With Compensation, Sometimes There Can Be a Failure to Communicate

By Ann Bares

I’ve had an important lesson reinforced for me. I’m reminded again, via several recent conversations with employees and managers, of the wide range of definitions people hold for some very basic compensation terms.

Think there is some level of agreement on what terms like “bonus,” “incentive” and “pay for performance” mean? Well, think again.

And it isn’t just that people define them differently. It’s also that they feel strongly – even passionately – about those definitions and what they imply.

Take the word bonus, for starters.

I met recently with a group of employees, up in arms about the fact that their employer uses the term “bonus” to describe the organization-wide employee cash incentive plan that’s been in place for several years. Never mind the plan hurdles, design or award levels – they were upset because, to paraphrase them, “you should never use the word bonus to describe something that people have to meet certain criteria in order to earn. A bonus is something you are just given, like a gift.” It was as if they’d been promised Santa Claus and Jack Welch showed up instead.

Or there’s the group who objected to their employer’s use of the term “variable pay” to describe their annual plan. Variable pay, they informed me, implies that 100 percent of the variables on which plan payout is based are within employee control. “Which parts of the plan do you feel employees cannot impact?” I asked. “The economy and the market,” they replied, somewhat stunned that this wasn’t obvious to me. “These impact company performance in ways we cannot control. Therefore, this plan must be called a bonus – and not a variable pay – plan.” So there you go.

How about the word incentive, which is not only a noun describing a host of different cash and non-cash tools, but has now been mangled into its own overused verb — incentivize!

Or take even good old pay for performance. To some, it is merit increases and only merit increases. To others, it is strictly cash incentives. Others, and I put myself in this boat, consider it to encompass many forms of reward that might be linked to performance accomplishments.

But even this got me into trouble the day I spent over an hour in puzzling conversation with a CEO about whether or not her organization should implement pay for performance before I realized that, for her, performance pay meant an incentive plan (which she was opposed to) while the HR executive and I were talking about whether to tie salary increases to performance. That was an eye opener.

Key lesson? Never mind what you were taught, what your handy compensation glossary says or what you read in Milkovich’s and Newman’s text. Productive pay conversations, especially with new parties, require that we begin with a clear, fresh understanding of terms we use and their meanings.

Without it, your attempts to communicate will indeed be futile.

This was originally published on Ann Bares’ Compensation Force blog.