Both art and science are involved in creating a salary range structure. I cannot fit it all into a blog. Perhaps I will write a book someday. I’ve created several hundred pay range structures to guide pay decisions. No two are the same.
For those of you who think it is a simple thing, here are some of the key questions and considerations. The answers to these questions will lead you to smart decisions on how to construct the pay ranges.
- Number of structures—should different business areas have separate structures, or use a single structure? Consider separate structures for sales, senior management, white collar versus blue collar, hourly versus salaried, union versus non-union, or strategic versus non-strategic (enabling or transactional) functions. Are there market pay differences by function, at the same grade level?
- Number of grades—how many reporting levels are there? How flat does the organisation want to be? How frequent should promotion opportunities be? How much resourcing does the HR dept have to conduct job evaluations (more grade levels require more job evaluations)?
- Make or buy?—does the organisation prefer to hire fresh graduates and develop them over time, saving on salary, but allowing greater control over the development of work attitudes, alignment to company culture and values, and industry knowledge? Or does the company prefer to hire people with more experience, people who can “hit the ground running” and already know the industry, but who come with expectations, current pay packages or work habits that create challenges? The answer to these questions can influence decisions about “anchoring” the range minima and midpoints of certain grades to the corresponding market pay levels that will make the chosen approach effective. A buy approach may require wider or less rigid ranges.
- Internal versus external focus—should grading be strictly determined by job evaluation, looking at job content, or will market value influence grading to ensure ranges are competitive?
- Job evaluation methodology—Does your job evaluation method result in a number of job levels that aligns naturally to the levels of your structure? If your structure gives you level scores ranging from 40 to 60, will you build a structure with 21 levels to match, or do you need only 12 or 13 levels? The market may recognize 3 levels of IT help desk, and your job evaluation system can distinguish them well, yet if your structure has 8 levels, then you only need two of them for IT help desk. How will you therefore withhold a promotional opportunity offered by other companies to conform to a flat structure?
- Pay philosophy on market positioning—will there be a lot of allowances, which take pressure off of salary? Will incentive opportunities be at, below or above market norms? Does the company wish to align to the market, or lead the market with higher pay levels for certain business areas or job levels or locations? Do you want to lead on salary and lag on incentives? What is the ideal mix of compensation? How competitive are benefits or other rewards? To what extent can intangible rewards form part of the package, such as contributing to nation-building or opportunity for international projects?
- Philosophy on development—are frequent promotions desired, and if so, should promotions be based on the job only? Can people grow “in the job” or must there be growth “of the job” for a promotion?
- What is the role of job titles? Will titles be hard-wired to grade levels, or have a life of their own? If there are fewer, broader grades, will it be possible to use such title prefixes as Junior, Senior, Assistant, Deputy, 2nd Assistant, etc.? Must all “managers” be in the same grade? Should administrative support roles like PA be consistent, link to the level of manager supported, or be graded strictly based on job evaluation factors?
- Selection of pay statistics—survey data can be acquired easily. It can be bought with participation or a promise to participate. The challenge is knowing what numbers you want to use from the survey:
- Regressed data can be used directly if you wish to have a similar number of grades compared to the levels provided in the regressed data (e.g. Mercer position class, or Radford career level, etc.) If the company’s desired number of levels matches the levels of your data source and a one-size-fits-all structure is desired for overall internal pay equity, an organisation can align their grades directly to the survey levels and simply use regressed data as midpoints!
- Job specific data is the preferred approach for larger organisations with a diverse range of job families. Job market values within the same grade may vary significantly, so it is important you can find job-specific data. If you are competing with an industry dominated by 1 or 2 employers whose pay packages you do not intend to match, then use company-weighted data if available.
- Personal market value – what is a person worth? Two programmers, one using SQL and another using JavaScript or GoLean will have drastically different market values, even with identical job descriptions.
The answers to these questions and the combination of answers will point to a specific solution. From there you construct the ranges and model them for fit against the population Avoid creating a monster or a class system. Keep it simple and fair, yet effective at guiding individual pay decisions in a way that effectively attracts and retains talent, allows sufficient differentiation based on performance, give you access to the range of market talent you want.
Plus.. your ranges should look nice when shown as a graph. That was a joke.
There is no way to fully automate creation of a fit-for-purpose salary range structure, though I supposed it is possible to come close. I know of no company that does not use Excel, building ranges like a craft. There’s no app or bot that can do this to my knowledge.
The region’s top HR and rewards (Comp & benefits) leaders are converging in Manila July 26/27 for the ASEAN Total Rewards Institute’s Total Rewards Congress. This marks the emergence of total rewards as a mainstream business priority in the Philippines. Why is this? A total rewards approach is the key to attracting and retaining talent in a competitive market for talent, especially in a growing economy in a growing region with a very challenging business environment.
