Case Study Compensation

Growing a Healthy Compensation Program
If you're an HR office of one, busily juggling everything from beneficiary forms to incentive
awards, it's hard to believe that you share any pressures with other HR managers. After all, your
company and culture are unique, your CEO directs a lot of the key decisions personally and, often,
and market forces are exclusive to your products and/or services.
Nonetheless, consultants and researchers will tell you that there are some predictable similarities
between the reward challenges of companies that are the same size and/or at the same stage of
development. If you can learn from what others have done who were in your shoes, your program
design decisions could be favorably influenced . . . and you can go home many more weekends
feeling confident that you're an effective HR leader. I am beginning a series with the goal of giving
you that kind of boost.
When organizations are categorized, typical size categories are: Fewer than 100 employees; 100
to 500 employees; 501to 1,000 employees; and so on. I will cover the first three sizes in the series
and leave it at that. By the time a company has 1,000 to 5,000 employees, HR has a lot to go on.
There is a good-sized HR budget, plus the total HR and Compensation staff usually adds up to at
least six practitioners who have had enough experience to know what "wellness" looks like.
Here's the principal that inspired me to write the series: If you start with healthy compensation
habits, you'll be equipped to make healthy decisions as your organization grows. We'll look at case
studies of typical compensation design and operating decisions based on company size and,
respecting your organization's uniqueness, and offer things to take into account -- rather than
requirements -- that should help you prepare for your company's (inevitable) future decisions. The
emphasis in the discussions will be key decision points that could build or undermine HR's role as
strategist.
Case background: Healthy Gadgets is a new medical device company with fewer than 100
employees who both research and produce its products. The company has one HR practitioner who
wears many, many hats. Here are some of the compensation decisions typically made in a turbo-
charged, highly fragmented setting like Healthy Gadgets'.
HR operating context: Predictable revenue and productivity are the company's overarching
operating goals. Since there are no clear paths to achieving these goals yet, nor are there enough
performance data to make reliable plans, day-to-day work can be erratic for everyone. Because the
organizational infrastructure is in development, the CEO plays a very visible role in daily work
and influences decisions at all levels of the organization including the selection of many new hires.
Compensation practices you typically see in an organization of fewer than 100 employees.
Salary administration practices are limited to one-off salary decisions made in tight timeframes.
Employees arrive either to fill an urgent workflow demand or to become a "founding" leader of
the business. HR doesn't have a budget for salary surveys. Managerial and executive recruits often
find that their initial salary requests are approved. Other employee pay decisions are often based
on data gathered from local job listings found on online job boards.
"Do your best with what you've got" is the mantra in one-person HR shops. The thing is, this way
of managing salaries in small companies seems like a dandy quick fix but ultimately ends up being
short-sighted. Many "founding" employees will become long-term employees, whose entry salary
will direct every future salary decisions you make about them. Over- or under-paying now will
cost real money, so the $3,000 that an online national survey costs is actually a negligible amount
compared to the budgetary impact of overpaying salaries and HR tail-chasing.
Instead of giving the CEO and managers a blank page to work from, consider writing up guidelines
from the start identifying the parameters that salary offers should be based on, how internal equity
should be considered in the mix, and so on. (If you don't take the reins, albeit gently, you're setting
yourself up to be seen by the CEO and managers as an "order taker" starting from the very early
days of the company.)
An annual bonus may be offered to all employees, but is often based on vague measures that drive
short-term results. Payment of bonus is determined by the CEO after the "books are closed" and
results are discussed with Board. Employees gauge the probability of earning the bonus on what
they've heard about previous years' practices.
Note that these practices tend to send employees the message that bonuses are discretionary and
that individual performance has a very uncertain influence on annual results. Because of this, HR
would benefit from coaching the CEO and managers how to talk with employees about how
performance influences the bonus and how the bonus acts as a form of incentive. Otherwise,
consider the long-term impact of employees developing the view of the bonus as a gift from
management, like those turkeys that used to be handed out for Thanksgiving.
Job titles are played down in small companies; nonetheless, employees campaign for titles that
signify leadership. Department heads assign titles when their employees put real pressure on them.
However, some jobs are not assigned titles until they will need to be listed on the "About Us"
section of website or when business cards are needed for a conference.
Consistency in titling will inevitably become important to company operations. Start from the
beginning by at least settling on levels and associated titles in a broad way. You know, guidelines
like the title, "Manager," can only be applied to those who run functions and/or oversee employees
in a department, "Director" can only be applied to another specific role, and so on.
HR has engaged a payroll provider, but has held off on other online administrative support. Most
communications related to pay are about policies and deadlines.
Why not build a robust database from the beginning? Payroll providers often offer ways to
organize employee data and run reports. Unless the provider's approach is too idiosyncratic to its
own platform, consider adopting these services early, especially if you can integrate manager
access, so employee data becomes SOP for them from the get-go.
Many payroll services offer auto-messaging capabilities that you can use for announcements to
employees. Don't lean on these exclusively. They have a robotic voice that is nothing like the
relationship HR wants to develop with employees, even via email.
Q. Explain the compensation plan being followed at the organization?

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Growing a Healthy Compensation Program

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