Monthly Archives: January 2013
The Competitive Counter Offer

I recently had the opportunity to read a fantastic article from HR columnist Suzanne Lucas on competitive counter offers – and why companies shouldn’t make them.

The wisdom goes that if an employee has reached the point where they have a counteroffer from another company, that said employee is already as good as gone (he/she has likely spent months going through the job search process to get that offer – think about that). As such, rather than making a counteroffer a company in this situation might as well instead cut its losses.

The data shows that this is overwhelmingly true. A commonly cited statistic in HR is that depending on the industry and economy; between 2/3rds and 80% of employees still leave their organization within 6 months of accepting a counteroffer (this number climbs to 85 to 90 percent within 12 months). Knowing this statistic, companies make counter offers mostly to protect themselves from the large cost of suddenly and unexpectedly losing a valuable employee (while they prepare for the likely eventuality that he/she will leave).

That said, as a Compensation Specialist (who is friends with lots of Compensation Specialists), I want to talk a little bit about the exceptions to this rule as I understand them…

1. Tangent coming.…So when I was in my very early 20s 1, I met the woman with whom I would have my first “meaningful” relationship (I was aware that everything before was going to end almost as soon as it began). I saw her while heading to meet up with someone else for a 1st date (we can’t choose when this things2. I subsequently tested and confirmed my hypothesis by going over and saying hello. Thus (for me at least) our first encounter literally and figuratively met the criteria for the romantic clichés “love at first sight” and “she had me at hello”.happen), and I immediately hypothesized that I might be in love. 

I got her phone number and we began dating less than a week later. 3 Over the subsequent years, she turned out to be for me all of the things that a man’s partner often is to him – smart, interesting, attractive etc.

I felt lucky.

3. Things obviously didn’t work out with my actual date that night.By the 4th year of the relationship, however, we were beginning to have problems. By the summer we’d broken up. We got back together. We broke up again (and got back together again).

The third time we broke up we didn’t get back together.

For a time after the last breakup she wanted to try to make things work again, and, I suppose (honestly) that at times I did too. Yet after some careful consideration, I made the decision to shut the door on us. The decision really didn’t have anything to do with my feelings for her so much as it did the way we’d handled our problems to that point (and what this might foreshadow about a hypothetical future together). A quote from the 2001 movie4. I’ve actually never seen this movie (or the book by the same name), but I am a huge fan of well written prose. This quote has been floating around for a while and caught my attention. If anyone has seen the movie and would recommend it please let me know.“Captain Corelli’s Mandolin” 4 makes the point more eloquently than I ever could, so I’m including said quote below:

“Love is a temporary madness. It erupts like an earthquake and then subsides. And when it subsides you have to make a decision. You have to work out whether your roots have become so entwined together that it is inconceivable that you should ever part. Because this is what love is. Love is not breathlessness, it is not excitement, it is not the promulgation of promises of eternal passion. That is just being “in love” which any of us can convince ourselves we are. Love itself is what is left over when being in love has burned away, and this is both an art and a fortunate accident. Your mother and I had it, we had roots that grew towards each other underground, and when all the pretty blossoms had fallen from our branches we found that we were one tree and not two.”

By the time of our 3rd breakup, I realized that my partner and I had made the decision that our problems were bigger than our desire to be together. We were – in the words of the author above – not one tree, but two.

In life, there is always adversity (sometimes minor and others major) right around the corner. A couple’s decision to face those challenges together – without splintering apart – is the difference between partnerships that last and partnerships that don’t…

5. Sometimes it takes me a while to get to the point.  …Which brings me to the competitive counter offer 5

Theoretically, I’m a huge fan of the competitive counter offer. If a company is a6. At least amongst the non-executive population. For executive populations there are some good reasons why you want to pay at median even if you have world class talent (I’ll talk more about this in a later article).pay leader in its industry (which it should be for key positions 6), offer matching is something an organization can and should do to retain top talent (at effectively market value).  

