10 (or More) Things I Hate About Compensation Departments

May 29, 2009
Hate is a very strong word, but that’s the emotion I feel for most compensation departments. My distaste for the function is independent of my feelings about most compensation professionals. They can be—and often are—rather intelligent. My gripe is with senior compensation managers, who frequently demonstrate that they are the least businesslike people working in the HR profession. You might hate lawyers or IRS agents, but in my opinion, they can’t hold a candle to compensation managers.

First off, comp managers are unwilling to be accountable for anything, even though the combined employee compensation budget is generally the largest single variable corporate expense. We know that compensation is a powerful attraction and retention tool, but comp leaders refuse to accept responsibility for the turnover of top performers or for low offer-acceptance rates.

When someone turns down a job offer or quits the company, it should be everyone’s responsibility. But compensation quickly washes its hands of the matter. Avoiding accountability also includes avoiding results metrics. Have you ever seen a compensation report that details compensation failures, such as the percentage of employees who are overpaid or underpaid relevant to real-time market data? Show me a compensation department that can boast it has increased the ratio between the total dollars of profit generated and total compensation paid out (i.e., the ROI of compensation). Because guaranteed show-up pay is a bad idea, comp should be held accountable for increasing the percentage of the average worker’s pay that is not guaranteed, but instead tied directly to on-the-job performance. But does that happen? Not as much as it should.

The compensation function routinely builds an isolating silo around itself, cutting off important links it should forge with such key organizational elements as recruiting, performance and corporate culture.

For example: Even though long delays in providing salary offers cause recruiters to lose key candidates, I dare you to show me an HR operation in which compensation provides a service-level agreement with recruiting to guarantee responsive service.

And even though we know that the amount of pay and the method of compensation directly affect an employee’s performance, the working relationship between the performance management function and compensation is indirect at best. Compensation blindly provides pay increases to employees based solely on the subjective assessment of managers who utilize a painfully weak performance appraisal system, yet comp accepts no responsibility for improving the performance management or the performance appraisal process.

Finally, the compensation function is unwilling to accept any responsibility for the corporate culture, even though we know that nothing defines a culture more than the behaviors that you compensate, recognize and reward. This culture also includes a firm’s corporate values—but what percentage of an employee’s pay is typically tied to adhering to those values? What employee sees pay reduced for failing to live up to the company’s core principles?

Compensation’s next glaring fault is its half-sighted view of its role. Even though it’s well-established that employees are motivated by both monetary and nonmonetary rewards, the comp function essentially ignores the nonmonetary aspect. If there are no dollar signs attached, comp doesn’t recognize a reward’s existence.

If you are not yet in agreement with my rant, here’s another reason to hate the comp function: Compensation excesses have almost single-handedly brought down such large corporations as AIG, Bear Stearns and a whole host of mortgage and insurance companies. Compensation leaders still refuse to accept the fact that excessive compensation can cause employees to take excessive risks and break ethical standards. Compensation needs to accept the added roles of risk assessment and risk monitoring whenever they offer significant pay incentives.

There’s more to hate: There’s the lack of alerts that warn managers about upcoming compensation problems—compensation is a backward-looking function. There’s the fact that compensation can hinder recruiting by creating some of the dullest job descriptions on the planet— thanks to its job analysis. There’s its refusal to be open to customers—aka employees. If you can actually get hold of senior comp managers, they will almost uniformly refuse to answer questions and instead respond with their well-used line “That’s not my responsibility; you’ll have to talk to your manager.”

The typical compensation department is a nightmare indeed. My dream department would be the “productivity and innovation-improvement department” or the “motivation, reward and recognition department.” Instead of exclusively offering pay options, my compensation dream team would coach managers in how to excite workers through an array of nonmonetary methods and tools.

Comp’s goal would be to change business results in areas including productivity, retention, recruiting, quality, innovation and customer service. My compensation team would produce these results by changing the way rewards are delivered—instead of focusing just on the amount of money being spent.