Imagine managing HR in the Philippines, the world’s second largest exporter of talent (behind India), a country where:
- employment regulations, job protections and mandatory benefits are so burdensome, 41% of workers have no employment contract at all, and those with contracts are often terminated before gaining permanent status at 6 months;
- where employers are mostly paternalistic and “love” their workers like family, yet unions can be hostile, even violent;
- where traffic congestion is awful and getting worse, yet employers resist supporting work at home arrangements due to traditional management mindsets…
But to the HR and C&B managers in the Philippines, this is normal. In fact, throughout most of ASEAN, these challenges are familiar.
So how can a total rewards approach make a difference?
Three ways:
- First, total rewards looks at compensation & benefits differently, not as a “minimum cost, maximum copy” system where you simply follow industry norms and avoid paying people more than necessary. Total rewards experts view cash compensation and benefits from a strategic point of view, selecting specific approaches for these areas to maximize value for money, rather than simply reduce cost. For example, many organizations provide very competitive pay, but it is more generous on the performance bonus which is “self-funding” based on financial business results. Many organizations support preventive healthcare and wellness to reduce demand for healthcare, not focusing simply on insurance costs which only address healthcare supply.
- Second, total rewards includes both tangible (compensation and benefits) and intangible rewards, such as work-life/flexible work arrangements, recognition, development and career opportunity, as well as leadership/management. Any employer can compete on salary to hire someone, but retaining good talent requires more, including a fair and consistent approach to promotion, opportunity to learn new things and occasional recognition.
- Third, a total rewards approach is dynamic, addressing changing needs and preferences of workers, who represent millennials, long-service staff, singles as well as those with dependents, etc. The art of total rewards is to design the right “rewards mix” that will attract and retain both today’s and tomorrow’s workforce, in light of labor market trends, business needs and other factors.
Come join us in Manila to hear from an outstanding panel of global and local speakers, at the ATRI Total Rewards Congress.
Live interview on Manila’s ANC Early Edition, with Mimi Ong: Why Total Rewards?
Following the congress, ATRI will be introducing training and certification in total rewards at the specialist, professional and fellow/strategic level. Visit the ATRI website for more information.
For more on the total rewards approach, read Why a Total Rewards Approach is Critical.
To watch my recent interview on ABS-CBN News Channel Early Edition from their facebook page, click here.
I know it’s none of my business, being a comp & ben guy. But I have heard some focus group horror stories lately, and I have to do a public service announcement on how–and how not–to do focus groups. I have run my share and been part of several. So for those of us who as C&B people may not pay enough attention to OD, this is for you.
Focus groups are not like other meetings.
First the similarities: like meetings, you need to make clear to invitees the purpose, agenda and length (PAL) and send any pre-read material on the subject matter. Without clarity of purpose, agenda and length, focus groups can be a waste of time, or even destructive, like badly managed meetings.
Now, the differences.
Unlike meetings, which are for communication, planning, target-setting, progress-checking, expectation-setting, problem-solving, decision-making, damage control or other purposes, focus groups are specifically for listening, a specific type of communication. They are not for decision-making, problem-solving, etc. While the purpose of having a focus group can be related to decision-making or problem-solving, the focus group itself should not include these activities or their dynamics.
As a listening methodology, focus groups should be designed specifically for maximum input from participants. This means people should know the subject matter well enough to provide useful input. This also means you should not invite people who will lack subject matter knowledge, such as new employees who may know little or nothing about the products, customers, current policies, current culture, etc.
Right Group Composition
Group composition matters. Consider having separate focus groups, collectively including all likely diverse viewpoints, but each group consisting of people who will be comfortable speaking and sharing together. If you want managers, select managers who are at a similar level. Don’t mix managers and non-managers, unless the non-managers are very senior and will not be intimidated by the presence of managers.
Focus Group Ground Rules
Unlike other meetings, you must establish ground rules to ensure free flow of ideas, and not force people into awkward situations which will end the focus group prematurely, resulting in failure to get information and failure for you as facilitator.
Ground rules can include:
- Confidentiality—It is a privilege to be invited to be part of the focus group. Please return the favor by keeping confidential who said what. If any rumors take flight in the organization about “so and so said such and such” at the focus group, we know who started it. You. You as participants are at the top of the suspect list. Do we all agree? (this part is why many organizations don’t do focus groups at all. They cannot establish trust. Very sad, but true.)
