Compensation Conversations: Frequent Feedback and Transparency
What goes into compensation and raises and when should you be talking to your team about them? In this episode, Traci Barrett and Rob Harr explore the many factors that determine compensation, from the team member’s performance to external financial pressures. Also, learn how to tie compensation and bonuses to reviews through frequent feedback and transparency.
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Transcript
Rob:
So a few weeks ago, Traci, we were recording this podcast and you said something that stuck with me. And the way you said it was just very matter of fact, and I'd love to talk a little bit more about that today.
And what you said is, "Well, of course you don't tie compensation to your annual reviews for your employees. Those things should be separate."
And we've always done that at Sparkbox, keeping those two things separate, but I realized that everywhere else I've ever worked professionally, those two things were tied at the hip and I think it's worth talking about that a little bit more and exploring why you believe what you believe, and at least let me ask some questions.
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Traci:
Sure, yeah. So annual reviews traditionally speaking have always come at the end of the year or the end of your fiscal year and that's typically when you are also doing your budgeting and you're looking at compensation. And we both have worked at large companies and we've been in the corporate America realm and have spent several years there.
In my time, working in corporate America was always the same thing every year. Your annual review and your comp plan all happened at the end of the year. The end of our fiscal year always was on calendar year. And so it was the time of year where I just, as a manager of a lot of people, felt very anxious because I was budgeting for the next year. I was preparing annual reviews. I was preparing comp plans, and I was doing strategic planning all at the same time that fourth quarter.
And what ends up typically happening in companies, and there's several articles written all over all different types of industries, small businesses, large businesses, talking about how that process because of so many years of being that way traditionally, took a beating. And what took a beating was your annual review, your performance review and because it being tied to your compensation, to your raises and your annual salary discussions, what tends to get lost is the purpose of the review.
And the purpose of the review really is employee development, is your own personal growth journey, your own leadership development growth journey, your own growth within the team looking at how your peers view you, also looking at core values and how you display those.
A lot of that gets jumbled because the employee is most concerned about their compensation. And if it's all happening in the same meeting and everything is wrapped around that, what we've found, and many people have done a lot of surveys on this is that it all gets jumbled, and there are a lot of issues that come out of... Some cons that come out of tying these two things together.
And I believe that's one of the reasons why the pendulum swung so far in the opposite direction, where a lot of people just got rid of reviews altogether, right? And they were just doing salary discussions and not really developing their employees. Now this pendulum has swung back and people are more caring about personal growth and leadership development and all of these things.
So how do we do that? How do we do both?
Rob:
Yeah.
Traci:
Right? Because we have to have compensation conversations, but we also need to be developing our employees. And so therein lies the question, when and how do you do those two things?
Rob:
Yeah, that timing is what is really interesting to me and I think that you know I've worked, like you said, a bunch of corporate places and what seems like a former life at this point. And that was the time when you got your comp increases. Here's your review, here's your feedback and you're absolutely right.
Like in my personal experience, the first thing I would do is flip open when I got the little packet back or later it became a PDF, but I'm getting old enough to where I got paper at one point for my reviews, you'd flip to the comp section and be like, "Oh, okay, now that I know what the comp is, let me go back and read what the rest of this says."
And with that coloring, because of course the comp was always the last thing listed in those review packets, at least one of the places I worked and I think we've talked a lot about reviews and how feedback is kind and all of that stuff like that. So I think we're on the same page there.
I guess, so where do you put the timing then? How do you separate those things out? What do you think the right distance is?
Traci:
Well, what I always suggest is that you should be doing quarterly check-ins, and those are reviews basically. And some people feel overwhelmed by meeting with people every quarter given time schedules and whatnot. I say you should at least be doing two six-month reviews. And you can have a very simple format for that. It does not need to be this multi-page crazy thing. But you need to separate out, right? Because we don't want there to be bias that creeps in. Right?
So if an employee thinks that all of their salary is tied to this performance review, then they're going to hold back on the goals that they set for themselves. They are going to try to set some layup goals, right? Because they want to make as much money as they possibly can and they might basically tweak the way that they're as open and honest as they can be about their own performance.
So I love self appraisals. I think it's great to have the people that are on my team actually review themselves. And we've talked about this in the past, I like to hear how they believe and perceive themselves. And I think it's a really great measure of how they're seeing themselves every day versus what everybody else on the team is seeing. Sometimes those things are completely aligned, sometimes they're way off, and that is a huge indicator to "Whoa, okay, we need to align our perspectives."
