The philosophy and reality behind employee compensation

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

“We pay you fairly for what you do” should be the core tenant in your employee compensation goals

The market makes the rules with employee compensation
The market is the arbiter for all of your decisions about employee compensation. The corollary question to this is, what happens when your employee compensation is below market?

It’s a pretty obvious set of conclusions, right? Your best people leave you to somebody who pays market. It costs you time and money to replace them. You have to pay the market to their replacements otherwise you can’t get them to come. You spend weeks and months training them. And then once they’re trained, you hope the heck they’re half as good as the person you lost because you failed to pay them market.

In order to pay them market for employee compensation, you have to know what the market it. You better figure that out and you better pay on it. Some of your folks, if you stopped all employee compensation today, wouldn’t keep coming to work.

Now, what does that mean? Money may not be the most important thing in employee compensation but it is a very important thing. And so, we need to pay people properly here. How do you pay people properly?

The philosophy behind employee compensation.
This is the universal – the single best way I’ve ever come across to describe a top notch compensation philosophy.

We pay fairly for what you do. What does that mean? Okay, if that’s your philosophy what you’re saying to people is what? We looked at the market and we matched what you do to the market. We want to pay competitively with that, okay?

How do you beat that? Now, we’re going to differentiate with other things but by golly, we are going to make sure we don’t underpay you but we can’t afford to overpay you, okay?

Now, I find that employee compensation philosophy to fit everybody. It’s not sexy. Nobody stands up and goes up, “I work for a company that pays me fairly for what I do.” But if you can figure that out and you can say that honestly and you stick to it, nobody’s going to leave you over money, okay? And that’s a good thing.

You better pay what your neighbors pay. If you can’t, you got to have an interesting strategy for getting around it, okay? You better be able to pay competitively. And if you can do that, that’s the best way to go. And it’s the most logical thing to be able to say to people, “We pay you fairly for what you do.

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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