Exploding Some Comp Department Myths

Posted on Thursday, January 29, 2009 by Frank Roche

To: All Managers
From: Comp Department
Re: Exploding Myths — Here’s How Compensation Really Works

Dear Manager,

I thought it was time to explode a few myths and legends about Compensation. I’m not talking here about pay, which is what goes into paychecks. I’m talking about what we do in Comp. Let’s end the mystery.

Myth: Everyone is underpaid.

Reality: That’s nuts. We target our pay at the median for all jobs…and we meet that objective. Everyone thinks they’re underpaid, but they’re not. We look at tons of independently verified data from thousands of jobs and companies. It’s real data. There’s a distribution of pay, but not everyone is underpaid. In fact, almost no one is unless their performance warrants it. It’s our job to make sure that’s the case.

Myth: Everyone’s pay situation is unique.

Reality: Snowflakes are unique, trust me, your employee’s story isn’t. Every manager tries to work a deal and get “just a few thousand more dollars.” Multiply that “unique” situation times 10,000 people. A million here and a million there and pretty soon you’re talking about real money. (To paraphrase Sen. Everett Dirksen.)

Myth: There’s a slush fund. Comp controls it.

Reality: There’s no extra money laying around and we don’t have it. We’re accountable to the Board about all the money that we need to provide competitive compensation. The Board doesn’t give us a slush fund to spend how we like. We’re not holding anything back from you.

Myth: My employee could get lots more money elsewhere. He’s going to leave if we don’t pay up.

Reality: If that’s the case, your employee should go and get the money. Ask about where your employee is compared to the market. We know enough to tell you about total compensation. We know what’s happening. Someone’s cousin’s uncle isn’t a place to get reliable comp data.

Myth: You’re just trying to spend as little money as possible.

Reality: We spend the appropriate amount of money for total compensation to attract and retain employees. We have a fiscal responsibility in Comp to spend every bit of money in the most efficient way possible. Throwing bushels of cash at people isn’t a way to get motivation or meet our business objectives.

That’s a few of the myths and realities, folks. We’re on your side — we’re not the enemy and we’re not little generals. We spend a lot of time with data. We know what other companies are doing. We work to link pay and performance. And we are employees, too.

Best regards,

Your Compensation Team

User Comments

Tom "Bald Dog" Varjan

Jan 30th, 2009

1) We look at tons of independently verified data from thousands of jobs and companies. It’s real data.

I think what matters is the value the employer expect the new person to bring to the table. In every new person, employers hire expectations. Who cares about thousands of other jobs. That's average. Also called mediocrity. They are in different context, thus irrelevant.

5) We spend the appropriate amount of money for total compensation to attract and retain employees.

Yes, we know that. According to a Gallup Poll study, 59% of employees are disengaged from their works, 14% of the workforce is actively disengaged, that is, actively sabotaging the company success, and that a mere 27% are engaged.

Message: Most companies, that is, HR departments, don't know how to attract and inspire to stay top notch-talents. All they know is how to compare resumes to rigidly written job descriptions.

We're in the age of the knowledge worker, but HR departments all over the world are still obsessed with treating people as manual labourers.
Soni

Feb 4th, 2009

I have to say, I agree with the sentiments of mediocrity. I'm an HR professional (exeuctive, to be exact) and although I've been at it for 17 years, I have to say that I've been one of the few to work towards changing the typical HR departments for the companies that have employed me.

HR is mostly outdated in its view. The approach is always to standardize.

I just sat in a recruiting meeting, where everyone is looking to peg and profile the best candidates, but in this global market and our knowledge based economy they're looking at it from the wrong perspective… If HR and managers, and companies as a whole, can't learn to determine the value of their employees' contribution (outside of data), and are looking to align their salaries with the bell curve then they're missing out on the truly exceptional candidates, because exceptional candidates won't settle for your median salary. They'll go elsewhere, or better yet start their own companies.

I've helped major corporations and small business owners ascertain what an employee's services and skills were worth to the company, and guess what…in each case their salaries turned out to be quite below the actual value of the employee's contribution.

The trick is that although you may assign a standard value to entry level positions, you can't do that across the board without actually sacrificing output. So while HR is busy studying droves of data, they're out of touch with exactly how any particular position affects the bottom line. If the company is benefitting greatly from a specific position it doesn't matter if you're paying the employee according to the median for their field and industry. What matters is how much the company actually values the contribution.

Having said this, I'll explain that if you're paying an employee according to the median, but she's delivering less than the actual value of her salary, then you're overpaying her. Likewise, if you're paying her according to the median but she's delivering much more, then you're underpaying her. The biggest challenge is to get HR departments to set realistic salaries based on what a position is worth to the particular company, not to what XYZ are doing elsewhere. Who cares if you pay your employee $20K below the median if that's all she's contributing. On the flipside I've helped companies see that in certain cases they're underpaying those employees who are contributing the most, and overpaying those who contribute the least.

Get with it HR people. I crinch at the fact that I'm part of a field that is too narrowminded. So I'm doing whatever I can to change how HR does business.
Frank

Feb 5th, 2009

Hi Soni,

Thanks very much for your comments here. Thank goodness there are HR execs
like you out there leading the charge for change. It's good to keep the good
parts; but the bad and mediocre processes must go.

You're right about pegging market data. If comapnies do their work right,
they need to pay for performance. Then the market ranges need to be expanded
to accommodate the range of performance and possibility.

Again, super comments. Continued success with your work.

Cheers.