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!
Can’t take a whole day off work for training? Wish learning could happen on your schedule, and not have to pack it all into a single day, with little time for interaction? Want access to the best instruction, but you have a lot to share as well, and more importantly you want to learn from the experiences of others?
We are happy to introduce Workplace Learning Circles, from FTR, in partnership with Singapore Learning Circles, LearnSG, and other partners to be announced soon.
Background on Learning Circles
For decades, study circles in Sweden have brought together communities of learners interested in a topic. Everyone shares, so learning is multiplied compared to instructor-led learning. Singapore has embraced the concept and is funding early adopters, taking advantage of an enabling technology platform designed specifically for Singapore’s learning needs. The Institute for Adult Learning (IAL) now supports adult educator entrepreneurs wishing to extend learning to individuals as well as employers. Learning circles are a form of community-led blended learning, to use the proper jargon.
An LC consists of a live session where learners physically meet, but also log into the virtual classroom and experience interactive training that is both face to face and online. Material is presented by the facilitator, and learners then get involved with online polls, checking out posted videos and URLs to articles and can post their own ideas, reflections, experiences or resources. This is followed by 1-2 weeks of “asynchronous” online learning, at the learners’ own pace and convenience, using any online device. New material is posted throughout the period to help learners develop a habit of daily learning with new material. Like social media, learners can contribute comments, questions or share links in relation to specific “slides”, and can “like” or rate (positive variations only) or comment on the inputs of others. The result is curated content. Neuroscience has found that learning is much more effective when people spend more time actively receiving, recalling, reflecting and researching a topic, compared to hearing a lecture with minimal time for application.
Learning circles are a form of community-led blended learning
Workplace Learning Circles from FTR
Freelance Total Rewards launched its first learning circle, “Promote Flexible Work Arrangements – DIY Learning Circle” on 9 September, 2017, to test-drive this approach. As an educator, I love it, but it takes some initial adjustment, kind of like using your phone as a music player or getting into a taxi that has no taxi sign on top. I am now committed to using learning circles to supplement our live learning opportunities. Introductory LCs will be free, while more in-depth learning may involve a fee.
Our next learning circle is our first designed exclusively for employers, on the basics of using rewards to attract and retain talent.
For more information or to register, click here for Attract and Retain Talent – Workplace Learning Circle. This will be the first of a series of learning circles leading to a Certificate in Workplace Rewards.
Our mission is to advance better rewards practices, and the annual salary review is the ultimate test.
Are you ready for the upcoming review?
Did you assess your last review? If not, it’s not too late. Use our free and simple Salary Review Assessment.
To help you run a successful annual salary review, now is the time to plan and equip yourself with the essential knowledge and skills, ranging from project management, stakeholder management, data management, pay for performance, budget allocation and control, manager input and approvals.
We have recently validated the competencies (knowledge, skills and attitudes) needed to manage a successful salary review, based on input from experienced regional rewards leaders. We have incorporated this knowledge into consulting and training offers you may find useful:
Annual Salary Review Support
This is a scalable, configurable service offering to assist you with your upcoming salary review. The level of assistance you require depends on 1) the scope and complexity of your review, and 2) the strength and capacity of your existing resources.
We have assisted large MNCs (10,000+ employees in 15+ countries), midsize employers (5+ countries, 1,000+ employees) and smaller employers as well, just in the past year. Depending on your needs and internal resources, we can provide expertise, an additional set of hands, guidance, or even full accountability for performing the work.
See Annual Salary Review Support on our Compensation Design page.
Annual Salary Review Training
We have also created a 1-day and 2-day version of training for C&B managers and professionals responsible for managing and administering the annual salary review. This an intermediate course (not for newbies) covering in depth the unique aspects of running a salary review. Learners are assumed to know how conduct market benchmarking and use Excel. We will teach advanced Excel skills for creating a salary increase guide, i.e. merit matrix, based on performance rating and compa-ratio. We will also provide a basic template for a manager input tool used to allocate their budget to their team members.
Check out these courses on our Training Calendar.
The month ends in ‘ber, so it’s time to rememBER year end priorities for managing comp and benefits. Here’s my fifth annual (and updated!) “Ber” to-do list for C&B people.
