Change and Compensation: An HR Challenge

paycheck2.jpgCandy Siderius, Outsourced Consulting Services

“Changing a compensation system is about as easy as moving a cemetery.” This conjures up a variety of images; not many of which are pleasant. I wish I could say this was an original thought; it is certainly, however, an apt depiction of the feelings many of us have toward compensation.

Why? Compensation is typically an emotional topic for supervisors and employees alike. It is not always clearly communicated, and often misunderstood. Some pay plans may not have been reviewed or updated in years and others have been inconsistently administered. To make changes might unearth too many issues, some of which would be too scary or difficult to tackle.

And what is a compensation system? Is it just base pay or any and everything an organization offers its employees in return for their contributions? It is critical that employers reflect upon their business strategy and identify what particular skills, behaviors, and results they need to achieve the strategy. This is the first step toward developing a compensation philosophy which states what the employer expects and in what ways they will reward employee contributions. This includes base pay, benefits, alternative work arrangements, recognition and training programs, performance rewards, fun workplace initiatives, a computer that works, competent supervisors, and much more. This philosophy is a shared belief of senior management. It drives the design of the overall program, strives to correct any misperceptions, and also reflects the organization’s intended relationship to the external market.

To develop a philosophy statement, organizations may want to consider:

• Obtaining direction from executive leadership

• Gathering input from a cross-section of employees via focus groups or surveys

• Determining the balance between internal job worth and external or market value of jobs

• Clarifying competitive posture; will the organization lead, meet, or lag the market?

• Defining what is considered the competition

• Identifying financial constraints

• Leveraging all reward elements for a true picture of the total rewards package

• Creating a communication strategy

Speaking of communication, should the organization communicate its philosophy? Absolutely, although the amount and frequency of information should be aligned with the organizational culture so that the messaging is perceived as authentic.

For many, compensation is mysterious. Lack of information quickly becomes misinformation leading to frustration, lack of engagement, and low productivity. Survey results continue to demonstrate that employees do want to know how their pay is determined, how their pay can increase, and how it relates to performance.

An organization’s compensation philosophy as well as consistent communication and practice can focus everyone on the true goals of the organization.