The quality of being clear and transparent

The 2010 theme for compensation programs at all levels appears to be Transparency. I decided to look for definitions of this word/concept on the Internet. The first is mentioned in the above headline. The second is a bit more comprehensive and telling:

• Transparency is a general quality. It is implemented by a set of policies, practices and procedures that allow citizens to have accessibility, usability, informativeness, understandability and auditability of information and process held by centers of authority (society or organizations).

While the news has been full of stories of executives in all industries making huge salaries and large bonuses (yes – this started long before the recent recession), this recession has finally brought out a more concrete response from shareholders and boards of directors.

Recent News Headlines:

• General Mills shareholders voted to approve a “say on pay” policy. Under this new policy, shareholders will be able to cast an advisory vote every other year on policies and practices used by the company’s Board of Directors Compensation Committee to set compensation for the officers named in the company’s proxy statement.

• Kennedy Consulting recently reported that Hewitt Associates executed a partial divestiture of its Executive Compensation Consulting business. With the recent SEC ruling on fee disclosure rules and the current political environment, clients want to move toward completely independent advisors when working with executive compensation.

Not just for executives

Employees at all organizational levels want transparency. While I do NOT know anyone that truly feels overpaid, people do want to better understand how and why they are paid what they are paid.

1. Where did my salary range and actual salary determination come from?
2. Why did my bonus pay out (or not pay out) at the level it did?
3. What can I concretely do through job performance to impact my salary/bonus?

It all ties together – toward engagement

One of the key themes in the area of employee engagement is ongoing direct and honest communication. Compensation is no different. People want the truth – and should be able to understand it when they are given information and can engage in a dialogue with their management.

The Shareholders and/or Board of Directors should NOT have to dictate compensation policy to achieve transparency. Enough said!

Pay for Performance – it is what we all say we want (in good economic times – and assuming we think of ourselves as great performers) and it appears to be what companies, more and more often, want to provide.

The ‘Rock and the Hard Place’

Companies are feeling the pinch – suppliers are wanting more for all raw materials/inputs and customers are not willing to accept a price increase. Employers are starting to get concerned about possible employee turnover as the economy slowly improves. Employee engagement surveys are giving mixed messages – and being scrutinized more carefully. So – how do you reward employees in a way that will keep and motivate them?

I will do what you pay me to do.

When I look at resumes, I look for accomplishments. (Too many resumes are lists of responsibilities . . . . . yet employers want to know about your results.) People seem to accomplish (1) what they enjoy doing and (2) what they are being incented through variable pay to do.

Outcomes and Value

Pritchett, a consulting, training and development consulting company, put out a list of the 13 Ground Rules for Job Success in the Information Age a few years ago. Rule number eight is Add Value which is defined as making sure you contribute more than you cost.

And the studies say . . . . . .

• Employers are more optimistic about their business and the overall economy now than they were in 2009.
• Regardless of this cautious optimism, most companies plan to keep their salary programs flat for this year (2010).
• Retaining key employees and attracting quality workers are consistently ranked as top priorities for all organizations (and mentioned in compensation plans) for 2010.

There is no perfect answer

The surveys done at the end of 2009 and early 2010 all point to increasing use of variable pay (performance and/or spot bonuses).

• Make sure you balance organizational needs with individual or team performance bonuses; think about what organization-wide metrics need to be met before individual payments are made.
• Consider spot bonuses in addition to OR instead of set performance bonuses.
• There are only so many priorities that can be a focus. Determine the top three areas (at most) that need the most attention. Build individual, team or organization-wide incentives around them.

Performance management – this Blog entry started with the concept of Pay for Performance. That means ongoing performance conversations and monitoring of organizational goal achievement and individual performance. According to all of the experts, making this topic/activity a priority will help not only in goal achievement but also retention of your best.

Whenever we conduct a search – regardless of position level, function or industry – we ask each prospective candidate for their current salary information. In almost all cases, we get current salary and bonus/commission information. The result is that for each position, we have incredibly up-to-date, (hopefully) accurate and current market information. For each and every search, we actually speak to between 150 and 767 (our actually record!) people. This represents an amazing database – larger than many compensation study samples.

What are the trends?

We are not compensation consultants; we are simply people with large amounts of current and relevant compensation package data. In pooling our collective knowledge here AND in doing a literature search, we are seeing the following as trends in this market at this time:

Top performers continue to do well in this market

• Most companies are looking for an opportunity to pay their top performers who helped them get through 2009.
• Variable pay will be the focus for compensation budget planning. Studies show most companies are not increasing their base salary budgets in 2010.
• The days of giving everybody an increase (between 1% and 4%) are going away. This practice gave the wrong message to everyone – the poor to average performers and certainly the top performers.
• Organizations are gravitating toward compensation systems that promote goal achievement, organizational flexibility and variable pay (for performance).

Over the next few entries, we will go further into trends and the details behind them. We will also explore how compensation planning and the concern over employee engagement work together/interact.