As Economy Improves, It's Time to Revisit Pay Structures

By Compensation Resources Inc. Jan 16, 2012

As 2012 gets underway, pre-existing employee dissatisfaction will lead to higher turnover as the overall labor market recovers. Moreover, more employees will be retiring over the next few years as financial markets continue to improve and their retirement investments increase in value. Given these labor market changes, the law of supply and demand will have a dramatic impact on compensation.

Employers have just come through an unsettling economic period during which many companies reduced their staff through layoffs and attrition, froze pay increases, asked for give-backs and generally seemed more concerned about survival then about their employees. As the economy continues to improve, the need to hold on to existing staff and to recruit new employees will increase greatly. Sooner rather than later, organizations should consider the following five compensation-related initiatives:

Identify your company’s most important and valuable employees. If you must lose staff, make sure they are not the ones you can least afford to lose.

Conduct a comparative analysis to identify where your pay is in relationship to competitors for talent. These are the companies you could lose staff to as well as those that you will probably recruit from.

Evaluate internal mechanisms for setting performance expectations. Gauge employee performance against realistic expectations and tie compensation more closely to results. Too many companies don’t make the link between pay and performance, and so salary increases and bonuses come to be viewed as an entitlement.

Examine your employee communications to ensure that the organization’s goals and strategic plan are understood by the staff and that all employees are working toward the same overall objectives. Employees don’t need access to confidential data, but they do need to understand the overall business goals—and what they must accomplish to make those goals a reality.

Communicate in a clear fashion compensation arrangements and how they recognize and reward those that deserve to be rewarded, and don’t give out mixed messages.

In some cases, these initiatives might highlight areas to be addressed such as the need to benchmark compensation, enhanced communications and goal-setting. Being proactive will help tackle compensation challenges before they turn into major staffing and engagement problems.

Compensation Resources Inc. (CRI) specializes in providing comprehensive compensation and HR consulting services including executive compensation, sales compensation, salary administration, performance management and litigation support.

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Related Articles:

Compensation Planning 2012: Proceed with Caution, SHRM Online Compensation Discipline, January 2012

Counter Misperceptions About Pay, SHRM Online Compensation Discipline, June 2011

Align Compensation with Business Priorities, SHRM Online Compensation Discipline, June 2011

How to Use 'Carve-Outs' to Truly Pay for Performance, SHRM Online Compensation Discipline, June 2011

Pay for Performance: Make It More than a Catch-Phrase, SHRM Online Compensation Discipline, May 2011

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