Compensation Planning - You Can't See the Forest for the Trees
As we move into the compensation planning season, I thought it was time for a quick reminder to focus on keeping things simple. Over-complicating the basics of pay, can make it impossible to successfully accomplish the most complex things. So many small and mid-sized companies work so hard to make base pay “perfect” that they have no time or energy to build effective short-term incentive plans or rational equity compensation plans. This complexity may be driven by a slavish adherence to a flawed compensation philosophy. It may be driven by a desire to parse and define roles until nearly everyone in the company has a unique job title. Simplifying the basics of your pay programs is often the first step to a more robust approach to total rewards.
Let’s start with an important set of facts. It is important to get base pay right. It isn’t possible to get base pay perfect. Some companies are on the hunt for the perfect compensation data set. Others are focused on targeted some unachievable perfectly equal targeted pay level. Pay data is not exact. It is averages and ranges driven by a stew of data submitted by survey participants and aggregated by survey firms. The 50th percentile is a rough guess that depends on how you pulled the data. A good motto may be “close enough.”
A good compensation philosophy should drive decisions not dictate pay amounts. Your pay levels should reflect your needs. Of course, it is important to have a goal for consistent pay, but straying from the norm to get the talent you need is a perfectly acceptable approach. Every decision must be made with both the current candidate or employee and the view of the entire company in mind. When you “go outside the lines”, make sure you take a step back to understand the impact on the picture as a whole.
Market pricing does not mean that every person is a unique snowflake who should have a special title and unique pay amount. I like market pricing, especially for smaller companies. But it seems like many people start with a pay amount in mind and cherry-pick data until it shows the desired outcome. This is crazy. If you think someone should be paid $84,500 and the data says they should be paid $81,000 adjust your opinion, not the data.
Simplifying pay does not mean the creation of broad pay bands, nor does it mean creating traditional pay structures that may not reflect the nimbleness your company needs to compete for talent. Perhaps it’s better to look at it like impressionist art. The goal is to communicate the total picture, not the specificity of each brushstroke. With a less didactic approach, you will spend less time on the basics, giving you more time to build and communicate other elements of total rewards.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.
Posted by DanFutureSense on 08/25/2020 at 07:56 AM in Base Salaries, Compensation Philosophy, Data and Analytics, Incentives/Bonuses, Small Company Compensation, Stock/Equity Compensation, Total Rewards | Permalink