The Third Biggest Lie In HR: We're Into Pay for Performance....

I’m here this week not to give you the normal PR spin about how strategic the HR function can be, but instead to call BS on the biggest lies in HR. It’s not that HR people want to lie. It’s just that we’ve created our own prison: the urban myths that have developed over the last 20 years as the HR function has matured.

And so we’re trapped. We’ve spawned narratives that make the HR function seem like a cross between Mother Teresa and Stuart Smalley, while the team members—aka employees—we serve actually need more tough love, a cross between Jack Welch and Dennis Miller. They need that little thing called the truth, effectively washed down with a bit of leadership, personality and, at times, humor.

Let's roll...

The Third Biggest Lie In HR: We’re into pay for performance. Everyone loves seeing a high performer get a 10 percent raise just for being a star—a reward that’s unrelated to a promotion. It doesn’t happen enough, and the reason is pretty simple: In this Darwinian world we call global business, cost pressure is everywhere. As a result, we’ve got to budget for salary increases and then live by the budget to make sure razor-thin margins stay intact. That means that in order to give Sally, the superstar, an 8 percent increase at review time, we’ve got to give nothing to Johnny and Rickey, who are good cogs in the wheel, but average at best.

The truth: We (business leaders and HR pros) need average performers to make the business formula work. In a world where 90 percent of team members think they’re in the top 10 percent of all performers, we’re screwed from the jump. We’d rather find unbudgeted money for the star than tell the average performers they’re getting nothing, which is what it takes to put pure pay-for-performance in place within a merit budget system. Our managers are unwilling to do that, and we’re unwilling as HR pros (perhaps rightfully so) to be a Han Solo-style mercenary.

Again, read what I outlined. I didn't say we didn't believe in the concept.  I said we aren't into it enough to lay down in front of the trains that are cost pressure and our managers not wanting to have the tough conversations to make the math work.

If you’re a good HR pro and don’t feel like you actively pitch the lie above, do you actively preach the truth?

If the answer is no, you’ve got work to do before you’re part of the solution.

See the whole list of HR Lies at Workforce here, or wait - I'm previewing them all week long.  Lucky you..

How HR Pros Have Proven Complete Pay Transparency Is a Bad Idea...

Frank Roche had some great data up over at Know HR on Pay Transparency last year - go check it out, because it's the real deal regarding how people really feel about pay transparency - not how individuals want YOU to feel.

I'm on the record as saying that the employee relations fallout from complete pay transparency dramatically outweighs the benefits.  While it's trendy and seems progressive to call for full transparency in pay rates and pay practices in organizations, the folks who are calling for it don't have to live with the employee fallout. 

While I'm here, let me go on the record with another piece of information:

HR PEOPLE HAVE PROVEN TO ME THAT COMPLETE PAY TRANSPARENCY IS A BAD IDEA.

That's right, I'm calling out my own, not pointing to other people.  Work with me on the following flow chart:

1. HR Pros have access to all the pay data for the units they serve.

2. HR Pros often have access to all records, including the units they don't serve.

3. While we never sign an agreement or a code of ethics, I expect people to treat that pay data with complete confidentiality.

4. Complete confidentiality and ethics for HR Pros, who have access to all pay data, means they never use their access for their own benefit.  At least that's my standard.

5. Many HR Pros can't handle the realities embedded in the pay comparisons they make between themselves and others and, as a result, become vocal about the differences.  Worse yet, they may not become vocal but choose to leak pay data to other parts of the organization.

It's sad, but true.  The HR pros I've encountered in my career have proven that you can't have full pay transparency.  I'm going to guess that I've worked with 50 HR Managers in my career, including bosses, direct reports to me and peers.  Out of those 50, at least 10 have wigged out when they came across pay data they thought proved that they were undervalued.

Except it didn't.  And the folks who complained and caused employee relations issues were always the low performers.  Their pay was fair from an experience, credentials and performance standpoint. 

I'll say it once, I'll say it a thousand times.  WITH GREAT ACCESS COMES GREAT RESPONSIBILITY.  You have access to all the pay data in HR?  You need to get mature - real fast.

I've seen the same things, albeit on a less frequent basis, from accounting pros with access to payroll data.

If HR Pros can't treat compensation data with a mature eye and that's a job requirement, what hope does the whole organization have?

I'm just sayin'...

Last note - most of the HR pros I've worked with have treated the access with great responsibility.  To you, I throw a salute.  You're a pro, and I'm glad I'm working (or have worked) with you.

To the rest of you - get out.  You're hurting the profession.

