►PREVENTING REWARD SYSTEM DEATH SPIRALS◄
Occam’s Razor is a principal attributed to Middle Ages Philosopher and Franciscan Friar William of Occam. It asserts that when solving problems people should select solutions with the fewest possible assumptions in order to dramatically reduce ambiguities, inconsistencies and failures. Unfortunately, on subjects of enterprise compensation this principle is frequently lost while dubious opinions, preferences and false information corrupt or replace factual data and proven practices.
Our compensation practice is frequently called upon by new and long-term clients due to the proliferation of disputable and frequently false information regarding the compensation amounts required to be competitive for given positions within the geographies and labor markets where our clients exist.
Misleading and unreliable compensation data as well as interpretation errors have been proliferating increasingly since Glass Door, Indeed, PayScale and Salary.com arrived noticeably on the Web beginning about 9 years ago.
DETERMINING COMPETITIVE COMPENSATION-
Using yesterday’s market compensation levels is not adequate to attract, retain, motivate, and engage employees today for the purpose of improving your enterprise’s financial and operating outcomes. Too much has changed during the last 4 years, too many position types have either decreased or increased in terms of demand and common compensation amounts, and unemployment is now hovering near 3.8%. January 2019 U S wages increased by 0.76% over October 2019’s data. Basing employee and executive compensation amounts and methodologies on current and accurately predicted future reality is always in the best interests of customers, employees, financial statements and shareholders.
Competitive compensation is a data subject purely and simply to the same degree that a person’s height is. When performance feedback systems and compensation structures are simultaneously rooted in factual numeric data analyzed by appropriate comparative metrics (industry, location, revenue, production, etc.), the common distractions of false information, philosophies, imaginary dollar figures, negotiation, and internal politics are shaved off by Occam’s Razor while then being washed down the drain. Payroll expenses and enterprise outcomes then become relationally linked, and competitive/equitable compensation positioning becomes assured in short order.
However, when compensation data is pulled out of the imagination or the sky as some individuals and consultants prefer, things head south rather noisily. It is common practice that certain data providers are still distributing data that was collected as long as 9 years ago while simplistically aging all of that data by about 2% per year while mistakenly assuming that compensation patterns for all positions and years exist on a linear basis. BUT, Switchboard Operators as only one example no longer exist, and during that same 9-year period actual compensation on an individual position basis has moved between +7.8% and -2.7% per year. Unfortunately, the more false information you utilize the more false your enterprise compensation system becomes.
Human Capital is the first or second most expensive operating cost within approximately 93% of businesses. It is also the cost that tends to be most prone to errors, excesses, and manipulations. After all, when was the last time any person within your enterprise suggested that given position titles be compensated at lower amounts?
When factually reliable competitive compensation data is sought, utilized and responded to wisely enterprises tend to avoid rotting slowly or rapidly from the inside out.
THE DANGEROUS DIVERSION-
During the last 9 years, the proliferation of web-based mass market compensation purveyors has misled hundreds of enterprises and hundreds of thousands of employees on the subject of what amounts should be paid to employees for given jobs. Thankfully our international clients do not face this danger because 3 of the 4 firms referenced above operate only within the USA.
The bigger compensation conflagration is that one of the 4 firms referenced collects and reports only nebulous compensation information as supposedly provided by “anonymous” position holders based upon position title alone with no proof or attribution, as opposed to real data being provided by employers with payroll records as a foundation. That firm is a hearsay company as opposed to a data company and is of no legitimate use to employers.
We suggest that you let that sink in while knowing that the back of the houses from which such information propagates are usually Houses of Cards that are as unsettling to observe as a bologna factory during the overnight shift.
Please understand that when a consulting firm or data provider peddles supposed compensation data without requesting or reviewing position descriptions and organization charts (as well as 4 other crucial items) they are at best misleading the recipient of such information, in this case you. After all, when the data is either false or problematic there is no need to do anything else correctly. Contacting those firms with questions about their data to confirm its reliability is always futile and we are retained 10 to 14 times each year to clean up such chaos for our new clients.
As an analogy, if you should suffer chest pains for 2 days, information must be provided to and questions must be asked of you by your physician, with that data then being thoroughly reviewed rapidly (remember…it is chest pains) and explained to you by that same physician before surgery is scheduled. Multi-dimensional reality is fundamental for both cardiac and compensation interventions because both human and enterprise health require it.
THE SOLUTION TO THIS QUANDARY-
The 2 diagrams below provide many of the answers to the common quandary of how to prevent reward system death spirals and you will likely recognize at least some of the included guardrails.
This first methodology map briefly summarizes our approach to ensuring that your enterprise gains from its competitive compensation position without excess expense, with the numbers included with each methodology factor allowing you to cross-reference with the deeper details about each factor provided within the second methodology map included below (for a larger and printable/savable copy of this graphic, please click Here):
This second methodology map provides the crucial details of our technique to ensure that your enterprise gains from its competitive compensation position without excess expense, with the numbers included with each methodology factor allowing you to cross-reference with the summary items provide within the first methodology map included above (for a larger and printable/savable copy of this graphic, please click Here):
THE LARGE COST OF DOING THIS WRONG-
Wrongful competitive compensation information and resulting decisions are unfortunately never translated onto the General Leger as an “error expense”. Nonetheless, a U S services sector client of ours calculated in November 2018 that their earlier error resulting from false market data provided by one of the above referenced firms had cost them an avoidable 3.61% of total payroll costs during the prior 12 months totaling $974,700, also a period within which employee turnover had fascinatingly increased dramatically.
Doing this correctly costs much less than either not doing it or doing it incorrectly and when the client enterprise financial results of doing it correctly are calculated, doing this all correctly is inevitably found to cost less than nothing.
Additionally, for enterprise performance purposes there is something very beneficial about employees and executives knowing factually that they are being rewarded competitively while not being distracted by false information from either the grapevine or the Web.
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