Top 5 compensation lessons from 2013

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Mykkah Herner, M.A., CCP, PayScale

Last year was a year of ups, downs, and shutdowns. The Affordable Care Act is still looming over us, the impact unclear. Some but not all companies are pulling free of the recession. Employees have continued moving around more and more since the official end of the recession. Yet amidst the turmoil, there are some key lessons. Essentially, in an uncertain time, compensation plans and strategies need to be flexible. In this article I’ll talk about the top 5 ways we can infuse flexibility into our programs.

  1. Know how you’re doing relative to the market at all times 
    Some organization leaders are hesitant to do a market assessment when they’re unable to give out increases. I would argue that it is almost more important to arm yourself with the knowledge of your market position when you don’t have readily available funds. As the saying goes, knowledge is power – and having the knowledge of where you stand gives you the power to address issues before they become a problem.

    Many of the organizations I work with are already paying fairly to the market. When we start their projects, they admit that they haven’t looked at the market in a long time, thinking that if they don’t look, they won’t find something they don’t want to see. The fact is, assuming folks were in good standing in 2009, they’re probably not too too far behind now. Some things have shifted, sure, but it’s better to know by how much so you can be prepared to answer questions and communicate your position appropriately to your employees. Once your employees have a sense that they’re underpaid, even paying at the 90
    th percentile for the next 10 years won’t make them change their minds. And, if you haven’t been able to afford increases in a while, your employees will feel underpaid whether they are or not.

    Practically speaking, if you have positions that are paid low relative to the market, target these for increases as soon as you do have funds available. Consider non-monetary rewards as a means for retention of employees in your hot jobs.

  2. Be creative with how you slice your compensation cake
    cupcake_tower
    A compensation plan is like a four-tiered cake. The base of the cake, culture, philosophy, and strategy, serves as the foundation for the compensation plan. The next tier is a strong, mathematically sound, clear base pay plan. The third tier includes the variable or incentive pay plan, and the top tier includes both monetary and non-monetary individualized rewards & recognition.

    The bottom two tiers include fixed costs – the base pay includes salaries and hourly rates for employees. The comp philosophy and strategy determines the mix of benefits and other total rewards that you pay on behalf of your employees. Some of these are fixed costs, other variable. In a volatile time, it’s important to minimize fixed costs and instead leverage variable costs.

    So what am I really saying? Get creative about the top two tiers of the cake. In PayScale’s 2013 Best Compensation Practices report we learned that more and more organizations are offering variable pay, even at the individual contributor levels. In addition to that, it’s as important now as during the height of the recession to continue non-monetary recognition of employees. At PayScale, we have recognition awards on a monthly and quarterly basis that don’t incur an expense but are very motivating for employees.

  3. Get creative about pay for your hot jobs
    The value of positions in the market shifts much more rapidly than in the past. While once it was satisfactory to benchmark to the market every 2-3, even 5 years, we’ve noticed that some critical positions are trending dramatically – even on a quarterly basis. At the same time, employees are starting to move positions at levels close to the beginning of the recession. On the December 2013 JOLT Survey, the Bureau of Labor Statistics said “Since the trough, the number of quits has increased by 49 percent, to 2.3 million in October 2013.” As a result, it’s critical that you know the value of your vital positions, the jobs without which you couldn’t do business.

    In the past, when jobs moved up in the market, that automatically suggested a need for grade assignment adjustments. The trick is that once you move a position up a grade, it’s hard to move it back down again. Increasingly, in 2013, I talked organizations through alternative ways of acknowledging market fluctuations for their hot jobs. Some options were to provide a temporary “market premium” bonus to employees performing well in these positions. Another was to get creative about alternate ways of rewarding employees in these jobs – more flexibility of hours/work-at-home, more vacation time (assuming lost productivity isn’t an issue), etc. Some organizations created alternative structures for their critical jobs, communicating to those employees that there would be a higher degree of fluctuation with the ranges, depending on the market. Whatever options you explore, keep in mind that the budget and culture of your organization will determine what is most successful.

    Ultimately, the point is that temporary solutions may suffice in a time where we can’t afford to commit to fixed or permanent changes.

  4. Train for success
    Your managers are your key partners in administering a top notch compensation program. They work directly with employees and therefore have the best knowledge of a) what motivates employees, b) how employees are performing in their roles, and c) any dissatisfaction around compensation that will ripple into larger issues. Train your managers to communicate well and often with those they supervise. Give them solid performance management tools and training. Calibrate performance ratings amongst your managers often if you intend to base your compensation plan on performance. And, train them how to listen to their employees. Identify issues before they become a problem. Once your mangers are really plugged into what’s going on with their employees, they’ll be able to help you shift and align your plan to increase morale and engagement and reduce problems with retention and attracting top talent.

  5. Have multiple strategies for how to react to market changes
    Finally, to be truly flexible in the coming years, you may need to consider having multiple roll-out plans at your disposal. For example, if we start to see this, we’ll roll out that. If we start to see something else, we’ll be ready to… etc. This type of dual/multiple planning may just differentiate organizations that struggle in 2014 from those that succeed.

Mykkah Herner, MA, CCP
Manager of Insight Expert Services at PayScale

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