Ellen Warden, SPHR
WorkPlace Synergy, LLC
Atlanta, GA

Jim Collins in Good to Great writes, “The purpose of a compensation system should not be to get the right behavior from the wrong people, but to get the right people on the bus in the first place and then keep them there.”

Many BV firms do not have a documented compensation program.  Perhaps this is because owners seem to prefer the totally discretionary nature of informal, undocumented salary and bonus plans.  Or maybe they think of it is an unnecessary administrative hassle.

A number of firms froze salaries and incentive compensation plans as a result of the financial meltdown, and now may be questioning whether a plan is needed at all.

When it comes to pay, most employees will never admit that they’re satisfied. But the perception of fairness goes a long way toward ensuring that they’re not actively dissatisfied, which can mean the difference between an engaged and productive workforce versus one that’s full of gripes or looking elsewhere for greener pastures – your competitors – as the economy improves.

But there is no objective standard for what constitutes a “fair” system. How can you ensure employees accept that they are compensated equitably for their contribution to the success of the firm?

Achieving fairness requires a pay system that looks at internal equity (what employees bring to the company and how they are rewarded) and external equity (market pay among companies competing for the same employees). A fair system can only be created when its structure is communicated to and understood by all, and is supported with documentation, including any subjective evaluations of performance, that are comprehendible, accurate and timely.

There is no magic system that will satisfy all employees, meet all strategic goals and fit changing business environments, but a good compensation plan will satisfy all of these conditions:

support the firm’s mission and business strategy,
reflect the personal values, culture and personalities of the firm,
is responsive to internal and external equity,
reward past effort and provides incentives for future effort,
is fair in both process and outcome, and
is periodically monitored to ensure competitiveness in the marketplace and appropriateness for the employee population

Such a plan sets the stage for a desirable work environment and promotes trust and retention of your high-value performers.

The keystone of a successful compensation program is effective communication.  In some firms the process of determining salaries and bonuses is highly secretive.  But when it is open and transparent, the behaviors and activities that are prerequisites to achieving the firm’s strategy are identified and understood by all.  Even the best compensation program will fail unless employees understand and embrace it, and know what is expected of them to be successful.

You can reach Ellen at [email protected].
More information is available at www.workplacesynergy.com.

Ellen Warden
Ellen Warden