The Saints: More Proof That The Cost of the Best Talent Is... A Rounding Error...

My friend and ace executive recruiter Harry Joiner (aka the Marketing Headhunter) has a saying in the talent business (and I'm paraphrasing):

"The right candidate (which is what Harry provides in the e-commerce space) to fill your open spot will be so good that my $30-40K fee will be lost in the rounding of the value that he/she will create for you."

What Harry's saying is that you're too focused on the recruiting fee.  Don't worry about the fee.  Worry about finding someone exceptional, and the fee, once a sizable concern, becomes a distant, almost laughable object in your rear-view mirror as your department/team/company kicks #$$ and takes names from the talent upgrade.

Before you start whining about something pedestrian, let's keep this strategic.  Let's talk about how organizations can turn it all around by getting on a roll with a key hire, who in turn keeps the momentum going by hiring more people with exceptional talent.

Let's talk about the New Orleans Saints.  The New Orleans Saints were as low as you can go in 2006, a franchise playing in a city dealing with post-Katrina issues that make parts of Iraq look like suburbs.  Somehow in the midst of all that humanity they were able to hire Sean Payton as their coach.  Once Payton came in, he made a great call to sign free agent Drew Brees, who was coming off a completely torn-up shoulder and was thought by many to be done as a quarterback in the NFL.

The signing of Brees was a great talent acquisition for the Saints, and Brees become the backbone for an incredible turnaround for the Saints.  But that's not the most outlandish talent grab that Sean Payton made in the years leading up to the Super Bowl.

No, Payton proved that paying for the right talent represents a rounding error compared to the value the right talent creates.  When faced with hiring a leader for his defensive unit and being told by the Saints brass that his target (a coach named Gregg Williams) was too expensive, Payton said "what the hell" and offered up around 10% of his own salary to help sign Williams.  More from NBC Sports:

"In January of 2009, Sean Payton coughed up a quarter of a million dollars so that the Saints could afford to hire his preferred choice of defensive coordinators, Gregg Williams.  After winning Super Bowl XLIV, Payton joked in an appearance on NFL Network that he gave up the money under the influence, and woke up having second thoughts. "I had a few beers in me," Payton said. "Woke up the next morning, and my wife said, 'What?'"

But on a serious note, Payton said that what it all boiled down to was, "It'd be a shame to lose a good coach over $250,000."  Payton added, "I just wanted to make sure ownership, and the General Manager Mickey Loomis knew that this is who we needed."

As it turned out, ownership became so convinced that Williams was who the Saints needed that they repaid Payton the $250,000 he gave up."

As a result of the bravado of fronting his own money to hire the right person en route to winning a Super Bowl, Payton has guaranteed that his career as a NFL coach will net millions, if not tens of millions, in additional salary.

What about you, buckaroo?  Are you willing to front your own money to get the right person on your team?

Lump O' Coal: Merit Pay Spreads For Stars vs. Roleplayers...

It's Christmastime.  Shopping. Church. The Grinch.  Also - Getting your merit matrix together so you can allocate your merit increase budget (if you are one of the many companies that does annual reviews on a calendar year cycle).

What should you pay your stars by way of merit increases?  Let the hand-wringing begin!  Let's get you warmed up with this from Darcy Dees from Compensation Cafe:

"It’s easy to test and see if you really do pay for performance by comparing the total remuneration package of your top performers to that of your average performers.  If an appreciable difference doesn’t exist, you might want to reconsider how you give your rewards out.  You may even be able to reallocate funds from lower performers to fund the rewards for your top performers.  If you do differentiate pay for top performers then you should communicate that to all of your employees to encourage more effort and better results from all employees who will believe they’ll be rewarded for those efforts."

Of course, that's too simple.  You know the drill on pay-for-performance (PFP).  You do your best to ingrain the PFP fundamentals into your culture, but here's the trick - to truly pay your best performers, you have to be tough on the folks who aren't cutting it.  Is your budgeted percentage for merit increases across your company/unit 3-4%? 

For most of us, 3-4% is the standard budgeted range.  And that's where the rub is.  To give your best performers a big pop and make them feel like the special people they are, you have to take it away from a low performer.  Most of your managers aren't prepared to sit down with the lowest performing person in their groups and tell them they are getting a 1% raise - or no raise at all....

Also, what's your definition of a big pop?  What's pay for performance really mean?  How big does the percentage have to be to make a favorable impression?

It's all psychology.  My take is that if you can get someone to a 10% merit increase, that should tell them they are a raving superstar.  Of course, that would double their pay in 10 years, so it has to be linked to real results.

