Category Archives: compensation

Where is the Innovation in Compensation II?

@ http://www.flickr.com/photos/25496152@N08/7308083714
Peter explains the survey methodology. (Photo credit: aveo.org)

How many of us have actually taken part in a compensation survey or other HR talent attraction and retention survey?  The data collected from these survey is supposed to give us insight into trends and leading practices by industry peers.  C&B professionals take these results and build their internal compensation, benefits and talent management strategy. However, the survey results are generally the same; this year is trending up, the past year is trending down etc.

A few weeks ago, my colleague showed me a C&B survey on a section pertaining to employee attraction and retention.   Because I am in recruiting, she asked me for my opinion on how I might answer the question.  Well, I asked her what were the choices I had to choose from?  The only choices (forced choice) were: basic salary, bonus, benefits, health welfare, etc.
I started to think…  these are all very C&B’ish answers.  The survey results all center around these topics and strategy recommendation are all within the confines of these areas.  Again, this year is trending up, the past year in trending down.
Are there other choices for survey responses?  Can I answer?: I want to work for a technology leadership company;  I want to work here because my friends work here; I want to work here because I was laid-off at my previous company; I want to work here because of (fill in the blank)?
In my role as a recruiter, rarely do I find candidates tell me right off the bat that they want to join the company because of pay or benefits.  They are leaving the other firm because of career mobility and for a more interesting role.  In my current company, I have a very high employee referral rate.  In such cases, they friends are enticing them to join.  Money helps.  But, there are many situations where I have not given a salary increase to join.  They come over flat against their current pay.  More recently, due to the faltering industry, many are seeking jobs because their current positions may no longer exist.
We all trust C&B surveys for their rigour in data integrity.  However, allowing for broader perspective in C&B responses gives HR and management teams greater insight into talent attraction, engagement and retention.
By the way, might the survey methodology be skewed?  They survey asks HR to respond.  Why not ask employees what C&B elements and rationale for joining, working and staying at the company?
We need to rethink if the C&B survey results truly reflect the real reason why people join and stay at companies.
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Where is the Innovation in Compensation

Where is the Innovation in Compensation?

Creative Commons Attribution to epSos.de@Flickr

Let me start off the year with a topic I haven’t written much about previously.  The topic of compensation plans and design has been on my mind as of late.  Too often, at least in China, our hiring managers “complain” that we are unable to afford the talent we need to hire.  Offering competitive salary packages is a challenge.  Often times, prospective candidate’s existing compensation plans are out of range.  Line managers often have employees going to them with offers from another companies, resigning from their current position.

 

Purpose of Compensation

There are multiple purposes of compensation in an organization.  The primary is to pay for the people skills and competencies needed to run your business.  We also want to motivate employees to do their very best.  We want to employee to focus on the mission of the company aligning to the business objectives.   Employee retention is also a key outcome of a strong compensation program.   The cost of a replacement hire is often more than a new hire.

There is the desire to make compensation a cornerstone of a company’s brand and culture to employees.  The aim is to design compensation and reward programs as a differentiator when competing and retaining critical talent.

However, I believe many compensation plans often fall short of these lofty goals.

 

Aligning to Market Practices

A key annual practice of compensation professionals is the participation in salary survey benchmark.  They may take part in job evaluations to align on responsibilities and scope of work.  The key outcome of this routine is to benchmark against peer-company practices.  The results are used to tweak pay programs which end up “more or less” like their peer company’s pay programs.

  • When I am recruiting I sometimes find it difficult to develop competitive offer packages for high performers, let alone the majority of the typical performers.  Their pay, bonuses, equity plans are somewhat similar.
  • In order to make a competitive offer or, at least one that is meaningful enough to jump to another company, the resulting base salary can often be at the top end of salary range.  HR and compensation managers often discourage paying at the top end of the range.
  • Rather than compensation being a cornerstone I often resort to other intangibles to the job and company to prospective candidates.

 

Pay for Performance

Compensation managers design pay programs that reward employees for innovation and for positive results, contributing the company’s bottom-line.   Companies utilize performance and/or profit sharing bonuses in attempt to align employee actions to company goals.

