COMPENSATION PLANS – ONE SIZE DOESN’T FIT ALL

11/8/12
By: Paul R. Dorf, APD, CRI

Although we have taken it for granted that each organization is different for a multitude of reasons, including their form of ownership, management personalities, financial characteristics, administrative capabilities, and a host of other factors, too many companies want to put in place compensation programs that mirror those of other organizations.  The reality is that “One size doesn’t fit all”.

Continuing with this analogy, I would like to make a comparison with the purchase and wearing of a suit.  Few would argue that a custom tailored suit will probably fit an individual better than an off-the-rack suit, even if that one has had some alterations made to it.  The argument is that the tailor-made suit will probably cost considerably more.  While it may look better, the difference in price may not be justified, except in select instances.  This analogy about compensation programs doesn’t necessarily hold true at this point, since although it may cost more to have a pay program specifically tailored to meet a company’s specific needs and issues, in the long run there is a good chance that the custom tailored plan will be far more effective in achieving the desired business objectives.  In addition, there is a greater likelihood that a tailored plan will be more compatible with the company’s management and administrative structure and its capabilities, and most importantly, it will cause far fewer negative consequences than any off-the-shelf, one size fits all type pay program.

Using another company’s compensation plans or adopting “Chapter 6 of some business book”, is probably not the smartest move, since (1) what worked somewhere else, will not necessarily work for your company; (2) other companies’ underlying problems, needs, and capabilities are probably very different than yours; and (3) you have too much to lose by installing someone else’s plan that doesn’t recognize your company’s special situation and unique culture.  The old adage applies when getting a custom-tailored compensation plan, rather than reusing someone else’s: “You get what you pay for”.