- Personal input—You represent you, and no one else. Make it clear upfront that focus group participants represent themselves only. They are not the representatives of their departments, their age group, their occupation, location, race, gender, etc. They should speak their personal views. This ensures the facilitator gets an accurate reading of what people actually think, and it also avoids accusation from existing or potential labor unions that the company is setting up and controlling its own union. Any lawyer would agree with this precaution.
- Keep it Chill (relaxed). You are invited to share your view, not sell it. We are not here to debate or emerge with some kind of consensus, but rather to understand what views there are. Focus groups are not like a statistical survey where you can score how people feel. It is anecdotal in nature, and the facilitator will summarize focus group results by describing key themes or key messages that came through. So there is no need, and in fact it would be quite harmful, for anyone to challenge anyone else’s view. It’s ok to share a view and why you have that view, but you are offering your ideas, not comparing them to others’ views. A debate seeks to reach objective conclusions, while a focus group simply seeks to identify and understand diverse and subjective views. When people dominate focus group discussion—a common challenge—it is usually because they are trying to sell their ideas to others, or because they simply don’t get enough attention in life. This is also a good reason to consider excluding decision makers or influencers in the focus group. If decision-makers are there, speakers will not be sharing ideas with you the facilitator, but will instead direct their gaze at the management influencer in the room in hopes of selling their idea.
Neutral Questions
When you start the focus group with “management is considering introduction of a new…” you can be certain of two things. First, you will not get any dissenting views, except from Americans or other “speak your mind” cultures. Asians will totally shut down if they disagree. Those in hierarchical cultures will support whatever management has apparently decided. So rule number 1 on focus group questions is this:
Keep questions neutral!
Do not give any clues about what kind of ideas or opinions are good/bad, acceptable, not acceptable, out of bounds, etc.
The other thing you can be certain of, if you ask a “loaded” question which indicates management already has a view, is this: people will conclude that the focus group is all for show, that management has no real interest in their ideas because the decisions are already made.
Hope these tips help you have more productive (and less destructive) focus groups!
With many professionals being certified in their respective fields (including HR or rewards) I wanted to share my thoughts on the value of certification. This comes from having been a Certified Compensation Professional (from WorldatWork) since 1990 and more recently, the Advanced Certificate in Training and Assessment which I received in 2014 from Singapore’s Institute for Adult Learning. I have been a WorldatWork certification faculty member for many years now, and I wish to endorse certification very strongly for those who are able to pursue it.
- Competence—first and foremost, certification from a respected body signifies possession of competencies (knowledge, skill and attitudes) needed for successful performance of a profession or specialization. People want to hire those who “can do” things, not just talk about doing things. A good certification program starts with assessment of learning needs, i.e. identification of the relevant competencies. Without this validation, a person may pass a test, proving they know (can do) something that is irrelevant to the real world.Example: I am developing Asia’s first regionally contextualized competency-based total rewards training and certification program and I have an industry panel plus several subject matter experts helping to validate the courses and exams, confirming that they in fact teach and assess the competencies actually needed on the job for regional rewards specialists, professionals and managers. I have an associate currently reviewing 100 actual comp and benefits job descriptions for actual openings in Asia, and cross-checking my competency framework against the job duties and qualifications.
- Confidence—second, certification gives a person confidence. We all get asked “do you know anything about x?” from time to time. Instead of saying “sorry, I’ve never done that” (or even worse, giving a false impression about our experience) we can say “actually, yes, I know a thing or two about x”. Busy decision makers (our bosses) love to hear that. That is an expression of confidence that comes from competence.I sometimes advise junior consultants “don’t let your confidence exceed your competence… at least not by too much!”
- Connection—certification links you instantly with others holding the same certification. A community is created among certified practitioners, though usually this is quite informal. Still there is a comraderie and sense of mutual respect.Local networks and associations take initiative and hard work. I was once VP of the Michigan-Ontario Compensation Association, and we held monthly meetings, invited speakers and had a great time networking during breakfast briefings. In this setting, I decided that one day I would like to be one of those speakers.
- Commitment—Finally, the process of attaining a certification is an achievement that demonstrates commitment to a goal. It proves you can find time for learning and continuous education. As Ghandi said, “Live like there’s no tomorrow, but learn like you will live forever.” And as my great-great-aunt Margaret used to say, “to stay young you have to keep growing new brain cells”. She passed away at the age of 105 and the above quoted advice was actually given to her by her primary school teacher in the late 1800’s. So I share it with you about 130 years later, just as I received it.Completing my ACTA certification in Singapore was not easy. I am very proud of it and it gives me all of the above. I am now embarking on business mandarin certification, though I suspect this may take several years with some risk I don’t make it to the end. Still, I want to take on the challenge.
Certification marks a level of competence, confidence, connection and commitment. And I can’t seem to think of anyone having these four attributes who has not done pretty well in their work and their lives.
