Monthly Archives: March 2013
Hiring for Talent vs. Hiring for Cultural Fit

I won’t try to re-invent the wheel here. Instead, I want to talk briefly about what it means to be “talented”. From there the question of when to hire for talent vs. fit (for me, at least) becomes fairly obvious.

So… “talent” in an employment context generally refers to one of two things:

1. Exceptional technical ability

2. High potential to develop exceptional technical ability

What technical ability a given employer may be looking for of course varies depending on the job, but the possession of a relatively scare or rare skill set – or the capacity to develop one – is highly valuable in the market place.

1. Exceptional technical ability

2. High potential to develop exceptional technical ability

What technical ability a given employer may be looking for of course varies depending on the job, but the possession of a relatively scare or rare skill set – or the capacity to develop one – is highly valuable in the market place.

Unfortunately, in the first case many employers often overestimate the transferability of talent (and spend too much time focusing on cultural fit), while in the second case they underestimate how important the right conditions are for talent cultivation (materially undervaluing fit).

Journalist Geoff Colvin touches on the spirit of what I’m talking about here1. In addition to “Talent is Overrated”, if you’d like to learn more about deliberate practice I recommend the following: K. Anders Ericsson, Ralf Th. Krampe, and Clemens Tesch-Romer. The Role of Deliberate Practice in the Acquisition of Expert Performance. Psychological Review 1993, Vol. 100. No. 3in Talent Is Overrated: What Really Separates World-Class Performers from Everybody Else. 1  In addition to “Talent is Overrated”, if you’d like to learn more about deliberate practice I recommend the following: K. Anders Ericsson, Ralf Th. Krampe, and Clemens Tesch-Romer. The Role of Deliberate Practice in the Acquisition of Expert Performance. Psychological Review 1993, Vol. 100. No. 3

In the book, he shows that with the exception of a select few genetic characteristics that contribute to success in certain arenas (like height in basketball) that talent is not innate. Instead, it is the product of something called deliberate practice.

Basically, the theory behind deliberate practice states that people who are very good at a specific thing are good at it because they’ve broken down what it takes to be successful at their craft into component parts – and then focused on developing those skills in chunks on a day to day basis.

Talent doesn’t always need to be a cultural fit if it stands out.

Assuming this principle to be true, if an employer wants to hire a world class actuary/computer programmer/project manager/compensation consultant/financial analyst etc. the employer shouldn’t be looking at “cultural fit” so much as it should be measuring skill transferability. The asset that the employer is paying for in this case – technical ability – is likely to yield the needed value only if the technical ability the talent has is aligned with the needs of the organization. As such, I would argue that an interview (and job posting) process that accurately identifies and tests for the skills needed to be successful in a role are much more important than cultural fit in cases where companies are hiring for a specific skill or experience.

Conversely, if an employer is hiring a candidate for his or her capacity to learn then the cultural fit is *much* more important. In this case an employer is hiring a candidate largely because of his/her cultural legacy. A candidate’s background (schooling/life experiences/work ethic etc.) make he or 2. And for the record, more jobs require the second type of candidate than the first. The first group is made up mostly of highly technical jobs (doctors, lawyers, scientist etc.) The majority of roles are learned (primarily) on the job and require candidates with the right temperaments and behaviors as opposed to specific technical skills.she an attractive training prospect. 2(And for the record, more jobs require the second type of candidate than the first. The first group is made up mostly of highly technical jobs (doctors, lawyers, scientist etc.) The majority of roles are learned (primarily) on the job, and require candidates with the right temperaments and behaviors as opposed to specific technical skills) As such, if a candidate isn’t a good cultural fit then the work environment will likely prove to be sub-optimal for training purposes (leading to unrealized potential and a presumably failed to hire).

Not all work requires exceptional talent. Often a new incumbent just needs to fit in.

Closing… If I’m recruiting for a role where the incumbent’s existing abilities will define his or her success in the role (and any training is negligible or non-existent), then I am looking for skills and not fit.

On the other hand, if much of what an incumbent does in his/her new role will be based around learning internal processes then cultural fit matters a lot more in the selection process.

