When Developing Employee Pay Plans, Read the Fine Print

Recently, a large and well-known employee salary aggregator was promoting its market-based pay comparison database and software system as a means for developing reliable pay rates. In the presentation about “developing market-based pay programs,” the company indicated that “internal job alignment” must be combined with market-based pay comparisons in order to create reliable pay rates.

Using market-based pay comparisons for determining pay schedules is the easiest and most popular process based on articles and studies released by WorldatWork. The large salary aggregators provide a very valuable service for compensation professionals by aggregating and validating the pay comparison data and providing it to the professionals for a fee.

Since 1985, the Johanson Group has been providing guidance, writing articles and speaking about pay structure validity and reliability by using a combination of internal job valuing and external market-based pay comparisons. So we know what works and what doesn’t.

With our decades of real-world experience, we have completed enough salary surveys to see the variation in pay from one year to the next. Or even one pay comparison source to the next, for that matter. By relying solely on external market pay comparisons, your organization’s pay structure is at risk. Think about using only a compass to obtain a general idea about where you are going (market-based pay only) compared to using a modern GPS to obtain a very accurate indication of exactly where you are at all times (market-based pay plus job valuing).

New Call-to-actionThe problem with the old job valuing systems was that they were too time-consuming and too subjective. Thankfully, these problems have been left in the past with the introduction of the DBCompensation system. DBCompensation greatly streamlines processes, resulting in tremendous speed and productivity gains. As an example, in the past week Johanson Group completed 330 job descriptions for two clients, including full job valuing in only 55 total hours of work, or an average of only 10 minutes per position title.

For even more time savings, DBCompensation allows importing employee data from HRIS and payroll systems. DBCompensation even allows you to use to twelve separate sources of external market-based pay comparisons, allowing you to create a comprehensive, defensible classification and compensation program quickly and easily.

This industry-proven process provides the basis for developing and maintaining a reliable pay structure, which allows your organization to make more accurate and informed compensation decisions so that you don’t unknowingly overpay or underpay your employees.

Remember, when developing employee pay structures with market-based pay comparisons, read the fine print. Market-based pay comparisons and internal job valuing are required to create valid pay rates.

Get Your Pay Right and Use an HR Software System That Pays For Itself

During a recent discussion with a prospective customer, the Human Resources Director stated that her company has doubled the number of employees during the past three years. The company was growing so quickly that the CEO asked the Human Resources Director to find a system that would better manage their compensation process.New Call-to-actionThe Human Resources Director attended a DBCompensation software demonstration and she really liked the features and ease of use, but stated that she did not know if the company was ready to make an immediate decision.

Since the DBCompensation software costs as little as $400 per month for a small company, and the prospective company’s monthly investment would be $800 per month based on the company’s size, I posed two questions that she could share with her CEO.

“What if you overpay only one of your hundreds of employees by $1,000 per month?”

“What if you only rely on market pay comparisons to establish your pay rates and you underpay one employee by $1,000 per month, and that employee ends up leaving your company to join another company that pays a more competitive wage?”

She pondered the questions for a moment. I then followed-up with two important thoughts about investing in DBCompensation.

“By not overpaying just that one employee, DBCompensation more than pays for itself.”

“If just one important employee leaves because of pay, the time and expense required to attract, hire and train a new employee is much higher than the modest expense of DBCompensation.”

Getting your pay right is a critical Human Resources responsibility with far-reaching implications for every organization. After thinking about the immediate return on investment, the Human Resources Director stated that she was ready to visit with her CEO and make a case for adopting the DBCompensation software system in a timely manner.