Compensation Pros Should Become Experts in Measuring Performance

Key takeaways

• Compensation software handles routine tasks, giving compensation professionals more time for important work.
• Pay-for-performance programs work better when employee performance is measured correctly.
• Managers often need more help than basic goal-setting tools provide.
• Executive pay programs can provide ideas for setting and measuring performance goals.

Compensation pros get stuck doing an awful lot of repetitive manual tasks.

The touted solution to such toil is usually this: use a well-designed compensation software solution with automation tools that can eliminate the slog of endless copy/paste loops. Problem halved, problem solved. Thank you, technology!

Assuming all goes well, the question is raised of how compensation pros should spend the newfound time they’ve clawed back from the monotony of rote processes. One good answer is for them to become experts in measuring performance.

Why performance measurement matters in compensation

One of the main goals of compensation is to reward individuals for great performances, either through a pay increment or a variable pay strategy. How we do this now is based on a rather shaky belief that managers inherently know how to assess the performance of their direct reports.

But what if they don’t?

We often try to help managers measure performance by giving them a framework for setting S.M.A.R.T. goals and a way to score softer behaviors. While this is a better start than nothing, a short training session and a framework aren’t necessarily enough to help managers set goals or assess performances. We often pretend the process is a lot more straightforward and objective than it is—everyone else just plays along.

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What executive compensation can teach us about performance measurement

Executive compensation is a vital area where we can see compensation professionals acting as deep experts in performance measurement. The best executive comp professionals make a significant effort to understand appropriate goals.

That is, which goals are obtainable? And can the success of those goals be measured?

For example, if increasing one’s market share is a goal, then comp professionals will determine how to adjust key targets around factors a leader doesn’t control (for instance: the worldwide economy).

You don’t want to reward a poor CEO with a rich bonus just because they happen to be running the show during a booming economy. Similarly, you wouldn’t want to punish a great CEO who has met hard challenges but still struggled to hit numbers during a dire economy. Executive compensation professionals pride themselves on their expertise in measuring performance – and boosting it with intelligent compensation targets.

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Starting with the “What do you really, really want?” question

For compensation professionals to become experts in measuring performance they need to start by helping managers clarify what they want, what they really, really want. Phil Wills, a UK-based executive compensation thought leader, appropriately calls this the “Spice Girls” question. He says that to answer this question, you need to start by understanding the business model (i.e., how the company makes money).

From there, understand the performance model (i.e., how it goes about executing the business model), which naturally leads to questions such as, “What are the must-win battles in this organization?”

For many, these strategic developments sound much more exciting than wrangling endless compensation spreadsheets. Here you are working to really understand what drives a business, what executives need to accomplish to grow that business, and what performance goals to set along the way.

Applying performance expertise across the organization

In this specific (or Spice-ific) case, Wills is talking about top leadership, such as organizational executives with alphabet soup code names like CEO and CFO. Approaches to performance measurement may need to be adapted as you move lower down the chain of your organization.

However, if compensation pros can help managers answer the question, “What do you really, really want?” then they can certainly devise a solution for other managers elsewhere in the hierarchy that will lead to better pay-for-performance schemes.

The future role of compensation professionals

Learning how to effectively measure performance for jobs across the organization will be a challenging task for compensation pros. However, as software continues to automate the repetitive aspects of compensation work, the pros will have an opportunity to take on more important and complex work.

Embracing the idea that a key skill of compensation professionals should be the ability to define essential business goals and measure performances will be an enormous leap forward.

See how CompXL® automates the manual so you can focus on the complex.