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Monday, November 20, 2006

Filtered OJ

We interrupt this series of compensation blog postings for a word about filters.

Since the One Company announcement much has been said about our publishing filter, which is just another way of saying our publishing standards. As is typical with 650 people, some of you think its too restrictive, some think its just about right, and a lot of you don't care one way or the other. Over the weekend I had very little down time or TV time, but in the scant minutes I was around a television I heard about the new O.J. Simpson book every time the set was on. For those of you out of the house or in a cave over the weekend, this book is about how he would have murdered his wife if he had committed the murders. His publisher was quoted in the Tennesseean last week as saying, "I regard this has his confession". NBC news reported that his advance for the book was in the neighborhood of $2.5 million.

There has been an overwhelmingly negative response to the book, and to its publisher Judith Regan at Reganbooks. I mentioned this to my wife, who knew the name and said, "Oh yeah, that's not the first trash she's published". So, being curious, I looked up the Reganbooks web site. There you'll find banner or feature ads for such prestigious and uplifting titles as "How to Make Love Like a Porn Star" by porn star Jenna Jameson, "How to Make Money Like a Porn Star" by Rolling Stones writing Neil Strauss, and "The Confession", former New Jersey Governor James McGreevey's apologetics about leaving both his office and his wife after a gay affair with a subordinate became public. Reganbooks is an example of what a publisher becomes when they don't have adequate publishing standards.

So why do I care about this as subject matter for an HR blog? Well, how would you feel about Thomas Nelson if we published any of the books mentioned above? The content coming out of our company is synonymous with our corporate identity. Who we are, and how you feel about it as a staff member of the company, goes a long way towards your satisfaction in the job. Without a filter for content decency we potentially fall prey to a great sales pitch for a bad drop-in title, especially if we're behind budget at the time. If you think it can't happen, stop and think of some of the books we've published that you've found offensive and you'll know that it already has happened in the past.

During my first week on the job a staff member, who is now in our leadership team, stopped me outside my office and said, "When you've had some time and learn this place a little better, I want you to come back to me and answer this question: are we a Christian company or just a corporation that traffics in Christian products?" That question, in one form or another, has been asked of me for most of the almost six years I've been with this company. One Company and the publishing filter have settled that question and as its implemented we will as a corporate culture be better off for it.

As always, I welcome comments both in agreement and in dissent.


Tuesday, November 07, 2006

Base Pay II: Calculating Base Pay Targets

In our last post we discussed the resources we use to gather data. Today we'll review what companies do with that data in the calculation of base pay.

There's an old saying in building spreadsheets that says, "first, turn off your PC"; in other words, design first and enter numbers afterward. In base pay, the process is similar. First, companies have to put the data aside and look at their organization and make several decisions about culture, industry, strategy, desired market position, and what jobs you employ. While this is usually done the first time you price jobs, it has to be done periodically as new companies are acquired or as business units change significantly in the number and nature of their positions.

Culture is our first consideration; is the company more conservative than entrepreneurial, or the opposite? Is it focused on keeping cash for a rainy day, or more concerned about taking advantage of every opportunity. Does it value high-fliers; those employees who can make it rain money, or does it value steady performance? All these considerations play into how a company sets its target compensation for its jobs.

Next is Strategy. How does the company go to market, and where is it in its life cycle? If the company is young and needs to grow with very little capital, it is more likely to take more risk in its investments in people and fixed assets. If later in life, it may value preservation of its assets and approach investments, including those in people, cautiously.

Market Position impacts salaries as it matters greatly if a company is a weak player in its industry, is a moderate competitor, or dominates the industry. Do potential employees see the company as an employer of choice, and thus it can have its choice of people, or does it have to scramble to find talent?

Once you understand the company, the next critical issue is understanding the jobs. What types of jobs are you going to utilize in order for the company to do what it does. Are you employing nuclear physicists that will have to be imported from India, or are we employing school teachers with a ready supply of people who will do the job for low pay? Once you know the jobs, what is the scope of responsibility for each job? In terms of scope, things to consider are the number of people supervised, the equipment utilized, the cost of mistakes, the nature of contact with customers and vendors (anywhere from "none" to "final decisionmaking authority"), the level of supervision needed, and the spending authority we're willing to give the position. This gives a company some measure of how it ranks its jobs internally.

Once you know your culture, you're ready to price the jobs. Here you take the resources listed in the last post and match the company's jobs to similar jobs in the labor market. Once the company knows what outside jobs compare to its own, you take the data from those and begin your analysis. The data provided from published surveys usually gives a targeted base pay, targeted bonus or commission, and a total cash compensation (base + bonus or commission) at the 25th, 50th, and 75th percentiles. Remember, a percentile is not a percentage; it is the percentage of all companies surveyed that pay the same or less for this job. Thus, the 50th percentile means that, for every 100 companies surveyed, 50 will pay more and 50 will pay less. The 50th percentile is the most common target that companies use as targeted compensation for its positions.

In rare cases a company may have to conduct its own survey. When we've had to do that, we plot the data using linear regression analysis and calculate the statistical median of all data points. Then, plotting a bell curve, throw out the high and low outliers to establish the data set that we'll use to re-calculate the median and average. Thankfully, this is rare but sometimes it has to be done when no outside data is available.

So what does this mean? While this may be way more information than the average person wants, the takeaway is that there is process and statistical analysis behind the pricing of jobs. Its not a gut feeling, a guess, or a conspiracy.

Next time: placing priced jobs into a compensation structure.