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Compensation: More than a plan…it’s a philosophy

By Carolyn Heinze

Admit it: none of us go to work out of the goodness of our hearts. While we all want to wake up and love what we do, we also want to be fairly compensated for our efforts. The same goes for employers: rare is the company that doesn’t want results from its investment in human talent. So how do you strike the balance?

Katie Miller Busch, SPHR, spends the bulk of her time examining this issue. As director of consulting at the Miami-based HR Compensation Consultants, LLC, she works with companies to develop pay practices and benefits packages that are fair and reasonable on both sides of the fence. We recently spoke with her and discovered that compensation isn’t just about checks and balances – it’s a philosophy.

What should a compensation package achieve?

KMB: You should make sure that your package is generally market competitive, at the appropriate level, to get the people that you want to do the job. But it’s not all created equal. As an employer, we should have the right to be different, and should not hide the fact that we are different; we will target a different market for different skill sets that we need depending on how available those skill sets are in the market, and how much, frankly, we are willing to pay and can afford to pay for that skill set as it relates to the product or service that we’re delivering.

Sometimes what happens is that from the employee’s perspective, all must be fair an equal. There is a way to be fair and equal without being the same. Let’s take the job of the custodian, for example: If we’re establishing a pay range for a custodian, and we’re using the same pay range – meaning the distance between minimum pay and maximum pay – that we are offering for a financial analyst, or for a manager of human resources, or for the vice president of Information Technology, what that ultimately does, from a financial perspective, is that it allows a person in a low-level job to continue to grow in a salary that ultimately may not fit with the value that the job brings to the organization.

How easy is it to recruit someone for that job? How long do we want someone to stay in that position within this organization before we want them either to move up, or to move out? What happens, when we have pay ranges at the lower levels that have those standards, and we don’t apply those sorts of business questions to those jobs, is that then we get the $40,000 a year custodian. From the employer’s perspective, we could get two people to do that job for $20,000 a year each.

Also, from the employee’s perspective, the employee has no need to gain additional skills, and frankly, they can’t even move to another company and make the same amount of money, because no one pays $40,000 for custodians when they hire them.

In a perfect world, what should it achieve? I think it should achieve a better balance between the employer managing their costs from a realistic business perspective, so that they can continue to employ people and they don’t have to lay them off. And, employees need to understand what a pay package stands for, and what their role is in gaining additional compensation through adding more value to the organization.

What about labor market data?

KMB: When you look at labor market data, it’s only a point of reference. Say, for example, the average pay for a custodian is $25,000 a year. Let’s say your business is a cleaning business. A custodian, for you, is not really the bottom of the ladder. It’s a notch or two above, because that is your business. In this case, you really do want the best custodians. You want the ones that are going to stay. While the market says that you may be able to pay $25,000, in your particular business, you might want to pay $26,000, or $27,000 or $28,000, because you want to get the cream of the crop.

Employees say, ‘It says here that the average pay for my job should be $30,000 a year.’ Yeah – except that you’re not looking at our business model, our industry, where that job fits internally within this organization, and you’re not looking at our compensation philosophy or how we can afford to pay. When you look at those five things, while the labor market may say $30,000, we can only afford to pay $28,000. If you want to make $30,000, let’s talk about that. What do you need to do to make $30,000? And can we afford to pay you that much because you are adding extra value to the organization?

What factors go into developing the ideal compensation package?

KMB: You have to either revisit, or if you don’t have one, you have to develop a compensation philosophy. It only has to be three or four paragraphs, and it’s something that we use in communication with managers, primarily, to continually reinforce to them: This is what the base pay stands for, this is where our incentives fit into the picture, and this is where our benefits fit in. When you continually reinforce to managers information about your overall compensation philosophy, it usually, eventually, gets them to also communicate that to their employees. And I think it helps them to understand where pay fits when they are making pay decisions, whether they are hiring someone, or promoting someone. It really helps them to see the big picture.

Carolyn Heinze is a freelance writer/editor.

HR Compensation Consultants, LLC

www.hrcompconsultants.com

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