6 Things You Think Are True, But Aren’t (Compensation Edition)
Some of you may have seen this recent viral video discussing things that we believe to be true, but are actually made up. The video got me thinking about things compensation professionals believe that have little, or no, foundation in reality. Here we go…
1. Incentive pay motivates people to perform.
It has been sold to businesses that a great incentive program can motivate a person. Sorry, but that’s just hope talking. People motivate people to perform. Incentive plans are there to remind everyone of what is important and to reward them if they stay focused and achieve their objectives. By itself, an incentive plan is useless for most people. Communication and leadership are the keys to success.
2. Equity compensation is a great retention tool.
Equity compensation has been sold as the holy grail of retention for more than 20 years, but data shows this is simply not true. The tech industry is the heaviest user of equity programs and also has one of the highest turnover rates. While these programs can support retention (mostly mid-term), the evidence shows that they do not work as advertised. It should be noted that tons of data also shows people do not understand their equity. Maybe better communication is the key to retention.
3. The 50th percentile represents a real number.
People target the 50th percentile like it is a real number that truly represents the middle of the market. If this were true the 50th would be the same for every data set that targets the same type, size and location of companies. While this may be true for a few jobs, it is a ridiculous idea for most jobs.
4. Having a great total rewards program attracts great talent.
Much like people motivate people, people attract people. The best compensation program in the world is useless without the right people to “sell” it to potential customers. Attracting good employees is more of a marketing effort than a product development effort. Just like many people happily use inferior products with great marketing, companies with great talent acquisition strategy and execution will crush companies with great pay and mediocre talent staff.
5. It’s possible to design a program that will work in spite of leadership.
We sure try hard at this one, but it is just isn’t possible. An average program with amazing executive champions will beat a great program that the CEO doesn’t support. Every. Single. Time.
6. Survey data reflects what is happening in the market.
Most survey data is incredibly thin. First, it only represents companies who take the time to submit their data, (often a single-digit percentage of your peers.) Second, it is only as good as the person(s) submitting the data. Most survey submissions are done by an early-career professional, or by experienced pros with more critical things on their plate. Third, the data collection, analysis, and reporting need to be great. Most smaller surveys reflect biases of the survey provider or skew toward the client of the firm sponsoring the survey. It is also important to note that many companies do not include their “secret sauce” in the survey submission.
So, let’s hear some of your “facts that aren’t” stories! I am betting we can get this list to at least the 13 things that are in the viral video!
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He has three metaphors for every occasion and is a leading expert on incentive plan and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.