  • Especially at the lower levels of an organization it is often difficult for an administrative assistant or a project analyst to see how their day-to-day work contribute to the company’s profits.
  • The R&D team while at the heart of innovation is being paid a performance bonus for today’s profits.  But, it is often unclear how the profit share paid out today is tied to innovation product, culture or practices that were created five years ago.
  • The only group that benefits from a pay for performance program is the sales team.  There is often clear line of sight between objectives and targets.  However, this still fall short when you want your sales team to drive for long-term sustainable sales strategy that go beyond the current sales quarter.

 

Incentives for Innovation

Very few companies have strong incentive plans that reward individuals and teams for innovation.  I suspect that most companies are intolerant of failures.  However, innovative services and products come only after multiple iterations of failures.  It is unclear to me how companies reward employees for taking risks.

This reminds me of Clayton M. Christensen‘s book, The Innovator’s Dilemma, where he examined the disk drive industry where disruptive technologies continue to push traditional and predominate players out of the market where smaller innovative companies take over.  For the existing large players, their revenue stream is not from new technology, where there is not a ready market.  Thus, companies often do not reward nor incentivize employees to work on disruptive technologies, while at the same time risking and cannibalizing current revenue stream.

  •  Incentives for innovation is especially important in the technology industry where companies live and die by their ability to bring new products to market, often with very short product life cycle.

 

The Need for Innovation in Compensation

For most companies, the existing compensation programs falls short of attracting and retaining key talent, let alone trying to motivate talent.  We we benchmark we constrain ourselves to those select group of companies within the survey.  We miss the opportunity to see what true innovators are doing, those who fall outside the peer group of companies.  When we become a part of the same we do not standout in a crowded space vying for a small pool of top talent.

HR and compensation managers should look for break-through compensation design truly help organisations reach its full potential.  Rather than seeing compensation as a cost of human resources taking a “investment” approach and seeking an ROI may yield a more coherent strategy to compensation design.

 

Share your thoughts…

What ideas to you have on innovative approaches to compensation?

 

 

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Guerrilla Warfare for Talent – Recruiters as Savvy Compensation Analysts

In a hyper-competitive recruitment markets, such as China, candidates are expecting sky-high offers.  Recruiters are faced with putting together competitive compensation packages.  Notwithstanding, the difficulty also lies with finding candidates with critical technical skills, analytical and problem solving abilities.  The next question is how you pay your candidate when you find them.  Candidates will typically expect 30% salary increases or more in emerging markets.  Top-candidates in mature markets may expect just as high pay-levels.

At the same time, recruiters are bounded by internal salary ranges and incumbent pay (internal fairness).  In the meanwhile, hiring managers, after many weeks of search, are demanding the recruiter to bring in the candidate.  Do whatever it takes.

This takes a certain savvy by recruiters to finesse offers packages balancing market demand, internal fairness and HR guidelines.

 

Recruiters as Compensation Analysts

I consider recruiters as guerrilla compensation analysts.  Recruiters are on the front-line talking to candidates.  They have the strongest pulse on market salary rates.  The corporate compensation analyst typically works with industry-wide salary surveys, at the organization level.  Recruiters are working with targeted candidates from specific companies.  The corporate compensation analyst will consider the macro view of industry competitiveness and analyze data from a broader set of benchmark companies.  The internal salary ranges may include company data not within your search parameters for talent.

Thus, the recruiter has insight into actual and real-time compensation information.  This information can help to complement corporate survey data.  The data is also targeted towards specific population, rather than from the broad set of survey data.  From an Asia context, recruiters will have access to local company data which usually are not included in corporate salary surveys.  The recruiter can be very powerful source of salary data to the corporate compensation team.

The savvy recruiter will leverage their candidate data to influence the internal corporate HR and hiring managers to appropriate salary offers.  They can also be a resource to compensation team to supplement gaps in corporate salary survey data.

