Three Compensation Questions for HR

It’s not that the HR Department is trying to keep secrets from you. They are busy hiring people, solving employee-management problems and managing all the systems to keep people employed – just to name a few things.

Buried underneath all that work, there is information that may be valuable to you – if you know where to look. Depending on the size of your organization, you may find one person managing the area or in larger organizations you will find specific sub-departments within HR to contact.

Assortment of American CoinsIs Your Paycheck Right?

Are you getting your paychecks on time and are they correct? A separate payroll group or your HR representative in smaller organizations manages the payroll function.

If you have moved or have a change in family status – it is your responsibility to contact them and update your records so that the proper deductions come out and you don’t have a surprise at the end of the year when you file your tax return. Ditto for any changes in other benefits or deductions.

Direct deposit is great, however, fewer people look at their paychecks and endure they are correct.

Don’t assume that if your company has moved you everything is done, no changes can be made without filling out the proper documentation showing your consent.

Is Your Compensation Competitive?

In some situations compensation is the same for all positions. However, if you are being paid salary, your compensation is subjective. Perhaps you believe your compensation level should be higher (hint – most of us think that way!).

If you feel this way, the first step is to learn about how your organization establishes pay rates or salaries for their employees. In larger companies there will be a Compensation Department, in smaller companies, find out who is in charge of the yearly wage increases.

I have written a three-part series on how to go about evaluating how your salary was derived in your organization.

How Much Pay Increase Can You Expect Each Year?

Many organizations tie their pay increases to the general economy or rate of inflation. If inflation is low, then increases are low. There are many other factors that organizations consider – financial health of the company, growth strategy and competitiveness of skilled employees.

Once an organization establishes an increase budget, management may give out increases on a discretionary basis rather than an across the board percentage increase. Knowing what the process is for your company is important. Ask the Compensation Specialist or Human Resources Manager in your organization. Your manager is less likely to know the technical specifics of this question.

Remember, increases are evaluated yearly and where you are in your salary range will influence how much of an increase you might expect.

As you have these conversations with your HR Department, tread lightly. They may be surprised at some of the questions. It is important to be professional in your approach and treat it as an information gather meeting. Once you understand how things work, you can make a plan on how to execute what you want to do.

Employee Coaching Forms are NOT Disciplinary Action Forms

We are in real trouble if we blur the line of what coaching is and what it is not when talking about discipline.

293746_sLast week someone shared with me that they might be receiving a report of employee coaching form. “What’s a report of coaching form?” I asked. I had never heard of one before being given in the circumstance she was describing. Well, it seems that her company uses an employee coaching form as a disciplinary write-up.

My first reaction – you have got to be kidding me. How wrong is that?

Let’s be clear – coaching is:

  • A supportive environment where people can explore options, test new capabilities without the fear of reprisal or judgment
  • An investment in personal and professional development

Now let’s look at what a disciplinary action is:

  • A corrective action
  • A process for communicating with an employee that their behaviors or performance is unacceptable
  • Written warnings, sometimes accompanied with suspensions

It seems pretty clear to me that the two activities – coaching and disciplinary action are very far apart in what they represent and how employees would perceive being apart of each process. Why blur the line? To be honest, it reflects a cowardly organization.

Here’s the danger about blurring the line on coaching and disciplinary actions in your organization:

  • Employees are confused – be clear about what is a positive moving forward action vs. a corrective action.
  • Most managers do not know how to use coaching skills effectively. Coaching skills are different from management or supervision skills.
  • Coaching will not be viewed as a development opportunity – they will think they have done something wrong.

It is impossible to soften what disciplinary action means and if you do soften it, the employee will not receive a clear message that they need to turn things around. Instead of trying to soften the action by using the coaching form term, invest and teach your managers how to handle disciplinary actions more effectively.

Step Forward: Drop Stacked or Forced Ranking

Microsoft made me very happy this week they announced that they are abandoning their stacked or forced ranking used in their performance and compensation management systems. I have never been a strong proponent of using the stacked or ranking process to evaluate an individual,  team or group’s performance because let’s face it – there are some teams that just kick butt.

In fact, I asked the question in January 2012: Have performance reviews run their course?

For those of you who are not familiar with the stacked or forced rank system – essentially it asks managers to create a bell-shaped curve and rate their team’s performance along that curve. Managers have to rank their teams from 1-5 or some other number and create a forced distribution.

Even in team’s that have exceptional performance, the manager would have to identify employees who excelled and who were poor performers. It was no surprise that management would push back with Human Resources about having to make such decisions especially when their team blew away all their business goals.

You might say, within in the team there is some differentiation on performance even the slightest difference – that point I agree. However….even the lower performing members of a team could be better than someone else in another team that is the top performer.

In my experience, management did not have the time or inclination to normalize performance across an organization to make it work. Turf wars would ensue and  honestly Human Resources would just coach or tell management to follow the “process”.

So, you might ask, why did management use force ranking in the first place? They believe it was easier to administer than having qualitative performance discussions. Even today, take a look at your performance management system – is it designed only with quantitative measurement or do you have qualitative factors include? What percentage of the total review is comprised of qualitative measures? Does it show the employee’s overall performance?

