The Compensation Crush

Compensation is hot. Why? There is an intense desire by many organizations to make sure their pay practices are equitable and fair. In fact, it’s so hot and moving so fast that the organizational necessity of being competitive is sometimes getting lost. Oyster is building equity and total comp analyses into almost every project. That work can have a radical effect on what is typically the biggest expense: people. But where it goes from there can vary. Here are three key questions that are important to understand when determining whether your compensation practices are where they should be. 

Question 1: Is compensation just an HR function or is it organizational development, and do I need to care? Well… yes and yes. Comp can stand alone as an HR tool. Think of these tactical sub-questions: What do we offer and why? How do we recognize promotions and why? Do we link pay to performance or divorce it? (That’s a loaded question and a subject for another blog.) Is it really possible to be perfectly fair? What is the timing and the effect on the budget for the following year? These are key, important, tactical considerations. But the answers tell only part of the story. 

Telling the full story is where comp enters the OD space. Think of these strategic questions that all organizations should be asking: Who do we need to attract and when? How do we target them and how will we retain them? How do we link every employee and their efforts to organizational strategies and objectives, fully utilizing the investment we make in them? Do we have a different market target for certain people? (That’s a yes, done intentionally in a well-crafted structure.) How do we proactively keep people and not have to chase them to get them to stay? And here’s a big one. Knowing compensation is, oh, typically around number four or five on the list of what really engages employees, how do we engage them? (Another loaded question…) Simply put, caring for people must be an organizational strategy, and compensation should be high on the list of its strategic objectives. 

Question 2: Is it all about equity now? Well, no. This point can really get lost. It’s first about running a good business, or, the alternative is we’ll all be out of business. But being a well-run business means you have equitable and competitive compensation practices. That order is critical. Well-crafted compensation structures are one component of the OD model that leads to the right people, the right pay, and a workforce that will engage.  

Question 3: Can my HR department do it? Comp is messy and emotional. Have you ever met an employee who says, “I like my pay just the way it is; I’m not worth more.” Instead, employees typically go to free sources they find online, which normally run high and aren’t detailed, which leads to just about everyone thinking they are underpaid. This can start leaders on a worry mill over losing key players, which in turn causes knee-jerk reactions that can get compensation out of balance. Some managers get fearful and push HR to chase people in advance without knowing the real target. The core answer here is that compensation requires external credibility, objectivity, and cool heads. It also requires deep data resources that many companies can’t afford. Compensation professionals serve as thoughtful and neutral analysts who explain how business works, how compensation works, what it means for successful businesses, and what it means for careers. 

The core analyses that go into creating a compensation structure are black and white. But what we do with the results – how we make it fit the big story of an organization and its goals – is gray. Or even colorful. And that’s where your return on investment is. If you don’t have a compensation structure and think you know where you should be, it’s probably time to test your assumptions. If your structure is old, it’s probably not working. If your compensation structure stands alone in HR, well okay. It’s performing a function. But if it’s not linked to strategy, it’s time to consider a “people ecosystem” that links business strategy to people strategy. That would be OD. And that would be what we do at Oyster. If you would like to know more about how we partner with small and medium-sized organizations to increase success through human capital, contact us for a free consultation. 

Julie Nielsen is president of Oyster Organizational Development, a firm that gives small and medium-sized organizations access to OD tools and advice normally reserved for large ones. Oyster puts big company tools in the hands of success-minded teams from 10 to a thousand. If you found us, we can help you drive success. Julie has a track record of helping both organizations and individuals succeed.