I often joke that I use a dart board when making compensation decisions. Although fun and possibly amusing, it’s not the approach to take when determining wages, which directly impacts your employees’ livelihood.
Rather, a well thought out plan to review and determine compensation is vital to the long-term success of both your employee and your business. Think that’s a bit extreme? I beg to differ.
Impact of Wage Decisions and Perceptions
Let’s start with those who feel under compensated. Do they stay with the organization and give their best effort at work? Typically not, or at least not long term.
How about the person who feels like they are not paid fairly in comparison to their peers? They may in fact be paid competitively but have a perceived inequity with others. Either way, it makes them feel like their pay isn’t fair.
And finally, what about the person who is paid very well – actually too well? That employee is typically happy with their pay, but the organization is paying more than they need to for that skill set.
Each of these scenarios ends up with compensation being set at the wrong level, or at least it’s perceived that way.
Let’s change that! It’s time for Amy’s ABCs to determine appropriate wages.
How to Determine Wages
ALWAYS USE VALIDATED DATA SOURCES.
Unlike a dartboard where you can’t rely on the outcome, salary surveys from trusted sources are the bedrock of setting competitive pay levels. So how do you know if it’s valid? Salary survey data is deemed valid when it’s provided directly from the company (not the incumbent), contains steps to ‘scrub’ the data to remove/correct any discrepancies, and is reported in a way that maintains data integrity and confidentiality.
BE PROACTIVE IN ADDRESSING INEQUITIES.
Remember a time when you were treated unfairly? That feeling - that’s how your employees feel if they perceive they aren’t paid fairly. And while pay can be a motivator when set right, it is almost always a demotivator when set, or perceived to be set, lower than what’s fair. Bottom line: perception = reality unless clarity is provided. Realize that the answer isn’t always more money. Clear managerial communication helps with perception issues around compensation.
CONSISTENTLY REVIEW AND ADJUST.
A regular review of pay levels is necessary to stay competitive, especially in today’s environment. Many organizations now review their compensation at least once a year to stay on track. This review should include a comparison to the external market and within the organization, to determine if wages that are competitive and equitable. If gaps are found, consider adjusting pay programs and/or individual wages to bring alignment.
Don't Use the Dart Board Approach
Clearly, compensation decisions require more than a dart board and good aim. Determining appropriate wages requires valid sources, proactive communication, and keeping your finger on the pulse of change to adjust when needed.