Let me apologize in advance. You will not find “The future of HR” or “disruptive” or AI, AR, analytics, NLP, blockchain or other popular buzzwords or clickbait in this blog post. So, if you are addicted by now to the fortune tellers telling us half our jobs are going away soon and we need to upskill fast, just skip this one and go to LinkedIn, where half the posts are about these things. I read those articles too, and they are important, but that’s not what this post is about.
I will tell you about the present state of organizations and the problems that need fixing, which if not fixed, there may be no organization left to fix, no industry to disrupt, no data to analyze. If you, today’s HR leader in today’s organization, cannot fix these problems today, then you may still lose your job, not to AI, not to a data nerd, but because your CEO sees you as ineffective.
I help clients pay their people more effectively. Just in the last few years, my work has impacted the pay of over 100,000 people, easily. So I am not looking into any crystal ball as I share my observations.
Here are the problems our organizations face today:
- Silos—I am guilty here. I teach how to write job descriptions and I help clients develop them. But they are dangerous. At best, they provide important role clarity and accountability and help the organization ensure value for the money spent. Job descriptions also form the basis of compensation structures and other HR processes. But at worst, they act as fences, rigid verticals that box us in, permitting us to use only a fraction of our ability and resulting in punishment for “doing someone else’s job” when we try to collaborate more broadly. Job descriptions literally enable our people to declare “that’s not my job.”
Illustration: At a big firm, I was in charge of one specialised area, and was not permitted to do broader reward consulting, though I had been global head of rewards for 3 multinationals. In fact, my incentive was based entirely on consulting in my area, despite our CEO stating that all solutions should involve multiple lines of business. Terrible alignment of incentives, for a firm that charges clients for incentive design. As a freelancer, I do what the client needs me to do, and 95% of what I’ve been doing the last 5 years, I would not have had permission to do at the big silo firm.
Silos stifle creativity, connectedness, cross-functioning and collaboration. Let’s get people focused on needs and opportunities and whole solutions. Let’s encourage (and reimburse!) learning in adjacent areas, not just “job related” training. Let’s recognize and reward those who take initiative to see the whole problem and address the whole problem. The political sensitivity is not the client’s problem. Better to solve the problem that extends beyond your job description, than to tell your client (internal or external) it’s not your area. Agree?
- Courage—you cannot outsource or automate managerial courage. Robot, schmobot. Unless robots have balls, it is still up to us to call a spade a spade and take on a tough problem directly. A handphone app is not going to tell the jerk on your team to stop disrespecting the women in the group. Data analytics will not get Bob to pay his low performers less in order to pay his stronger performers more. (Analytics can point the way, but only Bob can submit his worksheet, because Bob is responsible for his budget, not an HR bot.)
Let’s remember that job security comes from being able to do what others (including robots) can’t, and doing what others don’t want to do, like having confrontational conversations when needed.
- Mindset—I get calls almost every week about flexible work arrangements. Seems I am regarded as a guru. In fact you don’t need to be a guru on this topic. Successful implementation of FWAs, like many other things we try to do, come down to culture, i.e. what’s ok and what’s not ok. An organization that believes at the top that the important thing is results—not when or where we work—will need little help with FWAs, which are mostly dependent on department-level common sense. What’s needed most is a mindset change. A “laoban” mentality that believes face requires a big team with butts in seats from 9 ’til 6 will find eventually that all they have are butts in seats from 9 ’til 6.
I promised you boring and I hope you were not disappointed!
Can a white male like me be objective about pay equity?
My mother was a feminist. She was also a trainer and nurtured my interest in developing others. She was not only Northwestern University-educated, but she came from a business family and she knew the real world.
I have heard about gender pay equity since the 1960s. Really. No kidding. There were copies of “Ms.” magazine at home, the feminist manifesto, basically. I grew up with a deep sensitivity to fairness. My siblings called me “Father Tom” because I often found myself arbitrating (or having) arguments with them. My mom was from a strict Catholic family where convictions of right and wrong are deep. My dad was a California kid nicknamed Pedro (part Mexican), more laid back, with a simple, less activist sense of fairness, except that he was never paid what he was worth, just like my mom. He was an artist, she a writer.
I am white male, but I have never relied on privilege. I have worked to earn money since age 10. By age 18 I’d had 6 different employers, 10 bosses and a Teamster’s Union membership ID card. I worked in a factory during summer breaks, where one day another guy and I were assigned to dump frozen strawberries into a large container. This other guy, a black guy, and I each manually lifted 20 tons in a single day, dumping a 40-pound tin every 10 seconds. At the end of the day, we had pulled muscles and were drenched in sweat. We looked at each other and nodded in mutual respect when our shift was over. Don’t ever accuse me of privilege.
