March 10, 2011

Help Your CEO Prep for the Board Meeting

By Staff Writer

We continue with our interview series with PayScale’s CEO Mike Metzger (see Helping CEOs with Compensation Planning) by learning what he has to say on the communication between an HR team and a CEO as they do annual compensation reviews and present their plan to the board.

Is your competition planning to hand out raises in 2011? Hire new talent? PayScale surveyed them to find out and now we’re giving you their answers. Download PayScale’s Compensation Practices Survey for 2011 and get up-to-date on your market.

We’re asking Mr. Metzger questions based upon PayScale’s 2011 Compensation Practices Survey.

Q: What’s on your mind at different times of the year? For example, what’s on your mind right now in terms of compensation?

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A: I’m at the tail end of finishing it off for the year. Our goal is to do compensation adjustments on an annual cycle. We do everyone’s by the end of the year. We are a little late. Typically, we try to finish all the reviews by the end of the year and then I try to do all of the management team. My goal was to get that done before the end of January and now my goal is to get it done before the end of February.

Q: So, you’re saying that you’re human? We all get behind schedule.

A: Well, I have to get all of this approved by the board. I get it approved in broad strokes. For example, I’ll say that we have a pool of money that equals X percent of the total base and that’s what we’re going to allocate out in increases. Then, I go to the managers and present the information to them, within whatever philosophy or goal we are trying to achieve. This year, for example, the goal was to make sure we don’t have any big gaps on where people are in the market and, once we have those covered, to make sure we are trying to address people who have really gone above and beyond the call of duty.

And, so, once I get that pool approved by the board, I then review the people who work directly for me. After than, I have to get their specific comp approved by the board. It takes some iterations.

Q: How can people who work in HR help you prepare to meet with the board?

A: It’s all about having a good rationale for your recommendations for why certain people should be getting certain things.

Q: And, good rationale comes from things like hard numbers?

A: Yes, you always have to have some hard numbers in terms of what the market comps are and then impact on the business. How does this person impact our business goals? What is their role?

Q: Another topic that came up in the survey is how comp is viewed if you are small, medium or large-sized company? Do you have any thoughts on how to approach comp at a large company versus a small one?

A: My guess is that at smaller companies a bigger percentage of comp adjustments are performance-based. What’s traditionally called a merit increase, which is everyone getting a three percent bump, we don’t do that. Arguably, the vast majority of our increases are performance.

Q: If someone is an HR professional at a big company and they want to stand out as an excellent, high-performing worker, what advice do you have for them?

A: Here is an interesting statistic, the total amount of wages paid in the United States today is about 44 percent of the total GDP. That’s huge. In any business, wages typically are somewhere between 40 and 60 percent of the total costs. That’s huge, right? It’s the single biggest line item in any business.

So, what the CFO or CEO is interested in understanding is, “Okay, I’m paying this amount, how do I get the most out of it and how do I make sure it is aligned with our corporate goals?” There are a whole range of things that can happen within that, such as talent management and performance management. But, comp and comp management are a key part of it.

I think that the key is for the HR manager to understand and be able to speak to how a comp strategy supports the business strategy. And, then, package and deliver information to the senior management so that it is supportive of that message. Because, if senior management hears, “The reason why we’re going to go seven percent deep in our tech team, because the local market is on fire and we’re losing people,” they get that. Those are numbers that they understand. They get, “And, by the way, bottom line it is going to have the following impact in terms of total cost and percentage increase.

It’s funny, I’ve heard somebody describe the CFO as a numbers person and the HR professional as a words person. But, to build credibility and impact, the HR professional has to be able to convert those words into numbers or frame them in numbers that the CFO and the CEO understand. And, also frame them in the business strategy. And, that’s how they have a huge impact.

Arguably, the HR professional is sitting there with their hand on the knob that is a huge part of the overall cost structure. What they are doing is critically important. And, doing it well can absolutely make the difference.

To be able to understand the corporate strategy and then use your comp strategy to support that corporate strategy, and then present your recommendations in those two frames, is absolutely critical.

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