As a general philosophy, pay practices should be consistent and non-arbitrary but compensation policies may target different approaches for different types of employees. For example, a company may decide to pay a premium for critical jobs in locations where recruiting costs are especially high.
Having said that, offering overly individualized compensation can result in a number of business challenges.
I spoke recently with the dynamic CHRO of a company that has grown significantly over the last decade and had gotten too big to ‘manage by relationship.’ This company didn’t have a global HR system and lacked consistent talent and rewards programs, which created a number of business problems.
To give you an idea of some of their challenges, they had inconsistent job titles that had been invented to impress customers. This made it difficult to assess talent consistently around the world.
Inconsistent pay was another big challenge. Entrepreneurial employees had negotiated highly individualized compensation packages, which created predictable barriers to talent mobility, such as a hiring organization being unwilling or unable to match the current salary of an internal candidate. In some cases inconsistent pay practices also resulted in compliance risk.
Because they didn’t have a global HR system, they also didn’t know who was being paid what in which job or location, which made it difficult to standardize pay practices.
At another company the lack of consistent pay practices created enormous challenges for the new CFO, who was brought in to take the company public. For example, in some countries irregular pay practices such as expensing laptops had created compliance risk.
At a third company, imprecise management of compensation programs had led to high turnover and recruiting expenses. Additionally, lack of visibility into compensation in different locations had resulted in the payment of allowances for which employees were no longer eligible.
Once this company had rationalized their pay practices they were able to make better decisions about where to manufacture specific SKUs. More precise management of - and visibility into - compensation resulted in tremendous savings to the business.
You get the idea.
So, when we talk about the importance of consistent pay practices it’s not just because consistent pay practices make administration easier and minimize the risk of perceived unfairness. These are also key benefits but there are other important benefits as well, such as helping companies manage growth, optimize labor costs and minimize compliance risk.
Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA. She has nearly fifteen years of experience envisioning, designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University. Her articles and interviews on HCM topics have been published in the US, Europe and Asia. She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.
Picture courtesy of allmoviephoto.com.
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