NFPCC Original Article: Compensation Resolutions for the New Year
While many businesses have a solid business plan in place, they often neglect implementing a compensation strategy. Without proper planning, it’s easy to offer too much or too little money to compete for talent and with the labor market at 3.9% unemployment (December 2018); it is critical to get compensation right to attract and retain the best.
More troublesome is that some businesses fail to have a compensation strategy in place that aligns with their company’s mission. A balanced compensation plan that incentivizes performance can also improve recruitment and retention efforts, positioning the company to achieve its business goals. So here are three resolutions for 2019 that will ensure a company’s pay practices are an asset:
1. Formalize Compensation Philosophy and Practices
Organizations are served best when their compensation philosophy aligns with their business strategies and goals. For many, compensation is an afterthought but for those who take the time to ensure that the compensation philosophies and practices support and encourage the teams to achieve their goals, the rewards are imminent. Ideally, a successful compensation philosophy will:
- Define the organization’s total reward strategies clearly outlining how the pay practices can help the organization and the employee succeed.
- Attract, motivate and retain top talent.
- Detail the specifics on how the organization will reward success based on achieving business goals.
- Ensure equal pay for equal work, with allowable pay differences based on appropriate factors.
An effective compensation philosophy should ensure:
- The overall program is perceived as fair, equitable and appropriate to the employees and organization.
- Policies and programs are legally compliant.
- Clear and effective communication of the philosophy, policies and overall programs to employees
If the compensation philosophy and practices meet these standards, document the plan and communicate it widely to create a competitive advantage. If not, revise the compensation philosophy promptly.
2. Review the External Market Value and Internal Equity Values for Key Positions
Salaries vary across locations, industries, and company sizes (external market value). Pay is also affected by a job’s position within the company pecking order: the number of people a job may supervise and the role of the job’s supervisor (Internal Equity Value). Proactively, assessing market value and benchmarking employees who are key to the business is a critical step to building a compensation strategy.
Companies that fail to seek out inequities, put themselves at risk of losing valued employees or worse, lawsuits. Avoid these unpleasant surprises by proactively implementing the following practices:
- Review pay between protected classes in the same job or within the same scope of responsibility.
- Clarify any discrepancies that exist, specifically.
- Look for manager biases (for example: if one manager consistently hires or promotes employees who look like themselves, there may be an issue).
- Develop and implement programs which promote diversity in any category that is under-represented.
- Remove salary history from the application process.
In the past it was believed that if a problem is documented, risk is increased and that talking about compensation should only be done behind closed doors. Successful businesses today operate in a more open environment and a compensation strategy committed to investing in top talent is becoming an expectation of the workforce. Being honest and candid about compensation practices and how pay is decided and reviewed will have a positive impact on employee trust.
Contact NFPCC and ensure your compensation strategies are on point for a successful 2019.