Compensation Trends for Forward Thinking Organizations

Salary and Worker Compensation Thinking: Shift Underway

Man in business suit: hands folded on top of a pile of money.
Variable Pay Is Becoming a Larer Part of Compensation. Copyright Stockbyte / Getty Images

How to research salary, salary calculators, salary surveys, salary comparisons, basically, all things salary, online, is one of the most frequent requests for information received by the Society for Human Resource Management (SHRM). This makes sense when you consider the importance of salary to attract talented people, retain key employees, and maintain an excited, motivated workforce.

Given the shifts occurring in attitudes and practices about salary and compensation, this is not surprising.

Organizations are struggling to keep up with changes in salary and compensation thinking.

Gone are the days when organizations gave equivalent increases to all organization members. These salary increases, in the one percent to five percent range, sent the wrong message to underperformers. They left organizations with too small of a budget to adequately reward their top performers. While many companies still use this as their salary criteria, forward-thinking organizations are thinking about salary and compensation in a very different way.

According to an article on the SHRM website (you must be a member to access), to get the attention of your better performing staff members, you must offer a variable pay rate of seven to eight percent, in addition to their base pay. A system that rewards better performers cannot reward all staff members alike. In addition to sending the wrong message, your pool of money is not unlimited.

You must use your compensation as one of your most important communication tools, to send a message about your organization’s expectations and goal achievement rewards.

Current Compensation Thinking

My current thinking about salary and compensation includes the following components.

  • Organizations need to develop a compensation philosophy and direction in writing that is reviewed by the Board of Directors and agreed to by your managers.
  • Particularly in an entrepreneurial, market-driven company, the compensation philosophy needs to include a method for grouping similar jobs for purposes of broad banding, since promotional opportunities are limited.
  • It should include a responsible, measurement system for awarding variable pay. I recommend less emphasis on increasing base pay, and more emphasis on distributing gains via bonuses that reward actual goal attainment.
  • Goal attainment should be rewarded for both individual and organizational goal achievement to foster teamwork and eliminate the “lone ranger” mentality.
  • Real goal achievement is attached to outcomes or deliverables that are measurable or offer a shared picture of what success looks like. They should not reward checking items off a “to-do” list.
  • As the cost of benefits has increased, their place in a total compensation package has increased in importance. Shifting the costs of some benefits to employees is a last-option scenario.

On page two, Quality of Work Life Rewards, we'll look at the quality of work life benefits and several online salary resources.

The budget for salary, compensation, and benefits is not unlimited in most organizations. Thus, in addition to traditional increases to base pay, and variable rewards, such as bonuses, profit-sharing and gain-sharing, I recommend attention to quality of work life rewards. These can include the following.

  • Payment of a one-time, lump sum payment for a result or outcome that deserves recognition.
  • Payment of smaller rewards with “thank you” notes for above the call of duty contributions These are not necessarily tied to an achieved result, but they are contributions, that when emphasized, increase the probability of results.

In this last category, quality of work life rewards, your imagination is your only limitation. The key is to ensure fairness and consistency for similarly performing and contributing people, whenever possible. I encourage you to do even more for those employees who measurably contribute more to your organization’s success. (Of course, this opens up a second philosophical debate – fodder for a later article – about how and whether your organization provides an equal opportunity for all employees to excel.)

In summary, organizations are moving toward salary and compensation systems that emphasize flexibility, goal achievement, and variable pay based on performance, and less emphasis on increases to base pay.

They are using bonuses based on profit and accomplishment to add to employee compensation. The rising cost of benefits is causing rethinking of their place in the compensation system. Forward thinking organizations are emphasizing quality of work life rewards and recognition to add to the value of the total compensation package.

Researching Salary and Worker Compensation Online

Online salary information is often unreliable. It frequently averages too many variables into one range. The salary ranges cover too many industries, nationally or internationally, and lump all the data into one range. (See my related how-to article about how to calculate an employee's salary, for more information.)

This noted, you may find the following websites useful.

You will also find salary information at professional associations such as the Society for Human Resource Management and others, but usually available only to members.