Seven signs your compensation strategy needs a do-over

Perhaps no area of human resources is as uncomfortable to talk about as the annual compensation update with the executive team. It seems as if every HR manager is tasked with proving that an improved compensation offering is good for business.

The Business Necessity of Compensation Updates

When the payroll budget is limited and the pressure is on to outperform the competition, HR can feel backed against the wall in this area. Explaining to leaders that well-paid employees can produce more profits, while focusing on reducing turnover rates, eliminating pay equity gaps, and preventing wage related lawsuits can be difficult. However, with a clear compensation strategy based on reliable industry data, any HR practitioner can do this effectively. As the expert, it’s your job to note the signs that things are out of balance.

How do you know that your compensation strategy needs updating?

Outside of time-tested experience, there can be certain signals present that let you know it’s time to do a survey of your current staff salaries and benefits. Key indicators include:

1. Increasingly poor performance and absenteeism from employees in certain areas of the company.
   When employees are unhappy about their jobs, they tend to stop working so hard. One possible sign of a compensation plan that needs a redo is poor performance coupled with high absenteeism rates. Employees become resentful of the low pay and lack of upward mobility they experience, therefore hard work goes out the window. Take this sign seriously and start planning ways to improve the status quo.
2. Lower than usual retention rates for entry to mid-level employees.
   Keeping a loyal workforce is challenging when the organization is not paying people what they are worth. Savvy employees can and do shop around looking for better earnings, and they may leave with little notice to your company once offered even a little more in terms of salary or benefits. If you are noting that entry and mid-level jobs are losing staffers, it’s time to take a good look at your compensation program as a possible cause.
3. Outdated, complicated or ineffective employee performance review system.
   When a performance matrix ceases to serve its true purpose, often this can be a sign that your compensation program needs a total make-over. A performance evaluation system that’s complicated, outdated, or ineffective at establishing performance trends is no longer useful. Go with a compensation program with built-in performance measurement tools.
4. No clear relationship between performance and pay as demonstrated through incentive programs.
   Employees will respond well to a performance for pay effort that’s clearly laid out and regularly administered. If the relationship is not made between the two, there can be problems. Give your employees a good way to gauge their efforts with their financial goals.
5. The presence of a new competitor in the market that offers higher starting salaries.
   Another clear sign that your business needs to revamp the compensation program is when a new contender comes into your space. Competitors will do their best to try to steal away your best employees, therefore you need to step it up a notch to retain your high performance staff. Use a renewed compensation program to establish better salaries and benefit perks.
6. Imbalance between salaries of similar job types in varied geographic areas of your company.
   Pay disparity is something that sneaks up on even the best of human resource compensation teams, especially if you are operating across several geographical locations. Don’t let this happen – putting our organization at risk for a lawsuit! Use a compensation and salary survey product that gives you the current market rates for similar job types in different regions and skill sets so you can set up equitable compensation policies.
7. Negative feedback from employees in regards to the salary and benefits they receive.
   360 degree surveys can be a good way to check for any problem areas in your compensation offerings. Gather feedback from employees at least once a year and note any specific areas that relate to your salary, benefits, and employee development programs that you can take steps to improve.

Take note of the above signs and take steps to protect your organization, while improving performance and retention of your best employees with a better compensation plan. Human capital is the most important aspect of running a successful business. Your compensation strategy can help strengthen this aspect, giving you confidence to walk into any leadership meeting with knowledge and a plan to manage it well.