By: Sara D. Schmidt, CCP, PHR, SHRM-CP
Salary Administration Programs are designed to provide competitive and equitable base pay to all employees through the use of salary structures and formal policies and procedures. An effective Salary Administration Program allows a company to meet the basic objectives of compensation: focus, attract, retain, and motivate. In addition, the Program should be flexible to allow for changing conditions and fluctuations within the company and marketplace. Often, Salary Administration Programs are tied to a pay-for-performance philosophy, whereby annual increases are differentiated based on the evaluated performance of an employee, and may be further influenced by the employee's placement within their salary range.
Salary structures are an important component of the Salary Administration Program, as they enable a company to properly compensate an employee, both from an external competitiveness and internal equity perspective. Over the last year, we have seen unprecedented market conditions, with the "Great Resignation" and employees and candidates alike setting above-market compensation levels. Without a formal salary structure in place, it is difficult to manage internal equity. It is imperative to consistently monitor the marketplace and update salary structures in order to keep your internal compensation practices are continuing in pace with the competitive marketplace. Keeping your salary structures in line with the external marketplace will assist with any potential compression issues between current employees and new hires.
As more states and cities pass pay transparency laws, it has become important to put a strong methodology in place for establishing compensation, and that companies are aware of the competitive market.
As talent acquisition continues to grow in complexity and distributed workforces become more commonplace, companies are focused on how best to address geographic differentials. Careful consideration needs to be given to this issue, as there are far-reaching implications for companies. One size does not fit all.
As compensation decisions are made, it is important that they are reflected in current programs. An annual review of individual salaries compared to their respective grade range should be conducted, either in the form of Position-in-Range (PIR) or Compa-Ratio. This analysis will shed light on any potential pay equity or compression issues within grades and job families, and will allow the company to determine if any adjustments are warranted to rectify these issues.
In addition to the above, periodic audits should be conducted to address the following:
- Determine if the company's strategic goals, objectives, and compensation strategy are still aligned with the compensation program.
- Understand the current marketplace, in order to examine whether the program is still meeting the basic objectives of compensation.
- Reevaluate high-demand jobs to maintain appropriate grading within the salary structure.
- Evaluate the salary structure for possible compression that may have resulted from negotiated above-market salaries.
The following are the suggested steps for updating a Salary Administration Program:
- Conduct a market study of benchmark positions, to gauge how the market has changed over the last year.
- Update or re-build the salary structure based on the market findings.
- Realign positions within the appropriate grades, continuing to balance the external marketplace and internal equity.
- Review salaries against the updated salary ranges, and plan for market and internal equity adjustments.
- Assess the current policies and procedures to confirm alignment with the current compensation strategy.
- Conduct training and education sessions with management and staff to allow for transparency and buy-in.
While the initial design process is well-intended, Salary Administration Programs can fail for many reasons, namely, the lack of:
- Top management commitment
- Clarity and ease of administration
- Thorough planning
- Tie-in with compensation strategy
- Lack of flexibility
- Training and communication
- Follow-up and review
Companies should consider the reassessment of their Salary Administration Programs, along with all their compensation plans, as a vital and on-going part of the Program's success. Assessing the Program to measure its efficiency and see that it continues to meet your company's needs, and is perceived as a credible and functional part of the Human Resources process, will enhance your company's ability to remain a competitive force in the marketplace.
Sara D. Schmidt is a Director with Compensation Resources. Ms. Schmidt has over 24 years of compensation consulting experience, with a focus in the healthcare, not-for-profit, insurance, and manufacturing industries. She is responsible for business development and providing consulting services related to the design and implementation of compensation and human resources programs, with specific expertise in developing salary administration and performance management programs, in addition to executive compensation matters within the not-for-profit arena. Ms. Schmidt also conducts training programs covering various compensation topics, including salary administration and performance management.