What do you do when you start to notice issues with your organization’s compensation structure? Maybe you’re seeing promising candidates turning down job offers time and again in favor of better offers with your competitors. Perhaps you have come to realize your organization has an issue with pay equity that needs to be addressed as soon as possible. Or, maybe you don’t have any sort of formal compensation plan at all. Employees are asking questions about how pay decisions are determined, how raises will work and other questions for which you do not have solid answers.
Whatever the reason, you know it’s time to make some adjustments to your organization’s compensation plan. But how do you kick off an HR project on compensation management the right way? You sit down and Google, “How to do a compensation audit” or “how to start an HR project on compensation management.” Every article you find is written for enterprise businesses, addressing the compensation manager or compensation team with loads of resources you don’t have. Your business is small. You don’t have a compensation manager or any dedicated team to make these recommendations. You are an HR leader who wears many hats. You’re responsible range from traditional, day-to-day office administration tasks like desk moves and on-boarding to answering questions about benefits and facilities management. You are also responsible for the big-picture tasks, including recruitment, retention, company culture, compliance and, yes, compensation.
You aren’t a specialist in compensation, but you’ve identified that the business has a compensation problem and believe it’s time to initiate an HR project on compensation management.
But how do you kick off an HR project on compensation management that is effective while also staying on top of your other responsibilities? And, how can you justify to your leadership team that a compensation project is even necessary in the first place?
If these are questions you’ve been asking, you’ve come to the right place. In addition to having the most superior compensation management software on the market with both crowdsourced and third-party salary market survey data integrated into a complete solution suite, PayScale also offers compensation management expertise and professional services to help customers build compensation strategies and pay structures. In this article, we’re going to explain how HR leaders at smaller organizations like you can persuade management that a compensation management project is essential to the health of your business.
Why Compensation Management Matters
When you are the sole person responsible for compensation strategy at your organization, it can be tempting to continue on with the status quo in order to devote your time to the seemingly hundreds of other HR projects demanding your attention. But, to ignore compensation would be a costly mistake.
There are three ways getting compensation wrong can hurt your business:
1) You are underpaying employees. When you make an offer to a prospect, you need to know the salary you are offering is competitive. Low-balling on salary is often the reason job offers are turned down and talented prospects find work with competitors. This starts a chain reaction of costly consequences. You find you have to spend more money on recruiting. Projects are put on hold until a hire is made. Your other employees are overworked trying to cover positions that haven’t been filled, running the risk of burnout. It’s expensive to have jobs sit vacant for a long time, and expensive to replace workers who leave because they can make more money elsewhere. A SHRM study found that replacing an entry-level employee costs 50 percent of their salary. That figure jumps to 250 percent when it comes to your most highly-skilled workers.
2) You are overpaying employees. On the other side of the coin, it can be costly to overpay employees. When you are paying significantly over market, you leave less room in your budget for incentive raises and bonuses. Plus, a new employee who starts with a salary at the top of the range for their position could be demotivated to learn they will be unlikely to see much of a wage increase while they remain in that position.
3) You are allowing pay inequities to remain unchecked. From the gender pay gap to the racial wage gap, more attention is being paid now to pay equity within organizations. Pay transparency is also on the rise. Workers today are sharing salary information openly and anonymously, both online and off, with the result that employees are finding out what they are being paid compared to others in similar positions. If you are paying employees doing equal work different salaries and they find out, you run the risk of a mass exodus from your organization and potential, very costly, lawsuits.
These are just a few reasons it is important to get compensation right. If you know your organization’s compensation strategy is shaky, or worse, non-existent, it’s time to get management to sign off on a new compensation plan. But how?
How to Get Executive Buy-In
When you are the lone (or one of the only) HR leaders in your organization, it can be challenging to get management to take you seriously, especially if you have broad, not deep, knowledge of compensation strategy. You may feel as though you don’t have the capital to get approval for a compensation overhaul. But, you know a solid compensation strategy will save you time in the longrun, that a strong pay communications plan will improve perception of HR among employees, increasing retention and loyalty, and that if executed well, could help set you apart as innovative among your peers.