Furthermore, I strongly believe a company’s top performer(s) should be near or at the top of their position’s pay range anyway (regardless of years in the job), and if they aren’t paid at that level and get another (better) offer, the employer should just think of this as a market correction and respond7. Responding accordingly would be matching the offer in case you’re wondering… for the record though, I also strongly believe that your median employee in a population should be closer to a 100% comparative ratio than the top of the pay range.accordingly. 7

…At least in theory. Unfortunately, once an employee has looked externally and accepted an outside offer, the employer/employee relationship is often too badly damaged to return to business as usual even in instances where the employer improves upon the external offer and manages to (temporarily) retain the employee.

With the trust in the relationship shattered (and an expectation that they’ve merely temporarily staved off the employee’s inevitable departure by offering more money), post counter offer the management team often creates a self-fulfilling prophecy by changing the nature of the relationship with the employee from strategic to technical/transactional (further alienating the very employee they wish to retain).

And so while I remain a fan of the counter offer in theory, I am only a proponent of it in practice when all of the below conditions are met:

1. The reason the employee elected to look externally is primarily tied to monetary reward and *not* intrinsic compensation:

This has to be the starting point. If an employee is looking externally because he or she doesn’t like their work/boss/co-workers/wants a promotion the employer can’t give/etc. then offering more money to said employee to stay on (without addressing his/her other underlying concerns) is not a long term solution.

Monetary reward alone will not solve this man’s problems.

2. If the employee looked externally for both extrinsic and intrinsic reward reasons, all of these issues need to be negotiated as part of the counter offer process:

If you extend a monetary counter offer without addressing the non-monetary concerns, at best it will buy you some time until the employee finds an even more attractive opportunity than the last (by leveraging his/her newly increased salary during his/her next job search).

At worst, the employee’s performance will decline post counter offer (once he/she comes to regret staying or the changed office environment becomes too tense).The employee will still likely leave (or be terminated for poor performance), and you won’t have gotten the productivity you needed to justify extending the counter offer to begin with.

It’s critical to really hear the employee out at this point. Money alone may not solve the problem.

If an employee’s non-monetary complaints aren’t fixable (or the employer doesn’t want to address them) *never* improve the monetary reward package to retain him/her – it won’t last.

If the employee’s manager really does need the employee to stay on for the time being in order to prepare for life after the time he/she leaves then a counter offer is of course fine, but extend it understanding this is a short term fix (it may even be a good idea to discuss this with the employee – in which case you may just be looking at an extended notice period assuming he/she can negotiate it with his/her new employer).

3. Assuming that monetary reward is the primary reason the employee looked externally, after extending the counter offer the employer (and employee) need to legitimately forgive and forget any issues and perceived slights.

If a counter offer is extended and accepted, both parties really need to start fresh.

Anytime an employee looks externally, the trust in the employer/employee relationship is damaged. In order to re-establish that trust, both parties need to reset the relationship once they’ve agreed on a new compensation package and the employee accepts.

If both parties can’t do this the new relationship is doomed to fail. An office environment where the employee is bitter that he/she had to go externally to be paid market value (and/or an environment where the employer is perpetually worried the employee will leave and treats them this way) is too poisonous for the business relationship to survive.

Ultimately, when an employer and disgruntled employee face challenging times together, they have to make a decision to either work together to address their issue(s), or else part ways. Depending on the history between the parties, it may or may not make sense to continue the business relationship (sometimes an amicable split really does make the most sense).

Regardless, a continued healthy business relationship is much like a romantic8. while probably not being similar in any other ways. -_-relationship in at least one respect, with that respect being that it requires both parties to stay engaged and committed, even when times are tough. Everything is great when a new hire first joins a company, but once the bloom is off the rose, the choice to make things continue to work is a decision both parties have to make together (and in earnest).

Employers/Employees: If times are tough and you’re thinking of breaking up… before making any rash moves take a look at your relationship and ask: Are we one tree, or two?

