Platt Perspective on Business and Technology

Developing a rational compensation package policy – 1: some general organizing principles

Posted in HR and personnel by Timothy Platt on October 28, 2011

This is a first in a new series on compensation packages and practices as viewed from the perspective of Human Resources as organizer of overall personnel policy. My goal in this series will be to at least touch upon compensation as it involves both salary and indirect benefits, and as it includes hiring incentives, performance bonuses and salary increases, retention bonuses, severance packages … basically the entire range of circumstances and options under which a business or organization offers benefits back to an employee, of whatever position on the table of organization and whatever status with the organization.

Yes, this is an ambitious goal and my intent is at least as much to provoke thought and to help you review your own processes and practices as it is to offer specific information.

I have already at least briefly touched on a few issues related to compensation and how it is determined with:

Negotiating what You Can Offer as a Hiring Manager in Building and Maintaining Great Teams, and
What Level is That Job? What Title Should it Carry?

I will be adding more reference citations as I proceed.

• I am going to organize this series by starting at the center, with compensation for current employees.
• Then move outward from there to include starting employees, promotions and transfers with the changes in level on the table of organization, and changes in compensation levels that can bring.
• I will move on to discuss separation packages as they variously arise.
• And I will be looking into the management of a range of special cases and circumstances.

My goal in this initial series posting, besides offering a general working outline of what is to come, is to lay out some basic overarching principles that I would argue should inform any effective compensation policy.

1. Compensation should be set according to consist standards: A complex organization might be confronted with a need to coordinately find fair and reasonable compensation levels for a seemingly endless number of distinct positions and job descriptions. And even when restricting yourself to the scope and range of possible compensation packages for just one specific position with its job description, different job candidates and different current employees can and generally do bring a wide and diverse range of skills and experience to the job that can translate into offering different levels of value as an employee in that position. But even where every situation appears at least at first glance to be unique, compensation policy and its operational implementation need to be consistently set and according to a clearly stated set of rules and benchmarks. And this general principle should be followed for all levels of the organization from lowest entry level through determination of compensation in the senior executive suite.

Many if not most organizations would claim they have this covered and that it is not an issue for them. I will add that some of these organizations may be following such a policy for many positions but still be failing to do so with anything like a due diligence review of policy effectiveness for special cases. I cite a recent posting on the hyper-inflated, ad hoc compensation policies that are applied to so many executive suites as a working example of how this principle is often violated in practice (see Board Room and Executive Suite Musical Chairs and the Impact of Recycling Old Ideas and Perspectives in the Face of Change.)

2. Compensation should be explicable and defensible in the event of unexpected transparency: Essentially every HR department and every business or organization safeguards as confidential the details as to what compensation specific employees are given. The only real exceptions to that tend to be for specific positions, generally senior in nature, where disclosure is required by law. Nevertheless, these details are increasingly getting out and by numerous means and channels and for any and all types of position and job title – and social media and our increasingly ubiquitous capability to connect and share information is only serving to increase the number of those channels. Every organization should develop and follow compensation rules and standards that are designed to limit the potential for embarrassment or worse from data leaks when they do happen. Businesses should assume this is a “when” and not an “if” issue.

And as a final point for this posting I add:

3. Compensation levels offered should be grounded in reality: And this means grounded in the standard practices prevalent in the marketplace and industry. But it also has to be grounded in terms of the business’ overall situation, and in terms of the overall pattern of compensation within that organization as a whole. And grounding in reality means grounded in defensibly-fair, and no matter what disclosure spotlights might be aimed at the organization, its policies and practices.

I will pick up on this discussion with my next series installment where I will turn to employee compensation levels as determined according to level on the table of organization and other standard means. You can find this posting and related at HR and Personnel.

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