By Sara D. Schmidt, PHR, © Compensation Resources
Salary administration programs are designed to provide competitive and equitable base pay to all employees, through the use of salary structures and formal policies and procedures. Though many companies develop salary structures informally, having periodic benchmarking and salary structure adjustments can ensure internal parity while maintaining external competitiveness.
An effective salary administration program allows a company to meet the basic objectives of compensation: focus, attract, retain and motivate. In addition, the program should be flexible to allow for changing conditions and fluctuations within the company and marketplace. Often, salary administration programs are tied to a pay-for-performance philosophy, whereby annual increases are differentiated based on the evaluated performance of an employee, and may be further influenced by the employee's placement within his/her salary range.
Through a salary administration audit, the following would be addressed:
- Determine if the company's strategic goals objectives, and compensation strategy are still aligned with the program.
- Review and update job descriptions, as appropriate.
- Conduct a market study of benchmark positions to gauge how the market has changed over the past few years.
- Review the salary structures to determine if the number of grades and grade assignments are still appropriate. If multiple structures are in place, it is important to consider if the number and groupings are still suitable. The salary structures should be evaluated to ensure there is room for growth, and compression issues are addressed.
- Review the current policies and procedures to determine any inconsistencies with the current compensation strategy, and areas that are not meeting the company's needs.
Once the salary structures and policies have been reviewed and updated, it is key to conduct training sessions with management to communicate what changes have taken place. This training will help with their continued buy-in, as well as allow managers to have a consistent message as they relate changes to their staff.
While the initial design process is well-intended, salary administration programs can fail for many reasons including the lack of:
- Top management commitment.
- Clarity and ease of administration.
- Thorough planning.
- Tie-in with compensation strategy.
- Consistent balance between internal equity and external competitiveness.
- Training and communication.
- Follow-up and review.
Companies should consider the reassessment of their salary administration program, along with all their compensation plans, as a vital and on-going part of the program's success. Assessing the program to ensure that it continues to meet your company's needs—and that it is perceived as a credible and functional part of the HR process—will enhance your company's ability to remain a competitive force in the marketplace.
Sara D. Schmidt,PHR, is a consultant with Compensation Resources, Inc., a provider of compensation and HR consulting services to mostly mid- and small-sized public and private companies as well as not-for-profit organizations. © 2013 Compensation Resources, Inc. All rights reserved. Republished with permission.
Related SHRM Articles:
Updating Salary Structure: When, Why and How?, SHRM Online Compensation, May 2013
The Art of Setting Pay, HR Magazine, May 2013
Building a Market-Based Pay Structure from Scratch, SHRM Toolkits, May 2013
SHRM Online Compensation Page
SHRM Salary Survey Directory
SHRM Compensation Data CenterSHRM Metro Economic Outlook reports