By Jean Roque, President, Trüpp.
When a company lacks a framework and clarity around how pay decisions are made, it can place the organization at a disadvantage for attracting and retaining talent, maintaining employee pay equity, and targeting its people investments in the right places. Do you find your organization struggling to answer some of these questions? If so, it may be time to get intentional with your compensation strategy.
- How do we determine where an employee should be placed within their salary range?
- Do we frequently find ourselves negotiating pay with new hires or employees?
- Do we spend a lot of time and energy making pay decisions?
- How does your organization pay in comparison to other employers in the market?
- How are jobs valued and paid within your organization in comparison to one another?
- Do employees know how their pay is determined and when they are eligible for pay increases?
How can a compensation strategy provide value?
Forecasting and budgeting
Having an established compensation strategy contributes to your ability to predict costs for hiring new employees and providing salary increases. It also helps to avoid situations where pay decisions may be inconsistently applied. While it may be tempting to pay a candidate beyond an established salary range, it can easily lead to a ripple effect of making pay adjustments to address employee dissatisfaction and internal pay equity.
Attracting new talent
Strong applicants are discerning, but not all are looking for the same things. So, it is worthwhile to define your company’s unique Employee Value Proposition. In other words, take time to consider and determine why applicants choose to work for your company and why employees choose to stay with your organization. Ultimately, your best candidates are those that are both qualified and value the compensation and ‘soft benefits’ that your organization extends to its employees.
Retaining top talent
When employees believe they are underpaid in comparison to their peers, it can cause them to disengage and seek employment elsewhere. While paying fairly in comparison to other employers is especially important when hiring, internal equity is crucial to retaining employees. Salary increases, job transfers, minimum wage adjustments, and new hires are good times to verify internal equity has been maintained—ensuring your top talent isn’t abandoning ship due to poorly executed pay practices.
Fair pay practices
While it may occur unintentionally, it is easy for salaries to become imbalanced. Adhering to established pay policies helps to ensure employees performing similar work are paid equitably in comparison to one another. Conducting an equal pay analysis and using pay practices that contribute to ongoing pay equity will help to avoid the costly consequences of disengaged employees, discrimination claims, and legal action.
Creating clarity around your compensation strategy provides a decision framework for setting employee salaries and determining salary changes. It also removes the ambiguity and frustration associated with subjective and unsupported compensation decisions.