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June 14, 2005
Compensation Trends to Watch

It's a good time to be a compensation professional because compensation is growing in importance in companies' overall business strategy, according to Kate Beatty of LKB Associates in Tulsa, Oklahoma, and Shari Dunn of CompAnalysis.

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Beatty and Dunn discussed the trends facing compensation professionals in a recent BLR audio conference.

They stressed that there is "no such thing as one size fits all" when it comes to compensation, but they urged every organization to have a written pay philosophy to indicate how pay is determined.

Internal Job Comparisons Versus External Market Pricing

When it comes to job evaluation, external market pricing is becoming more popular while internal job comparisons are increasingly a secondary factor, according to Dunn. She recommends a more balanced approach with a combination of internal job comparisons and external market pricing.

Beatty and Dunn said compensation specialists should be wary of free Internet sources of salary data because it is unknown from where the data comes and the quality of them.

"You get what you pay for," said Dunn.

Pay Raises

In the realm of pay increases, Dunn suggested a move away from the traditional percentage-based raise. She said a percentage-based approach can be too slow to address inequities in pay. Instead of focusing on the percentage increase, employers should be looking at the resulting pay, Dunn said.

She said she has found success with an approach that looks at what the ideal pay, which takes into account job value (range midpoint) and performance, would be for an employee at that point in time. This approach requires employers to have jobs classified correctly for determining job value and to have meaningful ways to measure performance. In this approach, the employer determines the ideal pay by using the performance measurement to calculate how much more than the job value the employee should be paid -- and then adjusts the employee's pay accordingly.

What if the employee is paid at or above the ideal pay? In this case, employers could offer employees an incentive tied to performance or decide whether the individual is a candidate for a promotion.


Beatty and Dunn said another trend in compensation is that employers are using incentive plans with a broader range of employees. They said these plans show employees how performance counts. They noted that when there are no ties between pay raises and performance, employees can develop an entitlement mentality.

Performance Management

One task facing employers who link pay to performance comes in management of the program. Many employers have found performance management is no easy task. Beatty said a performance management program can only work with the commitment of managers. She suggested a strong effort to train managers and also a communication effort to "sell" the program to them.

Dunn discussed a program that looks at the "means" and "ends" of how an employee performs. The employer uses the measurements of those two areas to link pay to performance. The elements of the means include knowledge and skills, traits, and behavior -- which are more subjective. These elements can improve with training, coaching, and counseling. The elements of the ends include outcomes and goal achievement, which are more objective.

Dunn also suggested that employers develop and use expectations of employment as a management tool.


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