When Your Compensation Program Makes Tomorrow’s Front Page News

Posted on February 23, 2012 by Rebecca Heyman in Best Practices, Human Capital Management

Does the idea of discussing pay with your staff make you itchy? Well stop scratching and start reading.  This is not as hard as you’ve let yourself believe. At its best, pay is a motivator that keeps employees productive. At its worst, pay is a breeding ground for infighting and demotivation. Take the pain out of pay, with a few of my tried-and-true tips.

Just the facts ma’am

What is your company’s approach to pay as a component of total rewards? Is your intent to pay above competitors, below, the same? If you had to explain your company’s compensation philosophy to me right now, could you do it? Every day I talk with our clients and help them answer these very questions. Armed with market data, we make fact-based decisions on the cost of positions against the market. Having a third party benchmark your jobs goes a long way to reinforcing the company’s compensation philosophy, a strategy that you can explain to candidates and employees alike. This reduces the angst in the offer process, and helps managers stay on script with employees who may be asking for a raise or to negotiate on a bigger bonus.

No guarantees

Do not set the expectation that raises are automatic. We all want to believe that we’re above average and deserving of an annual bump, but the reality is that a salary increase should be appreciated as an extra, not an entitlement, if it’s going to be an effective motivator. Achieving this involves separating the annual performance review from a conversation about pay; allow the manager to focus on giving constructive feedback without the pay increase looming in the employee’s mind and disrupting their ability to actively listen. Communicate in advance of performance review meetings that any pay changes will be discussed at a later date.

Put a lid on it

Good companies know that pay details are private, and conscious employees will avoid talking about their income. However, we know that careless practices or a disgruntled employee conversation can lead to leaks. Think of your compensation program as if it were going to be tomorrow’s front page news: would you be able to justify why Richard’s bonus is so much larger than Sheila’s? Is your reason for hiring Arturo at a higher starting salary justified, when Catherine has the same responsibilities but a lesser salary? There are reasonable explanations for varied pay practices, such as having an advanced degree or additional industry experience. If these reasonable explanations don’t exist— beware.  Companies whose pay practices appear capricious are setting themselves up for morale issues and turnover. When making an offer to a new hire or giving a merit increase, make sure you’re accounting for internal equity and are prepared to justify the rate you’ve offered.

I’ve only just scratched the surface; what’s top of mind for you when it comes to compensation consulting?