Ten Enduring Truths of Pay Design
With more than 35 years of
experience in the consulting
space and working with
clients across the entire talent
solution spectrum, Brian is a
veteran in the area of human
resources. In this conversation,
he shares with us the 10 most
important lessons for any
compensation manager.
'Always remember, fads
may come and go, but there
are certain enduring truths
that have passed the test of
time. Experience has taught
me that certain truths are
relevant across cultures,
industries and generations.
And you would be surprised
that the ideas are very simple,
but for many organizations
the implementation becomes
complex. We just have to
remember that there are no
quick fi xes and all things
require patience.'
1. More is not always better
All things being equal, more is better
than less BUT all things are not equal.
Perceived value is more important than
cost.
The perceived value of any
compensation opportunity is tied
directly to the degree that the
recipient believes it is achievable, and
realizable.
2. Consistency should not be a
goal in itself
Emerson said "consistency is the
hobgoblin of little minds..."
Integrity and the absence of
arbitrary decision-making are what
really count in pay design. It is
imperative that there is a structured
approach and integrity in the
system and no decisions are left to
subjectivity. It is also important to
remember that this is diff erent from
being consistent. An organization
needs variations and diff erences to
thrive but they should be grounded
in fact.
3. Trust in the decision makers is
paramount
People want to believe they are being
treated fairly.
Very often plans and structures
are created because people don't
trust the decision makers. Why
is that? Sometimes, it is because
employees don’t know the decision
makers at all. Sometimes, distance
between the decision makers and
the employees is too large. We
need to make sure people believe
they are treated fairly. They need
to be assured that those making
decisions have all the relevant
facts and are applying them fairly.
We can design the most elegant
compensation plans but what
really matters is that whether the
people to whom these plans will be
applied, believe that the plan is fair.
There has to be transparency and
some degree of fair application.
4. Incentives work
You get what you pay for.
Incentives which are properly
structured and are measured against
accurate metrics will change behavior.
5. Pay design communicates
management priorities
For better or worse, the design of pay
program communicates clearly and
loudly what management thinks is
important.
A compensation plan is a
very powerful communicator of
what the management believes is
important. While the management
might communicate a focus on
quality of work, career progression,
freedom at work and cultivating an
entrepreneurial culture, what they
often pay for is growth and profi ts.
As long as there is a confl ict between
what organizations say they believe
in and what they actually pay for,
there will always be turmoil as
people will be left wondering what
they are really supposed to do.
6. Discretion should have limits
What management wants more than
anything else is the discretion to make
what they believe is the right decision
once all the facts are known.
Discretion is a critical component
of every eff ective pay plan. However,
discretion needs to have limits so
the employees aren't made to feel
that what they receive has been
left completely to somebody else's
judgment. Employees want to have
a line of sight into what they do and
what they get paid. Breaking the
line of sight between what people
do and what they earn dramatically
reduces the incentive impact of pay.
On the other hand, managers want
complete discretion. They need to
cross subsidize. There are times when
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