Should you take a look at your compensation practices?

By Fred Crandall, Eastwood Group Partners

While we all know that competitive salaries act to attract and retain good people, owners and managers of closely held companies and small businesses frequently are skeptical of using the methods to manage compensation that the “big companies” use.

Many business owners and managers view compensation management, including salary structures and formal incentive plans, as cumbersome and bureaucratic.  I often hear things like: “We haven’t had anyone quit on us, so why do anything now?”; “If it’s not broken, don’t fix it”; and, “It’s too expensive to start messing with compensation, and if we do, it will raise expectations we can’t meet”.

The truth is, in a small business the turnover of one person may be devastating and cause irreparable damage. If the cost of not managing compensation can be so great, it makes sense to at least consider taking a look at your compensation program – especially now as we are entering a period of expansion.

Consider all of the turmoil we have gone through over the last three years and ask yourself the following three questions:

1.      Are you sending clear messages to your employees so they know what they are being rewarded for?

2.      Are you adequately rewarding your high performers for their contributions, and is the pay for your high performers competitive?

3.      Given all of the changes that have taken place over the last three years (for example, layoffs, pay freezes and pay reductions), have you considered what the “new normal” compensation program will be for your company?

It might make sense to take a closer look at your compensation program:

·         Chances are that you could send clearer messages about rewards through informal and formal means, such as performance reviews or sit-down meetings about pay adjustments.

·         It’s also possible that you might need to adjust the pay for your higher performers in order to be competitive in today’s marketplace and retain these top performers. (You might also take a look at bonuses and incentives.)

·         Finally, with some much change taking place, it may be time to take a look at your pay program in light of the new business realities your company faces.

Getting back to what to do about all of this, a simple audit or review of your compensation program would point you in the direction of what to change. It’s a review conducted in four areas:

1.      Competitiveness of key positions with the marketplace for talent

2.      Internal alignment of pay based on the value of the position to your company

3.      Compliance of your pay program with generally accepted policies and practices

4.      The return on investment to the company of your compensation financial outlay

                  This can be completed quickly, and within days you can begin to make simple and inexpensive changes to drive more effective employee performance and spend your compensation dollars more efficiently.

                 

                  Tell me what you think about this approach.