“We’re too small for a comp plan.” Wrong answer!

I’ve worked with organizations of various employee sizes, from as small as 19 up into the thousands, helping them to develop stellar compensation plans. I really enjoy working with companies that have between 75 and 125 employees. Generally, by that point, there is some
acknowledgment that what they are currently doing isn’t working. There is also often some concern about developing something too rigid. These organizations will typically see a huge positive business impact from developing a clear comp plan.

Keeping Up With the Joneses

One of the most important reasons to have a compensation plan is to clearly define the compensation strategy of your business.

• How do you define your market?
• How competitive do you want to be relative to
  your market?
• What factors do you want to reward with your
  compensation dollars?

Without a clear definition of “the market,” it can take a long time to find the appropriate
benchmarks for your jobs.

The Return of Raises

In the past year I’ve heard from a number of small organizations that are just starting to
lift their salary freezes and determine the most strategic way to
spend a newly available budget to the best benefit to the organization. Having
a clear compensation strategy and plan in writing really helps to allocate a limited
budget.

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Developing Sound Structure

Not all compensation plans involve setting up grade structures. Some of my smaller
clients prefer to know the market data and build individual ranges directly off that market. However, even my 19-employee company set up a grade structure! Salary
structures support a few purposes for organizations of all sizes:

• Internal Equity. Pay structures ensure that positions are
  fairly weighted against one another. I do a thorough analysis of positions
  compared to the market, then talk with clients to verify that we’ve developed a
  structure that also reflects the relative internal value of their positions.
• Legal protection. Structures help to ensure that
  there is pay equity. For example, once you develop a range for software
  developers, assuming you’re paying all your software developers within range,
  you can now more easily defend against inequity claims. Typically organizations
  in that 75-125 employee-size range are already thinking about developing more sophisticated policies and procedures for their other business areas. Including compensation policies and procedures in with that planning is a definite win.
• Scalability. Structures enable swift and easy scaling as the
  organization grows. They create clarity for leadership, managers, and employees
  around the internal value of positions. Comp structures also streamline the administrative
  burden of coming up with a range for a position every time you post a job.

Paying for Performance

Often companies don’t think about performance until they get a bit larger. I’d argue
that it’s almost more important to have stellar performers in smaller organizations,
where one employee really does make a difference. Building a solid compensation
plan enables a pay-for-performance culture. Many of us have seen the performance evaluations that are 10-15 pages long and take as long to administer as they do to perform the core responsibilities! It doesn’t have to be that complicated. A simple rating system determining whether an employee “Exceeds expectations,” “Meets expectations,” or “does not meet expectations” is sufficient to link performance to pay.

It bears some mention that the type of structure that a small organization adopts should be much more simple than their larger, more complex, counterparts. The number of grades in a pay structure will likely not line up exactly with the levels of hierarchy in the organization, and yet
you wouldn’t want to have a one-to-one ratio of positions to ranges. In any case, I’m a huge fan of a clear compensation structure, as well as a clear compensation strategy to drive the structure and the organization forward.