It’s a topic everyone cares deeply about, but often, conversations about it are veiled. Yet, it’s critical to a company’s budget, employee satisfaction and recruitment—really, its overall operations and effectiveness.
“While many companies have delayed or reduced pay increases or any other changes in compensation or benefits since the recession hit, the economy has now stabilized and it may well be time to revisit your pay structures”, says Leslie Day, Precision Payroll’s Director of Human Resources Consulting Services.
Variables to look at include:
- the ratio of direct pay (salary or wage) to indirect pay (the company’s share of health insurance, taxes and retirement contributions, as well as paid time off–vacation, sick and holiday time–and extras like tuition reimbursement and car allowance). These two combined are the total value received by the employee from their job.
- how your jobs are internally evaluated and compared for value
- current information on the external value of each job (competitive value in the marketplace, like salary survey data)
- your compensation system: do you have a system reflecting the above variables? Might the company and its employees benefit from one, or from re-examining the one you have?
- communications: do your employees understand the full picture of their total compensation?
While it is standard for public sector organizations and large companies to have salary grades that they revisit annually, many private companies and small businesses could benefit from formal pay systems, as well, and should review their compensation structure every three years, at the longest.
“Now that things have settled down from the recession, this is the time to revisit what you are doing,” says Day.
Companies may want to be “competitive” in pay and merit increases. There is a trend away from straight merit pay increases, which are being paired or replaced with bonus pay that is tied to quantifiable outcomes. This kind of incentive/reward system also engenders employee investment in achieving company goals, which generates motivation, commitment and loyalty.
Another reason this conversation is more urgent is that at the federal level, there have been enacted laws or attempts at enacted laws to open up the area of pay for lawsuits. Regardless of political implications, this provides yet another reason to have a formalized compensation system.
“A newly created pay grade system should be a structure that reflects the priorities for pay that already exist within the company,” says Day. “We’re not modifying pay, we’re putting what is there into a formalized system. This system gives confidence to employees about their pay and allows management to know that they are making decisions within a defined framework.”
In addition to assessing pay priorities within an organization, equally as important is looking at external value, which is driven by supply and demand, as well as geographic region. PPA has access to the latest salary surveys to support clients’ decisions on pay.
Day notes that there are many jobs that fall outside of the standard benchmark jobs included in a salary survey, particularly with small companies, which tend to have unique combinations of jobs. “This is what makes compensation more of an art than a science,” says Day, a specialist in developing compensation structures for small businesses. “It’s a matter of understanding each unique job’s responsibilities and coming up with data that is apples to apples.”
PPA has the expertise to help companies examine existing and/or create new compensation-related programs, including:
- Compensation Analysis
- Annual Compensation and Benefits Report
- Salary Survey Data – geographic and industry specific
- Salary Grade System (includes internal job evaluation, tied into salary survey data, to create a hierarchy of pay grades that make up a system)
- Bonus and Incentive Programs
- Performance Review Systems
- Merit Increase Systems
Our programs are completely custom, cost-effective, and affordable for small- to medium-sized companies. Ultimately, the goal should be to ensure that employees appreciate all of their pay and benefits, and that the company is getting the biggest bang for its payroll dollar—a win-win.
For more information on this topic or to discuss your company’s specific needs, contact Leslie Day, firstname.lastname@example.org or 630-785-2205.