What's your percentage related to an increase for a star who is meaningful? 5%?  8?

What's the equivalent of a lump of coal for a low performer? My guess is that managers still dole out 3%, across the board increases to low performers so often that a 1 or 2% increase would look harsh.  Your thoughts?

Merry freaking Christmas: Here's your 1% increase. 

Salary.com: Friend or Foe to the HR Pro? As it Turns Out, Both....

(Caplitalist Note - Salary.com didn't pay me for this.  Like many HR pros, I don't have a great relationship with Salary.com, but what I learned at the HR Tech Conference has me opening my mind.  For a full rundown of my conflicts, check out my Frauenheim Disclosure.)

Ask any HR Pro with operational experience to react to the following words:

"Salary.com"

The reaction you get will range from sighs to fists shaking in the air.  Most HR pros don't like Salary.com, and if you're in the business, you know why.  It's because Salary.com represents the first line of salary transparency to employees, the most readily available information for any employee to get their hands on to determine if they're being paid fairly.  Here's how it works - the employee prints off some information from Salary.com, brings it to you and says, "I think I'm worth more".

Many of you not in the field are now saying, "ah-hah!  I knew HR was soft! They can't cut it when an employee is armed with information on their own worth!  Soft!  Weak!  Bureaucrats!"

Hold on there, sparky.  The best HR pros will tell you that the following is the reality when it comes to salary conversations with employees who pull info from Salary.com (pulled from this column of mine from Workforce):

"No one ever looked at a salary range and focused on the minimum, even if that was where they belonged". You sit down with your employee and provide a brilliant discourse on your compensation philosophy, including an explanation of the range and the fact that most people migrate to the midpoint after five years in their position. You’re waxing poetic like James Taylor on VH1 Storytellers. Nice job. Now flash to the employee’s mind. He sees the salary range and wonders, "Why am I not past the midpoint? I’m the best service rep they have." The employee automatically feels undervalued. Additionally, no one has ever looked at a list of company-wide salary ranges and felt contentment. There are comparisons with the midpoints, the maximums, and with higher ranges to breed discontent. Your best training and explanation won’t transcend the employee relations issues you’ll cause."

So Salary.com = Tough, many times un-winnable conversations with employees for HR pros.

That's where I was at on Salary.com until my time at the HR Tech Conference in early October, where I took in a competition called the Talent Management shootout.  Each year, HR Tech pits software providers in similar spaces against each other, having them walk through the solution their software can provide to common business problems that HR pros and companies face.

This year, four companies emerged as finalists in this competition, which focused on their Performance Management solutions - those companies were SAP, Lawson, Plateau and yes... Salary.com...

I didn't even know Salary.com had a performance management solution, and I'm in the market as a buyer for my current company. 

Here's the other thing - not only does Salary.com have a performance management solution, it's also a good one.  Salary.com won the shootout, and they outperformed the other software providers in all three scenarios, that included individual performance, merit distribution and succession planning scenarios.  Salary.com had the least eye candy of all the providers, but it excelled at one thing - creating views where you could see all the information you needed on ONE PAGE (on one employee, but also multiple members of a team).  It felt more usable in every scenario.

I had no idea Salary.com had all the functionality under the hood from a Talent Management/Performance Management perspective.  I'd love to see their relative cost vs. the others, because as a pure SaaS company, I'm guessing they're the most affordable as well.  I'll let you know.

Salary.com - now doing more than setting false expectations for employees, actually being the friend of HR - who knew?

What's That Smell? Self Assessments & Performance Management

People!  I'm at the Halogen Software User Confernece.  In the spirit of challenging the performance management status quo, I offer this oldie but goodie that I want people in Ottawa (that's where the conference is and where Halogen is headquartered) to see...

As an individual who recently revamped a performance management system from the old subjective system (everyone gets the same 80 items, rank on a scale of 1 to 5) to one driven by cascading goals driving individual objectives across the organization, I've had a lot of time to ponder things in the performance management space.  One thing I have run into is the value of allowing employees to evaluate themselves as part of the process (Self-Evaluations!!)....

Now, I don't want go all Dennis Miller and get off on a rant here, but the prospect of self-evaluations is more riddled with holes than the final season of the Sopranos.

Here's why I don't like Self Evaluations:

1.  There is always a gap between real and perceived performance, and the gap is always largest with your lowest performing employees.  Poor performers lack the skills to perform - which are the same skills required to evaluate their performance. They don’t understand that they don’t understand, and so believe their abilities compare positively to their peers.  The Success Factors Blog plots this out with research to back it up... See the chart below from their site as well....

