Many times, an employer does not consider its compensation structure until it is replacing an employee or preparing for collective bargaining with a union. However, if an employer waits until there is a crisis in the workplace as the result of employee turnover or the weeks leading up to collective bargaining, it has likely missed an opportunity make necessary adjustments. In short, by then it is too late!
The first step in reviewing your operation’s compensation plan is to recognize that it is much more than the hourly or annual rate paid to employees. Rather, the compensation plan is a culmination of many factors beyond the take-home pay of employees. The compensation plan includes both objective and subjective values.
When reviewing your compensation plan, consider your organization’s overall goals and objectives. Does your current compensation plan align with your goals and objectives? In the same manner that employee performance evaluations are effective for an employee, periodic self-reflection of goals and objectives benefits are beneficial for an employer.
When updating compensation structure, consider how the compensation plan assists in establishing values and meeting objectives. An updated compensation plan should allow your organization to respond to external pressures while also recognizing the needs and values of employees. While it may seem obvious, employees care about their compensation. Similarly, employers “get what they pay for.” A breakdown with either of these concepts likely means that an employer is struggling to meet its goals and objectives.
Additionally, strive to implement a compensation plan that is malleable and that can be adjusted over time. Implementing a plan that is effective for a year, or two, may serve only to duct tape a problem, rather than serve as a solution. Therefore, when reviewing a compensation structure, objectives should include:
- How do we improve performance?
- How do we increase customer satisfaction?
- How can we control labor costs?
- Are we recognizing the work performed by employees?
- Are we competitive in the marketplace so that we can retain employees?
In evaluating your compensation plan, you should conduct a salary survey to consider external data. The salary survey should gather compensation data from appropriate market competitors. Before conducting a salary survey, consider the benchmark classifications to include. Ideally, these classifications should include a range of lower and higher paid positions along with those where there is more competition for qualified employees. Reviewing benchmark job classifications and job duties provides an opportune time to review, revise and update position descriptions.
While reviewing internal classifications to include, it is also necessary to determine the appropriate participants. Considerations regarding participants include:
- With whom do we compete for employees?
- What is our geographic proximity?
- Do we provide similar services as the participants?
By considering these factors, you can better insure that the data is relevant.
Finally, consider what data to collect. It is recommended that all forms of compensation be considered. For example, in addition to wages, an employer may want to consider leave, insurance and other pay supplements. It is also important to gather information regarding the other entity, such as number of employees and compensation paid to incumbents.
In the end, conducting a thorough review of your compensation structure serves many purposes. A periodic review will assist with the following:
- reducing employee turnover
- improving employee morale
- bargaining from a position of power
- increasing the likelihood of success when responding to disparate treatment claims
- receiving applications from a better pool of candidates.
Fishel Downey Albrecht & Riepenhoff LLP regularly assists Ohio employers in need of reviewing salary plans and/or conducting salary surveys. If you have any questions regarding reviewing a compensation plan or conducting a salary survey, please contact Benjamin Albrecht at balbrecht@fisheldowney.com