Compensation planning and decisions remain challenging management tasks in many businesses, even large ones. Money is tighter than ever and there is plenty of opportunity for faulty plans to emerge guided by business owners’ lack of attention to, or comfort with, the process. Contrary to popular thinking, fairness doesn’t require us to treat every employee the same. In fact, provided we are non-discriminatory in our decisions, employees are often happier and more productive when they are not treated the same way in matters of compensation.
Smart Business spoke with Peggy Pargoff of ManagEase about how to reward your best employees and why you shouldn’t treat all employees the same.
How should employers address compensation?
It is a best practice to assess compensation and performance at least annually. Ask yourself: How important is compensation in our industry or area? Are we competitive within our market? Are we successful in hiring and retaining good performers? What does this mean with regard to compensation planning?
Participating in an industry salary survey or acquiring local pay data can be important to making good decisions. Creating salary ranges for positions and re-evaluating these over time also helps ensure a good program stays in place. Ensuring that employees who started 10 years ago are not disadvantaged in pay over current hires brought in at higher starting pay is also crucial to fair compensation.
While compensation technically includes benefits and non-cash reward programs, the amount of cash a person receives is still usually paramount. Non-cash rewards like regular company-sponsored lunches or generous sick time programs build morale and can positively impact retention, but don’t pay the employees’ bills.
What is the cost of flat compensation?
First and foremost is the loss of your best employees and salespeople. When compensation is flat, those employees who are at the top of their game and have good skills will look for better paying jobs. In fact, competitors often seek to steal top performers during down market cycles when small raises can cause good people to jump ship. Those employees with marginal skills and no ambition hang on to their jobs with even greater tenacity because they know they can’t compete for a new job. This can cause a downward spiral in overall employee quality.
The second impact involves a subset of employees who seek to increase their ‘compensation’ by exploiting regulatory claims, filing unwarranted workers’ comp claims, embezzling or stealing products or customers.
The third impact involves the costs of recruitment and training, loss of experience and expertise, or customer relationships, which can be far more than providing modest compensation increases to your good people.
