Most HR managers only have a few bad compensation habits, but they’re hard to break, say experts Stacey Carroll and Al Lee. In today’s Advisor, their “Top 5” bad habits in compensation.
Carroll is Director of Professional Services and Education at Payscale, Inc.; Lee is Director of Qualitative Analytics. Their remarks came at a recent webinar hosted by WorldatWork.
Bad Habit #1. Wage Freezes
With a wage freeze, over the course of a few years you may have effectively cut salaries by about 20%, and that’s probably not the best way to handle things, says Carroll. In fact, she says, doing the same thing to all employees is almost never the best choice.
Why companies do it:
- To save money
- To offset other costs (e.g., benefits)
- It’s “fair”
Why it doesn’t work:
- Short term cost savings come at a cost to long term sustainability
- It’s hard for employees to understand the total rewards strategy
- It’s not fair—it hurts the most vulnerable population
- It doesn’t make good business sense—you will lose your high performers and high potentials
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Bad Habit #2. Across-the Board Increases
With across the board increases, again you are treating everyone the same, Carroll says.
Why companies do it:
- They’ve always done it this way
- Employees expect an adjustment based on the rising cost of living
- It is easy
Why it doesn’t work:
- It’s not sustainable. For example, says Carroll, before you realize it, you end up with lower-level workers earning $95,000.
- Cost of living has nothing to do with salaries. They are two different things, although employees link them together
- Following macro trends (survey says 3% so we’ll do 3%) doesn’t reflect the fact that many different jobs are not moving like the market as a whole
- All positions are not created equal. And they should not be, says Carroll. Some have a disproportionate value to the organization.
As an example, says Lee, take Physical Therapists and Software Developers. In one recent 3-year period the market for Physical Therapists went up roughly 33 percent while the market for Software Developers went up about only about 9 percent.
In this situation, across the board increases will overpay the software developers and underpay the physical therapists. National data is helpful, but it’s not enough—you need more localized data as well, says Lee.
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Bad Habit #3. Geographic Offset
The next bad habit is geographic offset, Carroll says.
Why companies do it:
- Many surveys lack data for rural areas
- Many surveys sell cuts of data
- It’s easy
- It’s assumed that survey data is a reliable measure
Why it doesn’t work:
- Surveys often don’t accurately reflect the “market” for a position. For example, commuting can throw off the data. Lee has found that people will commute from a 50 or 60 mile distance to get higher in-city wages. The cost of living may be very different 60 miles from, say, San Francisco, but those people are part of your talent pool.
- In some case there is a negative correlation between metro size and pay. For example, Lee says, line cooks in New York City accept low salaries, because every chef wants to work there—it’s the ticket to bigger salaries elsewhere after training in New York City. (No one goes to Minnesota to make a reputation as a cook, says Lee.)
- As another example, you may need to pay more to get people to live in the rural area, even if the cost of living is low. Candidates don’t want to be there, they wonder what the trailing spouse will do, and they are concerned about what other opportunities will there be.
- It can’t be justified with the data.
There’s no lock step between salaries and cost of living. Salaries vary by demand. It’s all about local dynamics for the particular job, says Lee.
In tomorrow’s Advisor, more bad habits and an introduction to a unique FLSA audit guide.