So, how do you get executive leadership to sign off on an HR project for compensation management?
Step 1: Explain the link between compensation and business results.
As we discussed in the previous section, getting compensation wrong is a costly error. The first step to getting executive buy-in is all in how you frame the problem. You could go to leadership and say, “Compensation is a mess and we need to fix it.” But this would be a mistake. This framing starts with the problem and doesn’t include the solution, nor does it show your initiative. It comes across as a complaint – and an expensive one – which will likely turn off management before you’ve even begun to explain the issue.
Let’s correct the framing here. Instead of presenting the problem first, start with the desired outcome. “We could save $X, become a much more competitive organization and attract top talent if we reexamine our compensation strategy.” With this framing, you are leading with the business case for a compensation audit (saving money), tying the reason for the project into your organization’s values and mission (becoming more competitive), and finishing with an incentive for undertaking the project in the first place (attracting top talent). The right framing shows leadership how this initiative fits into the bigger picture of your organization.
You could also strengthen your framing if you build a coalition of support with key stakeholders in your organization. For example, Finance could be very interested in the money-saving aspect and could also help you dig into the data to figure out exactly how much money is lost due to poor compensation planning. Speaking of data, let’s get into step two.
Step 2: Share your internal salary data with anecdotes about the loss of key talent due to compensation missteps.
In making a business case for compensation, data matters. The solution you will ultimately propose will have an associated expense. If you want to be taken seriously, you have to demonstrate that an HR project on compensation management is less expensive than doing nothing. In other words, you need to show that a lack of compensation strategy is more expensive than compensation planning and salary market adjustments would be. But where do you get this data? There are numerous ways:
- Talk to hiring managers to find out why candidates are rejecting offers.
- What is your retention rate? Who is leaving and why? How much is turnover costing your organization?
- Consult your own data from exit interviews and see how many former employees cite compensation as the reason for leaving the company.
- Do some online research to see how your company’s pay brand is perceived by employees and job candidates on sites like Glassdoor.
- Conduct an internal survey to find out how your employees view your organization’s compensation strategy and pay brand. Do they understand how compensation is determined? Do they feel they are paid fairly?
Real examples of how your organization is falling short can help you make the business case to kick-off an HR project on compensation management. To ensure your executives see the value of changing comp (and the urgency of the matter), take the time to quantify the costs as well as the projected benefits. Calculate the amount your organization would save if you were able to reduce turnover by a certain percentage, hire people faster and reduce the amount of time your team spends on repetitive tasks such as conducting ad-hoc compensation reviews.
Step 3: Describe how your compensation plan will reinforce company culture and solidify your organization’s position as an employer of choice.
Now that you’ve gotten the attention of the decision-makers in your organization, it’s time to present best-practices when it comes to compensation strategy. You know others have done what you are trying to do. Now it’s time to ask some questions:
- Who has made similar changes and what can they tell you about what they learned? Hit up other HR leaders on LinkedIn and ask them for stories. Attend HR networking events. PayScale customers have access to Comptopia, an online community of industry peers who can offer insight and perspective on compensation challenges and strategies.
- Are there surveys or other research that can help you tailor your plan? PayScale’s Compensation Best Practices Report (CBPR) is a great place to begin your compensation research into norms and trends.
When you make your pitch, make your organization’s mission and values be your guidepost. Tailor your pitch to align with leadership’s goals and priorities. Be sure to allow plenty of time for a decision to be made. Structure your proposal to include a generous amount of lead time so the project can be done well the first time. Rushing leads to mistakes which lead to wasted time and could result in leadership not taking you seriously.
Now that you know how to get leadership on board with creating a new compensation plan, it’s time to begin mapping out the process of creating that strategy. In part two of this series, we will go into the steps of a compensation strategy, how to find the best market data, how to analyze that data, how to benchmark jobs and more.