While managers did not always like the results of using a stacked or forced rank process;  they could use it to explain “why” you did not get the rating, salary increase, stock options, etc. that you believe you deserved. It was easier than having a candid and forthright discussion about the employee’s performance – especially if the employee was an average or low performer.

Many managers are uncomfortable with telling employees to improve and following up with coaching to help them make improvements. Managers get promoted without having specific training and coaching on how to manage and inspire people to excel and what to do with poor performers. When managers see an employee sliding, they may turn a blind eye because it means more work instead of catching the employee before they begin the free fall.

Perhaps now, with companies dropping the stacked or forced ranking process, senior leaders will invest in management’s skills to become better people managers. Employees drive continuous results and breakthroughs, not machines or equipment.  And if you need someone to help you do that…let’s have a conversation.

Job Applications: Should Companies Ask for Date of Birth?

It is no surprise that the subject of age discrimination comes up with job hunters – especially during the job application process. The question that many job seekers ask is, “why do employers ask for my date of birth (DOB)? Is the employer using my age as criteria for screening candidates?

Asking a candidate or employee’s age is not illegal. However, it is illegal to use age as a criterion in hiring decisions, except in some limited pre-defined situations (i.e. police officers, firefighters or employment of minors).  It’s a fine line, but a clear distinction that is spelled out in the Age Discrimination in Employment Act of 1967 (ADEA) which prohibits employment discrimination against people 40 years of age or older in companies with 20 or more employees. The governing body, The Equal Employment Opportunity Commission (EEOC) enforces the ADEA.

There are no protections for candidates or workers under the age of 40 unless the state you live in has enacted legislation with wider inclusion.

So why do employers need to ask about your date of birth (DOB)? To be honest, many companies do it because the applications have not been updated, it saves them time or the application also serves as a waiver to do a background check. The problem with asking for date of birth is that if someone challenges their hiring practices, the company has one more hurdle to prove why date of birth was not used in the criterion.

The Society of Human Resources Management (SHRM) outlines some best practices for companies that avoid the need for date of birth declarations early in the interviewing process. They include:

  • Use a background check authorization form that is separate from the job application process. Keep this form separate from the hiring process and out of the hands of the decision makers and hiring managers.
  • Limit date of birth requests to background checks only – if you use a third-party vendor, use their forms.
  • Consider using vendors to request date of birth information using external channels – candidates use toll-free numbers or fax information directly to the vendor.
  • Employers give preaddressed stamped envelopes for candidates to mail in their information to the vendor.
  • Include the company’s stance on employment discrimination on the request for information.

Even though SHRM outlines the best practices for employment applications; the fact is most companies (unless they are large companies or companies with heavy compliance or legal staffs) do not follow these practices.

Bottom line, the greater arm’s length the employer has in asking a candidate’s age in the interviewing process, the easier it will be for them to defend against any claims of discrimination.

Consider if educating your potential new employer is good approach because it only highlights your sensitivity to the matter and probably will backfire. Companies who want to pay lower wages for a position hire inexperienced people and companies who value experience know that tenure comes with the package.


Incentive Plan Failure: One Common Mistake

It is easy to figure out a common mistake in most incentive plans by asking the question: Did you do what you wanted to do when you set it up?

The chances are you will hear the answer is “no” or “some of it”. The next question to ask is, why did it fail? For most incentive plans, the reason it failed is not because of an ineffective incentive plan administration, it failed because of the plan design.

The reason your incentive plan design failed probably is because of plan levers.

Levers are behaviors or actions and are key elements or components in a plan design. Levers are important because if identified and used properly, they directly affect how you reach desired results.

Often there are too few levers in a plan. Absent effective levers, participants do things that might be unethical or dishonest – all in the hopes of attaining the coveted incentive payout.

Sales Incentive Plan Example

Let us look at a Sales incentive plan. A small company CEO approached me several years back to help them put in a sales incentive plan.

One of the first questions I asked was, “What is your compensation philosophy?” This was the first of many blank stares. The CEO paid employees what he thought they were worth and did not have a pay structure based on relative position value. It was obvious that the entrepreneurial influence was going to impact our sales compensation discussions.

In his view, we could just “slap this incentive plan together and we’ll be done”. The reality was it takes more than throwing some numbers together to have a fully functioning and performance driven sales incentive plan.

As we walked through the process of incentive plan design, I posed the question: “What is it you want to achieve?”

“Sales and profitability” he says. “I want to increase sales by 10% and profitability by %15 next year.””

“What else?” I ask.

“Nothing else, if we make that, I will be happy” he says.

So, I began working through my list of questions to help him think through other levers he might want to consider:

  • Why do you want to put in a sales incentive plan?
  • What do you think are the best measurements for meeting your goal?
  • Do the sales people have any guidelines on what they can charge for your products?
  • Given the choice between a sale and profitability – which is more important?
  • Does your sales force have latitude to make sales vs. profitability trade-offs?
  • At what point can sales not make independent sales decisions?
  • How long does it take to make a sale in your industry?
  • Do customers make decisions to buy from your sales team because of relationship or price?

