A good compensation policy will define a job's pay range based on multiple factors

by on June 16, 2009 · 0 Comment POSTED IN: HR Info Center

Pay range and compensation policy

Every job has a pay range as defined by the corporate compensation policy. The market will be a defining factor in your pay range. There’s a minimum you should pay for that job in this recruiting area that you gather from for this type of profession, for a company of your size and there’s a maximum as defined by pay range. The most used number is midpoint. That is the middle of the pay range for that job.

It’s possible in a compensation policy structure for salary grades to overlap. It’s possible to be paid more as a high end member of a low level salary grade than as a low end member of a higher salary grade because these grade ranges overlap.

Most corporate compensation policies allow for people to be moving up real fast as a junior person and have somebody reports to you that makes more money than you do if they’ve been around a long time and that actually makes some sense. But over time, the more senior position will be paid more.

Here’s a typical problem with compensation policy. The senior person in this picture is getting a 1.5% raise. Why? Well, in large part because they started high in their range and yet, they’re very unhappy.

You look at your junior person here and their 5% raise. And look this person is happy. And by the way, we’re telling that junior person, “Congratulations! Because of your outstanding effort and your wonderful contribution, we’re giving you the maximum salary grade” or, “We’re giving you the best grade – or a good grade which gives you the maximum salary treatment” either way, “Woohoo!” that’s what they’re thinking.

With the senior person you’re telling him, “Well, geez, man, you know, I mean we can only afford to give you, you know, a point and a half, I mean you’re already paid a lot, I mean, geez” and that senior person is looking at their manager with contempt.

What they’re thinking is, “You’re lucky I don’t go talk to somebody”, okay, You know, you think I don’t hear about the big percentage increases you’ve given to these young people around here?” So they’re very unhappy, okay, and they’re all whiny.

Let’s just talk about the way these things really work with compensation policy. Normally, it’s built into the system that the people that are lower in the grade are probably going to get a bigger percentage increase. It’s natural. It’s normal. They should expect this, is just based on the fact that, as they grow in seniority a little bit you got to move them to the right end of the pay grade.

That senior person is depressed and angry. Why? Because they believe you don’t like them, because performance evaluation and the other things that we’re doing would indicate to them that you like them the amount of the percentage of the increase, which is ridiculous.

Compensation policy, in regards to base salary, is not an indication of like or dislike. You like them everything you’re paying them. That person shouldn’t be mad. They should be happy.

Compensation policy-performance and potential
Now, if you have money and your employee has room to move up in their salary grade, the next best predictor and the third in ranking order of best salary predictors is their performance. How they do that last year? They worked hard. They did well.

The other part of a compensation policy is potential. What do we mean by potential? Are they silly enough to want more responsibility and good enough to earn it? Now, I like to think of that as salmon syndrome, people who are genetically programmed to swim upstream, spawn and die, okay? Those are the folks who you say, “Hey, I’ve got an opportunity for you. It involves 50% more responsibility and 10% more pay.”

Here’s the thing, you know, we need some salmon. We need people who want to move up the organization. And frankly, those who do, you can shove to the right hand side faster because they got another level to go to. But once you get to the level you’re going to get to, you’re going to slow down faster. That’s why potential influences the rate of your increase in most compensation policy decisions because , if you got more levels in you, we can be more assertive.

Edited remarks from the Rapid Learning Institute webinar “How to Drain the Drama from Salary Reviews: A Conversation Roadmap” by Gary Markle

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