Effective compensation administration allows you to stay market competitive and within budget
Compensation administration helps to ensure effective allocation of resources. I have yet to meet with a client that says, “When it comes to salaries, you know, we just have money growing on trees. We have unlimited resources. We can spend whatever we want. It’s really not an issue.” On the contrary what I hear is, “We have a limited budget, for what we can spend in salaries, our salary increase budget. At some point, we have limited resources to spend on our human capital needs.” And so, how do we take that bucket, that pile of dollars and make sure that we are putting those dollars to work for us as effectively as possible?
We do that through compensation administration by ensuring that we’re market competitive for our receptionist, for our VP, for our accountant, for our programmer and everybody in between. If we end up overpaying one of those jobs and underpaying another, that’s an ineffective use of resources.
Compensation administration talks about jobs not people
I want to point out when I say that I’m talking about jobs, I’m not talking about people. When we talk about the merit matrix later on, then we’re going to be talking about people. Right now, we’re talking about compensation administration; where the goal is to make sure we’re paying appropriately for each job
The next is to provide a rational basis for pay decisions. Too many organizations, in my opinion, kind of fly by to seat of their pants when it comes to pay decisions. Salaries are often either the first or second highest expense in an organization. And way too often, there’s very little thought, very little consistency, very little data applied to decisions revolving around pay.
I’m a huge proponent of making data-driven decisions in all facets of a business but in particular for those high-cost areas like salaries.
And then finally, we’ll talk a little bit later about assisting supervisors in evaluating and rewarding performance. At the end of the day, if we pay everybody the same amount for different levels of performance, people are going to – tend to gravitate towards the mean. So we want to make sure that we create a link between pay and performance.
From the Rapid Learning Institute webinar: “How to Set Pay Ranges That Are Fair and Effective” by Ed Rataj
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