But see the problem is, is if the employee thinks that it's completely tied to compensation, that might be skewed. They might start to say that they're really good at things they know down deep inside they're struggling with, because they think all of this is tied to compensation. When we can decouple those conversations and say, "Look, I really want you to be honest about the areas you feel like you need to grow in, and I'm going to be honest with you and what I'm seeing." And it's a totally separate conversation and it's one you're having multiple times a year, I think that's much healthier to their development than it is that it's tied completely to a compensation conversation.
Rob:
Yeah. I mean, I agree that having the focus of those conversations be different is good. But the thing that I can't get over and this is where I keep coming back to is your comp should be a factor in that should definitely be the value you add, and the value you add increases through that coaching and through that review process. That's the point when we stop intentionally be it annual, quarterly, twice a year, whatever it is and say, "This is where we think you're at as an employee and the value you're adding."
Traci:
Right. I do agree with that completely. It is a part of the compensation conversation.
So what goes into compensation and raises? And I think that's a good place for us to go. What goes into how much you're paid is your job title and description, the role that you have in the company, and where you're at on that journey. So many companies... So if we just talk about agency life, there are many companies that have ladders within that. So say you're a developer, some people have D1, D2, D3, within that before you become a senior developer, yada, yada, right?
So there are bands, like you probably have these bands of salary, that are based on your role, and you will move up on that ladder within that band of salary due to your ability and how you're performing, but there's also increases due to promotion. There's also increases due to tenure and loyalty. There's increases that are just based on how the company is doing overall. So there's market forces. If we're in recession, the company might not be doing as well. If the company's doing well, and you have a highly profitable year, you might then increase the bonus, and that might be based on team performance and on individual performance and so yes, then you will be looking back on the different check-ins and reviews you've had throughout the year to feed into that.
So there are multiple things that should be going into that compensation conversation. That's why I feel like it's a whole separate meeting and if you've been doing a good job on having quarterly check-ins and quarterly reviews, then when you're having your compensation meeting, there are no surprises.
What I don't like is that people tend to—and traditionally, this is how it's happened in corporate America—tend to be the only conversation you have is your annual review. And what just so happens to be tagged on to that annual review is your compensation. I think they should be decoupled. You should have a compensation conversation, and that's where you also are able to teach the employee what goes into us deciding compensation, and help them have some transparency into how the company's doing, how the marketplace is doing, how we look at salaries, where you are in your ability, where you are in the ladder, where you doing as far as peer review is concerned, profit sharing, all of those things. It should be a separate conversation that you have.
Rob:
Yeah, I see that and like I said, I mean the two big things that I've always considered when thinking about compensation are obviously market because everybody exists in a market, and that's absolutely a factor and that sometimes can change what role you are based on what your potential could be elsewhere and all of that there is.
Then the other big part of it is always been for me is what value do you bring? Right? And what value am I using? Because there are people that have worked for me over the years who have had a lot of... Have added value, but not value that adds to my business. And just because you may be someone really valuable and have some skill sets that we don't utilize, that doesn't do much for us. That's a mutually edifying part of it. Right?
Traci:
Mm-hmm (affirmative).
Rob:
So this is where I get all mixed up on this conversation is, if I'm measuring your value and we have goals, and we're trying to develop you through developer one, developer two, developer three, to you use your example. Then as your comp increases, your value should be increasing to the business.
Because we've also had other people throughout the years who just have been with us longer, but have stopped becoming more valuable, and their comp has stagnated for those reasons and those have been hard conversations. You know somebody I recall many, many years ago coming into my office and saying, "Hey, I've not seen a raise." I said, "Well, you're not more valuable than the last time you received it." And those are hard conversations, but they're necessary.
Traci:
Yeah. And I think in that instance, that example, yes, you are having conversations about performance. Well in every example, you're having conversations about performance when you're having conversations about compensation.
But to flip that example on the opposite end is when you have somebody who's a rockstar, and they get an amazing annual review, but the company is not doing well. Profits aren't doing well, we're in a recession, whatever it might be, the company just hit a big bump in the road and there's no extra money for raises this year. So when you have intertwined those two conversations too deeply, then you have a confused employee because she's had this like rockstar annual review and no salary increase, right?
So one of the benefits to just decoupling the conversation is to be able to say and teach your employee that much more goes into the conversation or much more goes into the calculation of compensation than just performance, right? So when you're having that salary conversation, you don't want it to just solely be on performance.
