December 8, 2010

Q & A: Focus on Competitive Compensation Strategy

How long has it been since you’ve reviewed your business plan? Likely you did so within the last year. How long has it been since you’ve reviewed your compensation plan? Has it been a year, two years or more? Theses two documents need to be in lock step. As your business grows and shifts its strategies, your pay strategies should shift as well.

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In a webinar titled, “Aligning Your Compensation Plan with Business Objectives,” PayScale director of customer service and education Stacey Carroll addressed how to keep your approach to pay in sync with you business goals. At the end of the webinar, she answered questions for about the topic. Below is a transcript of this Q & A session.

Q: “Access to pay information is not a privilege” is a good statement. However, are you advocating open sharing of salary information including benchmark data, peer group medians, salary maximums, etc.? What is prudent and what is foolish?

A: I am talking about the appropriate level of information. When you’re figuring out what to communicate to employees, in your list I would not include salary information about their peers. I would not include benchmark data or peer group medians.

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What I would share with the employee is the process that the organization went through to make sure that they were competitive to the market. I would share the philosophy on pay that the organization has. And, that may not get into the nitty-gritty of your competitive set, but overall, state what your company values and what will be rewarded.

And, then, I would share salary range information. And, that part of it may be different depending on the organization that you work in. But, I think that it’s good to show employees what the range is for the position they’re in and what the range is for other positions. I think it’s a good strategy to talk about how much room they have for growth salary-wise and where there may be potential to gain skills to move to the next level.

Q: Can you please explain further how to talk to the folks that are being told that their jobs are not as strategically important as others in the company?

A: Whether you share this level of detail with your employees or not is going to depend a lot on your organization. I would argue that a philosophy that states generically your positions on pay and what you reward for is the appropriate level to share with employees. Telling one employee, “Hey, we target the 40th percentile for you,” then telling another employee, “Hey, we target the 75th percentile for you,” is probably too much detail.

It can send the wrong message, which is, “We don’t value all employees.” And, of course you value all employees. But, you have a business obligation to spend your dollars wisely and to be more competitive in certain areas as opposed to others.

What I would share with employees is your overall philosophy. And, if you reward for performance and proficiency in the role, share that with employees. But don’t go to the level of detail of telling people where they are targeted.

Q: Fiftieth percentile means mid-range of market, correct?

A: Yes, so if I were targeting the 50th percentile of the market as I have defined it – and that has to do with how you have defined your competitive set by your industry – then the 50th percentile is specific to this definition. You can do a lot of creative things with how you define your market but, generally speaking, your market 50th percentile means “meet the market.”

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