Categories: Compensation
Sourcing and Recruiting Passive Candidates

This evening I was reading a great post from blogger Hunter Walk on why (if you are trying to hire away a superstar employee) as the hiring manager you should send out the recruitment e-mail (rather than delegating it to the recruiter).

The idea goes that a superstar candidate gets headhunted often enough that he/she will ignore the typical LinkedIn recruitment e-mail and/or recruiter call, but that if the person reaching out to him/her has enough clout that a response (and perhaps even serious consideration) is more likely.

As a recruiter, when sourcing a passive candidate I almost always ask the hiring manager to personally contact the candidate (after I’ve sold said hiring1. A good recruiter might do this once or twice, but making it a part of one’s sourcing strategy is a process improvement that most recruiters don’t make.manager on why the candidate would be a great fit)… 1

…The reason being that I began my HR career in staffing, and pretty quickly realized that for difficult to fill positions one frequently has to source passive candidates in order to get a technical and cultural match.

Unfortunately, the best candidates were getting reached out to regularly 2 enough that my recruiting e-mails often went unanswered. After2. This article is a pre-financial crisis, but with the economy picking back up it is becoming more and more true once again.varying everything in my first contact approach from my phone pitch to my email period placement, I finally struck gold when one of my hiring managers reached out to a candidate he saw on LinkedIn. Having the hiring manager make the first contact with passive candidates has been in my toolkit ever since.

The sourcing process – like everything else in HR – can be continuously improved upon (and even turned into a competitive advantage) if the people facilitating it focus on generating strategic solutions as opposed to being another cog in the wheel.

Categories: Recruiting
Why I’d make a Fantastic HR Manager

I am an introvert. And not just a little introverted either. Case in point: I’ve taken some variation of Myers-Briggs every year for a solid decade (I just like personality test), and I have always rated as either INTJ or2. I’ve gotten similar results in non-Meyers-Briggs assessments, so this isn’t a case of learning the test. Know thyself etc.INTP (lately trending INTP) in every single year I’ve taken the test. 2

So, being social takes a *lot* out of me (I’ll get to why I’m still a good fit for HR in a minute).

3. I am a child of the digital age.My idea of a great weekend involves a good (typically non-fiction) .PDF 3 and my thoughts. The idea of spending the weekend around a group of people being social for the sake of being social is about as appealing to me as sticking4. If it was *just* the tip and the alternative was 48 theoretical hours at a social gathering where I could never be alone I think I would at least consider the pencil sharpener option.the tip of my finger into an automatic pencil sharpener. 4

With that said, most people do not know that I am an introvert. I decided a few years ago that being introverted would negatively impact my professional career and hacked the very appearance of it out of my public persona with the ruthless efficiency that one would… well like this:

The introversion is what this guy is hacking away at – you just can’t see it below because introversion is hard to visualize.

I try to have a sit down lunch with anyone I interact with professionally on5. This adds up to a lot of lunches over the course of a year.more than three occasions. I grab a cup of coffee from the office break room every morning (even if I don’t want coffee) because it gives me an excuse to pass by everyone’s cubes and say hello. I never turn down an opportunity to make small talk, and unless there is a really good reason I at least make a brief appearance at all of the after-hours office functions.

I’ve met some great people this way and had many rewarding experiences, but as an introvert this all makes me very, *very* tired…

Please don’t get me wrong. I like people – a lot. I wouldn’t be in HR otherwise. But my personality often makes the nature of the work I do much more taxing than its actual difficulty level warrants. I understand the importance of being a people person, so I put a lot of effort into being a people person… but I’m not naturally a people person.

6. And we are to the point at last. …So like I was saying, I’d make a fantastic HR Manager. 6

Why, you ask?

Because I understand that the business side of being an HR professional is as important as the people side.

In HR we have a reputation as being people pleasers who don’t “get” the business side of things. We focus on putting out fires, being counselors, and completing administrative/transactional tasks while leaving strategic matters to the business. HR occasionally makes a process improvement at the margins, but mostly we react to and experience the world rather than evaluate and impact it.

