t know what sort of pay opportunities you’ll offer them for their continued growth of skills and abilities. Without facts from you, other opportunities with known facts are certainly more realistic outcomes.

Negative reinforcement. Your employees make decisions every day about their engagement. The anxiety that can be produced in a person when managing critical aspects of life without sufficient information isn’t something that should come from something that represents a major part of someone’s life and livelihood. And even though it’s not really lying, you’ve got to dance your way out of it every time someone asks you a question your policy doesn’t allow you to answer, and that doesn’t leave a lasting positive impression either.

Maturity is a two-way street. Since most of your employees are adults and you expect them to act like adults, what makes you think they can’t handle the truth? The best example I’ve experienced of telling the truth about compensation was at a company I worked for during the first recession, when we knew we weren’t going to be able to give base salary increases that year. We told employees three months in advance of the usual date. Sure, there were a few rants, but by the time it came to execute the program, it was a non-event.

Fix the underlying problem. If you have something uncommunicated because it would cause unrest, fix the underlying problem – design, training, whatever, don’t mask it. Salary range spreads causing compression? New hires coming in above current employees? Neither a good reason to stop communicating about pay ranges, but good input for the next program design cycle. Segmenting your promotions budget so organizations with more entry-level employees get more funding? Explain how job families work and the concept of promotion velocity for early-career employees. These aren’t difficult problems to solve when you communicate openly.

Accountability in the hands of managers. Providing needed compensation information to those who make the day-to-day decisions about the base pay, promotions, classifications, bonuses, recognition, etc. only makes the most sense. One common issue with open compensation communications is who has control. After all as it is frequently said, information is power. Do you really need “Compensation Power?” or can you afford to let managers do what their job descriptions tell them they are supposed to be doing? Sure, there are some who abuse it, but realistically that is a small minority. Most management jobs come with some level of fiscal authority anyhow, and in most cases that is many multiples above what we’d ask of them in a compensation program.

I strongly encourage you if you see yourself somewhere on the secrecy side of the communications spectrum to re-evaluate your approach to compensation communications. At least start asking yourself whether the way it works now couldn’t be improved. Good communication won’t repair a flawed rewards program, but ineffective communication will cause a well-designed program to fall short of expectations.

So just to get it out of the way let me say that I am a believer in sharing more openly about compensation than most people I’ve met. That belief doesn’t come from a beating I took or something I learned when I was young, it comes after seeing what happens when you don’t share more openly.

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