The Accountability Curve
It can get expensive
Memory Lane
Many, many moons ago while I was a Process Analyst for an organization in the public sector, I shared an idea with my manager to create a team focused on improving organizational capabilities mainly through data, process, and business analysis services. The manager agreed and I was given the opportunity of designing this team in collaboration with my manager. I crafted a team structure, complete with two career paths and the associated job descriptions—including a new manager who would lead that team. In total, the team would have six positions.
After more than six months of work and revisions, the creation of the new team and associated manager to lead the team was approved. One individual, who had an analytical role but was in an operational team, was slated to move into this team from another.
Naturally, my position was changed to be the new manager. I was excited about this opportunity because there are not many manager positions available that lead teams comprised of process, data, and business analysts, especially in a local government setting.
Even though this opportunity happened several years ago, I can still visualize sitting across the desk of my manager while an envelope was given to me formally changing my title to manager and associated compensation. However, I could tell my manager was a little hesitant to give the envelope to me and read it.
I quickly learned why. My excitement was crushed because the percentage increase in pay moving from an individual contributor to a leadership role was less than the percentage increase I had received for each year I had worked there.
Extreme frustration doesn’t touch the surface of how I felt.
I was banking on the increased compensation to more appropriately provide for my family because funds were already tight. Plus, at my previous employer, I went through four rounds of interviews for a manager position and would have been selected. However, due to a strict HR policy about meeting minimum job requirements, I met some of the requirements but not all. Therefore, I wasn’t selected on a technicality. So the wound from the previous employer was opened again.
Ultimately, I found employment with higher compensation elsewhere soon after earning that promotion—but the new role wasn’t a leadership one. So the short-term gain came with a long-term cost.
The Painful Lesson of Accountability
There were two primary factors contributing to this situation.
The first factor
An HR policy prevented the salary for an internal promotion to the next level in the compensation structure from being more than a certain percentage within the pay range of the next level.
Given my performance in the lower pay structure and associated raises, I naturally was already close to the next level limit.
Here is an example with made-up numbers to illustrate.
Let’s say you are in pay level 10 with a pay range of $50,000 to $60,000. The midpoint in that range is $55,000 and your salary of $58,750 is above the midpoint (congrats!).
Compare that to pay level 11 with a pay range of $58,000 to $70,000. The midpoint for this range is 64,000.
Let’s say HR has a policy that the salary for an internal promotion to the next level can’t be more than 95% of the midpoint of that next level. (I don’t remember the details from my experience but it was something like this). That would place the upper limit for a promotion at $60,800 from a level 10 to 11. If you are making $58,750, then a “promotion” would equate to a 3.4% increase in your salary. Sometimes, high performers can receive merit increases in the 4% range, so your promotion increase is lower than your merit increases.
Even though these numbers were made up, that was the scenario I experienced. I received high ratings on performance reviews in my pay level that pushed me beyond the midpoint in that range. At the time, that reward system was great…until I was promoted to the next level.
The Second Factor
The above issue resulted from a one-level promotion. If I were promoted two levels higher (e.g. from 10 to 12 instead of 10 to 11), then I wouldn’t have encountered this compensation conundrum.
That leads to the lesson of accountability as the second primary factor.
The organization used the Hay Job Evaluation method to score and rank jobs. Conceptually, it is a point system that evaluates a job along the following three factors:
Know-How – the knowledge, skills, and experience required.
Problem Solving – the complexity and creativity needed.
Accountability – the responsibility for outcomes or decisions.
The job is scored for each category and then aggregated to an overall score for the job. The concept seems simple but there are technical details that require training to effectively use. The method was originally developed by the Hay Group and it was acquired by the HR consulting firm Korn Ferry. They offer training to be certified in the method.
The Process / Capability Improvement Manager position was scored right at the cusp between a one-level bump above my pay grade to a two-level jump. So I was close to receiving a promotion that was two levels above instead of the one and wouldn’t have been negatively impacted by the HR policy.
The deciding factor that kept the position from the next level up was accountability.
The knowledge and problem-solving components played a significant part in the evaluation but accountability had a larger influence because the rating scale for accountability is not linear. Since it was a new team and manager, the role was more advisory and facilitative with other leaders in the organization. Therefore, accountability for any improvements would fall on the functional leaders instead of my manager role.
One of the differences between a leadership role and a contributor role is the leader is often accountable for something for which they are not directly responsible. Someone on their team may do the work (aka responsible for doing it) but the leader is accountable.
