Take Santa Claus and the Easter Bunny out of Salary Administration Talk

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

Talk About Salary Administration like an Adult

What you’re striving for is to help you get out of the parent child interaction that many of us have been compelled to favor, and get to a more adult conversation about salary administration where you’re not talking down to people and your petulant children are not looking up to you, asking for more.

Try to change the tone and tenure of this salary administration conversation, make it more straightforward, maybe not more glamorous but more fair. If we could do that, there’s no more Santa Claus, no more Easter Bunny, no more tooth fairy references when you have to sit down and talk to people about salary administration.

There is a great misunderstanding about the way people get paid. And unfortunately, it’s perpetuated by management. And it’s adapted pretty well by the employees over time.

Pay for performance is the big lie. In other words, when we say we pay for performance with base salaries, that’s not really true. When we tell someone payment is based on performance and talk about base salaries, the implication is something like this. If you work hard, if you do well, you’ll get a good rating and you’ll get a big increase. Now that’s a lie. In reality, you don’t pay for performance for base salaries. In reality, you can’t pay for performance for base salaries. And most importantly, in reality, you don’t even want to.

If you could just know one thing that more than anything else would actually predict somebody’s increase, what would it be? The answer is budget.

Now, let’s assume that you have a budget for salary administration. In reality, what are we dealing with in terms of what does that look like? Most companies only have about 3% available for that, and at most they probably only have 5%.

You also have to consider the reality of compensation ratio. Think of compensation ratio like replacement cost. You have to consider how much you’re paying an employee as compared to what everyone else is paying a similar employee with similar skills and job requirements. And the other thing you have to consider is their potential, their interest and ability to go beyond where they are will also help him move them across faster. So, to recap. First it’s how much money you have to spend on salary administration. Secondly, is where are they already in their pay grade? Then third, it’s their performance with potential factored in.

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

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