Importance of Keeping Salary Administration Programs Current

10/18/12
By: Sara D. Schmidt, PHR, CRI

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 his/her salary range.

Salary structures are an important component of the Salary Administration Program, which allow for a company to ensure that a position is properly compensated, both from an external competitiveness and internal equity perspective.  Over the past few years, merit increases have been low or non-existent due to the poor economic conditions; in addition, many companies had hiring freezes.  As a result, companies did not review or update salary structures.  Today, companies are ready to provide merit increases again, as well as increase their staff.  CRI’s Annual Salary Budget Planning Survey found that 4.9% of companies experienced layoffs in 2012.  Only 0.8% of companies are anticipating layoffs in 2013.  Additionally, the Survey found that 36.3% experienced staffing increases in 2012, and 30.8% of companies are anticipating increases in 2013.

As conditions slowly improve, companies are seeking to ensure the effectiveness of their salary structures, as well as the overall Program.  Therefore, it is important to conduct periodic audits to address the following:

 

  • Determine if the company’s strategic goals, objectives, and compensation strategy are still aligned with the Program.
  • As the job market improves, it is important to understand the current marketplace, in order to examine whether the Program is still meeting the basic objectives of compensation.
  • Many companies either downsized or completed a restructuring as a result of the recession.  A review of the salary structures will determine if the number of grades and grade assignments are appropriate today.  In addition, if multiple structures are in place, it is important to consider if the number and groupings are still suitable.
  •   As the supply and demand for positions change, and new “hot jobs” arise, the market value for positions need to be reevaluated to ensure that they are graded appropriately within the salary structures.
  •  Outdated salary structures can cause compression, as new hires are demanding higher starting salaries.
  •  Pay-for-performance fell by the wayside during the recession; however, merit increase projections are slowing increasing, thereby enabling companies to differentiate increases again.  The salary structures should be evaluated to ensure there is room for growth, with larger increases provided based on performance.

The process for updating a Salary Administration Program should start with a competitive market study of benchmark positions, to gauge how the market has changed over the past few years.  The market findings will determine if the salary structures are outdated, and once updated, positions should be realigned, as appropriate.  A close scrutiny of the current policies and procedures will alert you to any inconsistencies with the current compensation strategy, and areas that are not meeting the company’s needs.  Receiving input from management and staff who participate in the Program will allow for the continued sense of ownership.  The flexibility of the Program will allow the company to meet any required changes, while maintaining a competitive advantage in the marketplace.

Once the salary structures and policies have been reviewed and updated, it is key to conduct training sessions with management to communicate what changes have taken place.  This training will help with their continued buy-in, as well as allow managers to have a consistent message as they relate changes to their staff.

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
  • Training and communication
  • Follow-up and review

By following these guidelines to keep your Program current, you can avoid these pitfalls.

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 ensure 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 Consultant with CRI.  Ms. Schmidt has over 14 years of compensation consulting experience, with a focus in the healthcare, not-for-profit, insurance, and manufacturing industries.  She is responsible for providing consulting services related to the design and implementation of compensation and human resources programs, overseeing data analysis, research, and report preparation.  In addition, Ms. Schmidt has specific expertise in developing plan documentation for salary administration and performance management programs, and training clients on the use of these programs.