Disconnect compensation management decisions from performance reviews

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

Compensation management and compa ratios

Allocate your budget based on compa ratio. Disconnect from last year’s performance evaluation as part of your base compensation management decision matrix. Get rid of performance evaluation entirely.

If you disconnect performance and career development discussions from compensation management then you’re going to have something else to base it on, which you already have.

How to allocate compensation based on compa ratio

Compa ratio is defined as the relationship of current salaries to the midpoints of the salary ranges

Begin by dividing your budget up such that the folks naturally get a little more in the bottom areas or below midpoint. They get a little higher percentage in the lower part of the range, in the little lower percentage in the higher part of the ranges and divide it up that way.

Plug everybody into the spreadsheet, run the numbers, see if that works and then tweak the formula to make sure that you know you’re on budget. This is an HR thing.

Ultimately, once you got that done, obtain approval for using that compensation management that scheme. Give all their managers their list of people and tell them what the computer would tell them they get and allow them to come back and adjust their people up and down, up or down based on performance and potential as well.

If they move anybody up they got to get the money from somewhere so they got to have somebody else who’s going down. So, it’s a zero sum game. You got to stay on budget. HR can have a little bit of fun money if left over to help with these situations.

Compensation management systems take out the guesswork
Just by these moves with one to two sentences – that’s all you’re going to have, 80% of your people will get computer-generated recommendations. In other words, the higher percentage of people lower in the band and lower percentage of people on the other side, 20% required two sentences explanation. It’s very simple to run this program. Just make sure you don’t exceed the budget.

If you go to this kind of program where you’ve disconnected your salary administration from last year’s performance and you break that mythology, you can have some great conversations with people that are kind of quick.

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

Leave a Reply


Request a Free Demo

We'd love to show you how this industry-leading training system can help you develop your team. Please fill out this quick form or give us a call at 877-792-2172 to schedule your one-on-one demo with a Rapid Learning Specialist.