2.  Self Assessments set up managers who struggle with performance management to fail unnecessarily.  Your inexperienced managers already have a hard time with conflict, so you take your garden variety self-assessment (the one that allows the employees to have the first crack before receiving the feedback of the manager) and automatically your manager is boxed in a deep corner of conflict.  What is he/she to do?  Go after the perceived gaps and really drive home their point of view with multiple specifics?  Or just give in, offer up a few comments, give the employee 75% of what they wanted, and live to fight another day?  Better to allow the manager to drive the process with their thoughts before the employee has a chance to frame the conversation.  Self-Assessment afterwords, OK - Self Assessment before, not so good...

3.  Self Assessments are often crutches for managers with poor writing skills.  I literally had a manager just offer up the objective-based system to an employee, then turn it in as his own work.  I called the employee (happens to be a manager of people working for a Director) and said, "You wrote your own review didn't you?"  To which the employee responded "I did the self assessment part and I think ____ took most of my recommendations.  If you look at the last sentence of each section where the grammar changes (she meant where the grammar became very poor), you'll be able to see his comments".  Nice... what more can I say?

4.  Most employees confuse behavior and performance that "meets" expectations as "exceeding" expectations.  Called all your customers?  Got all the transactions that are a part of your job complete?  Darn, that is just plain "Exceeds"...(I'm Joking).  Most employees have the opinion that if they knock out the major components of their job, they are exceeding.  That's incorrect - the progressive view of performance management suggests that employees need to innovate and add value in other ways to truly "Exceed"  Want to know what happens with weak managers when a "Meets" employee turns in a self-evaluation that rates themselves as an "Exceeds"?   See #2 - they fold without the help of a competent partner on the Human Capital team...

Exceptions to my observations - if you use self assessments as part of a well tuned 360 degree feedback program, the self rating probably has the proper rating and is effectively counter-balanced by the non-manager feedback of others.  Of course, 360 degree feedback programs have their own set of issues, and I'll leave the pro/con breakdown of that for another day.

Bottom line - unless your org is a well-oiled performance management machine, leave the self assessment on the shelf.  Your managers won't overcome it...

Of course, like Dennis Miller, that's just my opinion. I could be wrong.

The 30 Highest Paid HR Execs - Get My Agent On the Phone!!

Workforce Management recently highlighted the 30 Highest-Paid HR Execs at publically traded companies in the US.  Couple of key observations from the desk of the Capitalist:

You - Working hard for the money.
Them - Working hard for significantly more money.

You - No employment contract, living the "at-will" lifestyle.
Them - Able to generate 12M (that's million, Dr. Evil) in severance payouts if it doesn't work out.

You - Hoping the team finds a way to hit the crazy "stretch" numbers so you can get part of that annual bonus check.
Them - One bonus plan isn't enough.  Needed to break it up among "Bonus" and "Non-Equity Incentive Plan Compensation" to keep it all straight.

Them - Must have a pretty good agent.
Me - In need of agent.  Looking for the number of Drew Rosenhaus (uber-agent for Terrell Owens among others) in my Outlook Contacts.

Of course, most of the compensation is future-based in the form of equity grants, etc. - and you know what those can be worth in five years.  Still, I need one of two things to resolve this inequity.  Either Ann Bares needs to sell a salary survey to my company, or I need the profane skills of Ari Gold of Entourage to market my capabilities more effectively...

Your Pay Is Market-Based - With or Without Ranges....

Pet Peeve time today at the Capitalist - the topic?  Pay and the free agent market....

Here are the scenarios that slay me...

Scenario A - Hiring Manager is contemplating making an offer, and wants to know what the range is.  Two things generally occur for the hiring manager who asks this question.  They either 1) want to pay the minimum, or 2) want to proceed directly to the midpoint.

Scenario B - Candidate wants to know the range for the position in question.  If you give that information up, generally by providing a minimum to midpoint range, guess what the candidate does?  Sets his entry level expectation directly to the midpoint.

Here's what both parties don't understand.  The market level for an offer to a candidate is based on just that - THE MARKET... What's the right comp level for an offer?  One that's consistent with your current comp strategy, fair to both parties, but above and beyond all else - ONE THAT THE CANDIDATE WILL ACCEPT WITH MINIMAL COUNTERS.

Say it with me - the market rate for any candidate is the $$ amount they will accept.  They've got info about what they are worth, you've got info about what they are worth.  When it all comes down to it, ranges give guidance, but you can't rely on the extremes in the offer process.  You use the range to close business.

