Employee Compensation is Dictated by the Market

by on June 11, 2009 · 0 Comment POSTED IN: HR Info Center

Employee Compensation may not be the most important thing but it is important

Performance is still important. Performance decides whether you get to stay. Performance dictates whether you would even consider employee compensation. Performance dictates whether you’d ever be considered for promotion. Performance controls who gets the good assignments. Performance dictates lots of good stuff. But last year’s performance is not the best predictor of employee compensation for a given year.

Bonus, retention, promotions, assignments—all of these can be predicted by performance. Performance does not predict employee compensation. If your people just think that last year’s performance is supposed to dictate this year’s employee compensation, you’re going to have to break that connection or they will ultimately be confused.

In the end, it’s the market that makes the rules. If you try to get away with administering employee compensation that is below the market, you’re going to have problems. Because then they can leave you to go someplace else just to get paid average. Then when you have to replace them you’re going to have to pay that replacement market value.

You may spend weeks, or months trying to find that replacement and then a lot more time training them. And if you think you’re getting a bargain by paying below the market for your people then you’re silly. The market will tell you what you’ve got to pay. If you don’t pay attention to the market, you’re going to be in trouble.

Money may not be the most important thing but it is important. You need to get the money right. But if you’ve ever done any exit interviews, you know a real high performer will rarely ever say to you, “Hey, look. I took a job down the street for 20% more money where I get to do essentially the same thing I did in the job I was in before”.

When they’re leaving they say something like this in an exit interview, “Geez, in the new company, I get to be the one who does this. I get to be responsible for that. I get to be the company representative over here. Oh and by the way, they’re paying me 25% more.”

But it’s never about the money. You just have to be competitive with the money and make it an interesting place otherwise. Fail to be competitive, then you can lose people. Just make yourself standard and you eliminate that from being a possibility. It doesn’t mean everybody is going to stay but it does mean at least that won’t be the reason they’re leaving you.

Edited Remarks from “Salary Talk: How To Discuss Pay So Employees Feel They’re Treated Fairly” by Gary Markle

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