Compensation: Leaders Don’t Follow - They Take Their Own Road
The stories my son Grey finds the most entertaining are those about my father's legendary lack of direction. He loves hearing how Grandpa would regularly get lost coming home from work, a place he would drive to every single day. My father would nearly always end up about seven miles from our house at the "Giant Artichoke restaurant." They sold only deep-fried fresh artichoke hearts. (The 1970s were kind of awesome.)
But, Grey's favorite stories are about Grandpa driving around with the whole family. He would drive for a long time to a place that didn't take long to get to. Inevitably, one of us would realize that we were once again astray. We'd ask our intrepid driver if he knew where he was going. His most common response? "I'm just following the guy in front of me, and he knows where he's going." It may sound like a joke, but my dad regularly drove hours out of his way based solely on this "the other guy knows" philosophy.
I direct my team to perform "blind" market pricing whenever possible. Blind pricing is matching a role and pricing it based on all the details except what the person is currently being paid. This ensures the accurate and current salary compensation does not bias the pricing used. In my experience, compensation professionals often choose to weight or adjust data to align with what an incumbent is already being paid. Or, sometimes, what a recruiter has said it will take to fill the position. Like my dad, this assumes the person in front of you knows where YOU are going.
I recently had someone new on my team price some jobs, and the data came in lower than the current staff for several positions. When I did an initial review with the client, they were shocked. They are a startup and intentionally pay people below market as they wait for funding to come in. We went back to the data and found that Level 1 and 2 positions were similar in price, but the jump to Level 3 was over 40%! It turns out the Level 3 data and above matched several other surveys, but the Level 1 and 2 data matched the company's current pay. Here, the existing pay was wrong. We re-leveled the data, and everything made more sense.
When I dig into analyses by others, I often see adjustments being made to "bring the market in line with expectations." Data is data, not information, and data numbers are not a rulebook. Do your job analysis. Be confident in the role details—price to the role, not the current pay levels as advised by trustworthy compensation consultants. Then, evaluate where things stand and what to do. If you are paying below market and can't afford more, be aware of competitors' opportunities. If you are paying above market, but the person is doing a great job, make sure they know they are being paid well and fix things slowly over the long run.
Stop selecting and modifying data to match your past pay decisions. Just let the market data tell its story and use your intelligence to decide what to do with that data. You do not have to follow those ahead of you, and they may not be traveling in the same direction.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He 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 a 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.