One of my extended family members is in the armed forces and was promoted to an entry-level leadership position and explained this accountability vs. responsibility dynamic very well.
Before I was a leader, when I would make a mistake, I would get yelled at.
However, now that I’m a leader when someone on my team makes a mistake I get yelled at for the mistake they make.
I’ve also worked with a consultant before who would say “One throat to choke” when talking about the importance of accountability.
It is easy to see how this type of evaluation is associated with compensation by examining the differences in pay between the CEO of a company and the next highest-paid executive.
Here are a few examples (amounts in millions and compensation excludes exercised stock options) that compare CEO pay to the next highest-paid executive for three public companies.
The CEO of Apple = $16.24 compared to the COO of Apple = $4.64
The CEO of Ford = $4.22 compared to the COO of Ford = $2.16
The CEO of Hertz = $2.86 compared to the CFO of Hertz = $1.23
The average percentage increase in pay was 259% between the CEO and the next highest-paid executive.
If we use that percentage increase for my first example with a midpoint compensation for a level 10 of $55,000, the next pay level would be $142,450. I would have definitely been satisfied if that was my pay increase for the promotion! 😀
Why such a big jump for the CEO?
Because the CEO is accountable for everything that happens within that organization compared to direct reports of the CEO—who are responsible for a specific function. Consequently, the percentage increase in pay represents the upper limit to the accountability & compensation curve.
Unlike the factors of know-how and problem-solving, increases in accountability, especially for leaders, are more exponential than linear. So percentage differences in pay increases become larger as you move up the ladder because accountability increases at the same rate, especially for leaders of other leaders.
Here’s an analytical exercise on this topic.
Start with the compensation of Apple’s CEO and try to work downward. How many pay levels do you think Apple has and what would the differences in pay be for each level? How does the accountability change as you move down from the CEO to entry-level positions?
Why is this Important?
Let’s drill down with two follow-up questions for now. Future posts may go deeper.
1. Why is accountability associated with compensation?
Being accountable for something for which you are not directly responsible can lead to stress, sometimes at significant levels. So that could be one factor for the compensation differences based on accountability. You need to incentivize leaders to take on that risk.
But what value does it bring to the organization to concentrate accountability from the many to the few?
One benefit I’ve experienced, from the bottom looking up, is insulation from the politics from above. Good leaders shield their teams from political roadblocks so they can perform at higher levels. One of my managers, who is also a long-time friend of mine, was good at this.
However, accountability can backfire when managers don’t trust their team and so will micromanage them to reduce the risk of accountability. Also, some leaders will hide the truth of mistakes to stave off the consequence of that function of their role.
These a just a few summary aspects of the relationship between accountability and compensation.
For those who are early in their careers and want their incomes to progress much faster than inflation, you need to take on more accountability and develop stress-management skills to handle the risks effectively. Also, learn about pay grades so you have a greater understanding of compensation strategies as a whole and how they are related to your career and financial goals.
For more information about pay levels/bands, check this page from the leading HR professional organization.
https://www.shrm.org/topics-tools/tools/how-to-guides/how-to-establish-salary-ranges
2. Social costs of accountability concentration
I will end this section and article with these three questions.
How does compensation based on accountability curves contribute to income inequality from an Economics perspective?
How do the positive aspects of accountability within a social system degrade into something negative such as blame games, scapegoats, or cultures of “one-throat-to-choke” when something goes wrong?
How would social organizations be structured if they were primarily comprised of polymaths? Could they be self-organizing to the point when multiple layers of management would become unnecessary? Could they find a way to share accountability—and thus share in the compensatory rewards?
Thanks for reading
The paradigms in your article reflect the typical business arena where the hierarchy of the office, CEO to Worker also matches the distribution of money. As you put it, the more responsibility, the more pay.
Interestingly, the sports world, does not operate in this type of hierarchy. In most cases, the person with the most accountability, the coach, is paid less than the team's key contributors. In the sports world model, the money goes to those whose skills contribute the most to the team's success. Granted, the number of players on a team is significantly lower than a typical office, however, what if the business world adopted a similar strategy?
It's time to re-examine the bonds of what I consider to be outdated 'norms' for managing people within a company. Why should there be artificial limits on merit increases or on how many levels one can be promoted in a single year? Could compensation be better tied to individual contributions to the bottom line, thus providing better motivation to workers? Perhaps it's time for leadership to examine the role of HR and change it's focus from preventing risk to the company to actually managing Human capital to motivate people to perform.