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The Fascination with Compensation Tools

The Fascination with Compensation Tools

Last week I had the opportunity to spend several days with a new client working through a job evaluation exercise.  What makes this client somewhat unique is that the CEO is their former VP of Human Resources, which certainly makes explaining compensation principles a lot easier.  What struck me, however, was that this CEO, despite a strong background in compensation, had never been exposed to job evaluation — an essential component not only of a “best practice” compensation program, but of any compensation program that is actually going to work.

The truth is — the compensation profession has lost its focus on theory and method, and has fallen in love with tools.   Don’t write a job description, use “DescriptionsRUs” to create one for you.  Don’t bother finding out what your people do, or what you need them to do — this cool piece of cut and paste software will let you create something hopelessly meaningless, but probably ADA-compliant.   You don’t need a salary structure, get “SurveySolvesAll” which will pinpoint to within four decimal points the appropriate pay for an individual by just typing in a zip code and a generic job title.  Last week I was invited to a seminar called “why your HR spreadsheets stink” which implied that using a spreadsheet was a horrible waste of time when a nice piece of I’m sure very expensive and quite generic software was available.  The worst offense? A bulletin from World at Work announcing that most employers use market pricing as their method of job evaluation.  Why the worst?  Well, look it up, folks, market pricing is by definition excluded from the concept of job evaluation, which is a method for ascertaining the internal value of a job.

We’re all seemingly obsessed with tools, because tools make management “easy” — not effective, but easy.  Tools are a crutch.  A compensation program must be driven by a compensation philosophy.  It must have components that measure how important jobs are to the organization, to ensure that equity and fairness are maintained, and that pay is consistent with the organization’s values. It must function in the real world, so it needs benchmark data from reputable sources to ground it.  It must properly assess performance so that the pay of individuals is fair — so that it allows the organization to attract, retain and motivate a workforce that will help the organization meet its mission.  If the organization has all of that, it can pick and choose the tools it needs support it.  It doesn’t work the other way around — you can’t replace a program with a tool.

A salary survey is a tool.  It is a source of information.  Without context, it is meaningless.  No salary survey product can substitute for an effective compensation program.  Salary surveys are subject to the bias of the people collecting the data, and to the understanding of the people using them.  To provide pinpoint accuracy (ouch, sorry, had to take a break to rinse my mouth of blood since I bit my tongue so hard)… people create models using survey data, and we know what models do.  For example, I just read an article that said that physician compensation had only increased at a rate of 1.5% or so over the last couple dozen years. What planet did this person live on, you may ask?  Well, you see, this PhD-type built a model with very impressive statistics, using the results of the organization’s models, which are based on a whole bunch of assumptions using data that is… modeled — a model of a model of a model… to come to a conclusion that is just, well, wrong.

Software is a tool.  It records, it calculates, it tabulates.  Software doesn’t think, and software cannot be substituted for judgment. About 20 years ago, a former employer started rolling out a fancy computerized job evaluation tool.  $50K or so plus consulting time for the big black box end-all (hey, those were 1990 dollars, and I have no idea how may zeroes to add to that now), that would eliminate subjectivity and provide pinpoint (ouch!) accuracy.  One night a consultant friend and I, a little loopy from too many long days and a beer or two from the office refrigerator,  decided to test it on a job we will title (for the family audience of this blog) “CEO’s Mistress.”  Being truly honest and objective as possible, we completed the questionnaire and lo and behold, assigned it to the pay grade only a few slots below the CEO, in amongst the other Vice Presidents.  True objectivity at work.

Your compensation program isn’t the spreadsheet you use to record your data.  Your compensation program is the method that you use to translate your organization’s mission into action.  It is strategy.  It takes into account where you are, where you are trying to go, and what it will take to get there.  It cannot stand alone, and must be integrated with your operating philosophies and practices.  More than anything else, it is a supportive program.  It cannot drive behavior, but it can support it.

Remember what tools are, and remember the difference between a tool and a program.

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