Negotiating Tips For Consultants

A lot of us are working as consultants these days. We do not have the rights and privileges of an employee. A lot of us are sole practitioners. How do we insure that we do not get lost in the shuffle when it comes to getting the right compensation and that we get paid on time as per the stipulations of our contract?

I am hearing more and more of an issue with regards to this subject. Consultants get hired often when the company has an immediate need or there is a pressing problem confronting the organization. Quite often consultants are asked to start working immediately. Therefore, the terms of the contract are finalized after the work starts. Consultants beware! Here are some ways consulting agreements are negotiated:

A straight competitive hourly rate: factor into this rate a competitive base rate, add to that benefits and an overhead burden. If you have any kind of a specialization and if you are on your own, the current competitive rates are from $70/hour to $250/hour. Do not be shy about asking as high a rate as possible. Remember the organization wants to hire you because they have a serious need. Do not back down here. Also ask for a regular payment deal, if you go into invoicing, then get ready the collections game.

A combination of stock and cash: the stock potential can be very alluring but be ready to aggressively manage this deal. Work out an upfront schedule of when you going to receive the stock. Most regular employees get stock right after they start working. Never hold off receiving stock until after your assignment is over. While you are on the project you have more of a leverage to get what you deserve. If you hold off till after you finish the project you can get forgotten, things change, new people come in and your ability to receive what your contract calls for gets more challenging. My advice to people on this subject is that individual consultants should develop a very secure contract for themselves spelling out items that you want to cover and have your clients sign this contract. Usually clients have a very elaborate contract for you to sign, sign that but still have them sign your contract also.

Consultants who are temporary workers often can get forgotten in the shuffle, therefore if you are a consultant aggressively manage the business side of your assignments. Pay as much attention to the business side as you would to subject matter you have been brought in to deal with. Be assertive and protect your rights!!!

Intrinsic Rewards

In the pay ethos is cash the only desired outcome? I do not think so.

In this "flat world" with "cloud computing" dominating our beings, we are finding out that knowledge is a key ingredient of organizational success. Thus "knowledge workers" require from more their work environments more than just a paycheck (don't misunderstand me, all us want that also - because cash is still king). "Knowledge workers" want and need "intrinsic rewards" And by the way in these tough economic times, an organization that can be creative in designing and implementing these "intrinsic" programs will save cash as well create a desirable work environment.

Thus, I get a lot of questions like - "Can you elucidate on what knowledge based organization that strive to be "world class" are providing by way of employment conditions to attract and retain "world class" talent into their organizations".

Here are some current trends:

Flexible working hours - this program provides employees the ability to spend time with their children or to schedule their commutes to avoid rush hour traffic. This provision includes the opportunity to telecommute a few days a week on a rotating basis.

Longer vacations - paid vacations are great, but so is unpaid time off. How about doing unpaid time off instead of lay-offs? A novel idea, right? Offering hard-working employees extra vacation time to visit relatives, take a cruise or take a class are all very attractive to employees.

An attractive work environment - making the surrounding pleasant, neat and clean. Plants, posters or paintings all make the environment pleasurable and fun.

Discounts or free use of company products and services - the simple gesture of making office computers available to employees for after hour use can go a long way to make it attractive for some employees.

Sponsoring community activities - employees like to work for companies that sponsor community activities. Youth soccer, the Little League, United Way are just some examples of this type of community support.

Recreational activities - company picnics, special occasion lunches, "attitude adjustment hours", a day at the ballpark, are all very attractive propositions to employees. These activities break up the monotony of day-to-day work, especially when employees have been putting in long hours.

Tax-free $2000 bonuses - companies are offering company-sponsored and funded savings plans to new and part-time employees who have not yet qualified for the pension plan. In some countries the tax laws allow such programs to operate. 

All of these small gestures make an organization attractive and desirable to work in. Therefore, more and more start-up companies who thrive to be "world class" are introducing such programs for their employees.

 In conclusion, I say that organizations that focus on these "intrinsic" rewards in conjunction with the "cash" component create an attractive and rewarding work culture.

