10 steps to develop a compensation strategy for Startups/SMEs

Does your start-up/small or medium scale organization have a compensation strategy? If not, then below are some essential points to think about before randomly paying your employees. A meaningful compensation strategy ensures that your start-up/SME stays competitive,  helps to align with external and internal equity and most important makes you stay in the game by ensuring you are able to attract and retain talent and do not run out of liquidity. 

How to start? First of all, think about-

1. Organization Culture -  Culture plays an important role in your compensation philosophy. Think about your organization's core values as it will cascade down to everything else. Think about what is more important i.e customer satisfaction/having a competitive edge/technology and innovation/flat vs hierarchical structure/human capital?  These factors will decide whether the organization should match the market rate, lag the market rate or lead the market rate.

2. External Factors - External factors also play an important role to have internal pay structure alignment. For example - Labour market disruptions, government policies, immigration issues, globalization vs localization, etc will affect the pay strategy.

3. Legal and Compliance Requirments - Every country has well defined legal framework and compliance requirements and it must be considered before compensation policy is drafted. For example, in the U.S.A, it is mandatory to consider factors like the minimum wage, working hours, employee classifications, guidelines as per FLSA, FMLA, etc. 

4. Job Analysis - The next important step is to conduct a job analysis, which is a process of collecting information about the skills, competencies, qualifications, responsibilities required to do a job. This can be done by observing employees, conducting surveys or interviewing employees, or using a combination of these methods. A website called O*NET is also a great resource where ready-made detailed descriptions of multiple jobs are available as a go-to reference. The end result of a job analysis is a clearly defined job description. 

5. Job Families, Ranking, Job Worth - An organization may have an administrative job family, technical job family, management job family and executive job family. Once job analysis is done, the next step should always be to create job families as it makes life much easier when you have to make a decision about a job's worth and pay ranges. Depending on the scale of operation and company size, organizations can have different job families based on various factors like geographic locations, skill requirements, competency requirements as well. Combining Job family and business rationale will help to understand which job is worth more important than the rest and help to rank them in order. For example, under a competency-based pay structure, a Data Scientist may have more salary than a Project Manager depending on competencies required, market competition, supply/demand of talent availability, etc which is connected to the organization's strategy. On the other hand, under a skill-based structure, for example in a factory/assembly line set up, organizations usually would create skill blocks to certify skills and have pay structures revolving around it. Of course, factors like the labor crunch will be an important factor of consideration.

Job Family	Job Category	Job Title
Human Resources	Comp and Ben	Total Rewards Manager Compensation Specialist Benefits Specialist
	Talent Acquisition	Talent Acquisition Manager Senior Recruiter
	Employee Relations	Employee Relations Manager Training Specialist Culture Specialist

6. Salary Survey, Grading and Pay Ranges – Salary survey is the most important aspect of a compensation strategy and is a must even if it is a start-up or a small organization. Organizations spend a considerable amount of cost to get data from professional organizations like Mercer/Hewitt. However, there are plenty of free resources available from where data can be taken. For example - Department of Labor, Bureau of Labor Statistics, Glassdoor, Payscale, Linkedin. Once data is collected, the data needs to be evaluated and quartiles need to be created i.e. 1st quartile, 2nd quartile, Median, 3rd Quartile, and 4th Quartile, which is basically to understand what is the minimum pay for a job to the maximum. This can be simplified by having just the Minimum Range, Median and Maximum Range.

Example:-

Proposed Ranges	Min	Mid	Max
Grade I	$11	$15	$20
Admin
Teacher
Grade II
Teacher 1
Teacher 2

  7. Things to consider -

- Availability of qualified people (market demand/supply of talent)

- Other factors discussed above

-  Profit margin(Startups/Small organizations should start with basic pay and gradually increase on adding benefits to be sustainable and think more about long term benefits)   

- Start with base pay and gradually add benefits as required

- Have a balance of benefits i.e. what people will actually use

- Pay philosophy must talk about all rewards and explain about how much organization is spending and investing in each employee and must communicate clearly with employees