You want to teach them how you as a business owner look at everything, all the pieces of the puzzle. Some of those pieces of the puzzle they control, some of the pieces of the puzzle they don't control. Even some of the pieces of the puzzle you don't control as the business owner. Right?
Rob:
Yeah.
Rob:
I wish I had more control over some of those things.
Traci:
Exactly. And so it's good when we can decouple the conversations, right? Where we can say, "Look, you've had four quarterly check-ins already, so you know how you're doing. You're doing really well, or you're kind of mediocre, and that has played into how we're looking at your compensation. Also, some other things that are playing into it is X, Y, and Z." It could be good news, could be bad news, right?
It could be where you are on the ladder and you just haven't done well enough to go up a notch on that ladder, and you're going to stay in the D2 before you can get to the D3, and here are all the things you need to work on to move up, but we're not going to give you a bump quite yet until you move up into that, and you show that you have the ability to move up.
And I think one of the things too is, I like... If you're thinking about—and I don't know how you guys do it, if you have bonuses or you do anything on top of your salary bumps—but I do know several of the companies that we work with that they have bonuses, and they'll do a team bonus, it's based just on profits and how the company, or how the team has done, and I think that's really good because the incentive is there to be collaborative with each other, to be rooting for the company, and we're trying to get to that profitability goal.
Then there's also individual bonuses, and that's also split on their performance objectives, the goals they've set for themselves, and you've set for them, but also their peer review, you know how they're being ranked and on core values and how they're showing up, how they're being collaborative on projects and working with other people and I think that's also a good thing to have within the compensation conversations, and I also think it's great to bring your leadership team together to decide those things.
Because one of the things we always want to avoid is if one person is always doing those quarterly check-ins then you have one bias for everything and I always think it's good if you have a leadership team, bring that leadership team together and talk about your employees, and argue a little bit, get those different stories out there. Have multiple perspectives on people before you decide what their bonus is going to be or what their compensation increase is going to be and take that peer review into account as well.
So there's a lot of factors playing in there. I think my big you know why I say it kind of like you pointed out so definitively, like of course you're going to decouple that, is because we have worked with so many companies, and obviously I have my own baggage from my own 20 plus years in corporate America, where people have gotten lazy and have always been lazy and just having one meeting at the end of their fiscal, one annual review and a little conversation about comp plan, and you send people on their merry way, and no other conversations are happening throughout the year. And that is not a good plan.
And it can lead to a lot of confused employees especially with the ones who are your rock stars. Those are the people you don't want to lose, and those typically end up being the people who are most dissatisfied at the end of those annual reviews.
Rob:
Okay. That's interesting.
So let me ask a more mechanical question. The how person in me wants to ask a process question. So when you see this and you're advising people, are you looking at them and saying like, "I think you should do everybody at once. You should do those throughout the year." Obviously your quarterly reviews are going to be scheduled and stacked and all those fun things or for our case, we do a formal review every six months, and then everybody has at least monthly check-ins with their director from a one-on-one perspective, but is there an annual date you're looking for your comp increases or is it sprinkled throughout the year?
Traci:
There tends to be two ways that all the companies that we work with do it. One is the end of their fiscal. So they're budgeting for the next year, so they budget their entire staff, right? There's pros and cons to that. And then there's an employee anniversary. How do you guys do it?
Rob:
Yeah. We're actually in the process right now of trying to figure out how we want to do it next. We've kind of done this anniversary model, and one of the things that's been highlighted this year and this is 2020 and all that fun stuff, all that context, right? Like we've frozen comp second half of the year based on the risks that exist in the market, and we're looking at it and thinking, okay, so we froze it halfway through and there's people with an annual then, so how does that all wash out?
And I know it'll all wash out and to be completely frank, we started seeing some of the risks in the end of second quarter, so we've, you know, really this has been a pretty static year for comp increases for us, for our team. And we've been really clear and told everybody that, said, "Hey, comps on freeze until some of these economic uncertainties figure out." But we're also taking this moment to rethink everything about what we're doing next and there's part of me that thinks there's a little bit of beauty in having like, "Well, here's the date we do it because then I have all these knowns about forecasting for the next year."
Traci:
And that's typically why people like to do that because in your budgeting process, you know exactly what's coming up. You know you can be, I should say, fair in kind of those percentages.
