Pay Plans – It’s All in the Implementation

Money ManSo much time and effort goes into designing a compensation plan, it is a pity when the implementation is ineffective. Employees uninformed about such an emotional topic as pay can easily become confused, disgruntled, and disengaged. Here are a few things to consider when implementing your plan:

Clearly Defined Plan Objectives and Guidelines
This begins with your Total Compensation or Total Rewards philosophy. Ideally, this addresses the organizational mission and values, the rewards offered, and how pay levels relate to the market in terms that everyone can understand. Guidelines identify the roles and responsibilities for ongoing plan design and operation. This is important since the pay plan is not the sole responsibility of Human Resources.

Employees typically go to their supervisors with questions, so supervisors need to understand the plan and be aware of their role. They may not agree with the plan principles, but they need to administer the plan accordingly.
Consider the situation where a supervisor gave an employee the highest performance rating for the largest possible merit increase. The supervisor later admits, “the employee barely meets expectations but the company doesn’t pay enough so I felt I had to give this increase.” What happened here? Did the company train the supervisor? Are pay decisions monitored at a higher level? To avoid such situations, supervisor training should be ongoing.

Communication, Communication, Communication
Ongoing and regular communication is the cornerstone of plan implementation. Compensation plan design can appear complex or mysterious to employees. Most pay plans are designed by first looking at how similar jobs are paid in a particular labor market. Employees, however, often focus on how they, as individuals, are paid. You should clarify the distinction between how the pay rate for a job is determined based on the organization and the market how a particular employee’s pay rate is determined within a salary range. Communication will be more effective if employees understand your Total Rewards Philosophy, how pay for their job is determined, and how they can or cannot increase their pay, whether through experience or credentials, performance, or tenure.

Gathering feedback from employees, training supervisors, and processing pay reviews and changes should help identify gaps in the process and may lead to refinements. You can use this information along with examination of various practices in context with your philosophy and plan guidelines to improve the overall implementation process.

When considering any implementation, remember, “A well-designed plan poorly implemented is worse than a poorly-designed plan well implemented.” Contact our Compensation Consulting Service at 800.884.1328 or email for help with your pay plan implementation.