HRBP & COMPENSATION Center of Excellence – IT’S COLLABORATION TIME

This post in our series about HR Business Partners introduces the need for Business Partners to collaborate in support of delivering optimal client solutions. It has been co-authored with my friend Lukasz Mytnik.  Luk has spent most of his recent career in Compensation and Analytics Center of Excellence (COE) roles.  He is now an HR Business Partner in the Wroclaw, Poland operation of a global insurance company’s Shared Service Center. It is my pleasure to introduce him to our readership.

One of the challenges many HR Business Partners (HRBP’s) find in their work is reconciling the challenges and tensions between HRBP’s and their colleagues in the Compensation COE. Why is it sometimes challenging and why does it pay to build an alliance between roles?  This entry in our continuing series on what it means to be a strategic HRBP will explore how the Compensation COE and the HRBP can better collaborate with each other to enhance their shared impact on their clients.

2020 has been an awful year for many companies and individuals from financial and social connectivity standpoint.  We expect that the 2021 merit cycle will be extraordinarily challenging for many organizations and the HR professionals who have to administer compensation programs.  Thus, the objective of this post is to provide some timely ideas for HRBP’s to consider as they work with their compensation colleagues to manage through a tough environment.

We think it is important to discuss finding the balance between agile and bureaucratic approaches to compensation decisions.  This balance point will also need to take tactics and strategies into consideration. We think this is an especially timely topic as many HR teams around the world head into a challenging 2021 compensation cycle. 

It’s a Balancing Act

Compensation Strategy is often conservative because of budget constraints and other external influences. That is why companies commonly follow the market median as the key benchmark reference point to calculate a “fair base salary” for employees.  But the real world can present situations where tactical considerations push against the guardrails of strategic compensation management.  For example, your direct client – a line manager – might need to attract expensive talent from the competition.  Alternatively, the same manager may find s/he needs to make a counteroffer for a key employee who the competition wants to hire away from you.

As a general rule, it is in the best interest of all business actors to follow the strategic direction of compensation policy. This means respecting the defensive aspects of compensation management like managing within financial limitations.  However, each of the tactical situations mentioned above might require  aggressive compensation decisions. Those decisions can be viewed as exceptions from strategic tenets of compensation policy like following market median or promoting employees only at prescribed periods. On the other hand, if these kinds of situations are increasingly common, it may indicate it is time to challenge strategies that were developed in the past and under different market circumstances.  Regardless, bureaucratic and agile as well as strategic and tactical approaches need to serve delivering financial results

In most HR organizations that have adopted the HRBP/COE model, the HRBP is viewed as the key point of contact for the management team s/he supports. S/he is responsible for understanding the business’ needs and marshalling the resources of the entire HR organization to deliver solutions to address those business needs.

During “normal” or stable times, the Compensation team will assess labor market practices, make recommendations for funding remuneration programs, and work with HRBP’s to implement those programs – once the business has approved budgets and related matters.  In preparing annual merit programs, for example, the Compensation COE will typically prepare guidance that aligns merit pay changes with performance indicators.  This guidance will usually look something like this:

Current Percentile of Range PenetrationRating 1Rating 2Rating 3Rating 4
<25thX%Y%Z%A%
25-50thY%Z%Q%B%
50-75thZ%Q%A%0%
>75thA%B%0%0%

Where a rating of 1 is the top rating and 4 is the lowest rating.

The most common definition of a percentile is a number where a certain percentage of scores fall below that number (e.g. 50th centile called “median” means that 50% of population gets less and 50% more than this amount)

MAKING IT WORK

Easy, right? Just match the percentile to the rating and you have your recommended merit increase percent.   Not so fast.  What do you do if your client has a top performer (rated 1) and s/he is already beyond the 75th percentile of the salary range for their position?   And, to make it a bit more challenging, your client wants to deliver the kind of merit increase that would normally go to someone with the same rating but much lower range penetration. For the sake of this post, we assume the manager’s request is grounded in some solid business reasons.

This could be one of those important pivot points for an HRBP’s relationship with the client and the Compensation COE.  We all know that in many HRBP/COE HR models, the HR Business Partner feels continuous pressure to keep the client “happy”.  In those cases, it would not be unusual for the HRBP to challenge the Compensation COE to explain why the manager cannot go outside guidance.  After all, it’s only “guidance”, right?  Moreover, it’s the manager’s compensation budget, isn’t it?

In a situation like this, the HRBP is tactically shifting ownership of the problem to the Comp COE.  Consciously or not, s/he is seeking to escape the responsibility of leading the client to a satisfactory business decision.  In the long run, this approach will deliver some strategically negative outcomes for the HR business partner.  Among them:

  • It is a missed opportunity to establish problem-solving thought partnership with the manager
  • Just doing what the manager wants does nothing to build mutual respect with the manager.  In fact, we argue it weakens partnership with the line.  If all the manager has to do to get his/her way is demand HR do as requested, then why do we need the HRBP?
  • Pushing the problem to the Comp COE doesn’t build collaboration.  Rather, the Comp COE will likely feel like a victim, hardly the foundation for future partnership.  How receptive will the Comp COE be the next time the HRBP needs help with something?

