pay to play- what to make of today’s compensation environment

Today’s compensation environment is uber competitive, it requires diligence and pro-active management of market information and alternatives, insight into people’s somewhat predictable motivations and constant evaluation of an employee’s performance.

Is there a science to manage madness?  I say yes.

 Over the last 25 years, I’ve worked with many companies, both in-house as an HR Leader and now as a consultant.  Each company has its own unique point of view on how to pay people.  That’s okay.   IF:

·       You are consistent and do not discriminate using pay against any protected classes as defined by EEOC.

·       You are following all FLSA laws set forth by Department of Labor.

·       You understand that pay drives behavior, whether you want it to or not. 

·       Your pay practices align with your philosophy.  Meaning, does your message match your actions? 

·       You know the tradeoffs you face with your current philosophy and practice.   philosophy and practice.  

·       You are able to tell your story and your employees understand it.

 The Science

Create your practice to reflect your company’s pay philosophy- one that portrays transparency, growth and equity among specific job groups.  Walk the talk, especially when it’s tough.  Determine what criteria matters to you and stick to it, or you open yourself up to favoritism that is not merit based. 

 Define your philosophy as the “why” for doing something, or the desired human action you strive to achieve.  Define practice as the act of doing something; to achieve the desired result.

 My advice

Be intentional and specific about your philosophy and your practice.  Always keep a pulse on the market, wage pressures, establish pay equity (not equality) and transparency. 

What’s happening in the market?

Periodically review the market data.  I recommend bi-annually for salaried positions and quarterly for skilled and unskilled labor.  What are your competitors offering?

Ensure HR is conducting exit interviews if employees are leaving for alternative opportunities to gauge comp/ benefit offerings.  Ensure Recruiters are collecting compensation expectations are of perspective candidates?  What do the job boards, open positions in the market, and industry specific comp data tell you?        

How do you stand up to current wage pressures? 

My advice?  Don’t muddy the water by confusing a merit-based increase with a cost-of-living adjustment.  Always factor in cost-of-living adjustments to your annual financial plan.  Merit-based increases should be messaged separately to the employee and determined using a combination of individual performance, company’s profitability and market-based data.      

Transparency Laws

While compensation is frighteningly whimsical in some places and far too rigid in others, the reality is there are more and more states creating laws around pay transparency, which require companies to post salary ranges on jobs.  I’ll opine generically and recommend that to comply- pay ranges by job groups are the most effective way to manage.  The key is to ensure your wage range is appropriate for the position and it allows you flexibility to discriminate (yes, I said it) based on merit and merit alone. 

Pay Equity

Pay equity is not pay equality.  People are unique individuals, they contribute uniquely, and performance changes over time- and expectations should too.  What is pay equity?  People in the same job group with like responsibilities should be benchmarked and assessed for their application of skills/ knowledge and performance.  Inequities exist everywhere, and as a leader you must step back and define what criteria you are evaluating on and justify your outliers.  Are the outliers knocking it out of the park consistently or not meeting expectations?  If you have a significant outlier, signs are you must address something else. 

The Science is simple.  Commit to your philosophy and evaluate it annually.  As your business evolves your philosophy should too.  When your philosophy evolves, and when the labor laws evolve- your practice will need to, too.  Don’t overengineer it, call us to help!    

Do a Pulse Check today - A leaders’ exercise

1.       How would you define your company’s compensation philosophy?

2.       Does it drive the desired behavior?

3.       Do your employees understand why they are paid the way they are?

4.       How do you message pay practices?

5.       Do your pay practices allow you to compete for the right talent? 

6.       Why do you pay people the way you do? 

7.       What objective and subject factors are you taking into consideration?

8.       How are you messaging the employee?