LEADING THOUGHTS

Let’s pump up employees and stoke their competitive juices by ranking them against their peers. Better yet, let’s throw cold water on them. Comparing workers to their peers is usually a lousy idea, and here’s why. Go to article

The organization is flying through the turbulence of change. What does it do? Throw gobs of money at senior execs and “star” performers to induce them to stay on board? There is a more shrewd and less costly solution. Go to article (requires registration)

The issue: When selecting a new leadership team, should CEOs use a scientific approach that is fact-based and analytical? Or should they emphasize subjective factors such as personality, loyalty, motivation, politics, and team chemistry? Let the debate begin. Go to article

In the UK, for example, there’s a proposal to tie top public sector pay to a 20-times multiple of low pay, and to publish the salaries of the highest earners.

Amid all the huffing and puffing, the huge UK-based HR association, CIPD, is providing a gutsy contrarian view. In a recent report, CIPD argues in favour of variable pay and bonuses, a tough argument to make in these days of retrenchment.

“Politicians and, perhaps more importantly, more strident parts of the media need to stop seeing pay in the public sector as only a cost to be driven down,” the report says. “Instead, used well, it can be a tool to drive up standards and increase value to the taxpayer.”

So how should compensation be designed to deliver what public sector bosses and their political masters intend? CIPD suggests that, for the most part, what works for the private sector should work for the public. To wit:

Ensure reward practices match the purpose.
The key question is: “Are the ways that the benefit package is structured likely to make any day-to-day difference to the ability of the organisation to deliver its objectives, or the effort delivered by individuals to help it do so?”

Make compensation transparent.
Employees need to know what is expected of them and what they need to do to earn a pay raise or bonus, and what is expected of others. Transparency also builds credibility with taxpayers. In fact, CIPD likes the idea of publishing the names of high earners, not merely their job titles. U.S. states such as Utah, Washington, Nebraska, and California already have publicly accessible online databases containing the salaries of state employees.

Reward performance.
This won’t please the “slash the pay packet” crowd but CIPD suggests public sector managers make greater use of variable pay to reward individual or team behaviour. This is a good way to recognize high performance without continually ratcheting up comp levels and pension commitments. “Bonuses can help focus minds by communicating what’s important to the organisation and can be more cost-effective than consolidated pay awards.”

Adopt flexible compensation schemes.
CIPD recommends moving from national pay agreements, “pay spines/increments”, and service-related pay progression to flexible pay structures. More flexible pay grades and progression mechanisms should be adopted to allow individuals to progress through their grades faster.

Download Transforming Public Sector Pay and Pensions

You’re flush with excitement because you’ve just hired an industry high flier. How can you make sure that your new star employee isn’t a flash in the pan?

Top-notch talents do not automatically perform at high levels, say Groysberg (Harvard Business School), Lee (RiskMetrics Group), and Abrahams (Harvard Business School). Writing in the MIT Sloan Management Review, they offer advice on how to get the best out of the best.

Their main point is that “star” hires perform at their peak when surrounded by colleagues of similar talent. As proof, they point to a study they performed among equity analysts who benefited (as did their customers) by working with sharp portfolio strategists and salespeople.

Why is this so? It turns out that high-quality colleagues act as sources of information, provide insightful feedback, serve as valuable interfaces between knowledge workers and clients, and enhance the reputation of their star colleagues.

This management strategy also leads to higher retention of the top performers, the authors state. “The goal here is the so-called Matthew effect: The more stars a company has, the easier it is to develop and retain such high-caliber individuals.”

Three other pieces of advice:

:: Avoid lavishing high salaries on your new star hire; doing so risks demoralizing co-workers. In fact, the authors write, high achievers may be willing to accept a pay cut for the opportunity to work with similarly talented employees.

:: Stars may not have the instinct to play well with others, especially when managerial time and resources are scarce and the urge to compete is greatest. Managers should therefore create a culture of collaboration by encouraging face-to-face contact and building a compensation package that rewards appropriate behaviour.

:: Don’t neglect home-grown talent. By developing high potentials from within and building bench strength, you will be rewarded with greater loyalty and less disruption when a key person leaves.

“What it Takes to Make ‘Star’ Hires Pay Off”, by Boris Groysberg, Linda-Eling Lee, and Robin Abrahams; MIT Sloan Management Review (Vol. 51, No. 2, Winter 2010, pp. 57-61)

photo credit: Noel Feans

You can see it in the streets and smell it in the air: signs of economic recovery are beginning to emerge in Canada. But according to the latest estimates from the Conference Board of Canada, it will take up to five years for the economy to return to full capacity. For workforce planners with an agenda for change, now is the time to strike.

According to the Conference Board’s Industrial Relations Outlook 2010, “Employers now have a window of opportunity to develop effective workforce strategies before the recovery pushes us back to full employment and the challenges of a tight labour market.”

The report suggests that employers use this time to train and re-skill the workforce and more effectively integrate immigrant and Aboriginal communities.

As for the near term, the Conference Board predicts that the public sector will dominate collective bargaining in 2010, with negotiations involving 750,000 public sector workers. Faced with national deficits, federal workers will feel the need to concede gains. Municipal workers, however, may push for contract improvements.

Factoid: Union density rate in Canada is 29 percent — 71.3 percent in the public sector and 16.1 percent in the private sector

In the private sector, the Conference Board says, employers will continue to focus on controlling costs. The strength of the Canadian dollar relative to the U.S. dollar means dampened exports of manufactured goods.

According to the Conference Board, there are two big issues that employers face: one, a continued structural labour deficit; and two, a private pension fund system that requires fundamental change, particularly regarding employer finding.