Ideas surrounding a societal wage floor

There are critical differences between the concepts of a minimum wage, a living wage and a subsistence wage. Let us explore the differences here:
A Minimum Wage - The lowest wage, determined by law or contract, that an employer may pay an employee for a specified job and may fail to meet the requirements of a living wage.
Living wage is a term used to describe the minimum hourly wage necessary for a person to achieve some specific standard of living. This standard generally means that a person working forty hours a week, with no additional income, should be able to afford a specified quality or quantity of shelter, food, utilities, transport, health care, and recreation.
Subsistence wage is the lowest wage upon which a worker and his family can survive - a wage so low that it is barely enough to live. According to Lassalle, wages cannot fall below subsistence level because without subsistence, laborers will be unable to work for long
Here are further elaborations on these concepts from a social justice point of view: as propounded by scholars and the Catholic Church:
—"If a worker receives a wage sufficiently large to enable him to provide comfortably for himself, his wife and his children, he will, if prudent, gladly strive to practice thrift; and the result will be, as nature itself seems to counsel, that after expenditures are deducted there will remain something over and above through which he can come into the possession of a little wealth.. ”
—"Wealthy owners of the means of production and employers must never forget that both divine and human law forbid them to squeeze the poor and wretched for the sake of gain or to profit from the helplessness of others.”
—"As regards protection of this world’s good, the first task is to save the wretched workers from the brutality of those who make use of human beings as mere instruments for the unrestrained acquisition of wealth.”
—"Care must be taken, therefore, not to lengthen the working day beyond a man’s capacity. How much time there must be for rest depends upon the type of work, the circumstances of time and place and, particularly, the health of the workers.”
In spite of the above call for social justice there remains still today across the world many places where exploitation through "human trafficking" remains a severe concern.
There are supporters and critics of the idea of a living wage and its effects on the economy.
The critics argue that implementing a living wage establishes a wage floor, which will harm the economy. They believe that companies will choose not to hire the same number of employees at such high levels of pay. This creates higher unemployment, resulting in deadweight loss, as people who would work for less than a living wage are no longer offered employment. —Supporters of the living wage, on the other hand, argue that benefiting employees will also help the company. If employees are more satisfied earning a living wage, there will be less employment turnover. This reduces expensive recruitment and training costs for the firm. They also argue that the higher wage will boost morale. Employees with high morale are expected to have higher productivity, allowing the company to benefit from increased worker output.
All in all these above stated wage standards today across the world are not adequate for the average human being to live a decent life. The living costs, especially of the essential necessities of a decent life are regularly trending upwards. One earner or one job situations are becoming scare to make ends meet.
So an esoteric debate around economic philosophy is mute in the real world. Majority of the world's population are still on income hovering at the subsistence level and below. Certain areas of the world are suffering more than the others. The irony around modernity is that the rate of growth of technological advances, globalization, communication systems, medical sciences etc. is much greater than rate of improvement of the living conditions of a majority of the world's population. While a portion of the world's population sees a rapid increase in living standards, the largest proportion of the world's population live under a system of "wage slavery".
Look for an essay on the concept of "wage salary" in a future essay on this blog.

Forget Internal Equity in Pay Systems

In a previous Blog posting, titled, “The Two Main Pillars of Compensation Systems” I had introduced readers to the concept of internal equity as one of the main structural pillars of a Pay System.

In this essay, I will expound on the concept that all traditional methods of achieving internal equity are filled with practical challenges. As such, these methodological frameworks languish quite often under the throes of disrepair. Not uncommonly one finds total frustration and anger from internal stakeholders about these programs. Thus, in my opinion, as is the opinion of a majority of professionals in the modern pay management field, that the only way there is to achieve “internal equity” is to base it on the market value of positions and jobs that are required in an organization to achieve strategic and operational objectives (Market Pricing).

The overall structural and theoretical objective of any base pay system has been to achieve both internal and external equity. For achieving the “internal equity” objective the normal methodology used is what is called classification. The science of classification is called taxonomy. This is how taxonomy is defined in Wikipedia:

The branch of science concerned with classification, esp. of organisms;  systematics.

• the classification of something, esp. organisms : the taxonomy of these fossils.

• a scheme of classification : a taxonomy of smells.

Thus one can see the logic of the use of this science in pay systems. What pay systems attempt to do with the use of taxonomic methodologies is to achieve the grouping of work, functions, duties, tasks, knowledge, skills, abilities and behaviors that are rational and logical from the organization’s point of view (not competencies – more on this on a later blog essay) and from the point of view of achieving the organization’s strategic and operational objectives.

