I have to smile when someone says: "We've never had a compensation philosophy." The fact is, they've always had one, since the very first time the organization paid an employee. They just haven't committed it to writing yet. Or, perhaps, owned up to the truth of it. But it's there.
Even better is this: "We've never communicated our compensation philosophy to employees." You don't need to, they know what it is (or at least they think they do). The question is ... do you?
Your compensation philosophy isn't what you say. It's what you do.
Like many a politician, it can be easy for us to get caught in the trap of falling for our own rhetoric. We allow ourselves to believe that the act of saying something makes it true. We lose sight of the messages that our organizations' actions are sending. Your employees may or may not know the words in your compensation philosophy, but they are watching it in action every day and drawing their own conclusions.
Here's one of the lessons we'd better take from this fact. Whether "creating" a compensation philosophy or reviewing an existing one, it's a smart move to start the process by taking a good look at what's really going on. What is the reality of your compensation plans and practices? And what is their reality as perceived by your managers and employees?
To answer the first, you'll need to do some traditional compensation benchmarking and analysis. How competitive are your pay structures, plans and actual practices against the norms of the labor market(s) where you compete for talent? Does your competitive reality match your competitive intent? If not, better get a clear bead on where it falls short.
Next, let's get some data on perceptions. Some of this may be captured in a regular employee survey effort. Or it may be worthwhile to convene a few manager and/or employee focus group sessions (or engage an outside facilitator to do so on your behalf). The purpose of this is to understand how managers and employees experience your compensation philosophy on the ground every day. What do these groups believe are the top priorities of the current compensation program? What should they be? What do these groups believe are the organization's competitive goals for pay -- and how well are those goals being met? What gets recognized and rewarded? What should get recognized and rewarded?
A lot of work? Yes it is. But a reality check like this may be essential for your compensation philosophy to have any hope of being credible.
Actions speak louder than words, as they say, and we both know that your employees understand the difference.
Ann Bares is the Founder and Editor of the Compensation Café, Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting to a range of client organizations. Ann and fellow Compensation Café writers, Margaret O’Hanlon and Dan Walter will soon be releasing a new book on communicating compensation - stay posted! Ann serves as President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review. She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.
Image "Cinema Clapboard" courtesy of renjith krishnan / FreeDigitalPhotos.net