For their part, unions will continue to be focused on protecting their existing rights and benefits and protecting jobs of existing members.

Given the uncertainty in the private sector and the fiscal deficits in the public sector, the Conference Board says, “universal labour peace is unlikely in the coming year.”

InfoBox: Current Negotiation Issues (Canada)

Management Issues:

1. Wages
2. Productivity
3. Health, pension, and benefits
4. Organizational change
5. Business competetiveness

Union Issues:

1. Wages
2. Employment security
3. Health, pensions, and benefits
4. Employment/pay equity
5. Outsourcing/contracting out

(Source: The Conference Board of Canada union-management survey)

Industrial Relations Outlook 2010: A recovery offering little relief, by David K. Shepherdson; Conference Board of Canada

photo credit: Aaron Magner

Since 1995, researchers have been studying wage differentials based on sexual orientation. Studies based on U.S. census data, for example, have shown that lesbians earn more than heterosexual women; the “lesbian wage premium” is estimated to be between 8 and 13 percent.

A team of researchers from the University of Nevada also mined census data to investigate the effect a previous heterosexual marriage exerts on the relative wages of lesbians (defined as a woman sharing a household with a female partner) and heterosexual women.

“The fact that many lesbians were once involved in a heterosexual marriage provides an opportunity to better understand the relationship between lesbian wages and wages earned by otherwise similar heterosexual women,” write Daneshvary, Waddoups, and Wimmer  in the journal Industrial Relations. Never-married lesbians, the thinking goes, are not constrained by “traditional gender roles” and are better able to invest in developing themselves for the job market.

Crunching the 2000 census numbers, Daneshvary et al found that never-married lesbians earn significantly higher wages than heterosexual women, while previously married lesbians earn roughly the same wages as their heterosexual counterparts. “We find the largest gaps between never-married lesbians and previously married lesbians (8.7 percent) and between never-married lesbians and previously married heterosexuals (8.2 percent). The estimated gap between never-married lesbians and never-married heterosexuals is substantially lower (4.1 percent).”

The findings, say the researchers, are “consistent with the notion that at least part of the lesbian premium originates from lesbians’ relative freedom from constraints associated with marriage and the gender division of labor in traditional households.”

“Previous Marriage and the Lesbian Wage Premium,” by Nasser Daneshvary, C. Jeffrey Waddoups, and Bradley S. Wimmer; Industrial Relations (Vol. 48, No. 3, pp. 432-453)

If you cannot find this journal is your local library, email me for a copy of the article at Alan [at] AlanMorantz [dot] com

photo credit: incurable_hippie

When it comes to building a compensation strategy, often what’s important is not the size of the pot but the choice of levers. The levers include base salary, incentive pay through stocks or bonuses, commissions, and a range of benefits. Getting this compensation mix right has a big impact on how well an organization performs.

In a non-union setting, managers have virtually free rein to work these levers as they see fit. But what happens in a unionized shop? What is the union influence on the mix of compensation chosen by employers? Richard J. Long (University of Saskatchewan) and John L. Shields (University of Sydney, Australia) set out to answer that question. They studied survey data from 2000 and 2004 for 250 Canadian firms.

Reporting in Relations Industrielles/Industrial Relations, they write that, as expected, firms that are more heavily unionized devoted a larger proportion of total compensation to employee benefits than did firms with a lower level of unionization. Not surprising: an earlier U.S. study found that union presence adds 20 to 30 percent to employee benefits and that indirect pay accounts for almost 35 percent of total compensation for unionized workers versus about 25 percent for non-union workers.

But the researchers unexpectedly discovered that while the more heavily unionized firms in 2000 devoted a smaller share of compensation to individual performance pay, that was not true in 2004. That’s surprising: as a rule, unions have little time for individual performance pay or appraisal-based merit pay.

“Also surprising,” Long and Shields write,”is that more unionized firms did not differ significantly from less unionized firms in their proportions of base pay, group performance pay, or organizational performance pay in either time period.”

Their conclusion: while unions may still have power to influence some aspects of the comp mix, their power may be declining. “Even within the four-year time span of our study, Canadian unions may have lost their ability to affect a key component of the compensation mix — the use of individual performance pay — an ability that they appeared to possess at the beginning of the twenty-first century.”

“Do unions affect pay methods of Canadian firms? A longitudinal study,” by Richard J. Long and John L. Shields; Relations Industrielles/IndustrialRelations (64-3, 2009, pp. 442-465)

photo credit: Darrren Hester

I was just rereading an interview that the Gallup Management Journal conducted with behavioural economist Alan Krueger, Bendheim Professor of Economics and Public Affairs at Princeton University. Krueger was talking about how the pay structure has to be perceived as fair if an organization wants to get maximum performance out of employees.

GMJ: How fair does it have to be if it’s secret?

Krueger: That’s a good question, and I’ve done a little bit of research on how much employees know about what their fellow workers are paid. I once did a survey with employees at a non-union service company. We asked employees to identify another worker and then tell us how much they thought that other worker was paid. Most of the time, they couldn’t or wouldn’t guess. It’s a taboo subject, and not delving into it may be one way in which employees cope with the sensitivity of the issue. By the way, this was a fairly enlightened, progressive company. I think one way in which workers find it easier to work with each other is not to even speculate on those subjects.

GMJ: So do issues of pay hold the same power in companies where people do know how much everyone else is making, such as union shops?

Krueger: I suspect that morale suffers. I think there are probably reasons why the social norms developed that discourage employees from discussing pay and employers from bringing it up. But I think employees do want their pay structure to be perceived as fair in case information leaks out. It is also interesting to note that unionized workers report being less satisfied with their jobs despite their higher pay, on average.