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Top Signs that Your Compensation Plan is Broken

Posted by Russ Sullivan on Oct 5, 2015 1:34:42 PM

The first inkling that your company’s compensation system is out of balance often comes when a key performer suddenly leaves to take more money somewhere else.

FourpeopleI have heard the same story many times in the years I have taught compensation management to experienced HR people as part of AIM’s HR Leve Two certificate series – a valuable performer is recruited to another employer, perhaps even a competitor, because the compensation program at your company has drifted away from the market.

What are the top signs that your pay and benefits are out of balance?

  • The company has no job descriptions or poorly written job descriptions.  Not knowing what the job is makes it impossible to know what to pay the job.
  • Title creep.  Companies often award titles, rather than compensation, so there is a disconnect when the employee compares her or his pay to others with the same title outside the company.
  • Lack of salary ranges. There is no understanding of the minimum or maximum value of a particular job.
  • When they do have salary ranges, companies often forego increasing those ranges when they have had a difficult year financially.  The market still moves ahead and so they find themselves out of sync with the market.
  • Lack of consistency among departments in the way in which employees are compensated.  One department is conservative when it comes to pay while another department looks for every opportunity to give money.
  • Across-the-board increases.  The company compensates high performers and low performers with the same percent of increase, leading to a culture of mediocrity.  High performers start to wonder why they put in superior effort when they receive the same increase as an employee who puts in half effort.
  • Failure to periodically check the internal equity of the pay structure.  Companies sometimes make the mistake of hiring people at or above the salaries of workers doing the same job and who have more experience.  This drives turnover.  It is a little like the bank that gives special rewards and rates to new customers, but existing customers are not eligible.
  • Lack of a well-defined pay philosophy.  How does the company want to pay in comparison to the general market?  Does the company want to be a market leader, pay the same as market or be a market laggard?  Having a plan and managing to the plan makes a company more likely to be in control of their compensation system.
  • Trying to manage compensation with people who don’t have expertise in compensation.  You would not go to a general practitioner if you needed back surgery.  Getting the right help is critical.

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Topics: Compensation, Management, Human Resources

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