Three considerations in compensation management

by on June 12, 2009 · 0 Comment POSTED IN: HR Info Center

Compensation management brings about both leadership and process management questions

  1. Salary range distribution in compensation management
  2. Put your employees in the same kind of salary ranges that you find from the individual surveys. You put them on a tier within your system that most describes their salary range.

    Okay. After you get all that done, you can compare them to the midpoint. And you can say, “This person – if we adapt 50% to be our midpoint, we can now say that relative to that midpoint, this person – if it’s exactly the same, it would be 100% of midpoint.

  3. Equitable distribution in compensation management
  4. On the other hand, you can get up to a range that goes 120% of midpoint or 80% of midpoint on the other side. Once you’ve got that, the question is where are your people in relative fashion to that midpoint? And when you’re going to pass out raises, you’re going to look at that information. You figure out your budget and you now look at their compa ratio. You come into the picture and you say, “How do we spread these resources out equitably?”

    And if you’re going to make any compensation management system change from some other system to the standardized system once a year, et cetera, then when you switch, prorate the salary. So if somebody just had their raise three months ago, don’t do it now and then skip them until a year from now, okay. Give them 1/4th of a raise.

    Somebody who you skipped a couple of months because you were waiting to do this all at once, give them a 1.2x raise. So make sure if you’re going to go to some kind of routine common date, which I strongly recommend, that you don’t err on the company’s favor when you make these changes here in the employee’s favor.

  5. Good compensation management means distributing based on compa ratio
  6. Allocate your budget then based on compa ratio. So literally, forget performance. Just pretend that everybody gets a raise based on their compa ratio. Divide it all up without even thinking of who these people are and what they’re doing, what would they get?

    Plug those values all into a spreadsheet and tweak the formula so that when you add them all up, they stay to your 3%, 2%, whatever you got. It may not be much but it better balance your budget so you’re not somehow coming in above what you said you were going to do.

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