5 Hidden Cost of Inaccurate Compensation

Why is Pay Transparency Still Hiding From Us?

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Picture this: you’re in a dark classroom surrounded by twenty-seven other ninth grade students. You look to the front of the room only to see your teacher enveloped in a single bright light.  She sits patiently, markers in hand, with a soft-spoken voice at her overhead projector, ready to dispense the intricacies of theorems, postulates, and proofs called geometry.  During that year, I noticed three things about that projector as she squeakily turned the knob to advance the roll of acetate.  She would have various lessons already lined up on numerous rolls beside her ready to be rewound and shown again and again, if necessary, she would re-use the roll by spraying a semi-toxic substance on it to clean the markers and eventually smudge it to the point of no return, and occasionally she would unwrap a fresh roll of acetate to her delight and the eye rolls of our classmates. 

That single roll of transparency was a way for us students to see what she was trying to teach us in the short time we had together.  Fast-forward a few years, well maybe a few more than a few, and we still seem to be engrossed with the word “Transparency.”  You can find it scattered throughout the news headlines; we want to know what is “really” going on in government, world markets and events, with the Kardashians, and of course with corporate compensation.

Talk of transparency in compensation, as well as within the associated performance review process, has been a point of contention with employers and employees for some time.  Most think it's a new item on the agenda with our increased digestion of data and information brought to us by our friends through social media, the Internet and jobsite statistics.  But since men and women have been working together there have been discussions of pay and performance discrepancies. 

Things started in some ways in 1997, when the Paycheck Fairness Act bill was first introduced, which was an extension of the laws established under the Equal Pay Act of 1963.  It has been reintroduced on numerous occasions to Congress.  Pay transparency continued to hold legislative interest when Lilly Ledbetter sued Goodyear Rubber and Tire for being paid significantly less than her male counterparts in of the most renowned fair pay cases, which led to the Lilly Ledbetter Fair Pay Act in 2009.  Additionally, President Obama signed an executive action in January 2016 to propose the collection of summary pay data by gender, race, and ethnicity from businesses with 100 or more employees and added potentially to the EEO-1 report.  This proposal would cover over 63 million employees in the U.S.  Another form of transparency will come when most public companies will be required to disclose their CEO Pay Ratio for first time beginning on or after January 1, 2017, depending on the timing of their fiscal years.

With all of these legislative actions seeking to increase corporate compensation transparency, we then have to ask, how transparent do we want to get? 

Many have written on both sides of the aisle about the subject of Compensation / Pay Transparency along with Performance reviews, goals and scoring techniques, and most would agree that these issues are important. Thinking back to the roll of acetate that was slowly rolled forward, labored over for hours, and marked up sometimes to the point of not knowing where we started, we can only wonder if our fascination with pay and performance transparency will turn the same way.

First – we look at compensation and performance through the roll that has been used in the past.  One that allows us to look back and try to understand our mistakes and shortcomings and learn from the lessons that have been taught time and time again.  Companies today have had policies in place for compensation and performance guidelines for generations and have followed them year after fiscal year.  With each generation there has been more and more information and data to evaluate and analyze to help organizations understand their talent, their resources, and grow their business.  We have now come to a crossroads with regard to compensation and performance practices where we have to decide whether to continue turning the squeaky knob with the same old acetate, or to develop new plans for the future and unwrap a fresh, new roll. 

Some business leaders would say we just need to go back a little bit, evaluate what went wrong, clean things up and reuse the same roll.  We can hear them say, “there are some lessons learned there and we should not throw them out just for change’s sake.”   Agreed, there are principles, guidelines, rules, and even incorrect actions we can learn from and use to shape the future of compensation and performance.  The hard part about this type of thinking is that we tend to get stuck in this rut, both in our government and in businesses.  Too many times we want to bring more from the past than we need, thinking we were successful during those times so it must have been working for us.  Not thinking that we were just coasting and didn’t look too deeply into discrepancies or problem areas.

To unwrap a fresh roll of transparency in your organization leads to some things that are not pretty to see at times, and there will definitely be items and situations that you will need to explain and possibly adjust.  Compensation and Performance have been hiding for long enough in employee files, encrypted spreadsheets, and computer software systems, where only the people with the right security can see.  Companies will need to decide how much they want to uncover the hidden numbers, calculations, and data.  The government wants all the basic information disclosed to the federal officials for review.  They will then decide based on a few extra fields of data provided if your organization has compensation and performance practices that are out of order. 

Keep in mind there are a LOT of factors that go into how much you are paying individuals, like education level, experience in a particular field, total work experience, skillset, specialized courses and training, individual goals attained, raises or promotions, bonuses, incentives, awards in the past, etc.  If you stack gender, race, and ethnicity beside this long list of items, you will start to shine a light on whom and why people are paid differently.  Until we can report on all this to the government, then we have not unwrapped the new roll, but instead are just trying to reuse the same roll over and over. 

PeopleFluent Compensation and Performance allows organizations to use all the data they have accumulated over time and report on various items related to their talent to help provide clarity and awareness to the areas that need improvement.  Organizations can use a complete employee profile to help communicate and explain to executives, managers, and employees how and why individuals are compensated the way they are and provide a mechanism to adjust the guidelines and practices to fit and shape their business for the future.

Ready to unroll that new roll of transparency tape? Then learn how to cut out the middle man and choose the right tools to enable transparency into your compensation management. See more here.

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