Your pay structures are regularly updated based on competitive market trends, so the reward opportunities you offer employees are aligned with your retention and motivation strategies.
Smoke and mirrors.
Companies routinely advertise “we offer competitive wages” and candidates in return expect this of potential employers. But what happens when your goal of offering competitive pay is finally achieved? Are employees grateful? Can companies rest in their efforts to attract, motivate and retain?
Not so much.
The Missing Pieces
What doesn’t happen when you offer competitive pay is that your recruitment problems don't magically disappear, your employees won’t be satisfied and your compensation programs have achieved little more than being average. Isn’t that a “C” grade in school? Is that how you want to position your compensation strategy?
As far as aspirations go, it's only middle-of-the-road.
If your company does pay “the going rate,” that still means that roughly 50% of the companies out there are paying more than you. That’s what average gets you, with half doing more and half doing less. You won't see that fact pointed out in recruiting campaigns.
No one quits for less money – so what you’ll hear through the grapevine is how so-and-so left and is now making more somewhere else. And as it's human nature to hear only what supports your own notion – your employees won’t pay attention to the broader rewards package, just the points that confirm their opinion that your company isn’t paying enough.
The only way to avoid this scenario is to become the premier payer in your market or industry – and can you afford that cost?
It's also important to differentiate between having grades, salary ranges and midpoints that provide competitive rate “opportunity” and actually paying employees at those rates. Some describe this as whether the company is “walking the talk.” I recall a client quite boastful that their salary ranges were continually adjusted to mirror market rates, but was later embarrassed to discover that their actual pay practices fell well below midpoints. The company said one thing by their pay structure, but did another by the way they implemented that structure.
For their own part, employees relate to the pay they receive, not the midpoint of a salary range or other such declared “opportunity.” For them the company’s competitiveness can be more illusion than fact; especially if they’re experienced and long service.
Bad Practices Can Evolve
Typically it's not an organization's strategy to avoid paying at competitive levels, but more likely a series of practices that have evolved over time.
- Some candidates will accept a below value hire rate and managers tend to view this as a cost savings. Though it is more like putting a skeleton into the closet and hoping it doesn’t jump out at you down the road. One day these employees will change their minds.
- Once you’ve started down the slippery slope of paying some employees below market rates the practice is soon compounded by internal equity. Managers will resist paying similarly qualified new people more than existing employees.
- Reward systems have a hard time keeping up with the increased marketability of employees. A minimally qualified employee hired at the minimum rate will gain knowledge and experience (thus marketability) faster than the company’s annual merit system can recognize.
What’s the answer? Management won’t agree to be the premier payer in your area, so consider instilling more flexibility into your pay practices. Consider targeting key jobs (highly skilled, difficult to replace, mission critical, etc.) and make sure those jobholders are well paid.
And don't forget to pay attention to your customer-facing employees. For many a customer those folks are your company.
Other positions you have deemed less skilled and more easily replaceable could continue with your “competitive opportunity” strategy. This approach is akin to ring-fencing key talent, protecting them against poaching while recognizing and rewarding those with the most potential impact on your business.
Bottom line? Be careful when you claim how your company provides competitive wages. You may not be correct, but if you are – big deal.
Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations. He is also associated with several HR Consulting firms as a contributing consultant. Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation. He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.
Free Digital Photos image, "ber-antem," by Dimaz Fukhruddiny