5 Pain Points that Indicate a Need for a Compensation Checkup
MEA’s Compensation Consultants have evaluated the pay systems of many of our Member companies in the last several years. When companies come to MEA, they usually come because of one or more of the following pain points. If any of these sound familiar, it may be time for you to get a Compensation Checkup.
1. You just don’t know how your company salaries compare to the market
It’s not uncommon for HR professionals to say, “I am so tired of employees complaining they are underpaid because of salary data they found free on the Internet!” Salary data from free websites such as salary.com and payscale.com is notoriously unreliable and generally inflated, and companies are at a disadvantage if an employee produces data that the HR Manager cannot defend with valid data. If you don’t have several sources of good salary data at your disposal, you may need a compensation checkup.
2. New hires are demanding higher salaries than you are paying long-term employees; you have to pay those rates to attract qualified candidates
It’s not uncommon for companies with no formal pay structure to find themselves in this predicament. When companies don’t evaluate market rates for their jobs, they tend to pay people whatever they demand. In the past several years the market has seen a strange phenomenon. The pay for lower level, unskilled positions (such as general laborers) has dropped, while talent shortages have caused rates for highly skilled positions such as CNC Programmers and Principal Engineers to spike dramatically. Companies who never evaluate compensation but just provide a general 2-3% raise each year usually find themselves falling behind market pay levels for skilled positions. If you are paying new hires as much or more than good employees who have worked for you for many years, you may need a compensation checkup.
3. Your employees are starting to complain about pay and internal equity issues
Employee complaints in pay come in many forms – sometimes through general grumbling, sometimes through a formal process like an engagement or satisfaction survey. These early complaints are usually a warning sign that there is a pay problem. Studies have shown that companies who communicate to employees well and often about reward programs, even if they are modest programs, have higher employee satisfaction levels than companies who never communicate about pay and benefits. If you’ve heard grumbling from your employees or if you have no communication strategy about rewards, you may need a compensation checkup.
4. Your titles have gotten away from you
MEA once worked with an organization which had 400 employees – many of whom worked in the same job. The problem? The company had over 300 titles! This made HR’s job very difficult as administration of those titles and evaluation of fair pay and internal equity was almost impossible. When MEA’s compensation checkup was complete, we found that based on the analysis of the job descriptions and comparison to market, the company really had only 195 different jobs. If this scenario sounds familiar, you may need a compensation checkup.
5. You have never approached performance, rewards, talent management, or succession planning strategically
It’s not uncommon for small organizations to only focus on the tactical, day-to-day elements of HR, like payroll and recruitment, without ever thinking about the strategic needs of the organization like compensation philosophy, succession planning, and managing talent. Companies of every size should be able to articulate how and why they pay their people the way they do, and what programs are in place to recognize and reward talent. If you have never looked at your rewards programs with a strategic eye, it might be time for a compensation checkup.