Strategic Compensation: An Effective Tool in Recruiting, Promoting and Retaining Highly Qualified Employees
Happy Tuesday! Marissa here! We are continuing our discussion about retaining employees today with a post by Evette Simon, VP of Alford Executive Search. Thanks, to Evette for sharing her expertise with us. Enjoy!
HR system design and a consultative executive-level approach have quickly replaced the traditional philosophy that HR simply serves as an administrative function in support of achieving organizational goals.
The non-profit sector, more than any other industry, has had to quickly make the shift from the philosophy that HR is something that they we HAVE to do, to viewing HR as a strategic partner in organizational development and sustainability.
In an environment where organizations of all types and sizes have begun to recognize that our human resources are among our most valuable and costly assets, attracting and retaining highly skilled employees has become a high-level strategic priority, in order to gain or maintain a competitive advantage.
More than ever before HR practices are being intentionally designed with business outcomes in mind. However, the notion of building strategic compensation systems and policies remain a daunting endeavor for many non-profit organizations due to the lack of trained HR professionals on staff and/or the limited strategic compensation expertise available. As a result, most organizations simply take the best-case default approach of aligning position titles with market surveys and compensating within the reported ranges. And, in many cases, market surveys aren’t used and employment offers are made based on what the compensation of the incumbent in the position at the time of separation or what they were hired at any number of years earlier or even some arbitrarily contrived number in between the two.
Because compensation, whether we like it or not, is usually visible within our organizations, having a written compensation policy that is clearly and consistently communicated throughout the organization is critical toward ensuring that employees understand how compensation decisions are made.
An effective compensation policy will successfully communicate the following:
Internal consistency which highlights and clearly places each job in the organization into an ordered job structure that recognizes the differences in job functions. Placing at a higher level in the structure jobs that require higher degrees of skill and expertise, include more responsibility and more complex tasks, than those jobs requiring less skill, less responsibility and less-complex tasks. Compensation professionals use systematic job analysis and job evaluation to establish pay differentials for each position in the organization.
Market competitiveness refers to the pay practice used most often in compensation policies geared toward attracting and retaining highly qualified employees. In order to determine how the organization’s compensation structure lines up against market competitors, the internal job structure is compared to the competitive external market using compensation surveys. As a result of this analysis, organizations are able to strategically determine whether they wish to lead the market (Market Lead), lag behind the market (Market Lag), or match the market (Market Match).
Many internal and external factors should ultimately play into deciding which market position an organization chooses. An organization might actually choose to lag behind the market for some job categories, lead the market for some and meet the market for others, depending on the internal value placed on specific job categories and the external market conditions for those pools of talent. However, the best practice is to have one market position across the organization. This more equitable philosophy lends itself to internal consistency and is easily justifiable.
Recognizing and rewarding individual contributions should be a key component of an effective compensation policy. Similar to the process for establishing internal consistency using job analysis and evaluation to distinguish the differences between two job functions, attention should be given to the fact that no two employees perform the same job equally, nor do they usually possess the same credentials or expertise. Therefore, when completed, effective pay structures should include defined ways and rationale for recognizing and rewarding employee contributions in order to promote the retention of valued employees.
Other structural components of compensation policies include pay grades and pay ranges. As another outgrowth of the job analysis and evaluation processes, pay grades are used to group job functions determined to have similar compensable factors and, pay ranges outline the minimum, maximum and midpoint pay rates for each pay grade. This allows HR professionals and managers to more consistently apply the organization’s pay policy.
Strategic compensation practices, like every other component of human resource management, must also take into account all of the legal and compliance related factors associated with employee recruitment, compensation and separation. Therefore compensation professionals must also consider all of these factors as part of the high-level strategic process.
Once legally compliant compensation policy and structures are in place, managers and other HR functions will be able to use them as effective tools in recruiting, performance appraisal systems, professional development, labor relations and even terminations.
How does your organization retain highly qualified employees? Let us know in the comments!