Improving the Return on Pay Management

Job Evaluation, Executive compensation policy, incentive planning, Pay Grades

It’s that time again. Salary survey results are in and traditionally it’s time to build pay budgets, adjust ranges and think about changes to pay design. Participants spend hours harvesting and submitting data, consulting firms then produce expensive survey reports and participants again spend more hours analyzing the results. Can you justify the return on the time spent and all for a salary budget of 4% or less?

Salary inflation is not high and while “hot spots” come and go in various industries we just can’t seem to shake a process developed when salary inflation was much higher. Is the cost of a “perfect” salary budget worth the effort today?

For example a client had two staff spend three months each year submitting data and preparing the analysis (I often wondered what they did for the rest of the year!) The process now takes three weeks in elapsed time and a fraction of the cost.

So how can you get the process to produce a reasonable return on the resources employed?

  1. Annual Review – unless you are in a particularly volatile industry or have scarce critical skills complete an in depth comparison with the market every two (or even three years). Buy the data only in the year you use it and upgrade ranges and budgets with the general market movement in the intervening years.
  2. Data – take extra care to match with the industry, size or geographical cut that fits your organization in the years when you do compare to the market.
  3. Job Matching – fewer times market comparisons mean fewer opportunities to match your jobs with the market. Make sure you get this right.
  4. Budgeting – after completing the analysis and finding that overall the organization is under the market don’t assume an immediate catch up is necessary. Look at the results in context; are you finding it hard to attract, is turnover high?
  5. Budget Allocation – Don’t worry about the science, direct the funds to where they are going to be best used e.g. those areas with the lowest compa ratios, the most in demand skills or across the board.

When a full market comparison is undertaken spend a little more time analyzing and comparing roles against the market and against others internally. In the intervening years rely less on statistical analysis and more on observation and consensus – don’t be a slave to the spreadsheet. With budgets of 3 and 4% how far wrong can you go?

If you are concerned that the process of pay management (or come to that any HR activity), takes too long and the impact is just not that significant then it probably appears the same to your employees too. Why is management putting so much time and effort into something that has so little impact – rethink the process and improve its value!

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