Tuesday, December 23, 2008

How do we Explain Wide differences in Pay?

How do we manage a disparity in pay levels? We are raising pay rates for employees to be more in line with our competitors. However, this hasn't eased our recruiting difficulties very much. In addition, management is considering raising pay yet again for new recruits, but we are understandably concerned that such a move would make pay for new workers nearly equal to employees with two to three years of experience. This would also affect the pay of people with even longer tenure. Obviously, whatever we decide will affect both our retention of high performers and our recruitment of top talent. We don't want to get hung up on this issue, but feel caught in the middle. Is there a way out that satisfies all sides?

From how you have described your situation, it sounds as if you may need to hold off on making further pay changes until you have determined the root causes of your recruiting difficulties. It would appear that your efforts to make compensation adjustments were unsuccessful in addressing the problem. Don't compound the error by trying to fix the problem in the same way twice: i.e., by throwing good money after bad. This means stepping back, gathering a team of interested individuals and doing some basic analysis and problem-solving relative to your difficulties with recruitment and (potentially) turnover. Ask yourself some basic questions, such as:

• Is our problem with recruitment or with retention or both?

• Where are the problems with our recruiting process? Are candidates willing to stick with the process right up until they get the offer letter, or do they drop out long before this point?

• Do we have significant turnover in the first six months of employment? Do we have turnover of high-performing employees?

• Are we losing longer-service employees or is turnover mainly concentrated with shorter- service employees? Do particular departments experience higher turnover than others?

• Are employees constantly complaining about pay levels in general, or is pay
disenchantment mostly among new hires?

In asking and answering these questions, you will need to gather as much data on recruitment and turnover as necessary. Then for each question, you'll need to research why. Once you dig into this analysis, you may find that the problems are not even related to compensation; this may simply be a symptom or an excuse for deeper problems. Don't accept employee complaints about pay at face value; there may be more critical but underlying issues. Most people do not leave organizations—or refuse to join organizations—because of pay. They simply use this as their excuse as it is an easy one to use and generally shuts off any argument. The important point is to find out why each of the issues or problems you uncover has become an issue or problem. You then can move to develop effective and targeted solutions. The problem-solving process is time-consuming and detailed, but it is worth the effort and could save your company from wasting valuable resources.

The bottom line here is that your company may not have to raise pay uniformly across the organization. If you have specific new hire/experienced employee compression issues, by all means deal with them as part of the solution, but do so selectively. In addition, when was the last time your company did an organization-wide market analysis of compensation? It may be time to recalibrate your pay ranges against your labor market or product/service market competition.

You also mentioned retention of high performers. In this matter your company will need to consider several factors. Can you appropriately identify your true high-performing employees, or do your managers evaluate everyone as "exceeding expectations"? Are the high performers receiving commensurately larger pay increases than the average? Are they recognized for their accomplishments in nonmonetary terms? Are they held up as examples of the types of behavior you need from all employees? On a longer-term basis, are they provided with the right career development attention and opportunities?

Finally, your company may also want to consider a variable pay program that provides bonuses or incentives based on specifically defined corporate or workgroup goals. These are important components of any program for rewarding and motivating high performers and can assist in successfully dealing with retention and pay compression.


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