Ignorance is bliss, but knowledge is power

By Mykkah
Herner, MA, CCP, Compensation Consultant at PayScale.com

Think ignorance is
bliss?

You’ve heard some rumbling here and there, but no one has
come out and said anything. That means you don’t have a compensation issue. Right?
Well, maybe, but do you really want to chance losing
your top performers? We’ve heard this from a number of potential clients: “We don’t have any major problems, so comp strategy is not a priority. We think
we may have issues with pay, but not knowing for sure makes us feel better. Ignorance
is bliss.” This “do nothing” objection may work out alright for the short term,
but in the long term you run a real risk of losing your top performers, having
pay inequity issues, and generally being a poor steward of one of the largest
resource expenses in your organization – employee compensation.

Stellar performers
will stay if you pay them right

Organizations
are increasingly paying for
performance, moving away from the old cost of living adjustment strategies
that reward tenure most of all. A client of mine calls the old way of doing
increases the “mirror-test rule” – you put a mirror in front of the employee
and if they’re breathing, you give them an increase. The mirror-test strategy of compensation does
not encourage stellar performers to stay. Why would they when they see people
who are exerting far less effort receive the same increases as them?

A lot of times your top performers are not the
squeaky wheels that get greased. They tend to be focused workers who are getting the
job done without spending a lot of time asking for more. They are also highly
sought after employees. Wouldn’t you rather keep them than lose them to your
competitors?

In order to
retain your top performers, you need a solid comp plan that rewards top
performance. You also need to know what your competitors (also known as “the
market”) are doing, so that you can remain a player in a competitive market.

Pay inequity can cause nightmares

It’s also
important to analyze your compensation practices on a regular basis. One
client, through the course of our project, realized that they were paying their
Junior Office Assistants a broad range, $38K-70K to be exact, to accomplish simple
entry-level office tasks like filing and answering phones. The benchmark salary
of the job proved to be around $30,000. They were overpaying some of their Junior Office Assistants up to $40,000, while others in the position were appropriately
placed in the top of the
range.

Pay inequity
is not something to be trifled with. In addition to frustrating employees, and increasing
turnover, major pay inequities can also open you up to litigation. Pay structures
help to ensure that there is pay equity.

Stewarding your comp budget / employee
resource

PayScale’s
lead economist, Katie
Bardaro, has told us that we’re coming out of the “economic downturn.” The PayScale’s
Index for Q3, 2012 shows that salaries are back up to pre-recession levels. This is
great news for employees but leaves organizations struggling to maintain the
bottom line. Employee compensation is often the largest expense in organizations.
Given a limited budget, with such high stakes, it is only prudent to make sure
that the compensation funds are being spent as strategically as possible. I
work with PayScale clients to design compensation strategies and structures
that keenly target business goals. The financial return on talent should be as
high as it is with other investments. The primary goal we’re working toward is
keeping your most valuable resource: your employees!

Every time I
get to the end of a project with a client, we talk about their options for
implementing the compensation plan. I always give them the option of “do
nothing.” For some organizations, doing nothing may be the answer, although
that’s fairly rare. In the cases where organizations have decided to do nothing,
they’ve thanked me very much for the information. They feel much better about
their compensation practices, having clearly audited them. And, ultimately
while ignorance is bliss, knowledge is power!