The last few months you’ve made progress on your KPI’s but now planning season is upon you. A few things start to happen for companies on a calendar year fiscal year. They may not all apply, but I’ll bet most of these priorities apply to you:
Seven Comp & Ben Priorities
- 2018 Salary Budgeting—You must deliver salary increase budgets for each country. There are 7 inputs to setting your salary budgets for each country:
- Last year’s budget – the decision makers will want to be reminded of this, promise.
- Local salary trend – big firms, WorldatWork have good surveys on salary trends and projected salary budgets, normally indicating merit, general (across the board) and total increase projections.
- Market analysis – benchmark your company’s jobs every year and compare the results for a matched set of jobs to see how much the market values have moved year-over-year. Average the market compa-ratios (employee salary divided by the job’s market value) for all employees together (incumbent-weighted) to determine your company’s overall market position.
- Business and financial conditions – if the economy, the industry or your company’s finances are strong, don’t be shy, ask for what you need. If there is economic or financial uncertainty, ask anyway, but expect pushback.
- Voluntary staff attrition rate compared to industry norms. If your salaries lag the market significantly but you are not losing good talent (low attrition rates), then your salary budgets can match market trend. But if you are experiencing high voluntary attrition relative to your industry, and you know your pay lags the market, you may need a catch up budget. How much to request? If you have a high attrition rate, and your salaries (and total compensation) lag the market by 10% or more (i.e. compa-ratios of 90 or less), you should request an additional 1.0% of payroll. If the gap is 15% or more, ask for an additional 2%. These are only rough guidelines. Don’t ask for huge catch up budgets–it will show your lack of business savvy. Take small steps and find other ways to address your high attrition other than raises.
- Total cash compensation – when considering your salary budget requirement, make sure your market analysis includes total cash compensation. If you pay big bonuses compared to your industry, it’s ok to let salaries lag the market. I know of a company in Taiwan that pays massive performance incentives and very low salaries (about 60-70% of market.)
- Promotion plans – some companies establish separate budgets for promotions. Other companies do not, arguing it is unnecessary since there are unplanned savings from vacancies during the year, and that vacancy-related savings are sufficient to offset the cost of promotions. If your company budgets for promotions, you can easily determine the right budget by answering two questions: first, what percentage of employees will be promoted? Second, what is the average promotional salary increase percentage? Multiply the answers to determine the required promotion budget, as a percentage of total annual payroll.
- 2018 Benefits Budgeting—You need to provide finance an inflation rate on your insured benefit premiums as well as self insured claims. Contact your broker and start shopping the market before blindly signing a renewal. If you’ve been with the same insurance company for 5 years, they are feeling comfortable so shop the market and make them re-earn your business. Locations with aging workforces will see higher premium increases. TowersWatson has some of the best analysis of healthcare inflation in Asia, indicating healthcare costs are rising about 10%. Check social security websites to see if contribution rates or pensionable salaries will increase next year.
- Annual Market Analysis—Your compensation surveys are being published in the next several weeks, with some coming out in September. Don’t wait til the last minute! It’s tempting to wait til late October when all your surveys have been published (by Hay, TW, Mercer, McLagan, etc.) but remember you need to confirm your matching, check the year-over-year market movement by job, to see if there are jobs where the market moved up more the expected, or perhaps moved downward, in which case you have to decide whether to accept the new market value or stick to the current market value (and see if it goes down again next year). Your market analysis results can serve as inputs to salary budgeting (see item 1 above), salary range updates, and to inform salary offers in the coming year.
- Annual Pay Cycle Planning—Do you know who is running the annual merit/increment process? Who is responsible globally, regionally, by country? Who is working with the software vendor (if you use 3rd party software) for modifications and configuration? What are the milestone dates? How will Chinese New Year impact milestone dates, manager deadlines, performance rating calibration and approval, etc.? Are you moving away from use of performance ratings? If so, your market analysis (step 3 above) is more critical, since you will need accurate compa-ratios. Who updates salary ranges? There’s a lot of work to be done for the annual salary review. In comp, this is the biggest project of the year, so plan now.