The taxonomic methodologies that have been used are, job/work analysis and job evaluation systems. The desire has been to use systematic methodologies in order to be able to develop and implement an understandable and equitable work/job/level structure.  Various quantitative and qualitative methods have been available and are still available for use to perform job analysis and conduct job evaluations. For job analysis recently many quantitative techniques have been developed. With the advent of wide spread computer technology many of these quantitatively structured job analysis techniques are available in a computer-aided format. For job evaluation there are a plethora of techniques and methods available for use. They range from whole job ranking, paired comparisons, classification systems and point factor evaluation systems. With point factor evaluation systems being the apparently the most “objective” and quantified process (I for one doubt this contention).

To me, after years in this field, the effort expended to do all of the above in organizations is a complete waste. This is because of many practical reasons which one encounters in the “real world”.

Here are these reasons:

Job analysis and job evaluation systems assume a static organizational state. The organization sets its strategic and operational objectives and then follows work, job and job level analysis. But in reality now more than ever there is no “organizational steady state”. In order to succeed in the modern global competitive world, organizations have to be nibble, flexible and in a constant state of change. Thus static systems such as traditional job analysis and evaluation are not valid anymore. Tell a CEO that you want implement these systems with all their associated costs and you are sure find yourself on the street. Gone are the days of the “Hay System”.

The basic purpose of job evaluation systems is to create a hierarchy of work – positions, jobs, levels – based on some kind of an internal valuing system. In some job evaluation methods the valuing system is based on “compensable factors”. But, here lies the fallacy. Who decides what the appropriate “compensable factors” are for an organization? And those factors infinitely static, no matter how the organizational environment changes? Who sets this valuing system? HR, consultants, executives? And isn’t “beauty in the eye of the beholder”? Why would an employee, worker or even manager agree with some else’s concept of the value of the work they are doing? Over the years I have seen that this valuing process is a continuous creator of organizational angst. These processes destroy organizational trust and decreases employee morale. And when organizations are trying to achieve positive culture change these bureaucratic methods, which are a legacy of the “industrial age”, are often not appropriate for modern global work environments. There are no “colonial masters” anymore!

In theory compensation systems achieve “internal equity” through a properly developed job structure. This job structure is then melded with the external market to create a pay structure. This nomenclature of a pay structure is characterized as grades or salary grades. This nomenclature is also fallacious because, grades are developed by, clustering jobs and positions that have been determined (by a pseudo-expert) to be of equal internal value (by the use of a job evaluation methodology) and also are valued equally in the external market into one “box” called a grade. This is completely  “much ado about nothing”. Again this exercise is quite subjective and as such lacks total credibility with the stakeholder public. The external benchmarking is achieved through the use of benchmark jobs. All this sounds complicated and it is. But the value deprived is very suspect. So I say, do away with grades. Grades are a “legacy system”.

Finally, did you note that I was using the expression “equal in value”. But what about “comparable value”. More on comparable value in a later blog.

Thus, in conclusion, in my opinion, if one desires some structure and discipline in a base pay process the only way one can achieve “equity” is through a valuing process that the “market” sets for work, jobs, positions and associated levels. There will be more on “market pricing” in a later blog.

The Performance Management Mythology

Most organizations profess to practice performance management. This is myth, because most organizations do not engage in true performance management. There are many reasons for the perpetuation of this myth, which I will be discussing in this oped piece. The intentions are noble but execution suffers from the intense realities of a frail psychological eco-system that exists in most organizations.

What do I mean by the phrase "a frail psychological eco-system"? In reality managers who have to discriminate and weed out the "good", "the bad" and the "not so bad" employees do not exercise the mental and verbal disciplines of managing employee performance - that is confronting the non-performers and rewarding the better ones. All of us like to be good guys and gals and we really do not want to sit in judgment of others, lest others also judge us unfairly. We are all very insecure in organizations that have all kept us on our toes with job insecurity. It is much easier to be delightful rather than being a nasty truth seeker. Thus most managers take the path of least resistance - we tend to evaluate everyone at average or above. Listen, why would a manager want to rate someone poor or extremely bad? Does that not reflect negatively on the manager themselves? One can tell a manager you have "bad" employees because you are a bad manager. Ever thought of this dimension before? So the main reason performance management is a myth is the fact that the results of the process is skewed towards the upper end of the performance rating scale. 

A corollary to this dimension most organizations use a "performance appraisal" system to evaluate employee. These systems to say the least are subjective but tend to attempt objectivity with the imposition of a rating scale, Well guess what, based in the argument presented in the previous paragraph the evaluators exercise "skewed" rating profiles - most of the ratings are average or above. If there were indeed a true performance management system then one would have seen a more normal distribution. This is not a reality, the reality is an upward distribution rating profile.

