Schuster-Zingheim and Associates, Inc.- Pay & Rewards Tips

The SZA Pay & Rewards Bulletin, May 2002

Pay & Rewards Tips

Patricia K. Zingheim and Jay R. Schuster

Pay and rewards are changing fast, to match the flexibility and agility that companies focused on success need to achieve. A number of the issues that require attention can be brought into focus by answering a few questions. Here’s a Q&A that you can consider in your organization today:

Q: What’s wrong with using internal-equity job evaluation plans, like those based on point-factor?

A: These solutions are pretty antiquated. During competitive business times you want your workforce focused outside on the realities of the competitive labor market. Internally-focused job evaluation plans tend to overpay lower market value jobs and underpay higher market value jobs with the same internal value. So you don’t get the best people for the hard-to-fill jobs in your company or pay right in the external market.

Q: How do we "wean" our workforce off a strong focus on "semi-automatic" base pay adjustments?

A: Start with communicating total cash as the focus of your company—that’s base pay plus cash incentives. It’s not going to be an easy job, so you must be ready to stick with it and communicate strongly over a number of years.

Q: Where should the goals for our compensation program come from?

A: Only one place—they should cascade from the goals of your top executives. It’s essential that leaders can suggest to the workforce, "We are all in this together. We have the same goals and objectives."

Q: Why is it so hard to change a pay system that no longer fits our company needs?

A: Because pay is a "hot" change item that gets everyone’s attention now. It’s a very powerful lever that must be aligned with the goals and initiatives of the company. Other changes such as training, development, recruitment, and the like are "cold"—they are slow to impact your current employees or they only impact people who are not yet with the company. But, companies are now most often leading change with pay—if you haven’t changed pay to match where you’re going, you haven’t changed anything!

Q: Why are long-service people often resistant to any human resource changes?

A: Because they most likely joined your company under a different "workforce deal" and don’t want it to change. But change is inevitable, and it is critical to get everyone to accept human resource initiatives that make your business more successful.

Q: What’s the difference in making reward changes in a union or nonunion workplace?

A: It’s always a matter of developing trust between people and the company. You are not going to get acceptance of pay change without trust. We have seen acceptance to change work or not work in both union and nonunion workplaces. But the difference in success was not just the existence of the union—it was always the existence of trust and communications.

Q: What are the upside and downside of providing stock options below the management and professional level?

A: The upside is stakeholdership deep in the organization—people like to own company stock, and giving them some stock options can be a trust builder. The downside is a lack of understanding that stock and stock options are subject to the volatility of the stock market. So, if communication on a continuing basis is not part of your deep stock option strategy, it’s better to pass on options until it is.

Q: Why would we want to have the workforce involved in developing any new pay changes we would like to make?

A: Because it’s no longer possible to "sell" pay changes to the workforce on the back end—people are getting too smart for that. The more involvement you have, the more likely acceptance will be strong. People support what they have designed—and involvement gets you acceptance as you move along.

Q: We are having financial trouble. What do you think about cutting pay?

A: We think you should try other cost management solutions first. Base pay cuts are demoralizing and create trust problems for a very long time. People have long memories, and we assume you are in business to stay. Humane cutbacks based on performance are probably much more acceptable. Pay cuts are often the result of poor long-range pay planning. Look at the future assuming times will change—and remember that a pay cut is a humiliating experience. Some companies combine the pay cut with additional pay programs—e.g., turnaround incentive or stock option.

Q: What about "midpoint control"—larger increases for people with base pay below the midpoint and smaller ones for those above the midpoint?

A: This is a hard story for employees to understand—it says that lower-paid people are worth more in terms of an increase than higher paid people are in terms of percentage but not necessarily absolute dollars. It also says we want to pay everyone at the "midpoint" of the salary range. This is tough to get across and seldom has a powerful business case to support it. Companies should pay for an individual’s ongoing value—sustained performance over time and skills and competencies used to achieve business results.

Q: What’s the future for skill and competency pay?

A: Companies are still paying for skills and competencies that add value to the business. But formal skill and competency pay plans are often too complex and bureaucratic, so they are not getting much support. Companies that are successful in weaving competency and skill growth into more streamlined reward solutions are getting the best results—companies don’t have the staff to manage elaborate and bureaucratic human resource solutions.

Q: What’s new in sales compensation?

A: The days of "Willie Loman" are dead. Companies want more from their sales force. They are expecting them to be the major source of information about clients and competitors. And they are paying them to join the entire company team to add total value to the business. While companies are tending to have more people on incentives, they are also establishing more shared goals between selling and nonselling people. And this is just the beginning.

