An employee compensation plan should provide a competitive wage and reward employees fairly and equitably for behaviors while accomplishing goals and objectives for the organization. Compensation is the reward an employee receives in return for his or her contribution to the organization. Basic components of a compensation package include base salary, incentives, and benefits.
Organizations implement incentive plans to help reach overall goals and objectives. Incentive plans range from variable pay plans to prizes and recognition awards. Incentive plans can motivate employees to go beyond expectations and produce results that contribute to business success. They also can attract new talent and encourage company loyalty. For an incentive plan to be effective, the goals must be obtainable.
So how do you determine whether a short-term or long-term incentive is appropriate? Short-term incentives are used to create focus on short-term or immediate goals, and align rewards with individual and business performance. Long-term incentives are typically designed for executives who make strategic decisions for the company. They can ensure focus on what’s best for the organization’s future outcomes by placing importance on medium and/or long-term goals and creating a sense of ownership of those goals. Successful incentive plans can also help organizations align rewards with shareholder interests, and help retain key talent.
Short term incentives can be for all employee levels from entry level to middle management to the executive level and they can be big or small and can cover a week, month, quarter or year of performance measurements and goals. Short term incentives can create a better work environment and motivate employees to work to their greatest potential. Without short term incentives, employees may feel that their work is unappreciated and morale can be low. Short term incentives align employees work with the overall success of the company and can clearly define an employee’s specific role in contributing to that success. Short term incentives such as prizes, free airline tickets or hotel stays, tickets to events or a paid day off can have high impact. Short-term incentives can be individual and/or team based. Rewarding employees for clearly defined goals can go a long way to creating happy employees who work well alone and together striving for success.
It is important to use both the short and the long term initiatives to produce desired results. Incentive programs that are carefully and strategically crafted and aligned with company goals and timeframes should lead to more productive, motivated and loyal team members. Retaining good employees saves organizations the expense of recruiting and training new workers.
At WageWatch our compensation consultants are focused on your organization’s compensation needs and ready to help you ensure that your compensation programs are supporting your company’s business strategy and objectives. WageWatch also offers accurate, up-to-date benefit surveys, salary surveys and pay practices data that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online.
To manage the risk of pay discrimination, organizations should conduct periodic pay equity analysis. The goal of a pay equity study or analysis is to identify problems and ensure compensation practices are fair and equitable. The study should look for trends that identify disparate impact on wage rates. Data elements to include in the analysis are hire dates, hire rates, performance rating, merit increases, age, ethnicity, gender and promotion dates and increases. Group the data in job classifications and departments by hierarchy as well as grouping comparable jobs across departments. Sort the data by the various data elements to see what emerges. This analysis can identify wage inequities as well as explain some of the differences in pay among comparable employees. A thorough analysis is important for managing the risk associated with pay discrimination claims.
Differences in knowledge, skill, ability, effort or responsibility provide a legitimate basis for differences in pay among employees doing the same work. However, these factors can be difficult to validate or prove, and therefore you will need to rely on the data that is readily available including:
- Job title or grade
- Time in current job or grade
- Job duties including degree of responsibility
- Job status (Full or part-time, exempt or non-exempt etc.)
- Location where the employee lives and works
- Company service time
- Prior experience
- Market value of a job
- Performance Review documenting effort in terms of quantity and quality of work
Pay equity issues can occur over time as a result of flaws in a compensation process including:
- Insufficient training of Managers regarding performance, merit and other increases
- Inefficient and inconsistent merit pay processes
- Decisions being made in “silos” and without consistent checks such as HR/Compensation approval
- Making decisions without market or internal data for guidance
- Reactive hiring decisions relative to “hot” jobs
- Poorly maintained salary structures that have not kept step with the market
- Failure to reclassify jobs as changes in responsibility occur
A pay equity study will involve the input an experienced compensation analyst and/or specialist as well as HR information systems and may involve appropriate legal counsel. Once pay inequities are discovered you will need to determine a timeline and the funding for the pay equity adjustments.
The Lilly Ledbetter Fair Pay Act of 2009 increased organizations’ exposure to pay discrimination claims by overturning a rule that workers must sue for pay discrimination within 180 days after the original pay decision was made. As a result of the Act, each paycheck now resets the clock and employees can file lawsuits for perceived discriminatory pay decisions even if the pay decision occurred years earlier. So it is more important than ever for employers to carefully document all pay decisions and stay on top of pay equity in their organizations.
At WageWatch our compensation consultants are focused on your organization’s compensation needs and ready to help you ensure that your compensation programs are supporting your company’s business strategy and objectives and that your pay practices are fair, equitable and non-discriminatory. We can provide your business with compensation surveys and salary reports to help you establish a budget for your merit pay program, including bonuses and incentives. Our innovative company is a leader in the collection of data for surveys and salary reports, which allows us to provide services to a wide range of industries in both the private and public sector. To learn more about our compensation surveys, salary reports and other services. Please call 480-237-6130 or contact us online.
Many organizations today are focusing on their company’s culture including determining their culture, deciding what it should be, aligning with strategic goals and transitioning to the desired culture. Culture is important because it reinforces the values in the organization, which in turn shapes team members behavior. There are many success stories of companies with cultures that are aligned to their business goals including Google, Zappos, and Patagonia. These companies have not only developed a culture that supports their business, but have fully embraced their culture.
Organizational culture is the collective behavior of the people who are part of the organization and has important effects on the morale and motivation of the organizational members. It includes the values, norms, systems, beliefs, attitudes and habits of the organization and affects the interactions of the employees with each other, and with customers. Even before you define it, you know it is there and that it has an impact on your business. This is why it is so important to internalize the culture and understanding when company activities are in sync or not with the culture.
Once the company values and desired culture are defined, compensation can support and help drive the values and corporate culture. It is important that the role of compensation in an organization and the compensation strategy are also defined. For example, where does the organization want to set pay levels in comparison to the competitive market? Perhaps the organization’s culture is strong on training and developing its employees, acknowledging their successes and offering advancement opportunities. This in turn may allow the organization to set lower pay levels than what is paid in the market. Of course, when recruiting it is important to align the compensation strategy to support the values of the culture through highlighting performance management, performance appraisals and the goal setting process for each team member.
Once values, business objectives and desired behaviors are determined then compensation plans can be put in place to support the culture. For example, if the business objective is innovation and the desired behavior is risk-taking, then short term incentives may be the compensation strategy. If the goal is for a highly trained workforce and the behavior is learning and upgrading skills, then skill or competency based pay may be the compensation strategy.
Corporate culture is about people’s behaviors – how goals are accomplished – so to establish a culture that drives company success, organizations should link a significant component of their compensation systems to behaviors.
At WageWatch our compensation consultants can assist with your organization’s compensation needs and help you ensure that your compensation programs are supporting your company’s business strategy and objectives. WageWatch also offers accurate, up-to-date benefit survey data, market compensation data and salary reports that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online