You’ve seen your company’s want ads and heard the pitch from your recruiters; your organization provides competitive wages to all its employees. Great. That’s got to be a strong hook for attracting talent.
Big deal.
Your pay structures are based on current market trends, so the pay opportunities offered to employees support your attraction, retention and motivation strategies.
Not good enough.
Organizations routinely tout the practice, “we offer competitive wages,” and candidates on your search list expect this of potential employers. But what happens when your goal of offering competitive pay is finally achieved? Can you rest in your efforts to attract, motivate and retain the right caliber of employee? A job well done?
I’m afraid not.
Who Wants to be Average?
What does happen when you offer competitive pay is that your recruitment problems don't suddenly disappear, your employees don’t become satisfied workers, and your compensation programs will have achieved little more than being . . . average? Is that where you want to be, the middle-of-the-road?
If your organization does pay “the going rate,” that means that approximately 50% of the employers out there pay more than you. That’s what average gets you, with half your competitive rivals providing more pay than you. Is that what your organization aspires to? “Our pay is . . . ok?” Don’t try selling that strategy to senior management.
No one leaves your company for less money – so what you’ll hear from your employees is how so-and-so is making more by moving somewhere else. And as most of us only hear what supports our own notions, listeners won’t pay attention to details of the broader rewards package being offered - just the elements that confirm their opinion that your company isn’t paying enough.
The only way to avoid this scenario is by becoming the premier paying organization in your market – and can you afford that cost?
Didn’t think so.
Lest we forget, it’s important to differentiate between having a pay structure (grades, pay ranges and midpoints) that provides competitive rate “opportunity” and actually paying employees at those rates. Some may describe this as to whether the company is “walking the talk.”
For their part, employees relate to what they're being paid, not the midpoint of a salary range or other such declared “opportunity.” To them, the company’s “competitiveness” may be more illusion than fact; especially if they’re experienced and have been with you for a while. Thus, the company needs to keep its focus on actual vs. opportunity pay.
Why don’t employers pay the “going rate”? Typically, it's not often a strategy, but a series of practices that have evolved.
- During difficult economic times, some candidates will accept a lower rate than would normally be paid for their knowledge and experience - and some short-sighted managers tend to view this as cost savings.
- Once you’ve started down the slippery slope of paying below-market rates the practice can be compounded by internal equity. Managers don’t want to pay similarly qualified new people more than existing employees, so new hires may be offered less pay.
- Pay-for-performance 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 (marketability) faster than a company’s annual merit system can recognize and reward.
So, what’s the answer? Management won’t agree to become a premier payer, so you should consider instilling flexibility into your pay practices. Consider targeting key jobs (highly skilled, difficult to replace, etc.) and make sure those jobholders are well paid for the market. You’ll have a limited budget, so you’ll need to make the most of it.
Other positions less skilled and more easily replaceable could continue with your “competitive opportunity” strategy. Such a dual approach is akin to ring-fencing key talent, protecting them against poaching while recognizing/rewarding those with the most potential impact on your business. You may need to discriminate (pay more or less) on the basis of performance, not feel-good “everybody should get something.”
Bottom line? Be careful when you claim how your company provides competitive wages. You may not be correct, but even 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.
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