In the case of the former the incumbent defines the role, while in the case of the latter the incumbent is stepping into a pre-defined space where his or her ability to succeed will be determined largely by the ability to fit into what the employer does.

Categories: Talent Management
Here’s the Best Compensation Maximization Tip I Know of – Start Saving Early

Last week I had the opportunity to speak to some students about the value of saving early. After the presentation, I started to think about it and realized that saving early is the single most important component to generating wealth.

Today we are going to talk about the time value of money: Image credit:

As I’ve talked about before, companies will only pay you what they have to in order to maintain internal equity. As such, I’ve advocated maximizing your earnings as early as you possibly can (this is easier said than done, but if1. I believe there are situations where it makes sense to leave money on the table, but as you’ll see in the charts below it’s *critical* to step into a role where you can make up the money *very* quickly… you’d better be sure you can recoup the earnings or it will be the most expensive choice you ever make.you understand your market value it *is* possible). 1

With that said, even if you don’t make a lot of money, it’s possible to generate substantially more wealth over the course of your lifetime than someone that significantly out earns you assuming you have strong investing habits (and they don’t).

Let me give you an example. Let’s look at a hypothetical experienced compensation analyst job.

The chart above is taken from Payscale.

According to Payscale, the pay range for an experienced Compensation Analyst nationally is between $75,019 (at 10th percentile) and $105,930 (at 90th percentile).

Let’s assume for our purposes that there are two hypothetical 25 year old Compensation Analysts with similar experience, and that one makes $75k while the other is paid at the other end of the spectrum at $105k (we’ll ignore inflation, and assume neither promotes into a larger job over the course of their careers to keep this *super* simple).

The first Compensation Analyst, having earnings at the bottom of her pay2. Heh, pun. ^_^grade realizes that she must start saving early to compensate 2 for her relatively low earnings. The second Comp Analyst – flush with cash – doesn’t save anything her first six years in her new role, and only begins to save once she realizes she’s in her 30s and needs to start putting money away.

The below chart shows their outcomes assuming both contribute $10,000 a year into an investment account yielding an annual 8% compounding return on investment:

As you can see, the lower-paid Analyst has dramatically higher savings at retirement as a consequence of beginning to save early.

But this isn’t really realistic, is it? After all, the second Analyst earns nearly 30% more per year. She has the capacity to save more than her lower earning counterpart, right?

Let’s instead assume in our example that the Compensation Analyst making 105k saves 30% more money annually than the Analyst making 75k once she3. In keeping with the marginal propensity to consume, we won’t assume that she saves any more than this. As people earn more they tend to spend more (and there is nothing about this hypothetical analyst that suggests she is thriftier than her lower earning counterpart).finally begins saving:  In keeping with the marginal propensity to consume, we won’t assume that she saves any more than this. As people earn more they tend to spend more (and there is nothing about this hypothetical analyst that suggests she is thriftier than her lower earning counterpart

Wow! Even saving 30% more than her counterpart annually through retirement, at 65 years old the higher earning Compensation Analyst is more than a half million dollars behind in savings. And take a look at the earnings from interest:

That six year, $60,000 initial head-start investment has turned into an additional $600,000+ in interest earnings for the 75k earner.

In fact, the Comp Analyst earning 105k would have to invest 63% more annually than the Comp Analyst earning 75k for the next 34 years to retire with the same amount of savings.

Of course, the big message here is to get to the top of your pay grade and save as much as you possibly can as early as you possibly can.

…But with that said, if it takes you a while to find the 90th+ percentile of earnings you will still be okay (provided you live like a Spartan and save all that you can).

Categories: Compensation
Careers I Considered Before Settling on HR

A while back I made a post about the importance of HR. I spoke broadly about the value the function provides to the businesses it supports, and I also touched briefly on why I made the choice to pursue a career in the space.

The road was winding, but ultimately took me to HR.

With that said, while I love doing Human Resources, I like doing other things as well…

Below are a few of them:

1. I’d have been a decent digital artist. I love to do 3d sculpting, and I’m pretty good at texturing (see below). Digital art is the closest thing I have to a non-HR related hobby. Almost nobody outside of my closest friends and family know that I do it, but I love it about as much as I love anything.

