Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 05-07-2014
When it’s time to fix your organization’s Compensation program, and you’re the one in charge, what do you do?
Suppose you’ve just been promoted to the Compensation leadership role in your organization, or you’ve just been hired and inherited someone else’s legacy. Perhaps you already have ownership and simply have the boss’s angered shouts still ringing in your ears.
Whatever the catalyst, suppose you suddenly face a situation where you need to fix your compensation program; how would you go about it? Where do you start?
Points of pain
First things first; where does it hurt? The clarion call of action is coming from . . . somewhere, so find out and determine what those burning platform issues mean for your business.
Typical problem areas would include the following favorites:
- High turnover: Have your avoidable separations (excluding , retirements, relocations, deaths, etc.) reached a level that has attracted senior management concern?
- Recruiting: Has the Staffing section complained that it’s become difficult to attract the right caliber of candidate? That your pay scales aren’t competitive?
- Payroll: Is your unit cost of labor considered too high? Too many FTEs? Is your employee payroll bloated and unwieldy?
- Morale: Has your organization flunked the latest employee engagement survey – and fingers are pointing at Compensation?
Or is it something else that’s poking you in the eye, causing the organization to consider its pay programs as more a problem than a solution?
Look and learn. It’s the first step toward a solution.
Next, extend your research beyond the obvious and look under a few rocks for what you aren’t being told.
Start asking key management personnel about the health of the reward programs (effective, efficient, performing as intended, etc.). Talk with line managers (those in the trenches) to learn where employee friction points make the most noise.
Then review your compensation metrics (you are using metrics as a statistical aide, aren’t you?) to determine whether those figures are telling you a story that you might not have noticed before.
- How competitive are your salary ranges? When was the last time you conducted a competitive analysis? What did it tell you, and more importantly, what did you do about it?
- Is grade and title inflation boosting costs without adding value? Bogus titles and inflated evaluations, often used to salve an employee for those you can’t provide cash rewards, are not harmless gestures. Those backdoor tactics cost real dollars, without providing a corresponding return in performance, productivity or engagement.
- What’s the average performance rating, and how does that correlate with the success of the business? If the employees (especially managers) tend to be rated as above average performers, while the business is having an average year, that disconnect is costing you money and credibility with your workforce.
- Do you segment your employee population? Not everyone’s external value changes at the same rate. Find out how different employee groups (non-exempt, exempt, professional, management, sales, executives) are being treated (pay rates and trends). You may have problem pockets, not broad-based trends.
Chances are that the statistics from your metrics database will validate the concerns raised from your interviews – and focus your corrective actions.
Likely you already have in place a salary structure, complete with grades and salary ranges. You may even have multiple structures, based on employee segment, specialty departments or geography. Make sure they’re up-to-date.
Consider preparing a Compensation Administration Guidelines document for your managers, as a aid in applying standards of consistent treatment for your employees. These guidelines would lay out in a single voice the policies and procedures to be used in managing your reward programs.
When are performance reviews conducted, how large are promotional increases, how are exception requests processed? How are jobs evaluated, who is eligible for incentives, and how do you use geographic differentials across the country? Who has to approve what actions?
And what are you doing about Management training? How do you ensure that those empowered to spend the company’s money (hiring, promotions, performance increases, etc.) actually understand the intent of your compensation programs? Or are they making a series of well-intentioned emotional decisions that spend the company’s money without concern for financial operating pressures?
One could argue that focused training is a minimal cost solution to the problem of managers wasting the company’s money through ill-advised pay decisions.
Once you’ve determined where the problem areas are, their magnitude (impact) and the prioritization of gaining solutions, you should consider taking the offensive to make sure that your message is the one employees are talking about.
Note: most other corrective steps are defensive in nature, like putting your finger in the dike. Survey analysis, salary structure redesign, performance appraisal modifications etc. are all reactive in nature, fixing a problem. They don’t by themselves attack what could be your most serious challenge – employee perceptions.
- Explain competitiveness: Employees never assume that you’re paying competitively. At best they’ll consider you average. If you’re doing better than that, you’d better be telling folks. Repeatedly. Because paying above average rates to employees who think you’re average is wasting your money.
- Use reward statements: Show how much the company does for employees. Have you ever added up how much your organization spends for the betterment of employees, for everything – not just cash? Consider voluntary as well as required benefits, statutory obligations like social security and workers compensation, vacations, perquisites, recognition programs, company-sponsored programs, cafeteria, employee discounts, tuition reimbursement, stock purchase plans, community involvement programs, the parking garage . . . the list can be extensive.
Get your arms around the issues, identify your pain and priorities, communicate with employees and get started.