And I know in my past life in corporate America, a lot of that was based on, "Okay, here's your pool. This is how much money have to work with for the coming year. How do you want to divide that up?" Right? And so it was on my shoulders to look at my staff and say, "Okay, I have this much money." And that's when I started looking at all these factors, right? So where are you in your job role? Where are you on the ladder? Where are you in the market band? We had bands that for each role this is how much money your top and your bottom end. Where are you at the top of your band?
And then looking at bonuses, and this is when you can bring your LT together and say, "Okay, we have this much money for bonuses. How do we want to allocate it? Who's doing really well? Who has really blown the socks off in this regard? Who's reached their performance objectives? Who's had the best peer reviews?" However you want to do it.
But when you're doing it on the fiscal year it's much more predictable. And in some regards it is like you're just giving a perfect example of, you can have the people in the first half of the year who got their raises, when the market was good and life was okay and then when you guys hit a big bump in the road which every company has, and you freeze, everybody with an anniversary in the back half is getting the short end of the stick and that's not a typical year, but it happens, right?
And so one way of rectifying that is just to say, okay, we're going to do this on our budgeting year. So when we're budgeting, we know exactly how much we have, and you can make adjustments throughout the year with promotions, and new hires and whatnot.
But you know there's some people that love the employee anniversary increase and have been doing that for ages and one of the reasons they like that is because of the staggering, of being able to stagger these increases throughout the year, being able to have these conversations not all at once, which can be a huge undertaking depending on the size of your staff and how much you can divide and conquer amongst your leadership team in having these conversations.
So there's a lot of pros and cons to it, and you just have to figure out what works best for our DNA and also what works best for our budgeting process.
Rob:
Yeah, that's really interesting. That's a lot to chew on. You were talking a little bit about bonuses and for the first several years of our business, we did bonuses on an annual basis based on performance, and we got to the end of one year and we didn't have a great year, and we said, "No bonuses." And we had a couple of really upset employees who are counting on it. Kind of it felt like the Christmas, the family vacation, right? The Chuck Griswold moment with the pool. Right?
Traci:
Mm-hmm (affirmative).
Rob:
And I was like, "Oh gosh.” Like you were counting on a bonus. And we were trying to be transparent about how the business was doing, but that wasn't being communicated. So after that year, we pretty much have said, "We're not doing annual bonuses. We've adjusted salaries to compensate for some of that.” And for the most part, we only do spot bonuses closer to the time when something extraordinary has happened.
Traci:
Yeah, and I think that's a way to go, but I think it's also another reason why I like decoupling these things and not basing everything on performance.
When you can teach your employees what this is all about and all the things that go into salary increases and bonus and make it go beyond just performance and I mean, to your point too I don't want you to undervalue that you want to value these employees through their pay. I think that's absolutely right, but you also want to educate them and help them understand the shoes that you walk in, so you don't get these people that are like, "What? I've been doing fabulous. My performance is off the charts, and you're not going to give me a bonus? Or you're not going to give me a raise? I'm out of here. I'm moving on."
Those are... It happens all the time, but it does point to maybe we're just not spending enough time separating these two things and really explaining what is all wrapped into compensation and keeping these two conversations separate, so that they know it's not all dependent on their performance.
It is, and it isn't. Some of it is dependent on the team as a whole, not the individual.
Rob:
Yeah, the team has to do well.
Traci:
Which helps them put a... Yeah, it also helps with accountability. You know when it's tied to the entire team as part of it, then they start holding each other more accountable. Like, "Hey dude, I want my bonus at the end of the year. So stopped slacking off. Like we're all in this together." And they should be having those types of conversations with each other. Like true healthy teams do that.
They hold each other accountable, and they also want the slackers to move on, right? You know you can see the people who—and this is why peer reviews are so important as well—we want to know how people see themselves, how their peers see them, and then of course how their management sees them. All of that should be baked into the cake.
Rob:
Yeah, that makes a lot of sense. We were talking about baggage a little bit earlier, and I have some serious baggage that I'm trying to get over with the self-evaluation. That's something that a lot of places I've worked at in the past made me do, and after I realized that nobody was reading my self-evaluation, I got pretty bitter about it.
Traci:
Well, that is bad.
Rob:
There was a couple of years where I just cut and paste what I said the previous year and just put it in there to see if anyone noticed and nobody ever did.
Traci:
Well you know that's the problem too with some of these formatted reviews. People are doing it on both ends, right? Cut and pasting their self-evaluations and the managers are cut and pasting what they said the year before and I know it's difficult.
