Impactful Pay Management

Once again pay review time is upon us. Salary surveys have arrived and it is time to adjust ranges, consider changes to pay design and build budgets. HR practitioners spend hours job matching, harvesting, and submitting data to costly surveys only to spend more hours analyzing the results and all for a salary budget of 4% or less.

Salary inflation is low and while “hot spots” in all industries come and go we just can’t seem to shake a habit developed when salary inflation was much higher. Are the costs and outcome of an annual market pay review worth it?

We once worked with a company that had two staff who spent three months of the year submitting data and analyzing survey results (I do not know what they did for the rest of the time). The process now takes a single person three weeks working part time at a fraction of the cost. Low salary inflation for the last ten years is estimated to have cost half the compensation jobs in NA.

Nonetheless this is still an important investment if not your most significant asset so what can you do to make the process more effective?

1. Competitive Updates – unless you operate in a volatile or unionized industry or experience scarcity in mission critical skills forget about annual reviews. That’s a cost that you don’t need. Every two (or even three years) is sufficient and in the intervening years upgrade ranges and budgets with the general market movement and only if needed, look at “hot spots”.
2. Benchmarking – take extra care to match jobs in your industry, against your size or the geography that fits your business when you do compare to the market. Big automated survey matching systems will take you closer to industry averages and that may not be what you want if you are trying to differentiate through team incentives or location specific pay.
3. Budgeting – after completing the analysis and concluding that you are under the market don’t assume that you need to plan an immediate catch up. Look at the results in context; are you finding it hard to attract, is turnover high? You have worked hard on engagement – is it working? Sure you are going to have to match your market at some point but maybe you don’t need to do it all straight away.
4. Allocation – don’t adopt the “jam” approach and spread the budget. Direct salary adjustments to where they are most needed e.g. those areas with the lowest pay to market ratios, the most in demand skills, or are most challenged to achieve internal equity. Rely less on statistical analysis – don’t be a slave to the spreadsheet.
5. Incentives – consider how your people earn variable pay. If it is longer than six years since you refreshed incentive design then folks are probably gaming the system. Do incentives motivate collaboration or do they include unintended financial incentives that discourage teamwork? Are they metrics driven and is the balance between multipliers and hurdles reasonable?

If you are concerned that your pay management process (or come to that any HR activity), takes too long compared to the impact that it delivers then your employees are probably thinking the same thing. Why put so much time and effort into a process that generates so little value when pay administration can be so much more impactful?