To be fair, all hiring managers and candidates don't have issues with this concept.  But those who do have a hard time understanding that ranges, and at times pre-dispositions, mean nothing when it comes to the market rate for talent.

The market rate for any candidate is the $$ amount they will accept.  Everything else is noise...

So, if you have a candidate who grudgingly accepts a fair offer, don't feel bad.  Adam Smith would say the acceptance, even with the static, is the free market at work.

Pay Transparency That Works - AT&T Provides New Contract Calculator to Union Employees....

Full pay transparency comes with a lot of baggage.  Of course, when you're union represented, full transparency is in existence because experiences and skills don't have much to do with the pay rate at which you're hired, and performance has nothing to do with the raise you'll receive.  Both are calculated by the union contract.  Everybody gets the same $$, regardless of your contributions.

Is this Russia Danny?  This isn't Russia, Danny... Same pay upon hire (regardless of your experience) and the same raise regardless of performance - nice.  Let me think about that... Does that environment encourage high performance?  Hmmmm...

So pay transparency exists in Union environments.  With that in mind, why wouldn't a company negotiating a new contract use the transparency that exists to drum up union member support for their best offer to the union?

That's exactly what AT&T has done.  Here's the text from an email to all employees at AT&T announcing the status of the negotiations, as well as the existence of a contract calculator where you can actually go out and see how much each union employee has to gain by the union agreeing to the current contract:

"After months of negotiations, the company has provided a last, best and final offer for the contract covering Core wireline employees in the Southwest Region (Communications Workers of America District 6). The district comprises the states of Missouri, Oklahoma, Kansas, Arkansas and Texas.

Bargaining continues in all other regions — West (CWA District 9), East (CWA District 1), Midwest (CWA District 4) and Legacy AT&T Corp. (CWA ComTech).

Virtually all employees covered by the last, best and final offer in Southwest will see a positive financial impact under the offer. A calculator is available on www.att.com/corebargaining which will show the estimated, cumulative value of wage increases combined with wage progression for each individual, as well as estimate the effect of health care changes.

This is a fair and reasonable offer that recognizes the contributions of employees by preserving good union jobs with good wages and benefits that are among the best in the nation. Even in this part of our business, which is experiencing substantial customer and revenue erosion, we are continuing our commitment to making an offer that preserves all of the elements of our compensation packages — wages, pension and health care — and doing so at a time when many other companies are making substantial cutbacks in these areas.

To help in your understanding of this offer, a video presentation* from John Stankey, president and CEO of AT&T Operations, posted here, provides additional context about this offer. In addition, a detailed summary of the last, best and final offer is available here on www.att.com/corebargaining.

We urge the members covered by the Southwest Core Contract to give this offer careful consideration and to ask their union leadership for an opportunity to vote in favor of the proposal."

Here's the new contract calculator provided by AT&T.  If you do nothing else on the web today, click through and do a couple of scenarios.  It's pretty fascinating.   

You Really Made That Much? Bring me Your W-2...

I riffed earlier this week about the unwillingness of some managers to negotiate on what they were willing to pay for a position.  I think people ought to enter into pay conversations with some form of flexibility, but if you're not flexible, at least be inflexible based on some relevant factors.  Not because you think you've got the power and the individual ought to accept whatever you need to offer.

Here's a bigger question - how do you validate what the candidate says they're making now or have made in the past?  The first way to get into that is to ask them what they need from a compensation perspective.  That's a softer way to get into the question, and my favorite, low impact way to ask is, "So what's it going to take from a money standpoint to get you to move?". 

Other best practice - use your career site to ask for two data points - 1) what the candidate's current salary is, and 2) what the candidate's expected salary is.

So, let's say you ask one or both of those questions face to face, but you're still unsure if the candidate is being totally honest with you.  What can you do to verify they made what they say they did?

Ask for the W-2 for the year(s) in question.  It's a hardcore tactic, but in going to lunch last week with a VP of Sales candidate, I was reminded why I love recruiting sales pros.

I didn't have an online application from the candidate in question (sourced directly by me!), so I asked the "what's it going to take' question.  Like a true sales pro, the candidate in question actually tells me, "Well, I W-2'd $xxx,000 last year.

I laughed - after playing so many games through the years on the compensation front, I forgot for a brief time period how transparent Sales Pro candidates can be.  Why the transparency?  I think it's because a lot of sales pros, if they have any experience at all, actually expect that the sales manager in question is going to ask them for their W-2.

Welcome to the hardcore recruiting world of recruiting sales pros.. The rest of the candidate pool could probably learn something from that.