I mean, I had employees at HGTV, I had for over 10 years, and it's hard year after year to—especially when I had a team that was just unbelievably talented. And so sometimes you're sitting across each other and I'm searching for something new to say.
But that shouldn't take away from the fact that they still want to grow and learn, and they want you to take it seriously and so I always was of the mindset that I wanted you to present to me. I want to hear, don't send me your self-evaluation and then just think I'm going to read it, and we're going to go into it. I want to hear it in the moment. Bring it into the review, and I want to hear you tell me from your mouth how you think you're doing, and then I'm going to tell you how I think you're doing. It's a conversation and then let's see where we meet, and then we're going to talk about how your peers are seeing you and then what do we do? We identify where the gaps are. Where are the gaps?
Rob:
Yeah, that makes a lot of sense. Like one of the things that I've said for years to all of our employees is, "Nobody should care more about your career than you do. I can't care more than you. You have to show up and care and be in charge of it. You can go a bunch of different ways. There's a bunch of different paths in front of you, where do you want to go? I'll help you get there, no matter what it is.”
You know, some of them line up with our business, and we can help that way or other ways. Other career paths you may want to take. I may look at you and say, "Well, I can pay you to write code while you go figure out if you can do that or not."
Traci:
Right. And you know that's why so many people, and even I sometimes have a problem with the word ‘manager.’ Like we're not as leaders here to manage people, we manage processes and projects and all of that, but what we're doing is leading people. We're facilitators of their growth. We're mentors and teachers to just help them along the way, and we should want the best for them, but you're absolutely right, they need to want the best for themselves as well. And if they've lost that love and feeling somewhere along the way we need to be asking them why, right? Why are you not as enthusiastic as you used to be? What's missing here? Is it no longer a fit? Is the coat too small, and you've outgrown it, and you need to move on to a different job?
That's perfectly fine. I know a lot of people. Let's put our heads together, and we'll help you get to a better spot and I think when you can have that type of relationship and that type of conversation with your employees, oh my gosh, it's amazing and it's freeing. It's freeing for them, it's freeing for you, it's honest, it's vulnerable, it's open and those conversations should be happening throughout the year and there should never be surprises.
Rob:
Absolutely. I mean the best surprise is no surprise when it comes to any of this.
Traci:
Exactly.
Rob:
And I've often said to our people, and I say this a lot is, "I can't just care about the humans in front of me when it benefits me." So what that means is, is that sometimes if it might be best for you to be doing something else, I want to help you get to where you want to be otherwise a lot of the things we talk about on this podcast and other places don't mean anything. If I only care about it, when there's a business relationship. There are seasons for things. Some people outgrow our business that is the reality, and actually probably a really good healthy sign for them and for the business that it can continue to grow and bring in new people and have an impact on more people's lives.
Traci:
Yeah, absolutely. It is just the circle of life in the business world. Yeah, I'll break out into song if you'd like.
Rob:
Oh, please.
Traci:
But that's just how it goes.
I think it's a healthy way of looking at things, and it's hard. You know we hate to see people go and people feel awkward trying to explain this to their management team, but it's a healthy thing. And if we always say it's healthy, and we're very transparent, then it can be a smooth and wonderful thing.
And if you go and you read Glassdoor reviews of some companies, it's like, you can see in those reviews, the ones that are bad, what's gone wrong. It's a lack of quarterly check-ins, it's a surprise. You know like all of a sudden you're surprised that you're being let go because of something, you didn't get a raise because of X, Y, and Z, because the leadership wasn't transparent about how the business was doing. You can kind of see the repeated patterns here.
So what we're talking about is a level of transparency. It's a complete and full feedback loop that happens throughout the year. It's talking about development outside of compensation, explaining how those two things work together, but explaining also how they exist separately and teaching people the business of the business and trusting our employees to be able to take that information.
And like you said just now, letting them know that you care because it is the first question every employee is asking themselves about their managers. Do they really care about me or am I just a number? And man, if you can get over the hurdle of really showing them that you care about them, they are going to care back. They're going to care about you, they're going to care about the business, they're going to care about the mission, the vision, and you're going to breed longevity in there.
Rob:
Yeah. No, that's great. Well, I think that's a great place to leave it, Traci.
Traci:
Good. Well, thanks. This was a fun conversation to have. There's a lot of moving pieces, and I know it can be confusing to detangle that for your own company, but I think it's worth every leader thinking hard and deep about it and really making sure they have the best systems in place for feedback and for compensation. So thanks.
Rob:
Yeah. Thanks.
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