By Claudine Kapel
For many organizations, the arrival of fall signals the time for salary planning is at hand. This important annual process sets the stage for pay adjustments for the coming year.
But the value an organization derives from its salary planning often depends on the level of effort that goes into it.
It’s easy enough to frame a budget for salary increases. A number of consulting firms publish annual surveys capturing what companies are projecting in terms of average salary increases for the coming year. And there’s value in the outward look. It is important to stay on top of market trends, including variances by job type or geography.
But if you really want to troubleshoot your compensation programs and identify potential issues, you need to look inward as well.
Here are five areas to look at so you can make the most of your salary planning process.
1) Market competitiveness. How do your internal pay levels compare to competitive market practice? It’s a best practice to conduct comprehensive market reviews on a regular basis – ideally annually or at least every two years. You may also need to complete analysis for select jobs more frequently, particularly if market rates are shifting rapidly, or if you’re having challenges attracting and retaining particular types of talent.
2) Internal equity. How do employee pay levels compare relative to others in the same job or salary range? Ideally, you should be able to explain differences in pay levels by pointing to differences in prior experience, performance, or time on job. But it’s easy for anomalies to arise. For example, if the organization has been bringing in new hires at rates of pay that match or exceed the pay of existing longer-service employees, compression issues will arise. Or you may find some consistently strong performers are too low in their range. You may need additional dollars beyond what’s in the salary increase budget to tackle these types of issues.
3) The design of the salary structure. When was the last time you adjusted your salary structure? If it’s been a while – or you don’t remember when – you may want to do a deeper dive and refresh the design of the structure so it reflects both existing jobs and current market data.
4) The approach to pay for performance. Is the intent to connect pay and performance or to award across-the-board pay increases? If your aim is to deliver pay for performance then you’ll need an approach for allocating salary increases that delivers more dollars to high performers and fewer dollars to lower or average performers. You may need to develop a merit matrix that offers guidelines on how much employees should receive, with consideration to both their levels of performance and their relative positionings in their salary ranges.
5) Compensation-related communication. Are managers well equipped to have meaningful discussions with employees about pay? Managers should be able to answer basic questions about compensation in a clear and consistent manner. And if the organization seeks to connect pay and performance, managers should be able to explain the rationale behind pay decisions, including providing suitable acknowledgement to top performers. Managers may need some communication tools and training to help them manage such conversations effectively.
Compensation programs have a lot of moving parts. Attention to all the pieces and how they come together is essential to ensure compensation is supporting – rather than undermining – your efforts to attract, retain and engage talent.
Claudine Kapel is principal of Kapel and Associates Inc., a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com.