By Claudine Kapel
Compensation challenges are often like an iceberg: The most significant danger arises from not addressing issues that lie below the surface.
The reality for most companies is that there’s probably not a lot of day-to-day drama around compensation to flag potential issues.
Employees come and go. Some may grumble or complain about how they’re paid. But by and large, how people are paid is not typically top of mind.
That’s why it is helpful to periodically do a deeper dive around an organization’s pay practices, to check for any potential issues that may be lurking below the surface. Because, as with icebergs, it’s what you’re not seeing that can cause the most damage.
Consider the results of a recent survey by David Aplin Group, which found insufficient pay or unfair pay practices represented the top reason why employees choose to leave their employers.
Of the more than 1,800 respondents, 50 per cent also indicated the thought of leaving their employer caused them to give less effort in their job.
If you stop and think about your organization’s compensation programs, how confident are you that:
- Your pay levels are competitive?
- Your pay practices are perceived as fair?
The inescapable truth is it takes planning and attention to consistently deliver compensation programs that work. Baseline requirements include clear pay administration guidelines and well-defined compensation programs that establish the ground rules for managing pay.
It’s also critical to do periodic analysis to compare how internal rates of pay compare to competitive market practice. Such analysis will help you identify where pay levels may be light – leaving you at risk of undesired turnover. Similarly, you may discover that some individuals are paid well above market rates, and so may not be your priorities for future pay increases.
Here are some key action items if you want to ensure your house is in order when it comes to compensation:
- Review or establish a compensation philosophy to ensure you’ve clearly articulated the objectives for compensation programs as well as key design parameters. As part of this work, consider the extent to which pay for performance is important to the organization.
- Ensure there’s a solid infrastructure for managing base pay, such as a well-designed salary structure and/or wage program. Depending on whether your organization is covered by pay equity legislation, this infrastructure might need to include a formal job evaluation system to underpin the base pay structure. Where applicable, test for pay equity compliance.
- Assess internal pay levels considering both market competitiveness and internal equity. While a market study will highlight any issues around the sufficiency of pay, a review of how employee pay levels compare internally will help surface issues related to pay fairness.
- Audit variable pay plans to ensure they’re adding optimal value. This should include revisiting plan designs to test for potential funding issues, as well as to ensure the measures and plan mechanics still align with business needs and priorities.
- Review or update the organization’s approach to communicating on compensation issues. It may be time to begin or expand communication on pay or total rewards, as this can build employee appreciation of what the organization has to offer, while also addressing potential concerns about pay fairness.
That may seem like a lot of work – and it is. But once you’ve tackled your review and implemented any desired program changes, you’ll be able to enjoy some smoother sailing, knowing there aren’t any icebergs in sight.
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.