Why Incentive Plan Levers are Important

As we moved through the questions, the CEO slowly understood why levers were important. There will be times when increasing revenues is not aligned with growth in profitability. Merely putting those goals in front of his sales team would send mixed messages, especially since they were not accustomed to making tradeoffs.

If the CEO placed more emphasis on sales, profitability could suffer and vice versa. Initially, he thought he could save money by shifting the sales person’s compensation to a lower base salary plus higher commission. That approach might work in a commodity based selling organization but his was a relationship based solutions environment where the sales transaction could be six months to a year. There are not too many sales people who will wait around for that length of time to receive a payout.

As you evaluate revising or creating a sales plan, take the time to understand how each sales employee’s behavior will change for every goal that you set up. Pay close attention to the inter-relationship between different levers and how you can positively influence your sales team’s actions. If you are not sure how to do it, that’s the time to ask for help because unraveling a plan will send mixed messages and destroy your credibility.

Virtual Conference: Job On-Boarding: Retention Strategies at Work, an internationally known organization contacted me a few months ago about speaking at one of the virtual conferences about compensation. While the topic does not scream compensation, effective job on-boarding incorporates motivation, reinforcement and performance theories. The second reason is because I hope to launch my second eBook in the next few months: The Secrets to Successful Job On-Boarding.

Compensation professionals design programs to attract, retain and develop people. Job on-boarding is exactly about retaining and developing new employees to reduce turnover. My presentation shares how companies can ramp up their job on-boarding strategies and continue to add value to the business’s profitability.

Conference: Compensation Best Practices and Trends

Date: September 11, 2012

Time: 12:30 pm-1:30 pm

Who Should Participate? Human Resources or anyone wanting to address turnover in their organization

What You Will Learn:

  1. Why traditional Job On-Boarding programs do not address turnover
  2. Key design elements of a successful Job On-Boarding Programs
  3. How motivation, reinforcement and performance measures play a role in program design
  4. Why it is important to discuss generational needs

To view more information about the conference, go to: Job On-Boarding: Retention Strategies at Work.

Cost: Free with registration

Register: At or directly using this link: Compensation Best Practices and Trends

Related Articles:

Do you think pay is the reason employees leave? Think again

Career Tip: The Secret to Successful Job On-Boarding

Have Performance Reviews run their course?

What is your opinion on performance reviews? Do you think performance reviews are a valuable tool for organizational effectiveness? Personally, I think it depends on a number of factors and knowing how organizations run, the jury’s out for me. Here’s why.

Not Enough Time

Whoever is in charge of making sure that all the performance reviews are done in an organization knows this only too well. It doesn’t matter if you give the manager 1 or 3 months to complete them, there is always an excuse. The number one excuse is “I don’t have enough time”.

The fact is they do have enough time and probably had all the easy performance reviews done.

The question to ask is “Why don’t they want to do it?” My hunch – not all their employees are superstars.  Managers stall on the difficult ones. Who wants to document their employee’s shortcomings and then be responsible for delivering the negative feedback?

Forced Rankings within Groups

Forced ranking is the process of ranking your employees in order of ability, performance or some other criteria.

Managers are asked to force rank their employees for a number of reasons, such as – to identify who gets bigger increases or who might be at risk during a layoff.  It can create an artificial system for determining true performance because employees are measured against their peers instead of being measured against their performance review results. That’s a message no manager wants to deliver to their employee.

As an example, let’s suppose you have a group of superstars that beat every goal put in front of them and the organization says to force rank your group to figure salary increase percentages. How does a manager tell his bottom superstar that their increase was lower than someone who achieved fewer goals in another group? Where is the fairness in this approach?

Measurable Goals and Behaviors

Performance reviews that use a blend of measurable goals and behaviors get higher marks for me; however, this format makes managers feel uncomfortable.

If a goal is written clearly and has a measurable outcome, that part is a cinch, the only trouble is that someone can make a goal but do it unethically and still be a hero.

The behavioral part is more problematic and challenges managers to 1) write clear behavior goals and 2) discuss behavior shortfalls. Very few managers feel confident in identifying behavior goals or discussing behavior shortfalls without some specific training.

Management hates doing Performance Reviews

It is rare that when I ask a manager if they like doing performance reviews that they say “Yes”. The majority do not believe it is a management tool and prefer to refer to it as an HR process or waste of time.

If the manager is not on board, there is a greater chance the information in the performance review will be sub par. When employees receive feedback that is nonspecific, they do not feel good about their manager or review.

It is time to throw out the Performance Review?

Performance reviews have been around for a long time. The structure and components with in performance review process have evolved, changed or been refined to meet the needs of many other agendas.

So, if management hates or is not good at doing performance reviews, perhaps, it is time to throw it all out and start over.

If you were to do that, what do you think is the sole intent of performance review process? How would you drastically change its role and contribution to the organization?