Watch Those Salary Adjustments for Signals that Course Correction is Needed

Every year I conduct a survey on compensation plans and practices in my market.  One of my favorite questions in this survey process, a qualitative question that never fails to produce interesting information, is: "What compensation strategies and tactics did your organization find most successful in attracting, retaining and motivating employees in 2008?"

More on the overall answers to that question in an upcoming post.

In reviewing the responses provided by participants (a mix of HR and compensation professionals), I noticed one particular activity that was mentioned way more frequently than ever before in the six or seven years that I've been doing this survey.  Company after company told of how they'd had to step in and make a number of individual salary adjustments - above and beyond policy and guidelines - for a host of different reasons.  Sometimes it was in response to internal equity or compression issues, sometimes it was an individual or group who didn't seem sufficiently advanced in their salary ranges.  Sometimes it was driven by external market intelligence.  Whatever the reason, there appeared to be a whole lot more adjusting going on in 2008, at least among these organizations, than ever before.  So much so that I am beginning to think of 2008 as The Year of Adjustments.

This is interesting on a lot of levels, not the least of which is that is is happening in the midst of challenging economic times.  More evidence that the market clearly doesn't move in lockstep across all jobs/industries/locations, but rather in fits and starts that continually challenge our efforts to keep pace.

But it also brings another point to mind.  Adjustments - whether they are made for internal equity, outside market or other reasons - amount to key signals on how well a salary program is meeting the organization's needs.  Repeated signals in a particular area, or for a particular reason, may indicate that a course correction is necessary.  Is there a pattern of repeatedly needing to bump up the salary of new hires 6-9 months into the job?  Then perhaps your practices for setting new hire salaries need to be reviewed, or your salary range minimums reconfigured, or a formal six-month performance review and increase opportunity instated.  Or is the problem occurring between the first and second year on the job, necessitating extra salary adjustments for good performers?  Maybe your merit increase matrix needs to be modified to deliver a little more punch to those employees in the "low in the range/far exceeding expectations" cell.

Falling into the trap of passively letting special adjustments fill the gaps in your salary policy will ultimately take your program in a bad direction.  It turns your philosophy of proactively rewarding performance and accomplishments into one which involves reacting to problems and complaints.

It means that more and more of your salary dollars are delivered with a message that goes:

A. "Whoops, we screwed up; here, let us fix it for you ..."

Rather than

B.  "Here, consistent with our compensation philosophy and objectives, is a reward for your performance..."

Dollars spent in scenario A do not deliver the same ROI as those spent in scenario B. 

So keep a careful eye on those "special" adjustments; they are a good source of information (to those who are paying attention) on how and where your salary program may need shoring up.

Comments

[Lisa]

Great points. We find ourselves reactively filling gaps in scales with two occupations in particular year to year: pharmacists and RNs. Once a year adjustments just do not seem to keep pace with our market. Not sure how to overcome that but I can be more particular about our communications.

[Ann Bares]

Lisa:

It may just be that you have to have an exceptional market tracking and response process in place for jobs like those - which it sounds like you already do. Communicating that this is true, and reinforcing the fact that your "gap-filling" is part of an intentional and systematic effort to keep pay in these occupations competitive, may indeed be the best strategy. I agree that particular and careful communication can help position this as an effort that you are making as intentional and proactive as possible.

Good luck - and thanks for sharing the comment!