I was a working student. I maintained a ‘B’ average most of my life. By 19 I was assistant manager of a shoe store, then I supervised a grocery store where I sometimes helped customers by carrying out to their car two 100-pound bags of flour under my arms. By 20 I fired someone for smoking dope. At age 25, I was published by the Wall Street Journal, graduated with honors as Outstanding Management Student, and had four years of actual management experience. But I was first exposed to salary administration at age 24, while taking courses in salary administration, and working part-time as a personnel clerk in a real HR department, doing salary surveys. This was in 1985. No connections, no open doors, no privilege. Just followed my curiosity and was never afraid of hard work.
Back then, the HR profession was already shifting from male-dominance to female dominance, as corporate priorities shifted from union relations to non-discrimination. Women on a quest for equal opportunity and equal pay were encouraged by Civil Rights laws passed in the 1960’s and they were intent on claiming their rights, and achieving positions of power. So they became HR people. So in 1985, I began actually working with pay data. I saw the names, the salaries, but I also paid attention to the job titles and performance ratings.
HR and social justice agendas
My first corporate HR job was with a large company. Between me and the CEO were three levels of women, two of them clearly enjoying their “power trip” managing men like me and one (a former nun) just working hard to do the right thing. You are sensing a sexist attitude? I was actually a harassment victim one day, when a woman pressed herself against me and the wall, completely by surprise and very intentionally. She quickly apologized, then explained that she had been abused as a girl. We are close friends to this day. Since then, I have worked for some great bosses, both men and women. I have worked for some real assholes who did not respect women, and some real sexist women who told me to only hire women for high-paying roles, which resulted in some bad hires to be honest. What I am saying is: I am not just another privileged white male giving lip service to pay equity to soothe my conscience. I have hired, coached, developed and promoted females, and to this day, many women of several races count me as a mentor. I’ve known fair men, fair women, sexist men and sexist women.
In short, my brain is hard-wired for fairness in the workplace. I neither discriminate for, nor against women. They do not deserve higher pay or lower pay than men. Women, like men, deserve to be paid for what they do and how well they do it, period. My career as a rewards professional has been devoted to paying people for what they do and how well they do it. I teach these principles to hundreds each year, both the how and the why. I stay quite busy as well helping my clients apply these principles to develop better pay systems, systems that do not discriminate except for the right reasons.
Women, like men, deserve to be paid for what they do and how well they do it.
What is fair pay?
Consider Olympic scoring. There is the difficulty score and the execution/performance score, which combined determine the total score. Olympic competitors are scored based on what they do and how well they do it. And this is the basic concept underpinning modern corporate compensation programs.
Without getting too technical, large organizations manage their largest expense—salaries—by paying people for what they do, using job evaluation methods to assign jobs to pay grades. When people are assigned to jobs, and jobs are evaluated into pay grades, then you can pay individuals within salary ranges linked to grades, based on their performance, through annual merit reviews or other rewards.
Pay equity laws do not state that men and women should be paid equally. They state that men and women doing the same work, or in some cases work of equal worth, must be paid the same, except for differences attributable to performance or other work-related factors other than their sex.
Clearly, a woman working as receptionist is not entitled the same pay as a man working as a department manager. But a female department manager should be paid the same as a male department manager, all things being equal such as department size, performance, etc.
So it is essential that an organization wishing to pay fairly must have a process for grading jobs and for paying individuals based on performance, in those jobs.
How do you grade jobs? How do you know which women to compare to which men? It boils down to mundane job descriptions, plus well-designed methods for measuring which jobs are bigger than others, which we in the profession refer to as job evaluation.
How do you know which women to compare to which men? …you must have sound processes for job evaluation and performance-based pay.
Before you can achieve pay equity, your organization must have sound processes for job evaluation/grading, and for performance-based pay.
I will not explain in detail the ‘how’ of job evaluation and performance-based pay in a blog. It is not possible. Attend one of my courses offered through SNEF, such as Comp 101 or Comp 102. Or contact me.
Talk is cheap. Job evaluation and transparent performance-based pay systems enable action, fairness, and gender pay equity.
Within every large organization is someone responsible for comp & ben, short for compensation and benefits. These are the experts in who should earn what. If you don’t know who they are, that’s ok… they know who you are. They also know your title, pay grade, salary, allowances, bonus level, performance rating, market value and why your salary is what it is.
By now you are thinking ‘hmm, I’d better be friendly to my comp & ben person.’
