Compensation Pre-Resolution Thoughts

The impending New Year brings the opportunity to start anew, always with the assumption that we are moving on to bigger and better things. Resolutions have to be made on an existing solid foundation, however, or they will end up like the unused gym memberships/equipment, failed diets and similar frustrations likely to occur by mid-January.

When considering how you can improve your organization’s compensation program in 2016, ask yourself the following question:

Can I accurately predict every employee’s pay within 5%, using only our existing program documents and their job description, along with their resume, work history and performance review documents?

No fair peeking at a pay survey — your program needs to have the market data already built in, and you shouldn’t need to crack the book to figure out which grade the job should fall in.

I fear many programs will fail this test, for a variety of reasons.  Given the results of many recent surveys on pay management, most organizations seem to have fallen down the dangerous path of relying wholly on market data.  Many others will be unable to accurately reflect an employee’s contribution in their pay.  So let’s make it more difficult with the following question:

Does our compensation program ensure that each employee is paid consistently with the value of their contribution to the organization?

Our organization may have a good general program design, but is it administered correctly?  One of the main flaws of the typical compensation program today is that while it may get the pay opportunity right, it fails to keep up with the real value of an employee in the market.

Most learning takes place in the first few years on the job — for many entry-level jobs, it may take place in the first few weeks.  That means that an employee becomes “market competitive” relatively quickly, and pay increases in the beginning of time in the job need to be aggressive. Consider a 40% wide pay grade (i.e., the maximum is 40% higher than the minimum) in a job that takes three years to learn how to perform proficiently, and assume the market is moving at 2%/year.  An “average” employee hired at the minimum of the pay range would need increases exceeding 27% over three years to stay competitive.  An employee that receives just a 3% increase every year will take 19 years to even get to a competitive position.

Contribution over Time

Most pay plans don’t do that, so my final question for you today is:

Do we pay on the curve?

If you don’t — spend your resolution efforts on building a foundation…

 

 

 

About Edmund B. Ura

Edmund B. Ura, MAIR, JD, works with governing boards, executives and human resources staff to develop methodologies for ensuring fair and equitable compensation programs that support achievement of organizations' missions. Contact Ed at ebura@mercesconsulting.com.
This entry was posted in Communications, Compensation, Competitive Data, Performance Management. Bookmark the permalink.

1 Response to Compensation Pre-Resolution Thoughts

  1. Reblogged this on The Compensation Times and commented:

    Carefully think through how your current compensation program works — if you can’t answer some simple questions, you should go back to the beginning and make sure you’ve got the fundamentals in place.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s