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Ann accurately describes the history and migration that we have experienced in the past few decades surrounding the shift away from internal job evaluation methods (i.e., Point-Factor) and the predominant use of external job evaluation, aka, Market Pricing.

No big surprise here, but that is a topic that is of great interest to me…hence the blog name of “The Market Pricing Manifesto”.  I have spent the better part of this past decade working first as employee and later as a consultant, helping organizations migrate toward market pricing as their primary method.  It’s a pretty narrow niche, but this has been my area of passion and expertise.

I think that all of Ann’s points are dead-on for why organizations have adopted market pricing as the primary method for valuing jobs.   To build on that, organizations, starting back in the ’70s started to shatter that whole employment relationship paradigm of people going to work somewhere right out of school and then working there until they retire.  Prior to that time period, mass layoffs were  very uncommon…now, we pick up the morning paper (or rather, log onto our online news sources) and read through to find out which company announced a major layoff.

What this has created is a “free-agency” labor market.  I’m sure there are a whole host of other social dynamics that have contributied to the paradigm shift, but now, the paradigm is much more about “This is the work that I do.  I do it for you today, but tomorrow, I might do this work somewhere else.”

Workers are much more focused on their work, instead of just being focused on who they do the work for.  As a result, the mind-set is much like that of free agent in sports who goes to play for the team who is able to maximize their pay.

On the flip side, from the employer’s perspective, there is the need to make sure that talent is in place in order to achieve results.  People have realized that it is penny wise & pound foolish to hold back on a bit on someone’s pay and risk loosing that person…because the cost of having the position open, refilling and then the ramp-up time with training is far more expensive than just the extra bucks that it would have taken to get the person to stay put.

So that helps to explain the movement towards market pricing, but what about the shortcomings of market pricing?  Why is it a bad idea to just completely ignore all internal equity considerations and just be a pure market pricer?

This question is out there and I think what I see happening is that the pendulum is starting to shift a little bit.  I don’t think that we’ll ever go back to just having Internal Equity as the primary driver for determining job value, but I do think that organizations are going to adopt more of a blended approach that looks at external competitiveness first & foremost, but still uses an internal point-factor plan to both validate the results and to take a more active role in looking for disparities.

Whether this is mandated as part of some sort of legislation or whether organizations wind up in this hybrid approach because it gives them the strategic competitive advantage (a far better reason, in my opinion).  So, a long winded, carpal-tunnel inducing response, but I think the answer to Ann’s question is, yes.

But then I got to the paragraph labeled as “Confidential Information”.  Granted, the advice here is technically correct, here’s an opportunity to advise or counsel readers from the standpoint of progressive HR practices and yet the positioning taken is from strictly the legal compliance angle.

Check it out.  What do you think?

Confidential information: A common statement in many aging handbooks instructs a worker to “not discuss your wages with any other person.” However, under certain circumstances, employees have a right to discuss topics for their mutual aid and protection under federal labor law, which would include wage and benefits information. Employees may have the right to discuss this with both fellow employees and third parties, such as union representatives.

With all the recent push for more openness and transparency of pay, I’d like to think that we’d focus more on the cultural benefits to allowing (heck, even encouraging!) salary communications, vs. the archane view of making sure companies don’t violate the minimally required threshold of compensation discussions allowed amongst employees.

The same goes for compensation inside organizations.  When pay is not talked about openly, aren’t employees left to wonder after they get a pay increase whether they got a good deal…or did they just get screwed.  Given the cynicism people tend to have with their employers, isn’t it much more likely that it will be the later?

I also liked the fact that Belkin included an interview with Edward Lawler, one of my all-time favorite scholars in the field of organizational effectiveness (and one of the few who has long looked to integration of compensation with organizational effectiveness).  One of his early articles, from 1965 (yikes!), was titled “Should Managers’ Compensation be Kept Under Wraps” that was published in the Personnel Journal.

http://www.knowhr.com/blog/2009/02/05/pay-transparency-survey/

Not a scientific survey by any means, in fact, Frank brags about how fast he was able to whip that survey together.  Anxious to see what thoughts come from the folks who respond.

Product – there were would be such an incredible focus on the employee value proposition. Sure, we would think about the benefits and other HR programs, but more importantly, I think we would really focus on how do we distinguish ourselves with respects to the design of jobs. Is the work that we ask people to perform exciting, challenging, engaging, fulfilling, etc. In my opinion, the design of the work is the most significant “product” that we have as employers.

Price – seems kinda obvious, but this gets at the heart of market pricing. Where, relative to the external market do we want to position ourselves? How do we want to set the price for the work being done. Keeping in mind that there is much more to understanding the right “price” (or wage) to set than just where we are plus or minus from the median. Maybe the price we want to set is at the bottom of the competitive market…or may it is at the top. Whichever route we go on setting the price, it just needs to be appropriate based on the value proposition of what the business is getting in return.

Place – I think a marketing director running HR would think about Place from the standpoint of what labor market is the organization best suited to be in. Also, they would think progressively about how to enable workers to be in one place, while the company is somewhere else (sounds like telecommuniting and/or outsourcing).

Promotion – as the employee value proposition is starting to come together, a marketing director would sieze the promotional opportunity to make sure the various constituents get the message that is right for them. That means employees, applicants, the community, etc.  The whole topic of what to communicate to employees, as well as when, how & why, is whole different topic for discussion, but rest assured, if the marketing director were calling the shots in HR, there’d be a whole new focus on employee communications and branding…the likes of which we rarely get to see.

Granted, there is a lot more to running an effective HR organization, but as I think about the HR organizations that I have been the most excited about working around, they already seem to be running as if the HR leader were as much of a marketing master as they were a human resource expert.

