Best to Get Base Pay in Order Before Implementing Employee Incentives

I was reminded recently of what should be a central tenet of compensation management: Get your base pay house in order before embarking on a new employee incentive plan.

It is a big temptation to implement incentive pay in lieu of fixing your base salary problems, to assume that adding incentives will get you off the hook for addressing widespread salary issues and inequities.

Well, it won't.  In fact, it can make matters worse.

If there's one lesson I've learned repeatedly in my years of compensation consulting, it is an appreciation of the very toxic nature of salary practices that are widely perceived as unfair.  Variable pay programs, which can be powerful tools for the positive during challenging times, need to rest on a solid foundation of faith and trust in order to be motivating and effective.  Without this, the mistrust (and in many cases, the anger) that employees feel about base pay practices will likely do an automatic rollover to any broad-based incentive plan.  Your good intentions will be sunk before you even begin.

In this day and economy, I don't mean to suggest that getting your base pay practices in order means giving out a lot of salary increases.  But it does mean taking a close and objective look at your base pay structure and the job evaluation practice that underlies it.  Every salary grade structure has some valuation method underlying it.  Make sure yours is as objective, unbiased and systematic as possible.  If it isn't, you've got work to do and some fundamentals to attend to before you can pursue employee incentives with a sound hope of success.

Image: Creative Commons Photo "I'll huff and I'll puff and I'll blow your house in" by Christina Snyder

Comments

[E James (Jim) Brennan]

This ties nicely with your prior Centrallized Pay Inventory topic, where you advise auditing all the various pay components. Until you define what you consider normal standard pay and view personal incumbent income relative to that, you can't make intelligent decisions about your base-bonus mix, TC composition, and the amount of pay proper for at-risk status or contingent treatment. You must know your policy and the nature of your desired structure before you can assess residuals or design appropriate incentives. One of Brennan's Laws is "Diagnosis should precede prescription." Gotta know where you are before you change direction.

[Ann Bares]

Jim: I like Brennan's Law that "Diagnosis should precede prescription". That's always been my hard line. What's amazing is the resistance I encounter in some cases (which often leads me to wonder ... just what are they afraid I might uncover?).

Thanks for the comment!