ENGAGE & MANAGE EXPECTATIONS

As an alternative, we’d suggest the business partner do the following:

  • Deeply understand the reasons why the manager wants to take this action
    • Is there a retention risk?
    • Has this employee been a consistently high performer over an extended timeframe? 
    • What are the future prospects for this employee?  Where does s/he sit on the 9-block and why?
    • What is the senior management point of view – on this employee and the requested exception?
  • Once the circumstances are fully understood, the HRBP should explain next steps to the manager without making any promises of a particular outcome.  This is in the spirit of managing the client’s expectations. (We will address managing expectations in a future blog post).  Those next steps should include:
    • Prepare thoughtful and complete briefing notes to share with the Comp team and his/her manager; remember, no surprises.
    • Meet with the Comp team to discuss the situation and explore alternative solutions
    • Come back to the manager within “x” days with a proposed outcome
    • In very business impactful situations (e.g. counteroffer to top talent) try to anticipate the next steps if the proposed solution fails. Demonstrate creative adaptability.
  • Engagement with the Comp team can explore, as examples:
    • A one-off lump sum award or a customized, valuable L&D program for employee instead of a merit adjustment
    • Some compromise on the percentage increase being sought
    • Are there employees – either in the manager’s direct span or in the higher-level manager’s broader organization – who are scheduled for larger increases than the guidance would normally suggest?  Can funds be rebalanced to achieve the manager’s request?
    • Many organizations keep a “holdback” pool of merit money for unusual situations.  Can those funds be tapped into?
    • A combination of these approaches and/or others

PRESENTING THE SOLUTION

Once a solution is agreed between the HRBP and the COE, it’s time to meet with the manager to explain your recommendations.  We believe the HRBP and the COE partner attend this meeting together.  Some of the key reasons for this are:

  • HR should present a unified recommendation.  We don’t want the manager shopping elsewhere in HR for a “better” answer.
  • By sharing the relationship with the manager, it creates a great opportunity to build collaboration with the COE.
  • If the solution represents a significant deviation from past practice, it’s important to build a wall around the circumstances to prevent the unusual action from becoming a precedent.
  • Together, the HRBP and the COE can help the manager prepare for a discussion with the employee about the decision.  You want to create a situation where the manager “owns” the final decision and doesn’t say “HR wouldn’t let me do it”.

In all likelihood, you will need to present a solution that will be suboptimal from the manager’s point of view.  This is probably one of those years where very few people will be genuinely happy with their merit adjustments.  As the business partner, you need to be able to work with the manager so that s/he can logically and unemotionally explain the facts, the logic behind the facts, and the outcome reached.   That discussion can and should also explore other, non-compensation actions the manager can take to recognize the exceptional employee’s contributions.  A few quick examples might include attendance at a professional conference, one or more training programs, flexibility in some other area within the manager’s discretion such as extra time off or assignment to a high visibility project.

CONCLUDING THOUGHTS

The 2021 merit compensation cycle is likely to be one of the most challenging in recent years.  HR Business Partners need partnership and collaboration with their compensation colleagues for both teams to optimize success.  Business partners cannot credibly “blame” the COE’s for tough decisions and the COE cannot hide in the background.   In the eyes of most businesses and senior leadership, they will succeed or fail together.  We hope these ideas will help you prepare for success.

 PREVIEW OF COMING ATTRACTIONS

We have a lot more to say about the relationship between the Compensation COE and HRBP’s. The next post in this series will explore some of the different approaches that companies use to align pay programs and pay decisions with company objectives. A Polish language version of this post will be available soon. We’ll post that link when the translation is ready.

About the Authors

Somers HR Solutions, LLC is an independent consultancy dedicated to helping business leaders and their teams diagnose and solve people management challenges.  Managing Partner, Ken Somers, is especially adept at coaching HR Business Partners to enhance their organizational impact.  He is dedicated to delivering answers for the real world.

Ken’s career spans more than 40 years as an HR practitioner and executive leader.  In addition to his domestic experiences, he has lived and worked in Singapore, Hong Kong, Japan, India, and Malaysia.  He recently completed his most recent assignment as the interim country head for an insurance company’s back office operation in Poland.  Ken’s vast international experience enables him to bring a multicultural and multigenerational perspective to solving client challenges.

Contact Ken at ken@somershrsolutions.com to explore how he can help your HR and business leaders create greater value for your organization.

Łukasz Mytnik – enthusiast of human relations, behavioral economy and analytical business mindset, in his professional life combining accountabilities of HR Business Partner and Compensation & Benefit Manager.

DISCLAIMER: Every statement of Łukasz Mytnik written in this article or in the comments to this article express his personal opinion and they should not be associated with his employer AXA XL or with any other official duty that plays a role in his regular employment. Łukasz wrote this article in his private time (not during working time in AXA XL).

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