Pay Decisions – Increasing Complexity

I recently read a Workspan article titled, “What Should You Pay” that was written by Robert Greene, PH.D., CCP, CBP, GRP, SPHR, GPHR, a principal with Reward Systems, Inc. Dr. Greene’s article focused on different approaches to managing base pay and how the approaches should be the right fit for your company. Dr. Greene outlines three approaches: Pay for the job, pay for the person and paying for the results. He states that, “the pay for the job” approach ties base pay to the job’s relative internal value and to its market value; that when an organization sees value in having professional and technical employees who can perform a variety of tasks, it can make a case for paying for these capabilities by using a “pay for the person” approach and when utilizing the “pay for the results” approach, rewards come in the form of variable pay, and base pay might be set relatively low.” Dr. Greene’s comment about the use of variable pay is supported by another Workspan article (Nov. 2014) written by Ken Abosch with Aon Hewitt. Mr. Abosch’s article made the case for the importance of planning when developing a pay-for-performance program that utilizes variable pay as the major compensation differentiator when compared to merit base pay adjustments. Ken provided a chart in his article that displayed annual salary and variable pay percentage increase averages from 1998 to 2015 (projected). In 2014, variable pay awards averaged 12.7% of salaried employees’ payroll and the average base salary increase was 2.9%.

In working with our clients and observing compensation and total rewards in pay and benefits’ studies that are produced annually for compensation associations, human resource SHRM chapters and various trade organizations, I believe that Dr. Greene’s article is timely and supports the notion that effective total rewards programs are becoming more complex and dynamic post the 2008 – 2010 recession.

The difference between annual cost of living percentage increases and annual employee pay adjustments has been declining for the past four decades. The pressure is increasing for organizations and companies to distribute their wages and benefits more wisely and effectively as global competition and governmental regulations expand and with the decline in employees’ purchasing power.

We encourage our clients to foundationally “Pay for the Job” as defined in Dr. Greene’s article and then differentiate compensation beyond base pay with paying for the person and paying for the results as recommended by Dr. Greene. Utilizing professional and technical competencies combined with variable pay for performance provides the flexibility to compensate high performance employees that are driving impactful end results and to pay competitive base salaries for steady performing employees that keep the production lines flowing and the power and water running for their customers.

As pay decision processes become more complex, HR and Compensation professionals need to increase the use of technology to manage the ever-changing total rewards systems that are driving positive behavioral performance outcomes for greater business and organizational results.   HR technology is evolving to meet new demands from management to move from forms and tables to dynamic and interactive compensation and performance evaluation tools that are focused and yet simple to understand and complete.

In a simple way, the programmable house and office digital thermostat was a major technology break-through for managing inside space temperatures and related energy costs for periods of time as compared to the manual circular dial and plastic temperature level controls. HR technology anyone?