Q: We have a merit pay system and we constantly struggle with getting supervisors to give out salary increases based on performance versus based on their feelings. For example, supervisors know people could use the money in this economy and give salary increases based on that. Any suggestions?
A: I think it comes back to training and education of our supervisors. And, especially with supervisors, or even more so with the managers, you have that entry level employee who’s beginning to make the transition from what’s best for me to what’s best for the organization. And, hopefully by the time we get to manager, director, VP level, those employees are all thinking about the organization because they know, ultimately, business decisions about the organization affect them personally. But, with supervisors, we have this very unique situation where we’re having people making this transition. And, in a couple of organizations where I’ve actually set up employee training programs, I’ve asked that we start with supervisors – those folks who are making that first, initial step into management. And, I think this is one of those management 101 things; teaching people how to appropriately evaluate their direct reports. And, it goes back to leaving out the biases in pay-for-performance. It goes back to helping the person think about things from a business perspective. Because, if they’re not going to hand out salary increases based on performance but based on because someone needs the money, then you have somebody who’s thinking about things from a human perspective – which is not a bad thing – but not a business perspective. And, we need to train employees to think in a business perspective because, ultimately, if we make decisions based on feelings and not business then none of us will have a job. So, it’s important to have that step. And, so, I think a very good first-time supervisor training is one of the most effective employee trainings you can start with in an organization.
Q: What are some of the recommended resources regarding pay-for-performance structures?
A: Well, in pay-for-performance structures there’s kind of two pieces. One is to understand, first and foremost, your market and how competitive you need to be with compensation resources and that’s where our own company comes in. Again, not a sales pitch, but certainly an opportunity to explain that PayScale has compensation resources that help you to determine the total cash compensation market rate of different positions, and the detail we provide is a breakdown of what is base salary versus commission versus profit sharing versus bonus and all the other components of total cash. So, that’s the first thing you need to have; some resources to figure out what’s your target that you’re going for. Then, in terms of designing employee incentive plans, you can either do that in-house, and what’s really important there is making sure that you build an employee incentive plan that is based on the objectives that you want to achieve. “We get what we measure,” is the famous quote so it’s really important that whatever we’re rewarding is driving business results. And, again, I won’t be able to answer this in a short follow-up here but, the other thing to do would be to be looking at resources of compensation consultants who can help you design a compensation plan that really nails creating a link between employee incentives and the business operations.
Q: What employee appraisal grade systems have you seen that were successfully applied by managers?
A: I don’t think that the answer is the forms that you use. I really don’t. And, so, you know what? You can go with elaborate appraisal grade systems and you can go with basic appraisal grade systems. I believe more so than any form you’re using, or any sort of employee grading system that you’re using – I don’t care whether you use five or three as your grading scale – I don’t think it matters as much as training your managers on how to do it and do it effectively. I also am – and again I obviously I have strong opinions – I am also adamant that if your performance appraisal process is restricted to an annual, once-a-year process, you will not get the results you need. And, so, I think it’s really important that as part of the coaching of your managers and your business leaders that you train them about how the employee appraisal process is done through the entire year. Because, if you’re going to do a once-a-year appraisal process and have people fill out a form with limited training you’re going to get probably more liability than good. On the other hand, if you teach people how to have great performance appraisal conversations, be an effective coach and mentor, and teach them the skills that are necessary to do that all throughout the year, I think that you can disregard the form and stick to that. And, I know that it’s a little controversial but, the point is that it’s not so much about the appraisal process as it is about the employee training and education that you give your managers and the culture that supports that environment.
Q: We have some standardized processes and compensation resources that can occasionally strain negotiation – which is probably a good thing based on what I’ve said today. Hopefully, it doesn’t constrain it to the point where it’s not effective but there should certainly be some checks and balances in place, let’s just say it that way. – You suggest that there is more than money to add, do you have any sort of innovative examples of simple things we can add to the offer that can get through the bureaucracy easily and quickly.
A: I think, starting with the point about finding out from employees what is important to them and then finding a way to make that work. Obviously, we all know we’re constrained by certain legalities. We’re not going to be able to negotiate a higher contribution to a 401K plan. That’s not going to happen. But, one employee might want the ability to work from home on Fridays or another employee may want to work a schedule such that they know in advance that they’re going to have more approved leave time in the summer - meaning that they can just use all of their vacation time in the summer. I mean, there are a million different things but the bottom line is that if we try and guess what the employee wants and start negotiating with that we then give away something that ultimately has no value to the this person. So the most important thing is to ask the employee what’s important to them. And, the conversation would be something like, “We are limited by our budget. And, it’s funny because I am in the line of compensation-related work and I always tell people that there are three things that are important to understanding compensation. First and foremost, you need to understand your compensation market. Second, you need to understand the internal equity and the issues that can cause issues there in terms of how to compensate people. And third, and most importantly, is compensation budget because budget will ultimately always be the most important thing. So, really important, then, to have a conversation with an employee about, “We are constrained by our budget. We want you on board. Can we talk about some creative strategies for getting you on board without exceeding our budget?” And, I think that’s really important. And, I know that some people will want to reference fairness and equality and all those other sorts of things. And, I recognize that you have to pay attention to that. And, I recognize that the culture of your organization is going to drive a lot of that. But, I’m sure that there’s way you can think of to be creative about offers and negotiating with folks.
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