Some common examples in the workplace:

1. Our performance metrics surrounding the way we compensate our employees are often based on subjective multipliers and arbitrary data points like years’ service. Rather that developing real metrics that measure an employee’s contributions (and compensating accordingly) we grab the lowest hanging fruit and base our analysis off of it.

 

2. Too often, as opposed to truly understanding the jobs we source for and developing screening criteria that assure the best candidates are the ones being considered for final round interviews, we instead settle for simply screening the candidates that can wordsmith their resumes well enough to game our applicant tracking systems. And so our analyses of the candidates we screen are often shallow because our understanding of the work they do is shallow – and this frequently includes instances where the jobs we’re screening have a large impact on the P&L.

3. Even when HR has good datasets and tools, it often doesn’t understand them (and as such doesn’t use what it has properly or at all). And so instead of being viewed as strategic partners, HR is often relegated to administrative/transactional tasks (and occasionally process improvements7. All too often we don’t even play a meaningful role in process improvement, instead hiring 3rd party vendors to step in and fix broken processes that we’re not knowledgeable enough to address internally.around the way we complete those tasks at the margins). 7

We hire employees into the function based on how much they like working with people/their energy level, when instead we should be hiring them based on their technical knowledge and business savvy. Accountants, Financial Analyst, Programmers, Doctors, and Lawyers are hired into their chosen professions based on what they know (and what they can do with what they know).

Conversely, far too often the criteria for beginning a career in HR is that you have a college degree (any concentration will do), and a high energy level. And so because the water level is so low here most of the top young talent8. In this controversial 2005 Fast Company Article the author says: “If you are an ambitious young thing newly graduated from a top college or B-school with your eye on a rewarding career in business, your first instinct is not to join the human-resources dance. (At the University of Michigan’s Ross School of Business, which arguably boasts the nation’s top faculty for organizational issues, just 1.2% of 2004 grads did so.) Says a management professor at one leading school: “The best and the brightest don’t go into HR.”doesn’t make the decision to go into HR. This has the practical impact of damaging the HR brand and keeping even the most promising leaders in the field from having a realistic shot at the CEO role. If you’re a Business Unit Leader, CFO, COO, the Chief Counsel, or a Commercial SVP you may have a shot at the top job… but if you’re HR SVP you need not apply.

HR needs more INTPs and INTJs – or, speaking less broadly – HR needs more people that think about the world strategically, and fewer great counselors who can’t grasp the numbers and data that drive the businesses they support.

I’d make a fantastic HR Manager because I’m as good at the business side of things as the people side of things – even though I’m not a people person first…

Too many HR people are great with people and bad at the rest of the job.

Unfortunately, the only way HR will be able to do the rest of the job – the strategic business partner part – is if we find a way to bring more professionals into the field who can handle both the business and people side of things.

Categories: HR Management
Competitive Pay Ranges

Competitive offer matching is something a company can and should do to retain top talent.

With all that said, if a competitor really wants to hire an employee away from a company, then there is probably nothing said company can do to stop it. Even if a company has an equity hold over an employee, a competitor can either front load the equity in their own competitive offer, or else give a large upfront contingent (on continued employment) signing bonus that largely1. Even if the signing bonus offered is less in value than the unvested equity with the parent company, from a time value of money perspective an upfront bonus can be equally or even more lucrative than unvested equity.offsets whatever the employee has to leave behind to take the new position. 1

Counter offering up to the top of the pay range (while targeting a 100% compa ratio within the position/job family) is a good tool that allows a company to keep its top talent, but at the same time I think it’s important to establish ranges and stick to them… even if a competitor offers something to a key talent that exceeds the internal pay range for the position…

…And even if a company is a pay leader in its industry this will occasionally happen.

Why you ask?

It’s important to realize that even if two incumbents (at different companies) are doing the same work that said work may have different value depending on the business model of the company each incumbent works for.

As an example, let’s compare a hypothetical compensation analyst at a compensation consulting firm to a hypothetical compensation analyst at a manufacturing company.

