Why You Need a Compensation Plan and Why It Must Be Competitive – Guest Post

Guest Post  – A. Michael Hiles & Associates Inc. www.hilesassociates.com

I often see companies with a great work environment and work-life balance. I see engaged employees who care about their work. Rewards and recognition happen. That is great. But is the compensation plan helping the cause?

In my practice, I hear companies try to explain why substandard compensation is fine for them. Most use some of the above as excuses. Those things all add to a corporate culture, but they don’t replace a competitive compensation plan. Companies should work for a great environment and work-life – genuinely caring about employees and working to have them enjoy coming to work pays off. But it is equally important to take care of them financially – regardless of their level in the company.

Here are three reasons why having a competitive compensation plan is critical:

Money Talks – A reputation for underpaying employees gets known quickly and is hard to shake. A mediocre compensation plan will show up – without fail – on websites like glassdoor.com, Yelp and the informal network – places where employees can anonymously air their frustrations. People talk about being underpaid. If you want to attract and retain top talent, you must be known for taking care of your employees.

Compensation Benchmarking and Retention – When employees feel appreciated, they are less likely to leave. People start job searches for a variety of reasons, but feeling they paid less than their market worth – or not paid fairly – is usually an important factor. When employees can feel success financially, they will likely feel more engaged and give the extra time and effort on the job. Companies are always looking for any way to control costs, but an uncompetitive compensation strategy can easily backfire. Treat your team well – there will be a major return on investment.

Make sure you know what competitive salaries are. Do not rely on Payscale.com, your “feel” for things or anecdotal stories from someone’s brother-in-law. Understand your reference market (where your talent comes from and goes to). Learn what the competition is paying for talent, or what companies deemed “Best Places to Work” pay, and then create competitive compensation ranges for your employees. You should be making market-based compensation decisions and then trying to do a bit better, particularly for your top talent. If you do that, and communicate your compensation philosophy, you will have more enthusiastic, focused employees. And compensation will not be a major factor.

Mind the Gap – Learn how to pay correctly. Gaping salary differences between members of the same team with similar years of experience is a serious mistake. Unless someone has earned a degree or there is some other quantifiable reason to put them ahead, don’t allow serious gaps. Think through the raises you give out and the offers you extend. They must be consistent with the rest of the team, or with other individuals adding similar value to the organization. It is important each time you make salary adjustments for an individual that you have a compensation plan in place to support them. If an employee keeps performing at a high rate, you must ask if you are paying them correctly and adequately for the value they bring to the table. If the answer is no, you need to figure out an alternative – or risk a disaffected employee and a costly disappearance.

To most employees, money is not everything. But feeling under compensated will have a negative impact on attitude, engagement, the working atmosphere and turnover. A competitive compensation plan that employees understand will resonate with recruits and employees, and make your business a more appealing place to work. It will cut your costs to a greater degree than the small costs of being competitive.

Adapted from a recent article by Lindsey Gurian, B2C.com

 

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About the Author: Dejan Ristic

In 2004, I founded Exceleris. In addition to managing all recruitment aspects of Exceleris, I have consulted (as CFO or in similar roles) with a number of technology companies (both publicly traded and venture funded start-ups)....