“Managers are commonly ill-equipped to understand the dynamics of their compensation costs, never mind monitor and control them.” I was struck by this statement by Chuck Csizmar in a recent post on the Compensation Cafe blog. Chuck was making a case for companies to focus on the return on investment (ROI) for employee compensation, and he went on to discuss the reasons for and consequences of managers making poor compensation decisions.

I have to agree with Chuck about managers’ abilities in this area as this phenomenon is at the heart of a challenge I have repeatedly faced when working with nonprofit organizations to overhaul and improve their compensation practices. But, rather than ruing the fact that managers lack these skills and looking for ways improve them, I suggest that there is no real need for the vast majority of managers to develop them in the first place.

I believe it is a mistake to push responsibility for compensation decision making too far down in the organization. As Chuck describes, poor or subjective decisions on the part of managers potentially results in uncontrolled payroll costs — an obvious problem for organizations already facing decreased revenue and increased need in the communities they serve. But, there are other even more compelling potential consequences even when managers make compensation decisions with the best intentions:

• Perceived and/or real inequity in reward practices within or across different managers’ areas
• Inconsistent linkage of compensation and performance across the organization

Such inequity and inconsistency can significantly impact employee morale, trust, engagement and turnover which, in turn, can result in higher recruiting, onboarding, training and opportunity costs.

I recently worked with a nonprofit organization where the practice had been to provide individual managers with annual merit increases and bonus pools to be allocated as they saw fit. Beyond establishing the size of each manager’s pool, senior management and the human resources department exercised virtually no control as to how and on what basis increases and bonuses were distributed. There was significant variation in how managers exercised this authority resulting in what more than one employee described to me as the creation of individual “fiefdoms”.

With my efforts to refine this organization’s compensation practices and pay-for-performance orientation, the free reign previously afforded to managers is a thing of the past. Managers are instead charged with focusing on that which managers should be focused — managing, supporting and evaluating employee performance — while the task of linking performance to compensation is managed by the human resources leadership in consultation with senior management.

In addition to the ability to centrally manage and control compensation costs, this approach ensures far greater equity in reward practices, it provides consistency by linking compensation to performance, and it and clearly and authentically communicates these important messages to employees.

How did the managers feel about all of this change? Rather than resisting it and perceiving it as a reduction of authority, managers in this particular organization actually welcomed the shift. They felt it not only relieved them of a burdensome responsibility and the need to make often unpopular decisions, but it also freed them to focus on the optimal performance of their staffs and their departments.

So, where does the buck stop in your organization? In developing or refining your approach to compensation, strive to let managers focus on what they do best while affording the organization — and all of its employees — the benefits of appropriately positioned compensation decision making.

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Joe Brown is the Principal and Founder of Slope Resources, LLC. Slope Resources provides a range of human resources and organization management consulting services to nonprofit organizations of all types and sizes. Joe is also the author of the blog Done by People, which focuses on human resources and organization management in the third sector, and will be a presenter at the 2010 Nonprofit Human Resources Conference. For more information about Joe Brown and Slope Resources, please visit sloperesources.com.

photo credit: SqueakyMarmot

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The Buck Stops Where?  https://blog.execsearches.com/2010/03/23/the-buck-stops-where/

Last updated on October 16th, 2012 at 09:47 pm