Both employees’ primary job duties may require the same technical knowledge (and both employees may do similar work), but the comp analyst at the consulting firm may be a key revenue generator for the business (consulting firms often derive much of their revenue from client fees). Conversely, in the case of the manufacturing organization he / she may be part of a support function (and as such represent overhead). Ergo, while the employees in these cases have similar primary job duties and responsibilities, the value their work adds to each respective organization is different.

Even in instances where two jobs are both support (and represent overhead) there can be a difference in the value each adds to their respective business.

Sticking with comp, let’s compare a compensation analyst at a commercial/sales organization made up primarily of commissioned sales people to an analyst working at a widget production company whose primary work force is made up of unskilled labor. Comparing the workforce at the widget production company to the sales organization, the widget production company’s workforce is much less highly skilled. Consequently, the labor pool they can select from is larger (and as such is much less sensitive to market prices).

Further, as the commercial/sales organization’s labor population are salespeople paid mostly off of commission, managing the comp program required to retain key talent may require comparatively more skilled/experienced comp analysts. On balance, this means that although the comp analysts are doing similar work, in our hypothetical commercial organization the comp analyst is more valuable to his/her company.

This situation plays itself out in jobs across many functions and2. As another example we can look at when an in-house recruiting team can’t fill a position and reaches out to a 3rd party vendor to assist. The external vendor and recruiter may both be doing the same job, but the nature of the work is fundamentally different, as is its value. Consequently, the pay is different as well.industries. 2 The jobs change but the fundamental principle still applies. 3

It’s important to understand that being a pay leader for a position in your industry means just that. Competing for a talent in situations where said coveted talent contributes substantially more value to the rival firm than your own (as a product of its business model or some other variable) makes little sense. You’ll be overpaying talent to do work that frankly isn’t as valuable to your organization as it would be to the company making the (in this case justifiably) higher offer.
3. I don’t mean to oversimplify the market for any particular job here. There are a host of factors to consider in how someone is paid beyond just what they know, what they do with what they know, and how their work impacts the business. Location, job safety, hours, the scarcity of a skillset and dozens of other factors all play a role in pay (looking at commission based jobs and how/why pay differs by firm should be its on post). Breaking down exactly how people are paid and why across a comprehensive list of scenarios is simply outside the scope of this article.
If a company finds itself in a situation where for competitive pay related reasons it is suffering high turnover (or matching offers outside the pay range) then perhaps it needs to review how it is evaluating the work its employees are doing (or work on developing a stronger bench to replace key talent if it leaves).

Ultimately establishing competitive pay ranges that adequately capture the value of the work employees do within an organization should be a critical component of any company’s business practices as it relates to pay.

Categories: Compensation
How to Make More Money

Really short post today as I’m really short on time.

With that said, I want to briefly share with you my thoughts on money (and how to make more of it).

So when most people think of compensable factors they think of degrees, work experience, and finally some vague concept of “networking”.

None of these are wrong per se, but I want to elaborate a bit on the realities of what really makes these things compensable. I also want to share with you a few compensable factors you probably aren’t aware of, namely:

Location

Mobility

Job Safety / Risk

Personal Brand

Tackling all of this would be outside the scope of today’s post, however, so let’s break it up into a two-parter.

Today I want to talk about the value of a degree.

Many people think of a college education as their ticket to dramatically increased lifetime earnings. But with the economy down and (a record number of people earning college degrees), there are also a record number of people that are underemployed – that is – people doing work that their degree makes them overqualified for.

This is not a trend that will reverse itself anytime soon.

The law of supply and demand dictates that as college becomes more accessible to the average person (which is a good thing because having an educated workforce is ideal in today’s world) that the wage premium a person receives for having a degree will also go down.

Going to school and getting an education is a great investment because it helps you learn how to learn. Think of it as helping you to define your cultural legacy. It would be a mistake, however, to assume that you will get a higher paying job simply because you have a college education. Not every employer pays a wage premium just because you have one (many don’t even pay a wage premium for advanced degrees like MBAs & PhDs).

