Six answers to tough questions about employee compensation systems

by on June 12, 2009 · 0 Comment POSTED IN: HR Info Center
  1. “I’m a 25 year-old engineer and I do the exact same thing as a colleague who’s 50, how come she makes more?”
  2. She’s probably been around longer and who’s slowly, gradually moved up the salary range in the employee compensation systems, which is what you’ll do if you stay in the range as well and perform well over the years.

    It’s the way employee compensation systems are administered here. We don’t, you know – and it actually works. This is what most companies are doing. This is what we’re doing. You actually have a potential to earn more money than your colleague who’s 50 if you want to work for it and put yourself in a position of being a good candidate for more responsibility. If that’s something you’re interested in, you can move faster but otherwise, you’re going to move along the range in, you know, normal fashion and it took her a long time to get there. It will probably take you a while as well.

  3. “Why did I only get 80% of my bonus instead of the whole thing?”
  4. Well, there’s a formula behind employee compensation systems. So, I think you can sit down with that person and talk about the formula. So, I’m not going to get into it here other than say, you better have a formula for your bonuses. And if you do, that’s easy to answer.

  5. “Why is that guy who reports to me make more than I do?”
  6. It’s about ranges and ranges overlap in compensation systems. If it’s a very senior person, you’re a junior person, moving up fast, it actually makes sense. Eventually, you’ll make more.

  7. “Everybody knows what everybody else around here makes, how come I didn’t get as big a raise as the guy in the cubicle next to me?”
  8. Go back to the logic of what’s going on here. It’s obviously not a budget thing that differentiates it because you’re both subject to the same budget. There are two other variables in compensation systems, your compa ratio, where you started already in reference to midpoint, and your performance. So, it’s some blend of compa ratio and performance.

    If he or she has been around less time than you or lower in the range then their percentage increase maybe bigger and your base pay is probably still more. If the other’s experienced, then maybe there’s a performance issue involved. I wouldn’t get in to specifics but I would be able to talk to that person and say, “These are the factors that influence a raise. I’m not going to talk to you about anybody else’s increase but I’ll tell you what goes into an increase in our compensation systems. And why yours is what it is.”

  9. “Am I ever going to make as much in this job as my brother makes in his?”
  10. I don’t know what does your brother does? Where does your brother work? If you do the same thing in the same company, if you got the same seniority and the same performance, eventually, you’ll probably make the same. There are people who complain about government compensation systems where a garbage person makes more money in your community than a school teacher and that’s unjust. But you know what? In order to make as much money as the garbage hauler, you’d have to haul garbage. We’ve got a lot more people right now lined up who want to teach thus driving down the price than we have who want to haul garbage. Sometimes the market makes the rules.

  11. “I didn’t get my bonus because there was no way I could influence results. Why did you set compensation systems up that way?”
  12. Here, I talk about my great reference in this regard ,W. Edwards Deming, and what he taught about quality . We’re all interdependently linked, nobody can do it alone.

    No individual goes out there and does all the work themselves. They got to count on other people to come in with them. Just because you sell it, if we can’t make it, that doesn’t do us any good. Or just because you’re capable of delivering it, if they can’t sell it, that doesn’t do us any good. We are tied together and bonuses come from profit which comes from collective activity which you are a part of and not exclusively capable of doing it that way.

    So, that’s the way we want our bonuses and compensation systems set up, to be more collective probably than individual.

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