Sure, be friendly, but keep in mind that your comp and ben person is the last person in the world who would be influenced by how you regard them. You see, comp and benefits people are the (mostly-)invisible guiding hand, assisting managers and their HR colleagues on all matters relating to who gets what, and devising analyses, structures and tools, handling highly sensitive information with the goal of making sure everyone is paid properly. They don’t control your salary budget, but they have enormous influence on your company’s (usually) biggest expense: people. As a manager, you control your budget, but the guidance you get from HR starts with comp and ben.
These are the comp and ben people, and I am one of them. In fact, I have been a comp and ben guy since March 1985, when I first participated in benchmark salary surveys for my company, handled all the benefits claims and maintained the HR records. We had no computer, and were were called “Personnel” in those days. But one thing hasn’t changed these 33 years: I still love figuring out who should make what in an organization.
We follow a set of principles, we call total reward principles:
- It’s not just about salary, but the whole package, when determining what is competitive;
- Different people value different rewards differently; needs and preferences vary by many variables including job level, location, demographics, individual performance, etc.;
- Pay must be linked to performance to achieve organizational success;
- Designing a rewards package starts with knowing your business and your talent/people requirements;
- We aim for the best rewards “mix” that will attract and retain talent, avoiding over-reliance on salary level;
- Pay doesn’t motivate (for most), but when pay is too low or unfair, it certainly demotivates;
- Managing pay is both art and science, requiring an understanding of business, ability to work with numbers and applied psychology, with knowledge of contract law and regulations;
There are many areas of knowledge, skill and attitudes required to be an effective comp and benefits specialist.
If you are in HR, but have never been responsible for comp and benefits, look for a chance to give it a try. It’s not for everyone: some of us are, uh.. introverts, analytical, and a bit rigid on matters of fairness and consistency. Go have lunch with C&B and get to know their world.
If you are not an HR person, you should be glad your company has a qualified, competent C&B person. Because of them, pay is far more fair, market-aligned and consistently administered. Treating them well won’t affect your pay. But it doesn’t hurt either.
Here’s to all the comp and ben people. Have a great 2018. May there be world peace in your organization (on pay matters, anyway), and may all your compa-ratios be one.
As of today, 10,000 people have visited my website to gain ideas or find help on total rewards. Seems we are not alone, even though we are usually just one or two persons taking a concern for C&B, mobility, flex, recognition wellness, etc. where we work.
My intention is to continue to build both competence and community among the members of our profession.
We make a big difference when we evaluate a job, recommend a salary, answer a benefits question, help negotiate to secure needed talent from another country or treat sensitive data with care.
Strategically, we can contribute breakthrough ideas to support business growth, profitability, productivity (employer outcomes) as well as higher levels of retention, engagement, diversity, growth and motivation (employee outcomes aligned to support employer outcomes.)
Coming soon:
- Wikipedia page on Total Rewards (which any of you can edit!)
- Ramp-up of the Certified Total Rewards Professional (CTRS, CTRP, CTRF) certifications — 3 levels of competency-based certification in total rewards, to be offered in ASEAN and Hong Kong through top partners and master instructors, and validated by a stellar industry panel
- Increased consulting and learning resources in Singapore and SEA region
Thanks for visiting this site! I will continue to post what I hope is useful to you.
Your annual salary review is approaching fast. It is the most stressful process you have to manage each year as a C&B manager or specialist. Give yourself an early Christmas present and attend the best and only course specifically designed to prepare you for this project, and make this your best salary review ever.
Are you ready to:
- Apply effective project management for the salary review?
- Recommend a salary budget for merit, promotion and other increase types?
- Update salary ranges for the coming year?
- Calculate compa-ratios for countries and employees?
- Develop a salary increase guideline based on compa-ratio and performance rating?
- Define/facilitate the manager input process using Excel or other HR technology?
- Prepare and manage review data including consolidation and approvals?
- Support effective communication of salary review outcomes?
All C&B managers must have competence in all eight areas. These are the learning objectives for this masterclass.
I invite all C&B managers or others involved in running the annual salary review / annual increment process, to attend Compensation 201: Manage the Annual Salary Review, on Thursday, 14 December, offered by Singapore National Employers Federation (SNEF). Consider this boot camp for first-timers, and a “mandatory refresher” for those of you who have done it before and probably have some room for improvement. (There is always room for improvement in this process!)
This class was packed in Hong Kong on 2 November, and some suggested the class be expanded to 2 days. But C&B people have so much work to do—preparing for salary review—it is my opinion few could take 2 days for a class this time of year.
I’ve been managing salary reviews since the 1990’s, and as recently as 2017 for a European MNC with 11,000 employees in 18 countries. In my last corporate role, I ran the global process for InterContinental Hotels group, involving 120 countries and 22,000 employees. I’ve used Excel as well as 3rd party software, as well as WorkDay. I will teach using Excel, and you will receive Excel templates for:
- merit matrix costing—you can fill in the %’s to see how much budget you will spend, based on your population, their salaries, performance ratings and compa-ratios). All the lookup formulas are built in.