- 2017 Incentive Accrual—One thing I recommend doing now is updating your forecast for 2017 incentive payouts (to be paid early 2018.) Finance needs to maintain their accrual on the balance sheet for the bonus payment liability. If incentive-related business performance has been low, payouts may be lower than budgeted, depending on your plan design and funding formula (if any). If so, it’s bad news for employees, but good news for finance, who can make plans to earmark potential surplus incentive budgets for other needs. However, if business performance has been good, your incentive accrual may be insufficient and finance may have to increase that accrual to avoid a year-end cash flow crisis. Make instant friends with finance by giving them an estimate of year end bonus cost.
- 2018 Incentive Design—You think September is busy, it gets worse each month now through next March, so do yourself a favor and get some things out of the way now. For next year’s incentive plans, ask some business leaders if they have any input/feedback on the current plan design, likely payouts, etc. Update your accruals (see step 5) and have an informal chat with your head of HR and head of Finance and see if they have any sense about the richness of payouts, who’s getting low (or no) payouts, who’s getting bigger payouts, etc. Is the incentive plan doing what it is supposed to do? Will it help attract, motivate and retain the best performing individuals? Is it rewarding the best performing teams, units, regions, etc.? If you can confirm that the plan is working well, then you can plan on a lighter incentive design process for 2017. If you get feedback that says something needs to change, then you should start more detailed planning now and make sure planning doesn’t get swept aside by merit and bonus planning, or other priorities in December and January. Ideally, new incentive plans/schemes should be issued in the first month of the new year, but no later than March, in most organisations.
- Finish your KPIs—it’s time to get realistic about what you can accomplish on your own time. What can you delegate? What do you need help with? If you (or your boss) have unspent consulting dollars, now is the time to get someone to help you get your KPI’s across the finish line. The only thing more tragic than not spending your consulting budget is not spending it AND failing to complete your KPIs!
We now offer annual salary review support based on years of experience, including very current experience.
Here’s wishing you a strong finish to 2017 and solid preparations for a successful 2018.
Tom
Spent some time today reflecting on how blessed I have been (and still am) to have the best mentors one could ask for in my profession. I am not a self-made man; many have taught and guided me, or occasionally whacked me upside the head.
Here are those who come to mind, from the start:
- Don Schwager, who taught me that work and serving God can be one
- Jean Hornback, hired me as Personnel clerk as a student, 1985
- Jeff Robinson, said in 1985 I’d go far and I’d go fast. He was right.
- Daniel T. Carroll, consulting legend, whose words resonate since 1986
- Dr. Fraya Andrews, EMU comp professor, taught me to hit .9 r-square
- Dr. Jim Conley, told me I’m an ops guy, not staff. He was right.
- Dr. Richaurd Camp, Performance = Motivation x Ability x Opportunity
- Jack Behler, my first consulting firm boss in 1989
- Frank Zyber, bonus brother. Kelly still uses our bonus plan, globally
- Nancy Fraser, taught me the right attitudes for managing comp
- Kathy Chiaravalli, taught me all I know about international C&B and more
- Gary Chicoine, taught me to be politically astute without being political
- Gary Yezbick, great HR team builder, gave me my first manager role
- Bob Bradshaw, 100% pure comp nerd, taught me LTI basics
- Marty Shapiro, best consultant I ever had on the corporate side
- Robert Powell, friend and confidant as we lived through hell together
- Jane Romweber, gave me a chance at big firm consulting Hewitt
- Darcy Eikenberg, gifted giver of strong head medicine
- Jack Moran, true coach and friend with the right words at the right time
- Jason Jeffay, best consulting leader I’ve ever known, could sell a $1 million project in a minute
- Lori Gaytan, gave me life-changing opportunities at IHG
- Stevan Porter (RIP), truest Servant Leader I have ever known
- Ceri Ittensohn, best HR leader I ever worked with, starting with good character
- Tony South, didn’t have to, but gave moral support when I really needed it
- Dr. Fermin Diez, true friend, chairman, partner and only guy who can teach me new stuff
- Freddi Marquez Jr., my partner in the Philippines, friend, and inspiration to do the impossible
There are others who have made a big difference in my career, but these are the major influences. To all of you, thank you. I hope to inspire and help others the way you have helped me.
Who are your mentors?
Thomas A. Farmer