Compensation and the Squeak of the Hamster Wheel
Round and round it goes, where it stops, everyone knows. Lately, I have been wondering what it will really take to change things in the world of compensation. It would seem that we have more than enough motivation to result in real changes to compensation practices that have been ineffective, or worse, seemingly forever. There seem to be enough incentives to create more successful companies and pay people in a way that allows them to have better lives. A large number of Human Resources and Compensation professionals seem engaged enough to give them the push to make materials improvements. But the hamster wheel keeps squeaking.
Recently released data and articles imply that 2021 compensation budgets will look much like 2020 budgets (and those from 2019 and 2018). Those same sources indicate the mix of pay elements at most companies is not expected to change. This is true even though there is plenty of evidence that most of what we have been doing with the basics of base pay, short-term incentives, and equity compensation have had limited impact on employee attraction, motivation, retention, and engagement.
Topics like Diversity, Equity, and Inclusion have been concerns for at least a couple of decades. We still regularly see unintentional bias in both base pay and incentives. Pay data may be generic, but its application continues to be unequal. And yet, the majority of companies have either no plans or no funding to make the often easy changes that would truly improve these problems.
Our new focus on remote-work has given rise to questions about long-held practices regarding the productivity of employees when working away from the office. Evolving remote-work practices have also directly impacted the breadth and depth of talent markets and legacy assumptions about the cost of labor. We continue to apply old school recruiting tactics to an already-changed modern workforce. Companies also apply oddly local geographic differentials to employees who can be hired by companies anywhere while delivering their effort and expertise from anyplace.
The use of equity compensation plans at most companies remains much the same as it was decades ago. This is despite the fact that companies are far larger than ever, and retention has fallen in industries that use equity heavily as a “retention” tool. Most plans have the same vesting, termination, and expiration periods that have existed forever. Nearly all pre-IPO companies still grant early equity as if they plan on going public with 250 employees in five or six years, despite many IPOs having a thousand or more employees. Most investors control pre-IPO dilution like they are aiming to get 20% of a $250-$500 Million company, even though the average tech IPO is north of $1 billion dollars.
I can, of course, go on, but I will stop and offer a few potential solutions.
What if we started our decision making process by determining what we wanted to accomplish, rather than what the “market data” says?
What if we acknowledged our past limitations and created approaches to pay that took a path less-traveled, and perhaps more likely to provide better results?
What if we stopped applying “what we already know” and started figuring out what we should know?
Correcting things will not be easy, but it’s got to be easier than looking back in a few years and realizing we are squeaking along on the same old hamster wheel. In the comments please tell anything you believe compensation does so well that there is no room for real improvement. Also list anything that you passionately believe we can, or must, address in the upcoming year.
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.
Posted by DanFutureSense on 09/17/2020 at 07:24 AM in Base Salaries, Compensation Philosophy, Data and Analytics, Gender Equity, Incentives/Bonuses, Pay for Performance, Small Company Compensation, Stock/Equity Compensation, Surveys, Total Rewards | Permalink