10 Bad Employer Habits for Your Compensation Strategy

10 Bad Habits for Your Compensation Strategy

Ten bad compensation habits to avoid:

1. The "peanut butter" approach. Avoid always spreading money evenly across employees. "Keeping your top employees and rewarding and nurturing them and engaging them is the opposite of the peanut butter approach. With low merit budgets, this becomes harder, but we can differentiate among employees and we can pay based on differentiating." Terry Pasteris told us in a recent BLR webinar.
2. Greasing the squeaky wheel. "Just because someone complains doesn't mean that they're the ones that need the most attention." Pasteris noted.
3. Ignoring employees. On the other hand, don't ignore employee needs—especially your best employees. Find a way to show employees they're appreciated, even when merit budgets are low, or employees will be more likely to look for a new employer.
4. Not really paying for performance. "A lot of companies . . . say that they pay for performance, but they're not really paying for performance. When it gets down to making those differentiations between people, they're not willing to do so. So, they're not really paying and differentiating amongst employees based on their level of performance." Pasteris cautioned. If a pay-for-performance program is in place, there should be a way to differentiate between employees who have earned the highest merit increases.
5. Paying for non-performance. This happens when an incentive or pay-for-performance plan always gets paid, even when it is not earned, and thus becomes more of an entitlement–or when goals are so low that nothing needs to be done to get the raise each year. Avoid this by not paying when criteria aren't met and by having employee goals in place that are aligned with the company strategy and goals.
6. Top secret compensation. People demand transparency. Even if you try to keep compensation information a secret, it's probably not. This can lead to dissatisfaction when employees don't understand compensation decisions.
7. Focus on cash versus total rewards. The rewards employees get for their time, energy, and talent isn't just what shows up in their paycheck. It also includes things like incentives, benefits, recognition, work-life balance, development opportunities, and more. By bringing all of these things into the conversation, employees can start to see the big picture.
8. Accentuating increase over rate of pay. A lot of people look at their raise percentage rather than how they are paid compared to benchmarks, which can lead to even highly-compensated individuals feeling they've been slighted if their raise isn't what was expected. Effectively communicating about the compensation strategy and benchmarks can fix this.
9. Creating compression. When new employees are being paid more than current ones, this can cause compensation compression. It's easy to see how this can be problematic – especially since compensation information is seldom secret. This can be avoided by moving current employees' salaries along with new ones.
10. Thinking reward strategy equals business strategy. The two are related and need to be linked, but are not the same. For example, your competitors for talent are not necessarily your competitors for business. They need to be thought of together but separately as well.

For more information on compensation strategy, order the webinar recording of "Compensation Strategy for HR: Tips for Engaging and Retaining Top Performers." To register for a future webinar, visit http://store.blr.com/events/webinars.

Terry Pasteris is president of TLMP Consulting Group. She is both a Global Remuneration Professional (GRP) and a Certified Compensation Professional (CCP). Ms. Pasteris’ compensation work includes developing cash, benefit and equity programs and she has also developed performance management, staffing and communication solutions.