2016 Resolution #2 – Take Compensation Off the Table
Resolution #2 – Build a program that will take compensation off the table — effectively making it a non-issue rather than a bone of contention.
In his best-selling business book “Drive,” Daniel Pink makes a compelling argument that it is essential to “take compensation off the table.” That means that you need a compensation program that works so well that people simply aren’t thinking about pay. When you take the focus off of “how to make more” and “whether I can do better elsewhere” (or even “can I afford to keep working here”) you free up employees’ time to actually think about doing their jobs.
Do you see the irony here? Organizations are told that they need a fancy glittery compensation program to “attract, retain and motivate” – what they really need is a fair and equitable program that just does its job and stays out of the way!
The best way to start is to develop a formal compensation philosophy, one that gets approved by senior management, and preferably also by the Board of Directors and/or owners. Answer the question “why do we compensate and what do we want to achieve?” For example:
To ensure we compensate our highly skilled employees fairly and equitably, XYZ will target pay opportunities at 10% above the median of our labor market, and individual pay will represent each employee’s contributions.”
Don’t adopt any philosophy unless you are willing to live by it, and don’t adopt one you can’t share with everyone in your organization. With a philosophy in hand, make sure that every element of your compensation program is consistent with that philosophy, and that the philosophy will actually achieve what it is expected to. To really take compensation off the table, pay should be predictable and easy to explain. No black boxes, no guesses, no blaming HR if you didn’t get the raise you wanted.
- Each job’s pay opportunities should reflect their value to the organization. That requires an internal equity approach to deal with jobs that have more or less responsibility than their peers in the market, hybrid jobs or those that are simply unique. How pay opportunities are set should be fair, equitable, and transparent, and the methodology should make sense to all employees.
- Pay opportunities need to be competitive, and consistent with your organization’s pay philosophy. Employees will know if your pay opportunities are actually what you say they are – and if they aren’t, they are not going to trust anything about your program.
- Each employee’s pay should reflect their value. It is not enough to have a competitive pay range. Actual pay needs to reflect their development against the expectations of the job. What they made last year doesn’t matter, and neither does the number of years they’ve been with you or the profession. What matters is how well they perform their job. If they’re meeting the jobs expectations, they should be paid at or about your philosophy-based target.
Many compensation programs today actually get in the way of improving employee and organizational performance. Your organization can have a perfectly competitive compensation program and still end up with pay right up front in everyone’s mind. If people in your organization are saying “the only way to get paid the right amount is to leave and come back a year later,” you’re not doing it right.
If an employee’s base compensation reflects the value of the job, is competitive in the market, and reflect their contribution – against the expectations of the job and consistent with those of other employees – pay will be off the table. If your program is missing any of these key elements, make sure you work to complete the trifecta.