Schuster-Zingheim and Associates, Inc. Home Page

FOR FURTHER INFORMATION CONTACT
Schuster-Zingheim and Associates, Inc.
1541 Bel Air Road
Los Angeles, CA 90077-3021
Phone 310-471-4865 FAX 310-471-4859
E-mail: sza@schuster-zingheim.com
Web Site: www.schuster-zingheim.com or www.paypeopleright.com

All material © 2002 Schuster-Zingheim and Associates, Inc.

Q:	What’s wrong with using internal-equity job evaluation plans, like those based on point-factor?
	A: These solutions are pretty antiquated. During competitive business times you want your workforce focused outside on the realities of the competitive labor market. Internally-focused job evaluation plans tend to overpay lower market value jobs and underpay higher market value jobs with the same internal value. So you don’t get the best people for the hard-to-fill jobs in your company or pay right in the external market.
Q:	How do we "wean" our workforce off a strong focus on "semi-automatic" base pay adjustments?
	A: Start with communicating total cash as the focus of your company—that’s base pay plus cash incentives. It’s not going to be an easy job, so you must be ready to stick with it and communicate strongly over a number of years.
Q:	Where should the goals for our compensation program come from?
	A: Only one place—they should cascade from the goals of your top executives. It’s essential that leaders can suggest to the workforce, "We are all in this together. We have the same goals and objectives."
Q:	Why is it so hard to change a pay system that no longer fits our company needs?
	A: Because pay is a "hot" change item that gets everyone’s attention now. It’s a very powerful lever that must be aligned with the goals and initiatives of the company. Other changes such as training, development, recruitment, and the like are "cold"—they are slow to impact your current employees or they only impact people who are not yet with the company. But, companies are now most often leading change with pay—if you haven’t changed pay to match where you’re going, you haven’t changed anything!
Q:	Why are long-service people often resistant to any human resource changes?
	A: Because they most likely joined your company under a different "workforce deal" and don’t want it to change. But change is inevitable, and it is critical to get everyone to accept human resource initiatives that make your business more successful.
Q:	What’s the difference in making reward changes in a union or nonunion workplace?
	A: It’s always a matter of developing trust between people and the company. You are not going to get acceptance of pay change without trust. We have seen acceptance to change work or not work in both union and nonunion workplaces. But the difference in success was not just the existence of the union—it was always the existence of trust and communications.
Q:	What are the upside and downside of providing stock options below the management and professional level?
	A: The upside is stakeholdership deep in the organization—people like to own company stock, and giving them some stock options can be a trust builder. The downside is a lack of understanding that stock and stock options are subject to the volatility of the stock market. So, if communication on a continuing basis is not part of your deep stock option strategy, it’s better to pass on options until it is.
Q:	Why would we want to have the workforce involved in developing any new pay changes we would like to make?
	A: Because it’s no longer possible to "sell" pay changes to the workforce on the back end—people are getting too smart for that. The more involvement you have, the more likely acceptance will be strong. People support what they have designed—and involvement gets you acceptance as you move along.
Q:	We are having financial trouble. What do you think about cutting pay?
	A: We think you should try other cost management solutions first. Base pay cuts are demoralizing and create trust problems for a very long time. People have long memories, and we assume you are in business to stay. Humane cutbacks based on performance are probably much more acceptable. Pay cuts are often the result of poor long-range pay planning. Look at the future assuming times will change—and remember that a pay cut is a humiliating experience. Some companies combine the pay cut with additional pay programs—e.g., turnaround incentive or stock option.
Q:	What about "midpoint control"—larger increases for people with base pay below the midpoint and smaller ones for those above the midpoint?
	A: This is a hard story for employees to understand—it says that lower-paid people are worth more in terms of an increase than higher paid people are in terms of percentage but not necessarily absolute dollars. It also says we want to pay everyone at the "midpoint" of the salary range. This is tough to get across and seldom has a powerful business case to support it. Companies should pay for an individual’s ongoing value—sustained performance over time and skills and competencies used to achieve business results.
Q:	What’s the future for skill and competency pay?
	A: Companies are still paying for skills and competencies that add value to the business. But formal skill and competency pay plans are often too complex and bureaucratic, so they are not getting much support. Companies that are successful in weaving competency and skill growth into more streamlined reward solutions are getting the best results—companies don’t have the staff to manage elaborate and bureaucratic human resource solutions.
Q:	What’s new in sales compensation?
	A: The days of "Willie Loman" are dead. Companies want more from their sales force. They are expecting them to be the major source of information about clients and competitors. And they are paying them to join the entire company team to add total value to the business. While companies are tending to have more people on incentives, they are also establishing more shared goals between selling and nonselling people. And this is just the beginning.