Benefits of Analysis

So what are the specific benefits of collecting candidate data?  How can this help recruiters when they are under the gun to source and hire?  Below are the value and benefits:

  • Accuracy of Internal Salary Ranges
    • Often times, recruiters will challenge corporate salary survey that the ranges are not accurate.
      • The internal guidelines are not sufficiently competitive and candidate requirements are outside of guidelines.   
      • As companies move into smaller emerging markets, salary survey data may not cover new territories or countries in which you have been asked to recruit.
    • The recruiter can assemble a volume of salary survey data by asking for candidate salary during the initial interview process.  Recruiters can also ask for rough numbers from local search firms. 
    • After a collection from sufficient sample size of applicants one can begin to gain insight into market range of targeted candidates.  You will know whether your target candidate pool is above or below your company’s internal salary midpoint.
  • Internal Incumbent Fairness
    • It will be easy to map internal employees to the external market data collected.  Typically, incumbent data should include education level, years of experience, and performance outcome. 
    • Plotting your external data and internal incumbent pay will show a better picture after all.
  • Market Intelligence Data
    • Over time, the recruiter will be building up to a database of compensation data that will help you better understand your competitor compensation practices.  You will gain insight into:
      • Application of grade level and job titles
      • Payment on performance bonus percentages
      • Practices on counter-offers

Recruiting in highly competitive markets requires recruiters to take extra measures to the battlefield of the war for talent.  Often times, we talk of recruiting requiring the ability to source candidates. But, what happens if the recruiter also faces challenges within in the internal compensation structure.  Recruiters using a data and like a compensation analyst, collecting salary compensation on an excel file, will help breakdown barriers from within the corporate structure.

 

Part II

In the next installment, I will share a specific framework and template that all recruiters can use to improve the accuracy of compensation survey and internal salary range data.

Pay Raise? What is the source of your data?

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Yes, you do know it is performance review cycle again. Employees may be negotiating for additional pay increases.  They want higher salary.  Who doesn’t?  See my blog post on improving the performance review process. Employees will crawl through the Internet searching for salary survey and any data on market increases. They are looking for data to benchmark their relative pay levels. They want to know if their pay is competitive and if their employers are paying them fairly.

A quick Internet scan will find a series of salary surveys and press articles reporting on the latest quarter salary trends. This industry is hiring and putting pressure on employers ability to meet salary hike demands. Or another report may indicate employers increasing bonuses to retain key talent. Or one might ask their friends to compare notes on what each other’s companies are doing.

Now armed with a trove of salary data employees will come back to their managers to show how they are underpaid given the work they have produced for the company. Not knowing how to respond, managers pass on the employee question to HR and expect them to talk to their staff.  Here is what managers can ask.

3 things to ask your employees to consider:

  • Why would any company give away proprietary information for free?
  • What is the core business of the agencies who are putting these reports out? Would you trust data from a source that is not core?
  • Would it be in your company’s interest to underpay their talent?

This reminds me… Use of this information is at your own risk. As always, should you or any of your IM force be caught or killed, the Secretary will disavow any knowledge of your actions. Good luck, Jim. This tape will self-destruct in five seconds. Mission: Impossible

An Effective Approach to Workforce Planning – Part 1 of 2

See Part II

A key objective by most HR organizations is a focus on workforce planning.  They know that understanding workforce needs is a critical element in shaping recruitment, training and talent development for the organization.Workforce Plan Objectives
One of the barriers to getting started on a workforce plan is the sheer effort this effort takes.  You may consider an enterprise-wide plan, business group level, geography/country level analysis.  There is also the voluminous amount of HR data making the task daunting.
Here is an outline of an approach I am taking on workforce plan.  I went through many iterations but I believe that I am finally down the right path in making this effort manageable.  I believe these are the four areas where we can deliver tangible results.  They are the areas that are viewed as most important to our business leaders.  As such, if we can focus on these immediate areas we, HR and business leaders, can gain traction.

Workforce Plan Objectives

Identify Growth and Emerging Skills.  Often times recruiters receive headcount requisitions after final deliberations with finance on headcount targets and budget.  A staffing organization can be more effective if the team can focus on skill set needs, as opposed to requisition-based hiring.

