Compensation: Important, Misunderstood, and Problematic

“Would you believe what my pay increase was?” That’s normally how the conversation starts. Someone is angry and wants me to help. But I startle him when I guess the percentage of his pay increase within a decimal or two. How? Because normally compensation is planned, and companies and HR people like me have reasons for doing what we do.

Until this year I had always worked for a company and couldn’t walk around discussing our compensation strategy. Now I own my own consulting company and get to share the secrets of being successful in the workplace. So, let’s have a frank discussion about comp—something critically important to everyone, even though it often ends up way down the list of what we say is important when we respond to surveys.

When people tell me their jobs aren’t so much about pay, I ask them what kind of house they want, or how they want to raise their children (or their future children), or what their dreams are. All of these things require money. Money powers dreams.

There are two things I’ve noticed when talking with employees about their compensation. One is that most people think they are underpaid. The second is that no one can ever tell me why. Here’s what you need to know.

How do companies determine compensation? Most companies pay what they need to pay to get the right people. If they compensate someone too cheaply, the person is a risk. If they pay too much, they can’t be competitive.

And for the most part, companies try to pay about the same. They do this by using salary surveys that are published regionally all around the country. Don’t confuse these with free stuff available online—those sources are almost always high, which helps explain why people normally think they are low. These surveys tell us the range of compensation for various positions, in various industries, for organizations of all types and sizes.

These surveys also tell us what salaries are doing in general. Are they flat? Are they dropping? Are they crawling? Right now, in most parts of the country, pay is fairly flat. The average increase tends to fall between three and four percent. The angry people who come to see me almost always believe they should have gotten ten percent. But that’s just not realistic for most employees.

In addition, most companies have some sort of performance planning and evaluation process. The results feed into salary planning, and out pops your percentage increase. At the end of the day, it really is about business. If it’s a bad year, plan on your pay increase being lower. And if business is booming, then you can expect more.

If you think you are underpaid, you might be right. What can you do about it? Walking in and asking for a raise isn’t always the best strategy. You could do it and have your supervisor fall at your feet and say, “Please don’t go anywhere.” But frankly, that doesn’t normally happen. The options are to either understand your worth and where you should be, and go in prepared to negotiate, or to wait for the organization to catch up to where your market price is. Or you can vote with your feet and get a new job.

Here are some key questions:

Do you have an accurate view of your performance? I have seen people who have poor or mediocre performance ask for (or even demand) a raise, further undermining their employment stability.

What is your company’s compensation process—how do they make such decisions? If you’ve been around for at least a year, you should know this and know it well.

What is your company’s culture? Will your manager be threatened if you ask? Do you know who to talk to about these things? Talking with the wrong person can result in really bad advice.

What is your compensation objective and why? This is the most important question. My next blog will focus on this—especially on how you answer the “why” part.

Julie Nielsen is president of Oyster Organizational Development, a firm that helps organizations and individuals be wildly successful through organizational effectiveness strategies and coaching. Julie has more than 30 years of experience in helping organizations and individuals succeed.