DC- You have your own ideas about compensation strategy, but before we discuss that, what actual strategies are prevalent today? PZ- There are two kinds of common reward strategies today that we call cream cheese and queen of hearts. In the "cream cheese" strategy rewards are evenly spread out. Everyone gets essentially the same reward, there is no specific performance-based compensation. Companies say that they pay for performance but when you get right down to it, everybody gets the same plus or minus a percent or two. Some companies strive to be a "best places to work" and they usually end up with the cream cheese strategy. These organizations don´t have a way to sort out the top performers from the poor ones and so everybody gets something. The "queen of hearts" strategy is more of an "off with your heads" approach. Companies that start ranking people followed by layoffs and terminations send pretty harsh message to their staff, in effect saying: "We can live without you." We have seen that strategy cause litigation and other problems. We think there is a better way, and that is, firms should start to focus on their superkeepers. DC- What is a superkeeper? JS- Superkeepers are the people who are mission-critical to your business with key competencies; they are the ones you need to retain. We're not talking about situations where, for example, you need a certain IT job done and you'll accept any warm body. Superkeepers are the people critical to the business who are also strong performers. They are not just people with essential skills but they also can translate what they know into measurable performance results. They may or may not be scarce in the labor market, but they are key to your specific business. DC- What percent of your workforce is likely to be in the superkeeper category? PZ- Anywhere from 5%-20%, depending on the organization.
DC- So in your view, the starting point is that 5%-20% of the people have a disproportionate importance to the organization and hence you give disproportionate attention to them when designing your compensation strategy.
PZ- Yes, they are the key to the success of your business both now and over the next five years. If they leave, it will cause considerable disruption and your compensation strategy should reflect that.DC- How should we reward superkeepers?
PZ- Whatever you build, it needs to be consistent with the direction of your company and its reward philosophy. You can start by increasing base pay differentiation; however, you should really look at total compensation differentiation, not just base pay.You can begin your analysis simply by listing the superkeepers and their total compensation on a spreadsheet. Companies often find there is somebody who is critical to the business but clearly underpaid. That helps you start to understand where your dollars should be going. If you add a column showing an individual's market value, it helps add perspective as well.
It would be nice if you could reallocate existing salaries among people but the reality of it is you probably aren´t going to be able to change any base pay of existing employees; rather you'll be focusing on where the new dollars are going. DC- If you reward superkeepers with base pay increases isn´t there a risk that they will get used to high increments which at some point becomes unsustainable? JS- That's why we generally like using variable pay (cash incentives and stock) as well. If you have a variable pay strategy, then allocating those dollars should be easier than if it is all in base pay. Interestingly, we see a lot of companies where incentives programs have become almost as rigid as their base pay program. More broadly, we like to take a total rewards approach including things like, the opportunity for individual growth, having a positive work place, providing development, interesting assignments, and good leadership. This is all part of retaining your superkeepers. We actually like companies to track employees´ total compensation over the years and make decisions based on that long-term view. One organization we work with tracks people´s pay over seven years and looks at that, keeping in mind how critical that employee is to the business. DC- I've always been uncomfortable with how compensation programs are focused on a one-year time horizon. It makes a lot more sense if you think about compensation levels over a longer period. PZ- If you see compensation as just an annual thing, then you are only looking at one tree in the forest. Just as looking at only base pay and forgetting the other components of compensation, again is a "one tree in the forest" viewpoint. DC- Also, if employees look at compensation from a multi-year view it puts less pressure on the rewards a person gets in any one year. PZ- Yes, it gets employees thinking more broadly about their career path and how it all fits into place over a period of time. DC- How do firms identify their superkeepers? JS- Start by looking at your business strategy. Ask, "What are the core competencies of our organization? What are the critical businesses challenges we are facing?" From that you can start to build the criteria for defining a superkeeper. You cannot just ask each supervisor for their top 10% since some functions are more critical than others. For example, a high-technology company may have people in certain new product areas that are really important or it may be that certain customer relations are critical. If you are on the brink of bankruptcy maybe your finance people take on the most important role. Using your company´s business strategy will help you identify your superkeepers. DC- This is where the superkeeper concept diverges from the idea of simply paying high performers more. JS- Yes. This strategy looks at both performance and what is critical to the business. DC- And, as we've mentioned the time scale is important. In traditional pay for performance you are simply looking at how a person did in the last year and rewarding them for that. Your superkeeper strategy thinks about who we need to reward over the coming years based on our business strategy. JS - Let me just interject that the reason companies go with the cream cheese approach is they don´t have an infrastructure in place to identify the top performers or the core skills the corporation needs. It is not only an issue of pay, but also knowing who your superkeepers are. All these issues affect HR systems.DC- In your experience how many companies do a reasonable job at this?
PZ- Very few. Some companies we know are starting to do it For example, an IT firm we work with is focusing on some of their key non-management staff. DC- They have, at least, identified a "superkeeper" issue. PZ- Yes and their view is "We don´t have a lot of pay to hand out. There is a 2% budget. We have to spend it wisely". They want to spend their scarce dollars on variable pay. They may not have the greatest performance management system on earth, however, it is certainly not a bad system and they feel pretty good about using it to help them reward their superkeepers. DC- So even though we started out from the compensation angle the idea of focusing on superkeepers isn´t really a compensation issue it is an HR strategy. Saying, here is a category of employees who are particularly important, let´s make sure we identify them and deal with them appropriately. Would you tell people that you have created a superkeeper category and who is in this category? JS- As opposed to emphasizing a category of people I think it is more helpful to simply talk to them and tell them that they are important to the business. You don't want to brand people with an "S" on their forehead. Everyone is important to the business and there are lot of people who keep our businesses going from day-to-day, but there are some who are especially critical to the business plus are very strong performers and those are the people we need to pay special attention to. DC- Where could this approach go wrong? PZ- It could go wrong if the managers are not trained to talk to people about why they are, or are not, a superkeeper. They need to have a clear honest communication about the reasons. They need to tell the non-superkeepers, "You are important to our business but your function is not the core competency of our company or as mission-critical as some other jobs. You are still getting a good total rewards package and we value you but our scarce resources must go to our superkeepers." If managers aren´t well trained in communication, then that is where the program can get waylaid. JS- The difficult part, and the reason why firms struggle with these strategies, is the weakness of the infrastructure and the fact that performance management systems don´t really identify the key skills. We often don´t really have a way to figure out who is turning their skills into a valued outcome, since most training programs often don´t really focus on core skills. DC- What should the HR person who wants to look after their superkeepers go out and do tomorrow?PZ- You need to engage senior management in discussions about identifying and rewarding top talent. It's likely senior management already know that they don´t have a lot of pay dollars to spend. They also know that there are people critical to their business and somehow they have to make sure they keep them.
I think now is the time when senior management would listen to a proposed superkeeper strategy.
Pat Zingheim and Jay Schuster are authors of Pay People Right! : Breakthrough Reward Strategies to Create Great Companies