  • Emerging Skills – What are they new technology or markets for your company.  Do you have a market knowledge of supply and demand or labor costs.
  • Sustaining Skills – Do you have an understanding and data/statistics of current required skills for your organization.  Do you have demographic data to predict hiring needs (new hires, turn-over, retirement.  Is there a pipeline strategy to backfill.
  • Declining Skills – What are the lower-needed skills in the organization.  Are there redundancy or over-lap in skills set needs.  Are there opportunities for re-training or cross-training to keep talented people within the company.  How do you redeploy talent across the enterprise.

Build a Talent Pool.  Building an internal talent pool is more then a succession plan.  Organizations need to have breadth and depth of available talent within the enterprise to fill critical and leadership roles.

  • Succession Plan, Not.  Often times a succession plan is about identifying 1 or 2 individuals as potential successors to the incumbent.  Reality suggest that that situations are much more fluid, key players move in/out of business units while the successor being groomed may or may not be ready.  Thus a broader base of ready talent is needed.
  • Internal Job Rotation.  A related program is to encourage and allow for internal job transfers or rotations.  The benefit of such a program is at least two folds:
    1. Skills Development:  Internal transfers allows your employee develop new skills and competencies.  Organizations can steer employees into areas of greater need or lack of available of talent is needed to fulfill critical projects.
    2. Identify Key Talent:  As employees rotate through the various business units, a cross section of business managers will have an opportunity to observe the evaluate the employee’s performance, giving managers greater insight into the person’s capabilities.

Talent Acquisition.  A core utilization for workforce plan is to anticipate and forecast hiring needs of the organization.  This allows for talent acquisition team to plan the upcoming year’s hiring requirements.

  • External Hiring:  A key focus is on external recruiting requirements.  The internal staffing team may need to development staffing budgets to meet external hiring targets.
  • College Recruiting:  University hiring cycle are often not aligned to an organization’s budget planning cycle.  Campus recruiting cycle typically happen in the fall but start dates occur after graduation dates, in the summer.  The lead time may be one year from the time of offer to start date.
  • Geography Requirements:  As organizations grow increasingly towards a global market, managers must make headcount allocation between headquarters and international business units.  The complexities of  business demands, skill set availability and labor cost must be taken into consideration.
  • Replacement Hires:  Factoring in turn-over will add to the overall hiring workload for a staffing team.  Anticipating the difficult-to-fill skills will minimize workload imbalance when an employee leaves an organization.
  • Contingency Workforce:  Knowing the total workforce needs and accounting for cyclical or temporary staff needs allows for organization to anticipate best approaches for staff augmentation.  Organizations can anticipate additional budgets for temporary payroll costs.

Workforce Solutions.  A key outcome is understanding organization strengths and mitigate “talent gaps” in the enterprise.  A goal is to plan in advance to leadership and managerial needs of the workforce.  This requires a cross-functional HR team partnering with business leaders to close the talent gap.

  • Performance Management.  Managing and evaluating individual employee performance will be critical for the organization to raise the performance bar.  Only until employees know how and the yardstick by which performance is measured will employee rise to the challenge.
  • Learning and Development.  Having formal and informal training programs in place is necessary to training the core workforce.  Designing learning projects for high-potential will ensure a ready available of talent for the organization.
  • Leadership Strategy.  Anticipating future workforce profile will help organizations understand their overall leadership needs.  This will allow for identifying and developing the target population of future leaders and managers needed.
  • Compensation and Rewards.  Having the right compensation programs and reward structure is important to aligning organizational goals.  A clear strategy on rewarding high performers and high potentials is needed to differentiate performance against the average performers.

It is clear that a holistic workforce plan is necessary for HR (and business leaders) to be prepared in managing the workforce.  Having a systematic and predictable process inevitably yields greater results then unplanned or last-minute engagement.  Often times, workforce plan projects can become a daunting doctoral thesis, demotivating HR with limited time and resource.  I’ve outlined 4 key areas I am current working on with my organization in developing a simple and manageable workforce plan.  I will outline the analysis requirements in my next post.  Look out for Part II in the upcoming month.