Compensation: Alignment, Compression, and Risk

[Go here for questions 1 and 2]

3. What is the Alignment of Incumbents Within Their Pay Grades?

Perform the following analyses, suggests Carroll:

1. All positions in the organization compared to the midpoint (market)
2. Positions within each pay grade compared to the midpoint (market)
3. Incumbents within each pay grade compared to the midpoint (market)

Create a plan for what to do with employees who are not where they should be (red-circled, green-circled, etc.), says Carroll, who is Director of Professional Services & Education at PayScale, Inc.

4. What is the Relationship Between Positions Within One Pay Range as Compared to Positions Within Another Pay Range?

The most common problem is going to be internal compression (for example, new hires making more than experienced workers). Compression can be due to many factors:

• Overtime
• Average tenure
• Working managers as opposed to managers with different responsibilities
• Recruitment/promotion challenges

One of the factors that Carroll sees contributing to compression is that managers are not skilled at negotiating salaries. Training can help.

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5. Where are the Risks to the Organization?

Finally, says Carroll, you need to be on the lookout for risks:

1. Watch for patterns with managers or departments. There may be certain managers who consistently make poor compensation decisions relating to hiring, promotion, and merit increases.
2. Do an analysis of demographics, particularly, sex, race, and age, compared to compa-ratios.
3. Make a plan for dealing with internal compression if necessary.
4. Especially if your analysis indicates that you are losing top talent, create a retention program.

Where are the risks? Unfortunately, they’re not obvious. There’s really only one way you can be sure that your systems are operating according to policy—regular audits. The rub is that for most HR managers, it’s hard to get started auditing—where do you begin?

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