Don't plan budget for salaries in isolation

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THE ASSOCIATED PRESS FILE PHOTO Plan your salary levels to bring greater value to the executive table. (CP)

Now is the time when many human resource practitioners and compensation professionals begin the annual review of their reward programs -- with a particular focus on planning for 2013 salary increases.

Questions such as "How competitive are we?" and "How much do we need to spend next year?" are what keep my phone ringing this time of year as clients search for answers.

When carrying out the vital and multifaceted task of salary budget planning, it is important to ensure that it is not done in isolation. The finance folks will undoubtedly have a figure in mind that takes into account overall budget projections; however, the organization would be well served to consider additional factors that may influence the strategy around salary decisions. Seeking answers to the questions above is not for the faint of heart -- but rather for those who are prepared do their homework. Let's examine where you might begin to bring greater value to the executive table.

Commencing with the process of market pricing -- matching the organization's jobs to compensation survey job titles and definitions -- is one way to find out your competitive positioning. Occasionally I hear business leaders say they know they are paying competitively, but only to find out it is through anecdotal means. This subjective method can give a false sense of security and possibly lead to employee turnover if the salary gap is too wide. However, it is worthwhile to pause and remember that whatever the survey reports as the going rate, it's not a declaration of truth from which you should now go forth and abide. It is merely stating what others report to be paying, not what you should be paying. In addition, that figure only represents what participating companies are reporting -- which of course is not what everyone is doing.

So the next time a manager comes forward and says "I can hire for less than what HR recommends," the response might very well be, "I'm sure you can." In addition, depending on what your philosophy is surrounding how you want to pay relative to the market, there may be a group of organizations that pay more, as well as a whole other group that pays less.

The same theory applies to compensation planning surveys that provide information on average salary increases for the coming year. These figures are meant to serve as a guide and should be just one of the factors that you consider when determining what recommendations you are going to put forward to senior management.

So how many business leaders and decision makers understand or acknowledge the realities behind the science of compensation planning?

How many read the commentary that comes with compensation surveys warning them of the perils of utilizing the information in a vacuum? Each fall I host compensation briefings where I cover off topics such as total rewards trends and best practices, how to leverage compensation strategies and economic realities. Every time I provide the recommended forecast of projected salary increases at one of these events, almost everyone in the room hastily writes down "the number." Of course, attendees are cautioned there is no crystal ball nor is there a place called Utopia in the world of compensation. There are, however, four absolutes in compensation design:

-- Pay alone will not make people happy.

-- Compensation is not a substitute for great leadership.

-- Be careful what you pay for, for that is what you will get.

-- There is no perfect design.

Call it total rewards, total compensation or simply compensation, this essential element of your talent management framework requires thoughtful planning and extensive research. Closely tied into business financials, as it should be given that rewards programs are typically the largest cost of doing business, it is surprisingly an area that often does not receive as much detailed attention as it should.

While there are no easy answers (when clients ask me what they should pay, my response usually begins with "it depends"), you will want to ask the following questions as you initiate the compensation planning process:

-- What is your competition paying? Is new competition entering your market?

-- How do your salaries compare to your market comparators?

-- If you have formal salary ranges, is your talent paid appropriately within those ranges?

-- What is your business strategy? What is your talent strategy?

-- Do you have jobs with high turnover?

-- Are your employee satisfaction surveys telling you that any element of your total rewards programs is a dissatisfier?

-- What is happening in the market with key performance indicators such as inflation, unemployment, changing demographics and other economic indicators?

-- What are the trends in your industry? How can you differentiate yourself from your competition for talent?

-- What are average salary increases in your industry, sector and geographic area? Does it vary by employee category? What is the average salary range movement?

-- What other issues are on the horizon that may have an impact on your total rewards strategy? What are the experts saying?

Senior management and the board of directors are expecting you to understand all of these external and internal factors and then to apply common sense and professional judgment. It is wise to gather all your information from reliable sources and then with a balanced perspective you are in a position to recommend a particular course of action that is right for your company. To help you in your research, here are a few websites and surveys employers rely upon for information gathering:

-- Conference Board of Canada Compensation Planning Outlook www.conferenceboard.ca

-- WorldatWork Salary Budget Survey www.worldatwork.org

-- Compensation Survey for Manitoba and Saskatchewan Employers and Salary Increase Report www.peoplefirsthr.com/compensation-- surveys

-- Statistics Canada www.statscan.gc.ca

Of course there is a selection of other compensation surveys available along with websites that offer insight and analysis of trends. Be sure to carefully scrutinize the data that are applicable to your region, particularly in the Prairies where information is often scarce.

Anyone (almost) can read a survey or report, but it's how you interpret the results and what you do with those facts and figures that create value. So exercise caution before explaining your recommendations by saying, "The survey says...".

Colleen Coates, CHRP, CCP, is a practice leader with People First HR Services Ltd. She can be contacted at ccoates@peoplefirsthr.com

Republished from the Winnipeg Free Press print edition October 20, 2012 H1