Compensation - Want Results? Prove It!
Editor's Note: Do we objectively test the results of our reward plans and programs to see whether they delivered what we planned (or assumed) they would? Dan Walter explains why that should be part of our annual cycle and, frankly, our jobs as professionals in this Classic post.
Most compensation professionals I know are very earnest in their desire to pay people as well as possible. They attend presentations, watch webinars, and review the latest article and the smart ones even read the Compensation Café. But, many of these same professionals admit a critical flaw that often makes all of their efforts useless. This problem is so common that it no longer surprises me when people cop to it. In fact, I am really only surprised by the small number of individuals or teams don't have it.
Getting compensation right is hard. You have to get a good handle on the company and individual objectives. You need to know the rules. You should probably understand what the market has to say about pay levels and the best pay elements for specific purposes. Then you have to put all of this together into something that reflects the complexity of the company and staff, while still being simple enough for everyone to approve and understand. Once you are through all of that, it is time to rollout the program and make sure it is managed effectively.
Then you take two or three days off and spend a week fixing minor problems and before you know it you are back at the beginning, getting ready for another year. This is what it feels like for many people in our industry. You are special, but you are not alone. This process is missing something so critical that if you were an educator you'd be laughed at for missing it. It is so essential that if you manufactured goods or software you would be deemed a failure without. Even people as diverse as scientists and artists can’t skip the step that an overwhelming majority of compensation professionals never ever take.
In virtually any profession, you are expected to prove that the work you are doing is achieving the desired results. Imagine a doctor who said, “trust me” rather than “here are the studies that show you’re getting better”. Would you go to a restaurant where you were only allowed to look at the food, but no one ever took the time to taste it? Who cares if it looks great, it might as well be made out of wax like the restaurant displays in Japan.
We ask other people to make decisions, or trust the ones we made for them. But, many of us haven't objectively measured the results for the last set of decisions and communications. We may be making adjustments on “trends” or on things that “feel” good or bad. With the exception of evaluating survey data, we almost never test our prior decisions by linking what actually happened to what was planned (or hoped for.)
Without this step, it is difficult to make the case that others should take your work seriously. With this step you move quickly from a tactical “wonk” to a strategic partner. It isn’t always easy. How do you prove results are linked to a specific program? How do you make the time when you only get two or three free days a year? Those are questions for another article. For now, I will leave you with the following questions. I look forward to your responses.
Do you objectively test your compensation decisions? What percentage of your compensation programs do you fully test each year? How has this testing led to specific decisions? Has it resulted in better support from executives or employees?
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Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans 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.