Yours truly – I did this on Sunday… Close camera shot because I didn’t feel like rendering the hair (which takes forever because it casts so many shadows)

2. I’d have been good at commission based sales. I have a pretty strong motor to begin with (weekends aren’t for relaxing for me, they’re for uninterrupted skill development), and to the above point cash incentives push me from a seven day a week performer to someone who not only works seven days but also doesn’t sleep. With that said, I am an introvert and have a very hard upper limit on how much I can deal with people on a given day.

I heart money

3. I could have also been a writer (I think – you tell me)My technique and style isn’t anything special, but I’m disciplined, organized, stick to deadlines,1. My ability to find things on the internet would be legendary if only such things had the capacity to be legendary.research well 1, and can spit out 1,000 quality (or at least readable) words on any subject if you give me the internet, Microsoft Word and a couple of hours.

4. I’d have been a strong performer in Advertising and/or Marketing. I count as a skill my ability to break down complex topics in simple, engaging ways across various content platforms, and I love making decks, designing presentations, storyboarding and understanding what makes people tick.

5. I’d have made an okay Financial Analyst. In fact, I entered grad school planning on a career in Finance – a good idea for many reasons, but perhaps most importantly because I am very interested in identifying causes (and making predictions/projections around analyses of data).

They look so engaged.

On the other hand, Financial Analysts generally identify how businesses can make money (or avoid losing it) by thoroughly exploring the status of investment opportunities… but while I personally love the research and data analyses behind these sorts of efforts, I’m not that interested in answering the questions Financial Analysts are often asked to solve.

I’m more interested in human capital challenges – Why are high potentials leaving a given organization (and how should that organization retain them)? Who are the future leaders in an organization (and how can that potential be identified and quantified)?

…Workforce Management – retention, development, incentive etc. – these are all challenges worth exploring that I have a lot of energy around.

Closing, in the spirit of full-circle reflection:

What is the point of all this? Image Credit: <www.barnesandnoble.com>

I’d have been bad at:

1. Anything Administrative (nothing drives me crazier than doing the same thing over and over again – and I stay as far away from this space as I possibly can in HR).

2. Most medical disciplines (for many reasons including the facts that I can’t stand blood, needles, am terrible with any biological sciences etc.).

3. Programming (I’ve actually done enough scripting to know I may have been conceptually good at it, but I’m not detail-oriented enough to have enjoyed doing it as a career).

4. I’d have made an *awful* Accountant (I can’t deal with that many2. I may have made that word up rules/technicals). 

Categories: Personal Development
You Can Only Have a Truly Satisfying Career By Marrying Both Extrinsic and Intrinsic Reward

This afternoon I had the opportunity to listen to two very senior leaders in my organization give their takes on pay (and its ability to motivate).

The first leader described pay (in the absence of intrinsically rewarding work) as something that at best could make a very dissatisfied employee less dissatisfied. He fundamentally viewed pay as one component of work satisfaction (he then went on to talk about sense of purpose and all of the other intrinsic reward based things that matter beyond monetary compensation).

The second leader said that she’d never done any job just for the money in her life.

I appreciate that this all exists on a continuum. Most people care about money early in their careers and then they get enough money and start to care about2. I for one spend an unhealthy amount of time thinking about money. I suppose this is an opportunity for growth, but I enjoy the sense or restlessness around remuneration to an extent, I think.other things.

I think there always needs to be a balance, and I was intrigued by what appeared to be a very healthy understanding of this need by some very senior leaders within my organization.

1. Really short post today because it’s close to midnight and I’m mentally exhausted. 1 This afternoon I had the opportunity to listen to two very senior leaders in my organization

2. I for one spend an unhealthy amount of time thinking about money. I suppose this is an opportunity for growth, but I enjoy the sense or restlessness around remuneration to an extent, I think.other things.

 

Categories: Employee Engagement
You’re Probably Better Off Than You Think – Fifty Percent of Americans Earn $35,000 a Year or Less

A couple of days ago I had the opportunity to listen to Kevin Hallock, Professor of Economics at Cornell University talk about international differences in pay. It was a great presentation, but today I want to share with you some interesting statistics he presented on U.S. income distribution.