- manager input—you can modify this for your organization, for use by managers to input their salary increment decisions, (or promotions or bonuses) and track their own budget consumption. Complete with lookups, multi-currency conversion and primary-currency budget summary.
You will also receive a sample salary budget summary template in PowerPoint, which you can use to present your salary budget recommendations, especially if you now have market data to support final tweaks to your preliminary budgets. We will discuss catch-up budgets: when and how to request them, and how to allocate and manage them.
To register, contact Darren Lim at SNEF, at darren_lim@snef.org.sg, or email me at tfarmer@freelancetotalrewards.com.
Disclaimer: I cannot guarantee you will be happy with your own salary adjustment…
Hope to see you on 14 December!
Attention rewards thinkers.
We have been “paying for performance” for decades, giving “merit” increases. This is way better than not differentiating. It is a legal basis for differentiating pay and a smart one. But merit pay is backward looking, focusing on KPI achievement and other aspects of “performance” the last 12 months. We should be paying for retention of future performers. Past performance is a consideration, but future performance is better predicted on the basis of potential, competency, mastery or other attributes of the person, and not simply last year’s results. Like value investors, we should put our money on people (like stocks) that we feel are undervalued relative to their future performance.
Let’s break it down.
My business school class on salary administration back in 1985 used a textbook called “Compensation Management: Rewarding Performance”. It featured the following diagram:
Seriously? While behavioral psychology “works” with laboratory animals, I am not sure the above model fully explains human work performance (and the textbook did not claim it fully explains performance.) Yet we have designed our pay for performance practices on the concept of positive reinforcement. Employee performs, employer rewards him. The reward stimulates more performance, and so on.
Let’s flip it around.
Let’s say you start a business and employee salaries are paid with your money. You hire two people and one of them, Richard, is far more productive than the other, so a year later, you give a big raise to the Richard. You give half as much to Carla. The following 2 years, same thing. But after three years, “rocket” Richard is out of fuel. Seems his long hours have caught up with him. He settles into an easy going pace, but makes sure new employees know he was the first employee.
Meanwhile the other original hire, Carla, has been learning, thinking, imagining a few ideas for how to serve customers, etc. One of those ideas works well and while Richard tries to take some of the credit, everyone including you knows Carla came up with the idea. Carla is now suddenly “on fire” but more importantly she is generating new ideas almost monthly, while Richard seems to be living in the past.
It’s your money, what do you do? Richard is making 15% more than Carla.
If it’s MY money, I will give Richard nothing and have a very frank discussion with him. I will give a very large increase to Carla, because I can’t afford to lose her. She’s my MVP, or to be more accurate, my MVT, most valuable talent.
Contrast that with modern corporate merit pay where it’s company money and managers don’t like having unpleasant conversations with people like Richard who were superstars in the past. Merit pay focuses almost entirely on the past 12 months, starting with a standard budget %, then bumping it up or down just a bit in relation to the performance rating. It is a looking back process. It is based on behavioral psychology, just like most of our bonuses. Except we don’t repeat bonuses forever… a raise is forever, since the new salary is the basis for next year’s raise. (Merit pay is the best residual income scheme ever invented!)
A raise is forever, since the new salary is the basis for next year’s raise.
Talent Value
Let’s look forward, like investors do. After all, are we not investing in human capital? If salaries and training dollars are an investment in a person’s future performance, why do we design our pay reviews around the past?
Investors move their money when the big investments of the past stop performing. When earnings fall and the share price is high, maybe it’s time to sell and invest in a lower-priced company stock that is likely to outperform it’s peers in the future. Investors who focus on finding low-priced future performers are called value investors. They look at price-to-earnings ratios or “P/E ratios the way we look at compa-ratios, except that compa-ratios do not consider likely future performance. Instead, we pair up compa-ratios with ratings of past performance.
Let’s apply investment logic to our pay decisions.
When “value investors” see new, disruptive companies coming along with game-changing advantages, they dump their high-priced under-performing (high “PE”) stocks and put their money into the value stocks. What do they look at? Amazingly, they can look at Trailing P/E which looks at the past 12 months, as well as Forward P/E which is the expected return in the coming 12 months. Isn’t this exactly what we need to do? Let’s learn to be more like talent value investors when making pay decisions, not that we would “dump” a person like an investor would dump a stock, but rather we must recognize when a person is paid too much for their value, relative to other people who may be paid too little relative to theirs.