8. Fun Facts about Benefits – Components  ** Legally required are applicable in the U.S.A

Legally Required	Voluntary – Non Legal	Work/Life Fit Programs
Social Security – Taxable, 12.4% payroll tax 2.9% Medicare tax	Medical Health Insurance	Time Off – Holidays, Parental Leave, Sabbatical
Workers’ Compensation – Protection for -Lost wages -Medical Treatment -Rehabilitation -Retraining	Retirement Programs/ Increased Retirement Contributions	Child Care
Unemployment Insurance	Life Insurance	Counseling
	Vacation	Financial Planning
	Additional flexible options- Dental/Vision	Flexible work arrangements/Tele commuting
	Disability Coverage	Employee Service - Discounts- Theme park, Merchandise, Tickets@work
	401 (K)- Not taxed until retirement	Free or subsidized meal coupons/meals
	Misc – Stock option/profit sharing – n/a for non-profits	Education expenses – Partial or Full

9. People Analytics - Even if you are a small organization, in today's complex business world, you must analyze all data and have a cost model to keep improving and be agile with the changes around to be in the game for the long run. Here is a basic snapshot of a cost model that every startup can implement.

10. Finally, scale your compensation philosophy and strategy as you grow, adopt agile project management framework and make changes as required.

Reference:-

https://www.bls.gov/data/#wages

https://beta.bls.gov/dataQuery/find?st=0&r=20&s=popularity%3AD&fq=survey:[wm]&more=0

https://web.mit.edu/e-club/hadzima/how-much-does-an-employee-cost.html

https://www.shrm.org/resourcesandtools/tools-and-samples/how-to-guides/pages/howtoestablishsalaryranges.aspx

Conscience Capitalism & Spiritual Leadership

An Oscar-winning corporate movie “Wall Street” had an infamous dialogue “greed is good” and the same appears to be the mantra of many in the corporate world. Too much capitalism is an economic model grounded in a world view of only "self-interest". For example, some of the recent social media influenced crimes and acts of violence suggest how less has been done by social media companies to eradicate the menace with flawed algorithms as only reactive actions on content moderation & so much more sincerity and investment are required in Artificial Intelligence and other deep learning to take equal responsibility. As per Alice Marwick, a communication professor at the University of North Carolina, "If you are going to garner the benefits of having a massive platform - of tremendous ad revenues and humongous user bases - then you also have a responsibility to govern that platform." Another example is the fast-food industry, a multi-billion dollar industry which has only reaped the benefits but has been destructive for our health and for the society.

Though capitalism encourages innovation, it provides consumers to freely choose products and services they desire and eradicates bureaucracy to an extent, however, too much of it can be detrimental to exploit not only consumers but the backbone of the companies i.e. it's people and lends towards inequality. Most of the time the externalization not only creates division but also impacts workplace culture. However, the culture culprit of too much capitalism is slowly making entrepreneurs and leaders think and create the right balance which not only fosters innovation but innovation which leads to harmony at the workplace and the world as a whole. Today's consumers are way more aware than before which is prompting many organizations to consciously try to inculcate a culture of spirituality and conscience capitalism still not sacrificing the core purpose of profit earning. So what exactly is Spiritual Leadership and how does it bring workplace harmony and greater productivity?

Spiritual leadership has actually nothing to do with religion but purely based on a moral code of conduct and ethical business practice. According to researcher Louis Fry, "Spiritual leadership in business is a constitution of values, attitudes, and behaviours necessary to intrinsically motivate one’s self and others through a compelling vision where employees experience a sense of responsibility towards their work; a vision that is meaningful and provides purpose to their lives. Spiritual leaders create a work culture based on inclusion, trust, altruism, and respect such that employees feel valued and appreciated".  

Corporate culture stems from the fundamental ethical values of top managers that affect employees’ behaviours. When selfless values of respect, fair treatment, honesty, ownership of work and the like are an integral part of an organization’s culture, a culture of trust emerges. Leaders play an integral role in creating an Organization’s culture and an ethical Leader rests upon three important pillars: i) the leader’s moral conduct, ii) the leader’s vision and values and iii) the integrity of choices made and actions taken. And an organization’s long term performance is strongly linked with ethical leadership.

A research done by a renown researcher shows that great organizations who have achieved excellence in performance year on year have established culture by creating an environment of inclusion in the decision making process and have flattened the hierarchy, an environment where people have been empowered to take personal ownership of good work as well as bad work and can communicate the same honestly and openly, an environment where leaders can accept failures and criticism with humility. Such leaders have sustained high performance by creating a culture where truth is heard and brutal facts are faced. Such organizations have been cautious in hiring the right people and letting the unethical people off and then worry about developing the vision and mission for the company. Recruitment in such organizations gives greater importance to a person’s ethical thinking, integrity, moral character rather than looking at the person’s educational background, managerial competence, expertise or work experience.

