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
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Job Category
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Job Title
|
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Human Resources
|
Comp and Ben
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Total Rewards
Manager
Compensation Specialist Benefits Specialist |
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Talent
Acquisition
|
|
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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
|
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Teacher 1
|
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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:-
