Excellent compensation planning is the backbone of a healthy organization. It’s the key to an engaged, motivated workforce. It guides your recruitment strategies. It reflects your organization’s values and outlines how you reward alignment with those tenets. But it’s a complicated, multi-step process that has many challenges. That’s why so many organizations reach out to third parties for outsourced compensation planning help.
Employers Council offers comprehensive compensation planning services; its team of compensation consultants have seen it all. Here are the most common errors HR teams make when trying to craft a thorough compensation plan. Any of these mistakes can make a significant adverse impact down the line, including losing desired talent to competitors, increased turnover and damaged morale.
The plan hasn’t been updated
The most foundational mistake organizations can make is not updating their compensation plan regularly. With rising inflation and the volatility of job markets in the past few years, many HR departments are moving toward annual compensation plan updates. If you’re in an unusually stable industry, you may be able to get away with reviewing your plan every two or three years, but most organizations need more frequent revisions to stay competitive. An up-to-date compensation plan will ensure you’re making the smartest pay decisions with the most accurate information available.
There’s no why behind the what
The very first step in the compensation planning process is to develop (or update) your compensation philosophy. These are the compensation principles that guide the rest of the plan. It is built on your organization’s values and covers the big questions: What is your market position? What’s your pay mix? How do you value jobs? Is your focus on individual or collective rewards? What’s your pay structure? What do you offer beyond pay? These answers will create a solid foundation for the rest of your plan. Without a compensation philosophy, your plan will struggle.
Inaccurate job descriptions
Even if you have been updating your compensation plan regularly, sometimes job descriptions can get lost in the mix. It’s time consuming to make sure all positions have thorough and timely descriptions, but it’s essential for accurate job matching. More and more busy HR departments have been reaching out to Employers Council’s compensation team for help with job descriptions lately. It’s one way our consultants can help shortcut the planning process for over-burdened teams.
Single-source or self-reported data
If you want to sabotage your compensation planning efforts, shirk quality data. The most important question you can ask about your compensation plan is whether your pay data is up-to-date and verified. Only getting data from one source or relying on crowdsourced websites will lead to far-from-useful pay strategies. Easy access to multisource, quality data is one of the main reasons HR departments outsource compensation planning.
Fuzzy hierarchies or slapdash grades
Sometimes organizations do a great job with their philosophy and job valuing and then falter when it comes to putting those two things together. There’s an art and science to designing base compensation; many HR departments simply lack the needed practice. Employers Council’s compensation consultants have years of experience and on-the-ground knowledge when it comes to grouping like jobs together, defining pay ranges and grades, and creating sensible hierarchies that reflect organizational values.
Light on solutions
A compensation plan must include the practical steps your organization will take to address existing employee pay that is out-of-range. It should detail which instances of pay compression are acceptable (an experienced individual contributor who makes more than a new manager, for example) and which need to be corrected ASAP. Plans that skip critical action steps are no plans at all.
An important sidenote: The compensation planning process will often bring up possible pay equity concerns, including differences across state lines. HR teams should flag any high-level patterns they see emerge and prioritize a pay equity analysis to get further clarity.
Missing communication component
Finally, compensation plans should always be paired with a strong communication plan. Managers need to be trained how to make pay decisions using the plan, and employees need to understand how and why those decisions are being made.
Do any of these compensation planning gaps sound all too familiar? Contact our compensation consultants to learn more about how Employers Council can help shore up your plan.