Ignorance is bliss, but knowledge is power

By Mykkah Herner, MA, CCP, Compensation Consultant at PayScale.com

Think ignorance is bliss?

You’ve heard some rumbling here and there, but no one has come out and said anything. That means you don’t have a compensation issue. Right? Well, maybe, but do you really want to chance losing your top performers? We’ve heard this from a number of potential clients: “We don’t have any major problems, so comp strategy is not a priority. We think we may have issues with pay, but not knowing for sure makes us feel better. Ignorance is bliss.” This “do nothing” objection may work out alright for the short term, but in the long term you run a real risk of losing your top performers, having pay inequity issues, and generally being a poor steward of one of the largest resource expenses in your organization - employee compensation.

Stellar performers will stay if you pay them right

Organizations are increasingly paying for performance, moving away from the old cost of living adjustment strategies that reward tenure most of all. A client of mine calls the old way of doing increases the “mirror-test rule” – you put a mirror in front of the employee and if they’re breathing, you give them an increase. The mirror-test strategy of compensation does not encourage stellar performers to stay. Why would they when they see people who are exerting far less effort receive the same increases as them?

A lot of times your top performers are not the squeaky wheels that get greased. They tend to be focused workers who are getting the job done without spending a lot of time asking for more. They are also highly sought after employees. Wouldn’t you rather keep them than lose them to your competitors?

In order to retain your top performers, you need a solid comp plan that rewards top performance. You also need to know what your competitors (also known as “the market”) are doing, so that you can remain a player in a competitive market.

Pay inequity can cause nightmares

It’s also important to analyze your compensation practices on a regular basis. One client, through the course of our project, realized that they were paying their Junior Office Assistants a broad range, $38K-70K to be exact, to accomplish simple entry-level office tasks like filing and answering phones. The benchmark salary of the job proved to be around $30,000. They were overpaying some of their Junior Office Assistants up to $40,000, while others in the position were appropriately placed in the top of the range.

Pay inequity is not something to be trifled with. In addition to frustrating employees, and increasing turnover, major pay inequities can also open you up to litigation. Pay structures help to ensure that there is pay equity.

Stewarding your comp budget / employee resource

PayScale’s lead economist, Katie Bardaro, has told us that we’re coming out of the “economic downturn.” The PayScale’s Index for Q3, 2012 shows that salaries are back up to pre-recession levels. This is great news for employees but leaves organizations struggling to maintain the bottom line. Employee compensation is often the largest expense in organizations. Given a limited budget, with such high stakes, it is only prudent to make sure that the compensation funds are being spent as strategically as possible. I work with PayScale clients to design compensation strategies and structures that keenly target business goals. The financial return on talent should be as high as it is with other investments. The primary goal we’re working toward is keeping your most valuable resource: your employees!

Every time I get to the end of a project with a client, we talk about their options for implementing the compensation plan. I always give them the option of “do nothing.” For some organizations, doing nothing may be the answer, although that’s fairly rare. In the cases where organizations have decided to do nothing, they’ve thanked me very much for the information. They feel much better about their compensation practices, having clearly audited them. And, ultimately while ignorance is bliss, knowledge is power!


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