Dear Workforce How Do We Tighten Our Salary Bands?

September 7, 2011

Dear Losing Your Balance:

The problem is not likely the fault of your new pay structure. Instead, you may have fallen into a common trap that many companies make. Namely, they implement a new compensation system while neglecting the most important components, particularly the development of a strategic pay philosophy and training their managers to use salary administration effectively as a management tool.

In strategic terms, if your organization has not defined how it wants to pay employees, then managers will implement it in their own way. This is a recipe for chaos that leads to wage compression, pay inequities and budget imbalances. Instead of creating yet another "new" structure, bring the senior management team together to tackle key questions:

• What is your pay philosophy? If none exists, what should it be? Do you want to pay "at market?" Be specific in how your organization defines this.

• Which critical factors influence how you compensate employees? Do managers own the pay system as a management tool or is it just another human resources program?

• Do you currently reward for performance, service and tenure, or a combination? Identify specifically what it is that you wish to reward.

• How do you define your labor markets? Do you want more experienced new hires? Where should you be targeting pay for new hires from a salary-range perspective?

The answers to these questions need to be agreed upon, since they provide the basis for a total compensation philosophy that is defined, written and communicated across your company. This document provides the strategic framework for both HR and management regarding pay decisions.

In addition, it should allow your organization to craft a salary-administration policy that gives practical guidelines to help managers and recruiters better manage employee pay levels. This is where the second important element, a customized training program, enters the picture. Managers should be educated about salary administration practices and gain some experience in addressing different pay situations. Once the training is rolled out, HR should provide coaching to managers, especially those who struggle in determining appropriate pay. All of this extra investment of time will pay substantial dividends: fewer pay-compression problems, greater clarity of purpose and reduced complaints from (and about) managers. Often, it is the management processes that need to be addressed, not the tools themselves.

SOURCE: Bob Fulton, The Pathfinder's Group, Chicago

LEARN MORE: Employees with similar competencies may sometimes need to be paid far differently.

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The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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