Rewarding Hard Work Is a Common Mistake

Here are three more of Erdle’s six compensation mistakes. (Erdle is founder of Erdle Compensation Consulting, www.erdleconsulting.net.)

[Go here for mistakes 1, 2, and 3]

4. Rewarding Hard Work

Typically, you’re not trying to reward hard work, Erdle says; you’re trying to reward an outcome. The reason? Employees can work hard and still not get the job done. “I did a project for a biotech company. They were getting ready for an audit by the FDA, and people were in there all night working. You’d see them during the day, bags under their eyes.

“One of the VPs told me that they like to reward employees for their hard work. I asked him what kind of behavior they were rewarding. ‘You’re rewarding people for working hard and not necessarily for getting the job done,’ I told him. So that’s the behavior they got. I tell clients not to reward based on working hard. If employees can get the job done quickly and efficiently, reward for that.”

5. Averaging Data

What if the pay rates for different data selections aren’t similar? Erdle says that one mistake he often sees is averaging these figures. “Averaging them doesn’t give you an accurate picture,” he says. Each data selection needs to be evaluated in reference to the job you are looking at, and then a decision is made about market competitiveness. Depending on the job, one data selection may be more important to consider than another.

“Even if you did average them, wouldn’t you want to do a weighted average based on the number of incumbents in each data selection instead of just a simple average?” he muses. Aside from the data selections to consider, you will want to ensure you have a large enough sample size, and you would want to analyze other statistics such as the median and salary range midpoint. The median is a much better statistic to use than the average when sample sizes are relatively small, but most people simply average everything, thinking they are doing the right thing.

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6. Overcomplicating Your Comp System!

Remember that employees won’t respond to a program they don’t understand. Erdle recommends that your compensation system be simple, without a lot of complicated bells and extraneous whistles. “You need to have a system that is simple enough to understand … and to explain,” he says. “I find that complicated systems just don’t work that well. I like to do things that are straightforward and simple.

“This stuff isn’t rocket science at all. You need something that you can explain to managers, and have managers explain to their employees. Once the program is up and running, you’re going to have employees coming in waving some internet survey they found and threatening to leave if they don’t get a pay raise. Make sure you have something explainable so you can stand behind it. It makes sense for everyone.”

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