Then take the case of "Executive Compensation Madness". Today one can find a negative correlation between the growth in executive compensation and the growth in corporate profits. Executives make the big bucks in spite of not making the necessary profits to satisfy shareholder interests. Thus when there is really no executive performance management why should managers practice what the executives preach but do not practice. There is no "walking the talk". So most organizations mossy along their merry way by giving lip service to performance management and engage in maximizing the accouterments of the system, rather than practicing the organizational philosophy in its true spirit.

Also in recent times there has been a marked "softening" of the workplace. Form has replaced substance. It is very important now to be "sensitive" towards the feelings of others. Behavioral dimensions are emphasized, as much if not more than, skills, knowledge and abilities when performance judgments are made. Thus by its very nature good or bad behavior is judgmental and thus subjective. Beauty is in the eye of the beholder. Hard facts are sacrificed in comparison to results. Managers are being judged on their abilities to show empathy. All of this mussy stuff is not conducive to hard factual of performance based on results.

And finally the connection between pay and performance is almost a joke. Whenever an organization ties the performance management system in time with the pay management process they write themselves the ticket to total disaster. When a manager is giving an employee a performance appraisal and the employee knows that at the end of that session, the manager is going to tell the employee how much of a pay increase they are going to get, you can bet your bottom dollar that the employee is thinking "boss cut performance appraisal non-sense, just tell how much of a pay increase am I going to get". "Show me the Money!" In this scenario the employee gives a deaf ear to anything the manager is saying about their performance - good, bad or indifferent. The management of performance is a "holistic" process. As long as practice ties pay to it then the value of a performance dialogue between manager and subordinate goes out the window.

So I say do away with formal performance appraisals systems. They do not work. Over my long career in the many organizations I have been associated with, I do not know of a single organization that can hold their heads high and say that their performance management/appraisal system works. When you do away with these HR perpetuated systems much overhead expenses will be saved.  Make it informal. Leave it up to your managers. Encourage continually performance management dialogue between managers and employees. Don't introduce or use rating based appraisal processes because if you do that, you will introduce a negative "punished by rewards" culture.

Performance Management as currently practiced only introduces negative angst into the culture thus destroying morale and motivation.

The Concept of Contextual Poverty in the Field of Pay

I contend in this essay that what we are seen in the current debacle of unseemly Executive Bonuses e.g. AIG and also the whole realm of Executive Compensation that we have witnessed during the last twenty years or so, is a result of a severe case of contextual poverty in the design, review and evaluation of these programs. It is my contention, that in the “Pay Ethos” we quite often live in a state of contextual poverty.

This contextual poverty state has been created and maintained by Compensation consultants, Internal Compensation Specialists, Boards of Directors, the executives themselves and their Human Resource executives. 

So what do I mean by contextual poverty.

—The circumstances that form the setting for an event, statement, or idea, and in terms of which it can be fully understood. So one is out of context, if one tries to understand or explain any phenomena without the surrounding words or circumstances that have not been fully understood. Being in this state of an absence of context is being in a state of contextual poverty. (Wikipedia)

—Getting out of this poverty state requires study, analysis and a deep understanding of all the dimensions of the context

The field of Pay is surrounded by stated, researched and validated theories that have been passed onto us from the days of the advent of the Industrial Age. No less illuminators than Karl Marx, David Ricardo, Adam Smith all the way down to Edward Lawler have all theorized various pay related theories. Thus this field requires deep study and understanding before one can call themselves "experts" in the field. This is not the case.

Furthermore, the field of Pay is a multi-disciplinary field engulfing sociology, psychology, economics, the business disciplines of  - finance, accounting, legal, tax and social anthropology (I may have missed some). Thus an understanding of this field requires a study and understanding of these contexts. How many people developing, advising and approving programs in this field have this multi-disciplinary context under their belts? Not many I would say. 

Finally, the pay context covers an understanding of the macro issues of social cost, governance, comparable worth, gender equity that affect our Pay Ethos.

Most of what we see is "suit off the rack" "copy the others" programs designed and implemented in a contextual poverty environment. No wonder we have such anger, emotions and bewilderment attached to this subject, especially in democratic societies. The US Congress and also the President have to deal with programs where the context is not well understood.

This is the conclusion I have reached with the advantage of hindsight, after having spent most of my adult life in this field. Sad isn't it?

Therefore, it is time to ponder this subject in more depth.