Your compensation scorecard can be a powerful aid for developing real pay for performance, reducing entitlement, and, often, gaining management buy-in, says Consultant David Insler.
A compensation scorecard is any dissemination of aggregate compensation information beyond the HR organization.
There are several types of scorecards, says Insler, who is the senior vice president at Sibson Consulting and leader of Sibson’s Western Region. His tips came during a recent BLR-sponsored webinar.
- Basic compensation information (e.g., average merit increase)
- Comparative compensation information (e.g., to history, to other units, to established targets)
- Business: compensation information (e.g., related to business results, external competitive position)
Some scorecards are meant for employee communication, and others are meant to aid or influence management decision making, says Insler.
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Prescription for Pay in the Future
Employers are moving to a more performance-oriented compensation philosophy, says Insler, and your scorecards need to reflect that. He offers the table below to describe the differences.
Stronger talent pool available
Focus on retaining all employees
Focus on retaining and attracting high performers, repelling low performers
Low turnover was return on compensation investment
High performance is return on compensation investment
High performers perceive limited differentiation and moved on
High performers receive differentiated treatment, others motivated
About Communicating Pay Data
The source of communications about compensation is important, says Insler. Based on responses from more than 30,000 managers and their direct reports in analysis conducted by the Compensation Roundtable, Washington, D.C.:
- Communications from the manager are four times as likely to positively impact employees’ belief in the fairness of pay processes than communication from the HR/Compensation function.
- Manager communication drives 50% of employees’ belief in the fairness of pay processes.
- The belief that pay processes are fair increases employee loyalty by 25%and employee effort by 10%.
Insler, admitting that it is oversimplified, offers the following examples of communication:
Worst Case Communication:
Employee: “I don’t understand … or I think this pay raise/ bonus plan stinks.” “I don’t believe that our pay system will reward my performance.”
Manager: “Go ask HR” (or any statement that blames HR).
Best Case Communication:
Employee: “You mean that top performers get twice the average increase? There is a performance distribution that the company worries about?”
Manager: “Our pay program is competitively based and intended to reward the best performers more than others. Here are the facts: Best performers get higher increases, greater opportunity for promotion, and other benefits and opportunities.”
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Pay Competitiveness and Pay Structure Scorecard Data
Insler’s chart below, which may be included in your compensation scorecard, shows the market value of benchmark jobs. The boxes are the ranges within the organization, with the middle being the midpoint. The dots are data obtained from surveys or other sources indicating competitive midpoints.
As can be seen, at the two lower grades, midpoints are competitive; however, for the upper grades, competitors’ midpoints are higher. This may suggest the need to reassign jobs or change the structure.
Source: Sibson Consulting
In tomorrow’s Advisor, we will present more of Insler’s scorecard charts, plus an introduction to Compensation.BLR.com.