I’ll never forget my first post-Army job offer. A Washington, D.C., defense company was recruiting me, and as a retired Army colonel, I qualified as C-suite material, or so I thought. I went through a series of interviews to fill a newly created position in the company and finally got word through the vice president of human resources that I would be getting an offer through the mail.
Sure enough, a few days later, the offer letter arrived. I anxiously opened it and quickly glanced over the verbiage to find the salary they were offering. I was shocked! Next, I read the entire letter and again settled on what the company provided in salary and benefits. I called the VP of human resources and asked whether they left a number off the annual salary figure. He chuckled and assured me they had not. I declined the offer; said I was offended by the salary quote and was most assuredly worth more than that!
When I became a CEO, some of the diciest personnel issues I dealt with were offers and raises. Those parties seeking employment always value their talent more than what the market bears, and those employed always believe their talent is undervalued. Disconcerting to the organization is when employees find out what their coworkers make in comparison to themselves. If inequities exist, morale plummets, and a line will form at the boss’s door questioning why Jill is making more than Johnny!
How do you deal with pay issues? Adopt a pay system. The starting point in the system is always the organizational structure and the job positions contained therein. Categorize each job in the organization by knowledge, skills, abilities and experience required to qualify and perform the job duties, responsibilities and tasks at a specific level of authority. Companies can find this information from reputable human resource firms that offer job classification and associated pay-range scales indexed to the local labor market for each job listed in the organization.
Next, determine the lowest and highest pay range for each job. Create quartiles that contain increasing knowledge, skills, abilities and experience with ever-increasing levels of duties, responsibilities, tasks and authority. Graduate the pay by quartile, starting from the lowest to the highest for each job. Once done, this is your pay scale system by position in the organization. The hard part comes when we introduce people into the system.
Determining the pay when joining or raising the wage for those in the company is a matter of matching the pay to the appropriate quartile by job classification. A pay scale system makes it very easy for the hiring or promoting authority to rationalize an offer to a job seeker or a raise to an existing employee. Additionally, every current employee should have an employee development plan. This plan contains milestones for the employee to graduate to the next quartile, level of responsibility and pay raise. For example, an employee starting in the lowest quartile may be required to have a bachelor’s degree and two years of relevant experience. To receive a raise to the highest quartile, the company challenges the employee to achieve a master’s degree and eight years of relevant experience.
Other challenges associated with pay are the cost-of-living increases and bonuses. If you start giving an annual cost-of-living increase based on a legitimate index, your employees will expect the yearly cost-of-living increases in perpetuity. Similarly, suppose you pay yearly bonuses without determining a merit system for earning the premium. In that case, your employees will expect a yearly bonus and grumble if the bonus is not equal to their coworkers’. A best business practice for bonuses is to tie them to specific, measurable achievements that impact the company’s profitability. Your employees must understand how the bonus is calculated and what they need to do to earn it. Articulating bonus calculations eliminates confusion and bias when doling them out and challenges employees’ productivity.
Take the guesswork out of pay in your company. Create a pay scale system that mirrors the jobs in your organization and design employee development plans that articulate the subsequent levels of pay increases. Be cautious about instituting annual cost-of-living increases because you create an enduring expectation among the employees. Furthermore, base bonuses on merit and tie them to specific productivity goals. Clarifying pay in an organization eliminates employee grievances about pay inequity and positively impacts morale. This is how you lead, think, plan and act. Now, let’s get after it!
Retired Col. Paul A. Raggio is co-owner, with his sister Lisa, of One True North INC Leadership and Business Coaching Solutions. Paul and Lisa mentor and coach business owners on leadership and management principles in achieving and sustaining their business growth and profitability goals. He can be reached at [email protected].