We are undergoing a fundamental transformation in the area of pay for performance, toward a broader view a person’s value to the organization, or specifically the value of their talent, i.e. talent value. We must also take a broader view in our salary guidance.
Do we need to drop performance ratings? As far as pay is concerned. no. We can continue using ratings as one consideration, but no longer the main consideration. We can also use ratings of the past 12 months in differentiating bonuses or to support recognition. The rating and compa-ratio (salary divided by salary range midpoint) together tell us a person’s “trailing P/E”, i.e. how they performed the last 12 months relative to their price. Our traditional merit matrices reflect the trailing P/E concept exactly.
As you can see, the traditional merit matrix, or salary increase guideline, guides managers to give bigger increases to those employees who are making less (low in the range) and/or who have a higher performance rating for the last 12 months. My personal estimate is that at least 80% of Fortune global 500 companies have been using such a matrix to guide managers in making annual salary review decisions the last 25 years.
The question now is whether we can revise a salary review matrix along the concept of “Leading P/E”, considering expected future performance, instead of past performance. The answer is yes, and we are already doing it in the form of talent review and succession planning. We just need to link it to pay.
Pay for Talent Value
I have had at least 200 conversations with HR and reward leaders the last three years about the move away from ratings (in the tech and white collar sectors, mainly) and toward more future-looking approaches that also reduce individual competition for scarce ratings. I have been designing pay for performance (P4P) systems for companies since 1991 and have guided annual reviews for hundreds of thousands of employees in over 100 countries. If there is a better way, I need to find it.
These discussions—along with my firm’s research, much thinking, reading (especially David Rock and Daniel Pink), attending conferences and other inputs—have led me to a new, simple salary review matrix design to guide managers in their annual pay review decisions, based on consideration of 1) performance, looking back and 2) retention, looking forward. I call these P-Rating and R-Rating. Together, this holistic view of the value of a person’s talent can be called Talent Value, a term some respected companies are starting to use.
The P-rating is no different from your current performance rating, looking at the past 12 months.
The R-Rating indicates how a person is paid relative to their talent value, i.e. how important it is to retain them and whether their current pay reflects it. Someone who is paid very well, yet is not critical to retain would have a low R-rating. A person who is paid low for their job yet is critical to retain would have a high R-rating. Essentially the manager must judge what the person’s target compa-ratio should be, and compare that to the actual compa-ratio.
What about compa-ratio? It is still very important. Compa-ratio is a good indication—regardless of what country or job you are in—of whether a person is at risk of leaving over salary. Critical talent—talent you cannot afford to lose—should have a high enough compa-ratio to put them out of reach of other potential employers.
R-Rating (retention) takes compa-ratio into account.
So here is the new Pay for Talent Value or “PayTV” model as I call it:
The first thing you will notice is that there is no Compa-ratio. Actually, the CR is a consideration in determining the R-Rating. The ability to retain talent has a lot to do with how well you are paying them. The Rating reflects whether you are paying someone well enough considering their talent value.
Ignore the percentages, they are only indicative here, and must be calibrated for each organization, as a reflection of the company’s pay philosophy, and of course the budget, number of ratings and degree of differentation desired.
I mentioned ratings, yes. If your organization considers past performance as an important factor, then use them, at least for bonuses, where at least you are not paying a person forever. But if you no longer use ratings, not to worry. There is a variation on this matrix, which does not look at the past. Instead you use Compa-ratio and R-rating only, where the R-rating reflects a person’s “target” compa-ratio based on their value.
Communicating a Pay Decision
Managers must communicate their pay decisions, no longer focusing on the past, but focusing on the future, with due consideration of the recent past. They should talk about the needs of customers, the needs of the business and the talent that is critical looking ahead. They should not talk about a person’s value, but rather their talent or talent value, otherwise people could take it personally. The manager can discuss (and should already be discussing) development and building job competence with each team member, so linking pay to future value—driven more by competence than by past achievement—should be a natural fit with the manager’s role as coach and grower of talent. If your managers are not able to do this, help them. Going forward, select managers who understand growth and development, and who have the courage to give little or no increase to people who insist on living in their past glory, who believe loyalty is all that matters or who refuse to learn new tricks.
Organizations in all industries are now talking about forward-looking, team based rewards. Incentives and recognition are wonderful ways to reward individuals or teams. But base salary is not, and should not, be team based, unless you have self-directed work teams where people rotate roles on a regular basis. Base salary competitiveness heavily affects talent retention. It is certainly possible to manage salaries in relation to future talent value.
Is your organization looking this type of approach? Let’s talk. I will be happy to collaborate with you to pilot test this approach, to build a success story. Please comment and let me know what you think!
Thomas A. Farmer