Make Better Compensation Decisions

by Saba Software | Posted | Total Rewards

Make Better Compensation Decisions

Defining and refining your organization's compensation management program is critical for boosting employee motivation and retention. However, properly rewarding top producers and allocating pay adjustments across an organization can be a complex, laborious and error-prone task.

This article provides a perfect example of the mistakes that can be made when it comes to compensation practices.

To avoid these compensation pitfalls, pay for performance policies and processes must be transparent and consistently executed.

Here are three steps to ensuring your compensation practices are fair and truly motivate your workforce:

1. Foster a performance-oriented culture

To drive high performance in your employees you need to give effective feedback. Clearly tell your employees what they are doing well, and why you value their behavior (impact on team, organization, customer, etc.).

Conversely, tell them what they need to change/improve and why (impact on team, organization, customer, etc.). Your feedback should include a specific example of when the behavior in question was demonstrated (no generalizations!).

Since the goal of feedback is to help employees improve their performance, ensure it is helpful and timely (i.e. provided shortly after the behavior is exhibited).

To foster better employee and organizational performance, your employees' personal goals should in some way contribute to the achievement of the organization's high level goals.

This alignment ensures your employees understand exactly how they are contributing to the organization's goals and are engaged and accountable for the organization's success.

2. Reward your workforce accurately and fairly

The rules and guidelines set for compensation should be clearly defined and accessible. Goals and performance ratings should be a known and visible factor in determining employee compensation.

When you provide visibility into the process and ensure employees understand how pay strategies are set, it raises their level of accountability to make performance a day-to-day priority.

For you as a manager to be able to make informed compensation decisions, you need the right data at your fingertips:

o Your compensation budget
o Pay scales for various job codes, and which apply to your employees
o Your employees' compensation history and performance history
o Your employees' performance ratings for the year

Without an easy way to view this data you won't know with 100% accuracy that you are making very good pay for performance decisions. Nor will you be making very good use of your time.

An automated compensation management solution (yes, like Halogen's!) enables transparency and ensures pay-for-performance is being implemented the way it should be. These solutions remove tedious administrative barriers that make pay-for-performance hard for you as the manager and for HR to administer.

3. Measure program effectiveness

As the article I referenced earlier states, your organization should be continuously monitoring and periodically recalibrating the pay for performance program after it is implemented.

Questions to ask:

  • Are compensation dollars delivered to the highest performers and to potentials meaningfully differentiated?
  • Does the compa-ratio make sense based on performance level and time in role?
  • Are you as a manager appropriately trained on how to effectively communicate compensation and adjustments to keep employees motivated and engaged?
  • Do you understand the basic elements of compensation (pay scales, job codes, compa ratios, bonuses, stock options, variable pay, etc.) and how to use them?
  • Do you have the tools you need to track progress on goals?
  • What are the reasons for under performance? How will you address it?

Finally, ask your employees for feedback on the process. Do they feel they are fairly rewarded and compensated? Do they understand the process?

Understanding your employees' perspectives and attitudes can help you improve your compensation management skills.

Communication is Key

For your compensation program to truly be effective, you need to clearly define and communicate expectations and monitor and review progress relative to those expectations.

Work with HR to ensure the right goals are selected, apply judgment when goals need to be revisited, coach individuals or groups on how to best achieve results, and rally toward goal achievement to reinforce desired behavior.

Rinse and repeat.

What is your advice when it comes to ensuring fair compensation practices in your organization? Does the above ring true?

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