Tight times demand smart pay choices

Stanley H. Davis and Rich Higgins

03/13/2010

Among the job elements listed by employees as key to their satisfaction and motivation, compensation rarely makes the top of the list. But among the irritants that will de-motivate and drive top talent out, compensation is the lead villain.
A larger payroll or merit budget is not always the responsible answer. When revenue is tight and uncertain, we have got to do a better job of allocating available payroll dollars. Real talent is an asset, not an expense, so its upkeep is critical.
In your operation you have identified the capital equipment that is most essential for your business. Without preventive maintenance and repairs, your critical capital assets will deteriorate. With limited funds, choosing how to invest them is one of the most critical decisions you will make.
Have you made that same assessment of your talent? Who are your best people?
Without making that kind of approach, your critical talent will leave. Even in the toughest economies there is always a market for the best talent. Your inattention to good people leaves your barn door ajar. An upturning economy will open that door wider, and the wandering may become a stampede as it places more and larger carrots outside your door. It’s then too late to close it. And once you do, who will be left?
Are you spending precious money for little or no return? Revisit your business model, strategy and challenges. Within that framework, consider what is essential for you to get from each job, regardless of who fills it. Against that template evaluate your current incumbent(s) based largely on their actual results, and to a lesser degree their proven potential. With that substantive assessment in hand, dispassionately force-rank all of your employees. With emotion and seniority aside, you’ll now know who is most and least critical for your success. You have taken the essential first step in identifying your key performers. Make sure they know that you appreciate them even if your monetary rewards may not be as high as usual. This often, not always, will help retain top employees. In the meantime, it serves as notice to weaker performers that they are not necessarily meeting the performance levels needed to support the business or receive further increases.
The next key step is to ensure that your work force is paid in the competitive marketplace where the organization strategically needs it to be. From the market median you have determined for each job, calculate an acceptable range, plus and minus from the market point, that you want to work with. This range will give you leeway to individualize compensation based on performance, skill level, experience and other relevant factors.
This exercise may, for example, establish that some top performers are already paid well above the competitive market point, reducing the need for, or size of, planned increases. Others who are not considered top performers, but who make a good contribution, may be far enough below their market point that they still warrant increases.
Merit increases, even on a limited budget, can now be focused on each employee’s actual contribution. In ranking employee contributions, keep in mind that executives or senior managers are not automatically ranked above administrators, analysts, accountants, etc. They already are paid appropriately for their position, so the ranking should be based on how each employee contributes relative to their job’s expectations. The critical factor in managing a small merit budget effectively is to be sure that the limited funds are allocated to the employees who are performing. Again, ensure that all employees understand that they are already being paid competitively, and that the limited budget and the focus on results will not allow for an annual increase for everyone.
Most managers have difficulty with the idea of giving raises to only a portion of their employees. Remember, the whole point of this process is to reward and retain key contributors. If as a result you lose some weak performers, you are likely to replace them with someone better. If you lose your best performers, you are likely to replace them with someone weaker. What you are providing is a merit increase, not a guaranteed increase.
Keep all of your people aware of the state of your business and the opportunities for your company. Make sure they appreciate what you see in their individual contribution. Do not forget that the keys to keeping good people are job challenge, career opportunity, recognition, a sense of belonging and a good boss. But remember that a compensation system that equally rewards everyone will placate lesser performers to stay and motivate your best performers to consider their options. &#8226

Stanley Davis leads TowerHunter Executive Search’s East Coast practice and recently relocated the firm’s East Coast office from Washington to Boston. He can be reached at sdavis@towerhunter.com. Rich Higgins is a founding partner of Williamsburg, Va.-based compensation firm Higgins and Sherman. He can be reached at rhiggins21@cox.net.

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