Friday, September 9, 2011

Compensation Becomes Critical When Budgets Are Tight

Assuring that your compensation levels are both accurate and appropriate becomes far more important in bad times than in good times.  When business is booming, when employers are rich and when budgets are fat, money is no object.  In times of prosperity, when key contributors complain about pay, you give them more money and worry about justifications and internal equity later.  When the economy is shaky, when employers are struggling and when payroll budgets are tightly limited (even reduced more often than expanded), it is a very different situation.  During difficult business times when funds are limited and you have openly demonstrated a bias against exceeding permitted financial limits, a lot more justification will be required to deviate from the pre-established compensation plan. 
Whether it is raw talent or payroll money, scarcity of a valued item enhances its economic value.  That works both for you and against you.  Your best employee is more important than ever before, because the company depends heavily on their continued high level of productivity and there are few if any possible replacements for them.  Top management may recognize this reality but will still hesitate before authorizing an exception to their pay policies because payroll discipline has been emphasized in a highly visible manner.  Once the freedom to grant discretionary remuneration awards has been restricted, it is no longer easy to persuade top management to authorize an exception.  Winning approval for an extraordinary merit increase, a special bonus or a competitive adjustment will be much more difficult than before.  Strong cogent arguments must be prepared to offer the best chance of a positive outcome when many managers are competing for scarce payroll dollars.

More proof than usual may be demanded to win agreement when you need to do something special.  The merit of the individual's performance results must be indisputable.  The scope of the work must be substantial.  The downside risk of inaction must be real and so significant that possible loss of those services will be totally unacceptable.  It must be more costly to lose the contributor than the price to buy continued retention and engagement.  The proposed remedy should not place undue stress on existing internal equity relationships.  Finally, you must have good reasons documented for reference.

Mind you, the optimal compensation element may be something besides cash, such as recognition or career enhancement features, but the same justification challenges may still apply.

Finding surveys to back up your recommendations will also be tougher today.  With fewer and fewer independent survey suppliers these days, it is more vital than ever to choose well for your traditional best practice three sources for any important job pricing decision.  Check the provenance, reliability statistics and dependability of the pay surveyor, to confirm that what you buy will meet court acceptance standards.  Management committees and boards of directors are likely to reject cocktail party gossip or unconfirmed internet postings.  Then decide what information sources give you the best value.  Some very expensive but pretty garbage can be discovered, so check quality first before comparing the cost.  There is no good price for bad information.

The quality of compensation work becomes most important when dollars are in shortest supply.  Or have you found otherwise?

 E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he's pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

Thanks to E. James (Jim) Brennan / Compensation Café

No comments: