4 Ways CEOs Mess Up Pay Programs
If you CEO passionately believes in your pay programs they will probably work pretty well. This can be a frustrating reality, because the opposite is also true. If your CEO doesn’t understand and support the way you pay people, you will probably fail as an HR or Compensation leader.
The best pay program can’t beat the head wind of a disinterested or actively negative CEO. I have seen numerous examples of professionals who have tried to force a great approach on their CEO only to see it crumble over time. When evaluating the cause of compensation problems, it’s a good idea to start with the five items below.
1. They keep their own pay too low
Many of us have worked for the “good guy” CEO. They’re the one who sets their own base pay to the lowest acceptable end of the market. They don’t want to seem greedy, or they are trying to set a fiscally conservative example. They may also be compressing leadership pay. This can make it hard to differentiate good and poor performers. It can also contribute to difficulties in attracting great talent. A strong Board of Directors can help with this. They can have the tough conversation that may not be your responsibility. Don’t assume or hyperbolize. Inform the board of the actual (not hypothetical) issues you are facing and ask if they can help improve things.
2. They demand that their own pay be too high
Many of us have met one of these CEOs. For example, several years ago I had a CEO tell me he wanted his pay benchmarked to the CEO of Amgen. Amgen had about 15,000 employees at the time. His company had less than 100. His pay was already beyond the 100th Percentile for similar sized companies and took real pay away from key talent. It also created a culture where every person felt they had to fight for as much as they could get. This one is hard to fix. If they don’t get it, there isn’t much you can do.
3. They refuse to follow the rules they have set for everyone else
Sometimes this is intentional stubbornness. Sometimes it is driven by a lack of understanding. Most often this is caused by leaders who simply don’t believe the rules apply to them. While this can be a trait that makes your company unique or successful, it can also lead to a situation where, pretty quickly, the rules don’t apply to anyone in leadership. Once the chaos starts it can take years to rein back in. Remind them that a consistent pay program will help drive specific results. The rules will also help remove pay as an unknown variable when assessing talent and performance issues.
4. They don’t understand your company’s pay programs
Maybe they don’t buy-in to the compensation philosophy. It could be that they have a fundamental misunderstanding of the purpose or value of a specific program. Often the result is “one more new pay program.” Another common result is the conclusion that you are terrible at your job. If the pay programs don’t work the way the CEO thinks they should, you are the first person in the line of fire. Remember that your CEO is smart. They can understand any pay program if it’s important to them. Make it important.
In the end most CEOs want compensation to work efficiently. Don’t assume they know about the problems they are causing. Most of them are not aware of how they are contributing to your problems. Take the time to educate them now and keep them updated later. You’ll be amazed at how much easier your job is when these issues are corrected.