Sunday, October 02, 2011

Compensation Philosophy

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“When you put the resignation, your company will match your CTC. If they can match it when you put down papers, why they don’t do it properly? Why they wait for the resignation? Do they underestimate the talent value?” One of the friends was asking me this during hot discussion on compensation.  In ideal world of the HR professional, they would love to have the compensation policy in place, but the question is how to do that.

“There are certain cases where employees leave the organization and come back with higher salary. Isn’t it an injustice to existing employees?” another friend asked me. “You should go to your top HR person or CEO to ask this.” I replied back.

My personal opinion is that for handling the compensation, you should have the competencies. Compensation management is one of the critical parts of the HR function. Any company and HR professional can’t avoid the importance of relevant compensation philosophy for the organization. If you do not have the proper compensation philosophy, you may have the trouble in retaining your critical talent. Paying maximum salary is not the solution, but paying right salary is.  {According to one survey (WorldatWork’s Compensation Programs & Practices research report (9/2010)) - 9 out of 10 organizations report having a compensation philosophy. 61% have a written philosophy. 29% have an unwritten philosophy. 42% reported that all or most of employees do not understand the compensation philosophy says that only 24% organizations have the compensation philosophy in place in their organization.}

When you are clear on your compensation philosophy then you are clear what to do with your talent on compensation perspective. But it is always managed as a crisis management. Compensation is not the top most important factor in retaining employee, but this does not mean you should avoid it. Positioning your talent vis-à-vis a market data will help you arrest your attrition. Employees have a common tendency to update their market positioning, and they try to check their positing in the market. Various job portals are easily available and if somebody in the team gets the double salary in the market, why don’t me, is the logic for searching the job outside. Here he assumes that he would get higher salary, good title, he may ignore the other good dimensions of the company. When he joins new company, he realizes that he got two things, but missed four other important factors. And then he goes for new job search. Most of the time, it is a just temptation of an employee.

However the fact is you can not underpay your employees for long time. You can position your employees in different percentile as per the potential and performance. Paying higher salary, off course, will spoil your culture. Your average employee should be positioned rightly. Your top talent can be at par with the market.      

Talent is always vulnerable to the flight risk in India. They are more aware and qualified to understand their potential. Reports show that hiring scenario in 2011-2012 is still promising. In such scenario, your top talent is always at risk. First dimension is compensation philosophy. I believe that organizations will be on the right track. Talent will also not black mail the organization.     

Once you have a compensation philosophy in place, your HR practices should support the employee engagement. Organizational culture, transparency, benefits and best practices will still be important in employee engagement, but at least pay the RIGHT salary. 

2 comments:

T said...

Hi,

What you say is right to a certain extent as there are situations where employers are forced to increase the emoluments although there is a good C&B in place. For eg., an employee leave for higher salary and if such a candidate is a vital resource for the projects he/she is handling, then employer is forced to hike their remuneration.

Anonymous said...

After reading this long essay, there is really no value addition from reading it. Just too general sentences.

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