Setting salaries a balancing act (Web Sight)

Making dollars and cents out of apples and oranges

If an organization overpays its employees, profits will suffer. If it doesn’t pay them enough, they’re likely to leave.

Figuring out how to set salaries can be a real balancing act. Using salary benchmarks to determine how much to pay employees seems like a simple enough thing to do, but it’s not. In most cases, experts agree, comparing jobs is similar to comparing apples to oranges. As difficult as it can be, salary benchmarking is an important issue for organizations in the ongoing struggle to attract, retain and motivate employees.

The following sites look at various issues involved in compensation benchmarking.

Don’t forget the message

www.workinfo.com/free/downloads/167.htm

The Workinfo.com site provides this article entitled “Effective Total Rewards Strategies” which states: “For total reward to be meaningful, all systems must work together to effectively measure total staff investment and illustrate for employees that salary is a small piece of the pie.” The article outlines the communications strategy around compensation that’s necessary when “marketing” compensation and benefit programs to employees.

Considerations when buying a survey

www.bcjobs.ca/re/hr-centre/columns/compensation-surveys

“Compensation Surveys,” an article on the BCjobs.ca site, outlines various considerations a company should think about when deciding whether to purchase a compensation survey. “More than 80 per cent of business managers and HR professionals said their companies either participate in or purchase at least one salary survey each year, according to a Salary.com poll. Companies with fewer than 500 employees spend an average of $2,000 annually on salary surveys, and companies with more than 5,000 employees spend up to $15,000 or more each year on these important data sources.” The article details how researchers conduct compensation surveys and provides a compensation survey checklist to help companies decide whether or not they should purchase one.

How to use salary surveys

pubs.acs.org/chemjobs/employer/chemhr/July02/salarybench.html

The article “Using Salary Benchmarks Wisely,” published by the American Chemical Society’s online job board, takes a look at a variety of questions on benchmarking issues. Is your firm competing locally, regionally or nationally? How closely do other organizations fit yours? What should you add to a base figure to make total compensation competitive? How do you explain to employees why you’re not offering the salary various sources say they should be making? “Benchmarks are just a starting point, and the questions they raise aren’t always easy to answer,” the article states. “HR has many sources to draw on when developing compensation plans. Used wisely, they will attract and retain talent for the company, and keep it competitive in the talent marketplace.”

Stock option plans fail the fairness test

www.iveybusinessjournal.com/view_article.asp?intArticle_ID=483

This Ivy Business Journal PDF document, “Fair or Excessive? A Reliable Model for Determining the Appropriateness of Executive Compensation” provides what the authors describe as “an empirical model to determine whether executive compensation for a public corporation is fair or excessive.” They claim that “financial rewards and incentives for productive employees should be encouraged, but the rewards need to be performance based.” The model includes a look at broad principles that can be implemented in publicly traded companies and the elements of a compensation policy for rewarding key employees. The authors describe three components of their model: compensation metrics, financial metrics and scoring methodology. Under the subhead “Guidelines for option plans,” the authors write: “Perhaps the greatest abuse of executive compensation occurs when stock options are awarded. One reason for abuse is that stock option plans are often constructed with little input from shareowners, who may also have no control over the plans.”

Ann Macaulay is a freelance editor and regular contributor to Canadian HR Reporter. Her Web Sight column appears regularly in the CloseUp section.

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