Am I Paying My Employees Too Much?

Posted by FGP Intl. on 08/05/10 -

You'd be surprised how often we get asked that question. Some employers simply have an employee with decades of tenure under his or her belt who has slowly but steadily risen up the economic ranks. Other employers established pay scales that made sense in 2007, when the economy was booming, but are far too high now. Either way, employers want to know if what they are paying employees is equitable.

Sarah Fogleman with Kansas State University says that "It's important to give a lot of consideration to your business's compensation structure because it ultimately reflects how employees are valued." A good compensation package will help you get--and keep the best employees.

One of Align HR’s most competitive service offerings is what we call compensation guidance.We work with clients to ensure that their compensation programs are externally competitive with the marketplace and internally equitable among employees while financially responsible and legally defensible.One of our first recommendations to clients is to always have a clear understanding of the employee's job. "You can't research a job's going rate unless you compare apples to apples. . . You need a clear-cut job description," Joanna Krotz argues. "The job title isn't enough. Let's say, you decide to hire a marketing director. Salaries for jobs with that title can run from $50,000 to $500,000 or more. So the title alone is a nonstarter."

You also need to know what the competition is paying. Even if an online salary analysis website recommends to pay your Help Desk Manager $40,000, and every other competitor in the city is paying $50,000, then you may have an issue finding and keeping great people.

Now, what do you do if you find out that you are paying an employee too much? Stacey Caroll with Payscale advises to analyze the performance of the employee in question. “If the employee is an acceptable performer, but you wouldn’t lose sleep if they left,” then you want to start asking questions. “Do they know that they are only an acceptable performer and do they clearly understand what great performance looks like? If so, then the job of the manager/organization is to freeze pay until their performance has reached levels that we would want to reward. . . .There is no reason to give someone who is only meeting expectations more money just because they have been with the organization one more year. If their performance is not above average then there is no reason for their pay to be above average.

“If the overpaid employee is a super star, one of those employees that you would lose sleep over if they left, and they are overpaid relative to the market, you may want to adopt an entirely different strategy. In this case, you may not want to limit the employee’s earning potential, but rather find a better way to give it to them than just a larger base salary. This approach can include creative incentive plans that are designed to reinforce their stellar performance. For example, you could give the employee more frequent, unpredictable bonuses to recognize achievement. This method can actually have more bang for the buck than just more base salary. Another option is to look for opportunities to help this employee grow to the next level. If there is a higher level position that they can work towards, then eventually they won’t appear to be overpaid. Help this employee gain the skills necessary to become a manager or a senior director or get ready to take over an executive position.”

Compensation is a tough issue, especially in today’s economy. If you’d like to know more about Align HR’s compensation analysis and guidance services, give Vicki Peek a call at 864.553.7244 or email her at Vicki@alignhr.com.