While the headlines that have been making the news lately focus on the mass layoffs, the other story that is not getting as much focus is what is going to happen to the pay levels of the folks who are getting laid off.  Many firms are having to make the tough choices about either freezing pay or worse yet, reducing pay levels.  What has surprised me is the draconian means in which some companies are imposing these changes. 

Granted, reducing someone’s pay is never fun or easy, but at the same time, there are ways in which being more open and transparent with employees about the business realities that are being faced can make a pay cut a bit easier to swallow.  Of course, this is not to be taken lately and it would be imperative to make sure that there aren’t any gross injustices that would destroy trust (i.e., executives being treated more favorably than the masses, or individuals/groups being singled out).  But if a leader courageously stands before the organization and openly makes sacrifices first, then people in the organization can begin to feel the seriousness of what’s being done and be more inclined to accept negative impact to themselves.

The other topic was the debate about being transparent vs. being translucent.  In Bill Shoor’s blog, he gives a great example of when being completely transparent isn’t such a great idea.  For example:

Buy now! We’re deep in debt and plan to file Chapter 11 before the end of the month.

It’s admirable in its frankness — but is it good business?  Well, clearly no. 

But is that what is meant by “being transparent”?  I don’t think so.  Being transparent doesn’t mean telling absolutely every last detail, but rather it means being open, truthful and sharing what is appropriate.

President Obama signed in an Executive Order during his first full day of office that deals with ethics and openness.  Does that mean the American people are going to know everything that is going on with complete openness?  No.  I don’t think anyone would truly expect that, nor would they really want to know everything that is going on.

So when it relates to employee compensation, the idea of being transparent on pay doesn’t mean we have to think about it terms of saying, “Your new salary is XX, and you should know that Sally over there is now going to be 7% higher than you and you should also know that we had additional money in the budget pool, but decided not to spend it on you.”

What would be appropriate is to discuss openly the reasoning behind why the pay level was set the at the level it was and to discuss ways in which the employee could do things differently or better to get them to a higher pay level down the road.

What a great topic and format for a chapter meeting.  The end of the year is always a good time of the year to reflect on philosophical stuff like that.

There were a lot of points made worthy of further discussion, but two that really resonated with me were:  integrity and insightfulness.

Integrity, some would say, is assumed.  If you work in the compensation profession, then of course you need to have high degrees of integrity.  Others in the room, myself included, place the leadership trait of integrity as one of the top 7 competencies for compensation leadership.

Increasingly, compensation is in the limelight.  Executive compensation gets most of the press, but usually within each organization, there is also a great deal of scrutiny on broadbased compensation practices.  Compensation professionals are faced with choices every day that require higher degress of Integrity than would be found most places.  Even having the slightest perception of unethical dealings in compensation can tear at the heart of the organization.

Because of this extreme sensitivity, I think it makes sense to elevate Integrity from being a “price of admission” up to one of the most critical of leadership characteristics.

The discussion around Insightfullness stemmed from several comments made by Tom McMullen, Reward Practice Leader from HayGroup.   To paraphrase Tom’s comments, the key to being a leader in compensation is to move beyond the technical competencies and problem solving, up to broader conceptualization skills and understanding the strategic impact the problems can have to the organization.

Tom talked about a presentation that a compensation analyst had just given to the CEO of one organization.  The presentation was fine, but when the CEO asked at the end, what the analyst really thought about the situation, the analyst couldn’t really have any additional thoughts beyond the data analysis that had been presented.

Seen that happen a lot…undoubtedly been the victim of getting caught in that rut myself.  While I agree that this really is a key leadership trait and some people will excel at it, while others will never get beyond the formulas that are buried in the spreadsheet.  Even still, I think the typical compensation analyst is caught in tough spot…the tools (or lack thereof) that I’ve seen available in most organizations means that the analyst has to immerse themselves deep into the data, pulling together nuggets from a wide variety of sources, and working all kinds of crazy magic just to get a summary report together.

True, the higher level conceptualization skills are critical to differentiating the true leaders in compensation, but seriously, do most organizations adequately arm their compensation staff with the tools and resources needed to easily crunch numbers and allow for the flexibility to apply insightful reasoning to get at the story behind the data?

That all being said, what really caught my eye last week was the signing of Ryan Dempster to a $52 million contract.  While I choke on the concept of what $52 million looks like, I just loved the fact that Mr. Dempster could have “shopped the market” more and most likely would have gotten more, but he opted to accept the deal the Cubs were offering so that he could stay with the team and in the neighborhood he wanted to be with.

What does this mean?  Are there really limits to just how much greed we all could have?  I have long felt there was, but everyday, there’d be yet another case of somebody else going out to the Free Agency Labor Market and landing a bigger salary.

Ok, I’m now de-sensitized to the $52 million.  Good for him.  What’s really cool here though is that there is a message for us all.  The concept of the Free Agency Labor Market has bled over to the corporate world and while we will continue to feel the pain of escalating pay levels, we should find ways to leverage the learnings from Ryan Dempster’s situation.

Here’s a guy who “settled” for less money, just so he could stay in the same neighborhood, continue riding his bike to “work”, keep the same friends he has established in Wrigleyville, and continue to be a part of the team that he has come to believe in for the future.

I think there’s a real opportunity to invest in making the work environment more like a true community that people dont’ want to just rip away from for a few extra bucks….regardless of how many zeros are involved.  What can we do to make the workplace fun and engaging?  How can we enhance the social networks that exist so naturally in organizations?  I assure you, investing in those things are cheaper than just continuing to throw more money at people and they’ll clearly have a much higher ROI.

Can’t wait to see Dempster pitch next year….afterall, we’re waiting for next year anyway.