How Firm Is Your Base?

Certainly in politics the ‘base’ comes in for significant consideration.  What with all the ‘pandering and playing to’ the base, and making sure the ‘base is solid’ and so on, it’s no wonder some become inured to the word.  From a compensation perspective; however, it certainly makes sense (or perhaps even more cents) to ask ourselves; “How firm is our base?”

In stark terms, base pay ranges from 69 – 72% of total compensation among private industry workers in the US for 2011 depending upon your region. 

And clearly, while what’s in the check resonates most with people, we should also consider just how much of the rest of your total compensation is dependent on base pay.  Items that are directly derived from, or as a percentage o f base pay include:

  • Annual bonus
  • 401K (base and matching contributions)
  • Annual raise(s)
  • Stock
  • Insurance
  • Pension.

A quick example (completely illustrative):  A mid level manager earns say $50k annually, and she is actually underpaid by $10K.  She would on an annual basis be subject to:

  • $2000 less in annual bonus (assuming 20% bonus)
  • $1000 less combined contribution to 401K
  • $20,000 less insurance coverage (assuming 2X base)
  • Less stock in a given year (assuming base pay loss affects category for reward).

Add all that to the original $10K shortfall and extrapolate out over several years with compound effects, or even a career, and you can quickly see how critical getting the base right is to an individual.

An interesting counterpoint to this is the well documented discrepancy between the understated motivational benefits of pay and the observed behavioral motivational importance.  In short, research shows that continually pay is much more important to us as indicated by our actions than in our own estimation in surveys. I would suggest that we clearly understand this as well as the linchpin significance of base pay to our total compensation.

So, money matters, a lot it appears.  Our HR objectives typically center on attracting and retaining the best talent to help achieve company objectives.  At the same time, money matters to our stakeholders too, and they want to be assured we are managing it effectively.

This argues compellingly for two fundamental and critical aspects of base pay; that it is a correct amount and determined fairly. And if it is both, then I would argue that it most assuredly should be easily understood and communicated.  I’ll address communication in future posts.

This requires methods, techniques, tools and most importantly business-related order and logic to help balance between chaos and control.  When mated with timely and relevant market studies, a meaningful and effective pay philosophy can be articulated to all.  We may still grouse about the amount on the check, but at least we’ll know where it came from.