If you really want to make a lot of money, look at gaining in demand skills that1. The term “water level” was – as near as I can tell – coined by American statistician and writer Nate Silver. The idea behind a “water level” is that in every competitive arena there is a certain level of competition (ex. in the food and beverages industry there is Coca Cola, PepsiCo, General Mills etc.). Some of these levels of competition are higher than others. As such if you have a relatively rare skill you want to find an arena to utilize that skill where this is a market opportunity (but relatively few experts). Citing an example from Silver’s book, when poker first became huge in 2003 there were very few great statistician’s playing the game (but lots of poor players). This meant that a great statistician could make a lot of money playing the game by using a key skill that most competitors lacked. Conversely, when the water level rose a few years later the competition became so fierce that only the best players could continue to make money. The water level had risen, and being a great statistician was no longer a competitive advantage.there is a shortage of and where the water level 1 is low. Math is a good foundational skill in this respect as most American’s are bad at it, but there are tons of other great foundational and advanced skills that will put you in high demand (and let you name the price of your labor).

Literally out of time, but this is a good topic. I’ll look to elaborate on what we’ve talked about today over the course of the rest of the week.

Categories: Compensation
How to Make More Money (Part II): Networking, Personal Brand, and Mobility

Specifically, I talked about the role that having a college degree plays in increasing one’s earnings.

There is a lot of evidence that going to school is a good idea if you want to make more money, and the primary reason for this is that college is where you learn how to learn – and learning a lot (and often) is a critical component to maximizing your earnings.

Today I want to talk a little about the role of networking in making more money. Most people don’t really understand what networking is. For many the term conjures up images of good ol’ boys clubs, glad-handing, politicking and you-scratch-my-back-I’ll-scratch-yours behaviors designed to gain an edge in the workplace. This sort of behavior lacks authenticity and in some cases ethicality. I am here today to tell you that this is not what networking is.

In point of fact networking is exactly the opposite of the above things. Networking is about:

1. Sharing ideas, knowledge and resources with others who have a passion for learning and;

2. It’s about giving to others not with an expectation that they will do something for you, but with the expectation that they will pay it forward and do something for someone else.

If you only do things for others (be it giving your knowledge, time or resources) with the expectation they will “return the favor” you may or may not get something out of it, but you are not networking.

And honestly, you’re better off doing it my way.

Why, you ask?

1. The most valuable asset you have as far as it concerns improving your earnings potential is knowledge. As I talked about in part I, possessing scarce, in demand skills increases the demand for your labor in the marketplace – this in a very literal sense is worth lots of money.

Share freely of ideas and knowledge with other like-mind people, and you will1. And don’t hoard knowledge in instances where the other person doesn’t have as much to offer you as you do to them, either. As I stated above networking is about paying it forward. Society moves forward by the last generation giving to the new. Think about that. Sometimes you will gain something from sharing what you know and others you won’t, but always share what you can. You’ll be on the greater receiving end of the exchange one day as well..both lift one another to higher places. 1

 

2. The other reason you should do it my way – giving without the expectation of receiving something in return – is because the most valuable people in any organization are people you can trust. By behaving in a transparent way and earnestly helping people you’ll develop a personal brand of integrity and forthrightness that will pay dividends for you down the road.

People want to work with those who are honest. They bring out the best in others and inspire a sense of wellness in teams that encourage collaboration.

Show me someone who is intellectually curious, hard-working, coachable, self-aware, and honest and I will show you a person with a strong personal brand.

Your brand is the most valuable thing you have as far as it concerns your ability to increase earnings. In the same way that people will pay $2,000+ for a laptop if the brand is compelling enough, companies will pay a significant wage premium for a new employee (or to retain an existing one) if he or she has a strong brand.

There are a number of great ways to build your personal brand (doing quality  2. Blogs are free. ~_^work on the job, advertisements 2, recommendations from customers etc.), but there is nothing that will go quite so far towards improving your brand as will a genuine reputation for helping others and being someone others want to work with.