Credit: Kevin Hallock, Professor of Economics at Cornell University

Credit: Kevin Hallock, Professor of Economics at Cornell University

As a comp guy I see different cuts of wages all the time, but rarely presented quite like this. I have to admit – it was a little jarring to see most people in the U.S. earn so little money.

To get another cut of wage data, let’s look at personal income by educational attainment:

 

Source: US Census Bureau, 2006; income statistics for the year 2005

The above US Census data is old (2005), so let’s look at another cut of the data below. We’ll assume 3% annual merit increases over 8 years to generate some rough 2013 data. I don’t know if the 3% annual number is a valid data point (these numbers look a bit high to me so perhaps not), but it’s consistent1. Pro tip – A simple way to calculate this in excel is =FV(0.03,8,0,-20321) where 0.03 is the merit increase percentage, 8 is the number of years, 0 is the number of additional payments, and -20321 is salary (you need to make it a negative number).with what we’ve seen in the market the last couple of years.

First – the most interesting fact (to me): Going to college has a high2. I’ve talked about this before.correlation with higher earnings. For all the talk about college grad underemployment, for those able to get a job the ROIC is pretty high. 2 Yet only 30% of the population has a college degree.

At the HR masters program where I went to school, the average private-sector salary out of school was around $70,577 (range $48,200-$93,000), the average age at graduation was 25, and 65% of the students in the population had less than one year of work experience.

Credit – 2011/12 LER Placement Report

Takeaways:

1. All things considered, going to college is probably a good idea (a masters degree is even better assuming you select the right degree/school)

2. If you are a college graduate, there is a good chance that even in today’s economic environment you’re doing a lot better than the average person, financially speaking.

Categories: Compensation
Benchmarking Rotational LDP/MDP Programs

A couple of nights ago I was reading about salary benchmarking and relative wage scales, and I realized I haven’t seen much wage survey data for leadership/management development programs. Not all of these programs are rotational but many are, and the lack of available survey data often makes putting together compensation packages that are both attractive to candidates and economical for the employer difficult.

Finding the right benchmark for a rotational program can be tough. The world is a big place

I suppose the simplest way for a company to find the right salary to attract talent off of college campuses is to look at the average salaries being paid to students out of the schools they recruit at, and then offering packages at p50/75/90/whatever their compensation philosophies dictate. In practice, however, this is probably an unreliable benchmarking method since the talent in any graduating class (regardless of discipline) will take jobs across a broad

1. Put another way: From a recruitment standpoint companies are competing against one another for different segments of any given graduating class (differentiated by experience, mobility, background, interests and other criteria). Depending on the role a company is filling, its dream candidate may be completely unattractive to another company recruiting from the same candidate pool.
range of industries/functions at various levels of responsibility.

It seems like in practice the way most companies determine the optimal pay mix to attract target talent in rotational programs is by offering what they need to in order to hire their candidates, and then addressing compression issues (both among program incumbents and the larger population) as they come up. I don’t think this is a right or wrong way to approach things – but it may be the best way available.

Categories: Recruiting
What You See Versus What You Get – You’re More Expensive Than You Think

Today I want to talk very briefly about the cost of an employee to the company versus take-home pay.

The average worker costs roughly 30% more annually to his/her organization than the flat value of his/her wage and salary (this includes time off, pension, insurance, supplemental pay, and other legally required benefits).

As you can see from analyzing the chart below, it’s possible for an employee to become much more expensive to his or her organization in a given year without seeing any change in take-home pay.

When I look at this chart I immediately think about the sometimes crippling costs of defined benefit pension schemes to employers. For years now there has been a move in the private sector towards defined contribution schemes – a move that makes many employees irate once it happens. On the other hand, employees aren’t willing to pay for the rising cost of the benefit plan (much of which is driven by longer lifespans), becoming upset when1. There are many reasons beyond cost savings that lump sums are given out, including the need to preserve the integrity of pay ranges when employees reach the top of their grade.lump-sum payments are given out on occasion in the lie of merit increases.

For the record, I understand the anger – everyone wants to make as much as they can. With that said, however, there is a fundamental misunderstanding by most employees of just how much they cost to their employer.

This is something that I really think employers need to provide more education to their employees around, both as a retention tool and an engagement tool.

 

Categories: Compensation

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