7 Outdated Approaches to Determine how Much to Pay People
Determining how much you can pay and what you pay is the most important decision you can make as an employer. Your approach to pay, the systems you use, your pay policy or lack thereof can create a world of headaches for you or make building a great business easier. Most employers don’t know where to begin and other employers are going through the motions of an outdated process. What’s worse is that employers miss out on the creativity and fun of building a dynamic comp plan once you get past the compliance efforts and baseline requirements set by the government.
If you are doing any of these things, you might need to overhaul your approach to pay:
Using Job Title
Job Titles are relevant in two ways: to tell someone what you do and to tell someone your power and decision-making ability. Those two factors are not mathematically equivalent to earning potential. Stop using this as a starting point to determine pay.
Scope out the Job
Scope means to outline what you want to be done. Most job descriptions today fall short of truly scoping. In fact, some of them seem to be an act of creative writing skills more than a technical document. We have been using this method for 40 plus years and it clearly isn’t working - as evident by turn over, low job satisfaction and employee satisfaction in employer surveys. If you don’t start the relationship with accurate expectations, how you can possibly think it will be successful?
When someone in Compensation, or a hired Total Rewards consultant, spends a lot of time and expense to create a compensation strategy, they will ask you to start with a scope. The scope is used as a data point to search for like descriptions and then apply like wages. You can do this for hourly and salaried jobs in your company. Go off the beaten path and scope your jobs better and test to see if you get better results.
Banding is a term to describe putting like roles into like buckets and creating wage min and max for each role within the band. It’s a process that says, "I wrote the job descriptions similarly, so they should be paid similarly." Ask employees what happens to their motivation to work smarter and harder for the vision of the company when they learn that a slacker is paid the same as them? This answer isn’t new by any means and isn't effective, so why would you keep allowing that in your company? People who work like it when pay reflects effort. Consider pay that encourages performance, ability, tenure, skills, and goals.
Type in your search engine “average wage for…..” you will get whatever data that has been scraped and shared and bought for those words and the result will tell you a number. You need to be wiser than your search. Wages should reflect a combination of factors.
Using a broker or consultant
For when you don’t have the time, but have the money - outsource your comp strategy. If you have the time and have the money – do your business a favor and create a comp policy on your own. The process, resources, and data that a consultant has available is available to everyone. A consultant will ask you to scope out what you want for every role, look into a database for like-titled roles and then assign a like value based on historical market data. You don’t want a comp plan based on history, do you? Most people want to combine best practices, trends and what’s best for the business.
Department of Labor
An oldy but a goodie. Use this for baseline and minimum standards. The DOL and ADP have had a long-standing data partnership, don’t recreate the wheel and don’t use hacked and scraped data that may not be sound. Go to the source and build from there.
I understand as an employer you don’t want to put your compensation strategy out for public view or for your competitors. Your comp strategy has historically been part of a strategic advantage. To get the best people you have to offer them the best bells and whistles. For the next generation of Talent and living in the digital era- I hate to break it to you. Competitors already know what you do, employees know what each other makes, income is a conversation and it should be. If you have a solid philosophy, be fearless about defending it. If you measure pay on the non-subjective, you should be proud. High pay may be what get Talent in the door but it isn’t what makes people stick. Tell a total employer picture and you’ll attract the Talent you want.
If any of these apply to you, or you are just starting to have a need for a solid compensation plan, take our words of experienced advice - get into the new era of work. The old school methods served us for the past 40 years and now we need to pass the baton and advance our working world – smart pay practices are a great start.