Another research shows that the main reason for absenteeism, attrition, and low productivity is that people feel that their work fails to provide them with a sense of purpose and meaning. This is where Spirituality in work comes in the picture; a spiritual leader can motivate such workers by showing them a vision of where the company wants to be and how the worker can equally grow with the company. A spiritual leader can inspire the workers and work towards meeting the spiritual needs of workers which can be aligned with the organization’s objectives. This higher motivation, commitment, and productivity have a direct impact on the bottom line. Research shows that in today’s complex business scenario workplace spirituality not only increases positive human health and psychological well-being but also delivers improved employee commitment, productivity, and reduced absenteeism and turnover. In such organizations, the environment is cleansed from denominational politics and religious ideology is avoided as religion can lead to arrogance. Spirituality instead is concerned with qualities of the human spirit, positive psychological concepts such as patience, tolerance, forgiveness, personal responsibility and having the humility to regard oneself as equal to another and not greater in value than to another individual.

Some other HRM practices for creating positive workplace culture-

# Recruitment and Selection Process – Organizations that have achieved greater achievement through workplace spirituality give the highest importance in their selection process on employee attitudes and values rather than technical abilities. This philosophy includes everyone from top managers to the bottom line. To test a person’s behaviours such as a sense of humour, teamwork, friendliness; group interviews can be taken where applicants are asked to tell jokes, role play to demonstrate teamwork, capacity to act spontaneously, taking ownership if anything goes wrong. The interview panel also includes peer employees to provide a greater perspective and emphasize teamwork.

# Induction – An induction is very important as it introduces the new hire to the organization’s work environment and values. Spiritual organizations ensure that the induction process is also team-oriented rather than a typical practice where the responsibility is entirely given to HR for introducing the new hire to the company’s history, policies, managers, etc. A spiritual organization rather makes team members, managers, HR all together greet new hires and making the new hire feel at their comfort zone. Such organizations also go a step ahead and invite customers to provide their perspective or an introduction mail welcoming the new hire. Senior employees without looking at the designation are assigned as mentors empowering employees to think independently, training sessions are arranged as per the employee’s need and also making sure stress is diagnosed. Training sessions can include humorous videos and skits prepared by volunteers to teach the company’s culture and fun at work.

# Few other policies such as casual dress code, financial and non- financial rewards, a pat on the work for good work done, empowering to express tough issues which do not compromise their security of a job. No lay off policy even in difficult economic scenarios rather than face downturn with innovative policies including the employees as well to participate in bringing the company back to its feet.

# Career Management- Policies such as lateral transfers, promoting employees from within is a great way to inspire and retain people.

#Robust Compensation and Benefits Programs - Chalking out tax-effective salary structure, sharing profit and being fair and honest about the organization’s performance, retirement savings policy, stock option plans, etc motivate employees to remain committed with the company. South West Airlines, an organization which has consistently done well for years, demonstrated this attitude when the CEO agreed to freeze his own pay when SWA’s pilots were asked to choose a stock option plan instead of an annual pay increase for five years. During the downturn, the chief executive of Southwest Airlines voluntarily cut his 2009 base salary by 10 per cent citing the company’s first-quarter results. In 2017, Southwest Airlines announced it would be sharing $586 million in profits with its 54,000 employees – which equates to about a 13.2% average bonus for each employee, or roughly the equivalent of six weeks' pay. And that doesn’t even count the extra $351 million the company contributed to its employees' 401(k) plans. Remarkably, Southwest shared profits with its employees year after year because the company always had a people-first approach which resulted in continuous growth and success and never laid-off or cut pay as a short term approach.

Thus, to conclude conscience capitalism along with spiritual leadership can bring a paradigm shift in the way organizations work and can bring long term excellence in performance and social harmony.

Ref: 

Fry, L. (2003). “Toward a Theory of Spiritual Leadership.” The Leadership Quarterly, 16, 693-727.

http://investors.southwest.com/news-and-events/news-releases/2017/02-09-2017-153011218

#consciencecapitalism #workplaceculture #spiritualleadership #ethicalbusinesspractice

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