By Claudine Kapel
To make the most of a fresh new year, you really need compensation programs to be firing on all cylinders.
Unfortunately, a variety of factors can erode the effectiveness of these programs, resulting in sup-optimal rewards management practices.
Here are seven signs your approach to compensation may need a course correction.
1. It’s been a while since you last conducted a compensation review or adjusted your salary structure. Regular reviews help ensure you’re aware of competitive market practice so you can make informed pay decisions. Reviews can also provide trend data to help update your structure as well as stay on top of market trends related to high-demand skills and talent.
2. Hiring new talent seems much harder than it used to be. This could be a sign that you need to revisit your compensation offering or adjust salary ranges to better align with competitive market practice. It’s important to take a total compensation perspective – examining both base pay and annual incentive opportunities – when reviewing pay practices. It may also help to review how the organization sets start rates for new hires. Depending on the type of talent being recruited, the optimal start rate may be much higher than the job’s salary range minimum.
3. A significant number of employees are nearing – or have exceeded – the top of their salary ranges. This could be a sign the design of your base pay structure needs to be reviewed. If you haven’t been making regular adjustments to the structure itself, it may have fallen out-of-step with competitive market practices. It’s also a good idea to review pay administration guidelines, to ensure you have a clear and consistent way of managing pay when employees reach the top of their ranges. This helps ensure you’re managing compensation expenditures effectively.
4. Pay for performance isn’t happening. Not every organization seeks to connect pay and performance. But if this is one of your compensation objectives, it’s important to monitor the extent to which differences in performance levels are translating into differences in salary or wage increases and/or differences in incentive award levels. For example, if you’re implementing across-the-board salary increases, you’re not really delivering pay for performance.
5. New jobs are regularly added to the system on a discretionary basis. Adding new jobs without a well-considered process for determining how they should be compensated can quickly erode the integrity of compensation programs. Ideally, you should have some sort of job evaluation or job levelling tools in place to help map jobs to organizational levels and salary ranges in a consistent and well-reasoned manner.
6. Your organization has more titles than people. While it’s easy – and often tempting – to give employees new titles as a reward, this can lead to concerns about pay fairness and also create misalignments between job titles and job content. This can make it harder to define which jobs are really at the same level, as well as to ensure pay levels are appropriate. If the number of job titles in the organization has been growing unchecked, it may be time to rein in all that creativity and establish some clear titling conventions.
7. You don’t recall when you last tested for pay equity compliance. Depending on the nature of the organization (such as federally regulated) or the provinces where you operate (Ontario, Quebec, both) you may be subject to pay equity legislation. Being offside with legislation can lead to financial and reputational risks, so it’s important to keep your house in order when it comes to regulatory compliance.
Compensation programs involve a number of moving parts. You may want to make 2014 the year you revisit your approach to rewards management and make sure everything under the hood is running smoothly.
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.