Platt Perspective on Business and Technology

Developing a rational compensation package policy – 4: new hires for standard and critical needs positions

Posted in HR and personnel by Timothy Platt on November 16, 2011

This is my fourth installment in a series on compensation package policy and practices (see HR and Personnel, postings 63, 64 and 66.) So far I have outlined and at least briefly discussed the approach that most organizations use in setting and implementing their overall compensation policies (see Part 2: structuring compensation according to the standard model) and I have briefly discussed an increasingly common type of situation in which this approach breaks down (see Part 2 and also Part 3: structuring compensation to address critical needs positions hiring requirements.) I turn here to what can legitimately be considered the simplest case for developing a baseline understanding of how a business actually implements a compensation package policy – new hires.

• When a business manages compensation over time for a current employee, the longer their tenure with that employer, the more likely it is that their actual day to day job’s description, the set of skills needed for performing that job, and the priorities under which they would work will have drifted away from the formal job description they were hired to and that is there in their personnel records.
• It is not at all uncommon for long term employees in particular to find themselves in effect working without a real job description as the one they were hired to fulfill and that shows in their records no longer applies and neither their supervisor nor their department, nor Human Resources as an oversight agency have every brought that up to date.
• This means that compensation levels and the changes that have been made in them have simply followed the standard set for the employee’s level on the table of organization, and some combination of standardized institutional pay raises, and performance bonuses – bonuses that cannot be based on a formal job description as a means of setting the parameters as to level of increase, and that could perhaps best be considered ad hoc in nature. Here I am presuming in my analysis, strict adherence to the standard model.

With a new hire, baring a complete organizational and management failure, the job description should fairly accurately reflect what the employee is to do, and with what priorities and using what basic skills set. That means that at this point, compensation will at least in principle, at least at that time align with what would be in place in a functionality and functional-needs based compensation policy system.

• With this, new hires and compensation package determination there – not in the abstract but in actual negotiations with actual new employees, sets the baseline for determining how an overall compensation package policy works for that employer.

It should be fairly obvious, given the above line of reasoning, that the only way to limit the type of drift into irrelevancy that can happen for compensation of long term employees is for at least one of two conditions to apply:

• An employee’s actual job and the skills needed to perform it have to remain absolutely static over time – which among other things may mean that this is a job that can simply be automated away and taken out of this discussion. It is clear, independently of any potential for automating per se that this sort of job is not one that would create or provide the business with a unique value proposition, and certainly not long-term.
• Or alternatively the employee’s formal job description can be updated on a regular basis to reduce this drift and its effects, and with that most easily done in coordination with the annual performance review cycle.

I am going to explicitly follow through on that in my next series installment where I will more formally turn to discussion of a functionality and functional-needs based compensation policy system as an alternative to the standard compensation policy model. Meanwhile, you can find this and related postings at HR and Personnel.

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