Don’t make the mistake of thinking that having a compensation plan is the same has having an effective one. There are several warning signs that can alert employers when their compensation plan is not effective.
1. Poor job documentation.
Even though it seems simplistic, if there is no focus on creating the appropriate documentation, the whole foundation of the program is at risk. Analyze each job. Ensure there are accurate job descriptions and job titles as this is one of the first signs that the overall compensation plan might not be doing what it is designed to do. (After all, how can pay be in alignment when the job itself is not what it was designed to be)?
“No one likes to write job descriptions, but their absence, their antiquity, their inaccuracy, [all] create blurred lines of responsibility and accountability,” Chuck Csizmar explained in a recent BLR webinar. “Without a proper description, does the employee know what they’re supposed to be doing? What you expect them to be doing? If not, that communications disconnect can make for an interesting performance review discussion at year end.
“And how do you correctly market-price a job if the job description is inaccurate? How do you evaluate the job into your grading hierarchy? That’s why we call job descriptions the basics,” Csizmar explained.
2. Absence of a procedures manual for managers.
As with other job documentation, this is one of the basics. Most managers need guidance, and a procedures manual provides it. It also provides consistency in managerial actions; employees value consistency. While this does not need to be an inflexible rule-book, it should provide guidance and tell managers how to approach pay decisions.
It should cover things like hiring, promotions, pay adjustments, performance increases, etc. It should describe the policies surrounding all types of pay actions, such as the amount of raise that is given when a promotion is given and who must approve any pay decision. “Lack of guidance ultimately leads to bad decisions, unfair treatment, and increased costs.” Csizmar warned.
3. Using a one-size-fits-all approach.
Not every region should be treated the same as every other region. It is tempting to create one standardized compensation program and use it universally, but doing so can be a mistake. Different states have different employment laws, for example. If you’re working in multiple countries this is even more complex.
Employers need to understand the employment environment of each area where they have employees. Different regions (whether these are different countries, states, or even counties) will likely have different laws, different tax structures, different employee attitudes, and different competitive job pricing. As such, the compensation plans need to be different to reflect the reality in each area.