Compensation, Culture: What now?

English: % change in US real compensation from...
English: % change in US real compensation from 1989 to 2010. (Photo credit: Wikipedia)

Now is the time many organizations start thinking about the next year’s pay raises. Before you start the hunt for ‘market rates’, projected pay raise averages, budget or other data – think a bit about what you are paying for.

Very few founders, CEOs, or senior executives have thought about their philosophy of compensation directly. Fewer still have tied it to their desired culture.

And so, over the decades, I have talked about these issues with many senior folks.
Often I also use a short quiz and set up the scenario:

You have two people in the same role, both are equally productive.

And I ask a series of questions about how one would calculate the pay raise for each.

One question is: John comes in early and stays late every day, he works many long hours each week. Tom works his regular schedule but rarely works extra time unless asked to help others.

And nearly 3/4 say that they would give John a larger raise.

Do you see the issue? Most do not until I ask why they are rewarding the person who cannot get their work done in a timely manner over the one who does. Remember – the conditions were that both were equally productive. So Tom is doing the same amount and quality of work in less time than John.

As you think about your salary planning for next year, here are some questions to ask yourself.

Pick the top three in each and rank order those.

1. Do we want to compensate for:
– individual productivity
– teamwork
– cost of living changes
– our financial success
– increased productivity
– market pricing changes
– seniority
– client growth
– revenue growth (funding growth for non-profits)

Think, for example, how many organizations say that they value teamwork highly. How many actually base pay on that? Very few.

 

2. Will an individual be rewarded with a base salary increase for:
– meeting performance standards
– skills increase
– job size
– growth in performance
– short-term projects
– long-term achievements
– cross-training
– breadth of work
– mentoring/training others
– patents, publications, public presentations that enhance your company reputation

Those carry different meanings to your employees. Which represent the culture you say you want? Which do you actually do?

Now you can think how you would pay people based on those decisions. These are only a few of the considerations that underlie effective compensation decisions. Sometimes, you may want help in thinking through these issues. Talk with your management team, a mastermind group, or use a consultant.

You need to think carefully to ensure that what you say about your culture and values is reflected in how you pay people. Sure, you want a simple system. And one that is easy to understand and to explain so employees value it. But you also need it to do what you expect or you are wasting money.


Patricia A. Frame is an experienced management consultant, HR executive, speaker, and author on human capital issues. She is known for her ability to address organizational goals and issues effectively and to create human resource management practices which support these goals without excessive administrivia. Patricia has advised executives and boards on a wide range of human capital and strategic planning issues. She has expertise in organization development, talent management, process restructuring, compensation, and training. She has worked with technology-based companies, government contractors, non-profits, associations, and retail operations. She advises small to mid-size organizations on ways to succeed and to help their employees thrive. Ms. Frame has given seminars for SBDC in recent years on the basic processes of HR management. Additionally, she generously provides one-to-one HR counseling once a month through Alexandria SBDC.

Culture – What is it Good for?

Whether consciously planned or not, your organization has a culture.

In several HR seminars I’ve done for Alexandria’s SBDC, a common comment was surprise at the importance of culture to their organization’s future. Many attendees said they simply had not thought about their culture or its impact on hiring or productivity.

What creates the culture in an organization?

  • First is the vision since many people join (or buy from) because of what they understand the business or organization to be about.
  • Next is what we say about our organization – our story, our values.
  • Third is how we implement our vision and our values.

While other issues of culture may be included, these three give you the basics of the culture in your organization. How are you actively manifesting them?

When I do organizational assessments, I often find a difference between what founders/CxOs say they want as a culture and what their practices actually are. For example, you may have been in a ‘do as I say, not as I do’ work arena – and that is one critical strike against a positive, productive culture.

Aligning your culture, your policies, and your actual practices is critical for success. Sometimes, the culture originally developed is not what you now need. Or worse, the culture you thought you had created is not what you actually have.

As you prepare for future success, take a look at your existing culture.

  • Is it what your organization needs?
  • What you want?
  • How is the desired culture expressed in basic practices and policies?
  • Will the existing culture support your strategic and business plans?
  • If so, great! If not, what are you going to do? How? When?

One of my clients was an ethical, terrific founder who knew his business and had great ideas. He was quite successful at first. But over time, his dislike of and avoidance of conflict led to a culture where all disagreement was avoided. People were retained when they should have been fired, and critical decisions were delayed or left unresolved. And it cost him his business. While extreme, this is not an unusual failure – it happens too often in organizations where the culture has become a hindrance to success. 

You can create a culture that helps your organization succeed.   But it takes attention and thought to do so.  And to maintain its best aspects, you need to keep your culture in mind  as needs change, as you grow, as your environment changes — all those may require tweaks to your culture.