Support Your Managers in Making Better Compensation Decisions


Sean Conrad, Halogen Software

What’s wrong with this scenario?

“Hey, everyone, here’s a pay increase just for showing up at work. Oh, and another thing — everyone gets the same amount.”

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Admittedly, it’s not all that fair but it sure is easy. Unfortunately that easy route can also lead to bad feelings, diminished morale and lower productivity in the workplace. i.e., why should I go the extra mile if she does the minimum and received the same pay raise as me?  The downstream effects can be even worse, including loss of your top performers as they seek greener (and fairer) pastures elsewhere.

Before the bad feelings start and long before your top talent starts looking toward the nearest exit sign, there’s one question you should ask: “Do your managers have the skills, training and knowledge to make the fair and transparent compensation decisions that will benefit your employees and your organization as a whole?”

With that question in mind, here’s a brief look at the four things managers need to keep the compensation process in your organization fair and effective at doing what it should be doing — encouraging high performance from employees.

  1. Training and development
    For anyone to become proficient at any one thing, he or she needs training — and the opportunity to put what they learn into practice in a supportive environment. To effectively administer compensation and rewards so they are effective at driving higher employee performance and productivity, managers should have solid understanding of how pay effects motivation, engagement and retention.

    They should also be familiar with other ways to incent, reward and recognize high performance all year round, not just once a year.  Furthermore, to be truly successful, managers need training on:

    • How to communicate effectively about compensation and adjustments to keep employees motivated and engaged
    • The essential elements of compensation and how to use them (e.g., pay scales, job codes, bonuses, stock options, variable pay, etc.)
    • How and why they should consider compensation when conducting performance appraisals
    • What your company’s compensation management process is, and what their role is in that process
  2. Access to relevant data
    To make informed decisions, managers need to know your company’s compensation philosophy and policies, including: where employees should start on the pay scale; what is the preferred target in a pay scale; how do you deal with high-performers who are already at the top of their pay range; are there groups or skills sets that need special compensation, and so on.
    Managers also need to have access to other important data, such as:

    • How large is their compensation budget?
    • What the pay scales are for the various job codes and which job codes apply to their employees?
    • Where does each of their employee’s salary fall on the pay scale?
    • What are employees’ compensation and performance histories, including their performance ratings for the year?
    • Are any of their employees considered high-potential or scarce-skill individuals?
  3. Time to do it right
    It almost goes without saying that compensation adjustment decisions shouldn’t be hurried along. Make sure you give managers within your organization sufficient time to make the best and most informed decisions. For example, ensure that performance appraisals are completed on time; a clear, straightforward process that leverages effective appraisal forms, compensation planning software, support tools and performance management software can help.
  4. Feedback from employees
    It’s essential for managers to know how employees perceive the current processes and policies. How do employees in your organization feel about their compensation? Do they have confidence in the way compensation is determined? Do they feel that they are fairly rewarded and recognized? How do they perceive communication around compensation? Understanding their employees’ perspectives and attitudes can help managers improve their compensation management skills and make sure employees are effectively rewarded for their performance.

Remember, your managers play a critical role in ensuring that your compensation programs are fair, transparent and effective in keeping your employees engaged and productive. Taking the time to train and develop managers and provide them with the training, support and tools they need to be effective at the compensation game can go a long way in building a more motivated workforce.

Sean Conrad writes about a wide range of talent management topics, including employee engagement and compensation for the Halogen Software blog as well as for other industry publications. He is a Certified Human Capital Strategist, a senior product analyst at Halogen Software, and a regular speaker and writer. 


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