By Mykkah Herner, MA, CCP, Compensation Consultant at PayScale.com
Here at PayScale, we often talk about compensation philosophies answering 3 main questions:
- How do you define your market?
- How competitive do you want to be relative to the market?
- What do you want to reward?
In working with clients, I find they know the answers to the first two questions within a heartbeat. The third question, however, often leads them to stumble and to look to me for guidance. What are the options? What should we reward? At that point, I have to dig in deeper to their organization.
There’s no single right answer for what companies *should* reward. In some orgs, there will be just one thing to reward, in some it will be a combination of factors. At a time when most companies are focused on pay-for-performance, I want to explore this third question a bit further.
What do you want to reward?
Ultimately, for me, it will always come down to some variant of performance. If your employees aren’t going above and beyond, exceeding expectations most of the time, it’s likely that your organization will stagnate. Stagnation is close to death in a highly competitive environment. The number one question I ask myself when defining a compensation strategy is how am I going to motivate employees to perform? In measuring performance, it is about setting clear expectations, in the form of metrics, for what it looks like to excel and then following up on those expectations.
What’s the difference between performance and proficiency anyway? I see proficiency as one’s ability to perform the tasks required to do the job, having the right skill-set, etc. Performance refers to how well one performs those required tasks, exceeding expectations vs. meeting expectations, and so on. I know that’s simplistic, but breaking it down to that level helps me then think about how I might measure proficiency. Some measures for proficiency include checking that one has skills and ensuring that tasks have been completed.
The average tenure in my parents’ generation was 5+ years. My generation can boast a meager 3 years. The average tenure in newer generations to the workforce can be measured in months, not years (usually 12-18, according to one researcher). With that in mind, rewarding tenure can sometimes be helpful to the continuity of your organization, but it still may not be the right motivator for performance. You may have better luck achieving continuity through structural means rather than through compensation.
There are plenty of options besides the big three listed above. For some, it will make sense to reward certain skills. I’ve worked with clients who couldn’t get by without their technical staff. For them, targeting a higher percentile for their technical staff was crucial to accomplishing their business goals. For other clients, security clearances are a hot commodity. You know what’s important to your organization. Put your money where your priorities are.
Remember, you don’t have to reward all things equally. You may decide that you want to tie a large part of your compensation to performance, but still give token acknowledgments for proficiency and tenure. But be sure to keep it simple. Explain it easily and succinctly – and maybe you will avoid a few headaches for your payroll team.
Whatever you decide, live it as an organization. Make sure your managers and leaders buy in to your decision around what to reward. Explain your philosophy to your staff so they are clear about what’s important to your organization. And, as with all policy decisions, once you decide what you want to reward, stick to it.