In our November HRMM article we offered fifteen questions that your organization’s senior leadership team should periodically review about its compensation strategy and the related plans, policies and practices. In this month’s article, we’ll discuss Trinity’s beliefs about the first group of these questions.
1) What is the amount of our company’s total compensation investment?
- Although it can vary significantly from industry to industry, on average companies compensation (pay and benefits) is in the range of being 20% to 35% of their revenue.
- In the healthcare industry, it is typically in excess of 50%
- In manufacturing, its average is under 30%.
2) What results should our pay strategy be producing for our company?
- If well-crafted, it should help the organization to:
a) Link salary to performance objectives and business strategy
b) Reflect the organization’s culture
c) Attract top talent
d) Retain high-value employees
e) Encourage optimal performance individually and collectively
f) Increase employee morale
g) Comply with compensation regulatory requirements
3) Do we have a clear, stated pay philosophy and strategy that has been communicated to employees?
- Sadly, the answer is “yes” for only about 30% of organizations.
- Based on that, the following misconceptions from an employee survey should not be a surprise:
- 80% of employees paid above the market believe their pay is at or below the market.
- 64% of those paid in line with the market believe they’re paid below the market.
4) Are our pay practices and decisions consistent with our philosophy and strategy?
- The opinion of the majority of CEOs and their direct report staff members indicate they “somewhat disagree” or “disagree”.
- Interestingly, the majority Chief HR Officers indicate they “agree” or “strongly agree”.
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NOTE: Perhaps this supports my observation that where one stands on any given issue often depends upon where she/he sits within the organization.
5) Do we have an easy to understand statement about it for our employees and potential employees?
- The results of employee surveys clearly concludes that employees overwhelmingly don’t have an understanding beyond broad platitudes such as “we pay competitively”.
6) What is our compensation target relative to the market?
- The quick response by organizations is “our pay is competitive”.
- When asked the follow-up question as to greater specific as to what that means, the responses begin to lose consistency and/or clarity.
- Among organizations with a more highly evolved compensation philosophy and approach, common responses include reference to factors such as their:
- Size
- Industry
- Geographic location
➡ Trinity’s experience clearly demonstrates that a strong positive correlation exists between each of these factors and pay.
➡ Trinity sees that the degree of the strength of the positive correlation has several variables, including:
- The use of revenue instead of number of employees in looking at market pay data
- The breadth of the revenue band size (most compensation data bases break revenue into bands of differing widths, which in some instances widths are broader than ideal)
In Part 2, we’ll talk about the other key compensation questions.
For more information:
- E mail Trinity at info@TrintyHR.net
- Visit our website at www.TrinityHR.net
- Call us at 856.905.1762 or Toll Free at 877.228.6810
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