A senior executive at a big cap company shared some great advice with me when I was just getting started in my career. He said:

“I’ve seen some people not make it at this company who got the business side of things but didn’t get the people side, and I’ve seen some people go very far at this company by getting the people side even if they didn’t get the business side. Understanding both the people side and the business side are important components of being a professional, but I’ll tell you what – if you don’t get anything else get people.”

Be someone who gets the people side. Network – the right way.

Categories: Compensation
The Value of Market Pricing Every Job

So I’ve been thinking about this a lot lately 1, and today I want to talk about job mapping:

For an organization what are the pros and cons of market pricing every job in2. Assuming you’re a median pay company – if not it could be something else – p75/p90/etc.the company at, say, p50 2 – identifying the closest match for each role based on job description and title?

I recognize that even if two incumbents (at different companies) are doing the same work, that said work may have a different value depending on the business model of the company each incumbent works for. And so to an extent the decision to market price each position comes down to if an organization believes in evaluating jobs based on the internal or external market value of the job.

With that said, rather an organization is using a traditional (internal based) job mapping structure like the Hay Method, an original job mapping system based on a company-specific grading structure, or perhaps (cringe) doesn’t have a formal method of evaluating work at all, it’s hard to argue with the wisdom behind at least market pricing the majority of jobs against the external market to see where the organization falls when it comes to competing for talent.

To do such a thing can be extremely time and resource-intensive, though – particularly if you’re a mid or big cap company with several dozen (or even a hundred) different positions.

On the other hand, the alternative – which is essential for a company to adopt the position that the external market doesn’t exist and that they are only competing for talent in their own industry until proven otherwise – ignores the fact that many employees have highly transferable skill sets.

As I’ve talked about before, it’s perfectly acceptable (and in my view often most logical) to adopt a pay range based on internal job valuation and compete for talent on that basis. *But* if a company doesn’t at least do external market pricing for their key jobs, they won’t know if their job valuation process materially undervalues a position against the external market until they start having retention or recruiting issues.

For certain executive level positions (CEOs/BU Presidents etc.) where skill transferability is low it’s probably safe to adopt an internal based pay3. Despite having massive equity holds, non-compete agreements, and pension penalties built into their executive’s pay packages, very few companies actually adopt an internal based pay structure, instead typically choosing to adopt a peer group pricing methodology for it’s senior executives (for fear of losing said senior leaders to the external market). I won’t elaborate here as the topic of executive pay deserves it’s own article(s)… but suffice to say the existing framework under which most big cap company execs are paid is fundamentally flawed.structure. 3

But more broadly speaking, companies compete against multiple industries for talent when it comes to most professional positions (and even for unskilled labor).

A company that pretends they exist in a market place where their only competitors for talent are peers in their same industry is fooling itself (with few exceptions).

The market for talent is fast becoming global.

It’s fine for a company to not compete at p50/75/90/whatever their compensation philosophy is to pay at for every position in the organization. Most company’s don’t need top talent in every role. They will often be market leaders in seeking out the talent occupying their key roles while being less selective for less impactful positions.

Conversely, in the era of big data it is becoming increasingly critical for companies to know where they are relative to the market when it comes to paying for talent – and then (and only then) to make a decision on if that’s the level at which they want to compete.

For me the big question is not if market pricing every job is valued added or not – it is. The more important question is if it’s valuable enough to justify the additional resources needed to market price said jobs (and do maintenance). Depending on the size of an organization’s compensation department, market pricing every role could mean increasing headcounts, new subscriptions with4. This final point requires buy-in from the leadership and collaboration with business managers (since they will know best what their employees are doing). This is not an easy task for HR in every company.3rd party vendors, and perhaps even re-writing (or writing for the first time) 4 job descriptions.

I think the answer to this question is pretty clearly organization-specific, but I’m curious to get your opinions/thoughts on anything I’m not considering here.

Categories: Compensation