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The Reality of Compensation

billsAs HR pros, we can get rather defensive about our compensation plans.  After all, we “own” them.  We intuitively feel good about them.  We’re smart enough to know when there are changes in the market or the economy.  So, then why should we spend the energy (and the money) on a compensation review?

Creating appropriate pay levels is critical to your organization’s success for a number of reasons.

Recruiting Top Talent

If your pay plans are not competitive, you probably have difficulty attracting applicants.  But even if you’re receiving plenty of applications for your open positions, you’re not going to attract the top talent or the passive candidate (those who already have a good job, but would leave for a great one.)

Retaining Key Employees

Offering competitive pay is directly tied to retention.  While it is very true that compensation is not at the top of the list when employees consider overall job satisfaction, it does play an important role.  Consider your own circumstances.  If all other things were equal, would you stay in your job at your current organization if you were offered 30% more in pay to do the same job at a different organization?  Probably not.

Organizational Competitive Edge

This cuts both ways.  If you’re paying more than market demands, then your organization’s ability to compete in its market for sale of its products or services is compromised.  If you’re paying too low, you won’t attract or keep the superior talent necessary to develop or offer state-of-the-art products and services.

Keeping a Healthy Bottom Line

There’s no reason to pay more for talent than is necessary and all kinds of reasons to not pay more.  The best reason is for increased profits for your shareholders.  Both economic and business factors impact salary levels and may cause dramatic one-time variations in specific positions.  Even in a stable economy, business demand for certain professions may cause a spike in salary levels.  In the mid 1970’s certified public accountants were enjoying high compensation levels.  In some markets, they were paid higher than physicians.  By the end of that decade, however, salary expectations for that profession had declined due to market saturation of qualified accountants.  Information technology specialists experienced the same event in the 1990’s.  Business technology was expanding more rapidly than IT specialists could get trained.  Those who were skilled were in high demand and enjoyed high salaries.  Today, due to the greater availability of IT professionals, the salary expectation is more in line with other organizational support positions.

Preserving Your Organization’s Reputation

If you have historically been recognized as a “great place to work” your compensation philosophy has, no doubt, played a role in establishing that reputation.  When we fail to review our salaries, we run the risk of slipping into the ranks of the “okay places to work.”  I want to work at a great place—not just an okay place.  I’m sure you do, too.

A compensation review is a sanity check.  It provides credence to your compensation philosophy and demonstrates to employees and management that your organization is offering competitive pay for its positions.

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