Insights
Aim for the Top: Getting Value for Compensation Dollars
Written for Whattheythink.com, May 2007
In one of their humor footnotes, Readers Digest stated “Aim low. That way you’re never disappointed.” But in reality, when hiring, aiming low is almost always disappointing and costly--while you stand to profit substantially from hiring the best. Consider these cases in point:
- Return to shareholders for companies with top talent practices averages 22% above industry means.
- The top 3% of salespeople produce up to 250% more than average; the top 20% produce up to 120% more.
- Paper plants managed by top performers have 94% higher profits than other paper plants.
In general, at PrintLink we see the printing industry moving away from an outlook focused mainly on product and profit towards placing more value on human capital and personal interaction both internally and externally. Yet at the same time, in contrast to salaries in other industries, the salaries in printing often remain conservatively low. Thus we are witnessing a diametrically opposed conflict between employers’ need for excellent staff and their conservatism in paying compensation. So in many cases when cost wins out over quality, staffing has become an expendable value—when in fact it should be an expandable value.
More for Less
Perhaps the reason is that today’s consumers have come to expect more for less – and offshore manufacturing is delivering it. Consequently, a more-for-less expectation has migrated to the workplace, where we are finding employers are defining their requirements in more detail (which is good). And in doing so, they are requiring more experience and expertise and have elevated expectations--in short, more demands. Dr. Joe Web’s April audio article for WTT on a current hiring shift cited as a partial reason low profit margins and the resulting need for companies to ask employees to wear multiple hats. But what has not increased in most cases is salaries.
At PrintLink we see the printing industry moving away from an outlook focused mainly on product and profit towards placing more value on human capital and personal interaction both internally and externally.This evolution is not confined to the printing industry. Recruiters serving other manufacturing-based industries tell us they are observing the same trends. The biggest dilemma for employers in every sector is profit margin, and this imperative is bound to put pressure on compensation levels.
In practical terms, once a job description has been created, hiring managers typically establish a compensation range. Usually they tell us that their objective is to hire at a mid-level salary that will allow room for growth. Sound logic – but the main problem from our perspective is that it practically guarantees their company will be excluded from the possibility of hiring top performers—and the dramatic benefits that go along with it. So in this article, as well as explaining the negative side of scrimping on salaries, we hope to provide employers with some much-needed clarity on pay issues that they can pass on profitably to their staff.
Pay Dissatisfaction
According to an opinion survey of over 50,000 workers in 65 organizations, 60% of employees are dissatisfied with their pay. To us, this percentage seems staggeringly high, because when we interview motivated candidates about why they want to change jobs, salary is very seldom the main reason they site--or else we eventually uncover that their pay dissatisfaction is the result of an underlying problem, not the problem itself. So perhaps the majority of survey respondents opted to provide a less complicated and risky response instead of a more detailed analysis of why they perceive their work as undervalued. And to some extent, pay dissatisfaction can never be totally eliminated. Inevitably, even in a very high-paying organization, some people will fret about their salary.
On the other hand, it is important never to trivialize pay dissatisfaction, because it can lead to such serious and expensive consequences as decreased motivation, increased turnover, decreased morale, and poor-quality work. Therefore, while companies should not expect to eliminate pay dissatisfaction entirely, they should do everything in their power to reduce it.
According to an opinion survey of over 50,000 workers in 65 organizations, 60% of employees are dissatisfied with their payAt PrintLink we often share with clients our industry-specific intelligence on salaries emanating from our daily conversations with employers and employees. But at the same time, we respect confidentiality by communicating and confirming salary ranges, rather than specific pay scales. We do not specifically conduct formal salary surveys—although conducting or consulting a salary survey is definitely another way management can gain a basic understanding of how well their company is paying compared to others. However, salary-survey data rarely reduces employee concerns about their pay. Common objections include that the wrong companies were used for comparison, that the company in under discussion is unique, or that the local cost of living is higher.
Pay Dissatisfaction Remedies
In order to remedy pay dissatisfaction, companies must first identify its cause. Is it (#1) the pay level, (#2) the pay structure, or (#3) the amount of merit increases?
#1 - Dissatisfaction with pay level usually means the “grass is greener” syndrome. Fully 62% of employees feel they would receive more pay for doing the same work in other organizations.
Yet often this outlook proves to be a misconception in a benchmarked marketplace like printing, where the same value is generally assigned to a position by every company across the board. For an employee, moving to a similar position at another company often won’t mean an increase in salary; in fact, it can be the opposite. Employers may try offering new employees a lower starting salary and increase it only after a ramp-up period, keeping everyone’s pay in line with the industry’s prescribed levels.
Additionally, staff who have been with a company for a number of years may expect to receive an annual increase in compensation. And typically, employers do value employee loyalty and reward it. But they are also faced with the fact that job functions have a maximum value, and through annual increments a salary can potentially exceed the established wage scale for the position. So reason dictates that there should be a ceiling.
In order to resolve dissatisfaction with pay level, communication with staff about where your company stands on pay issues is key.In order to resolve dissatisfaction with pay level, communication with staff about where your company stands on pay issues is key. Initially, companies should decide explicitly whether they will pay at the market rate, below it, or above it; then formulate their pay philosophy into a clear statement, such as “to pay at the mid-point for other organizations in our industry and our geographic area.” Then by setting pay scales accordingly and communicating this information to employees openly, companies can clarify staff’s expectations. Similarly, companies can train frontline supervisors and managers on what to say about employee pay, how to say it, and what not to say.
It also helps to communicate to staff that pay is just one part of their total compensation (that may also include benefits, bonuses, commissions, gifts, conference attendance, travel allowances, training, cell phones or hand-held organizers, and so on.) Accordingly, companies should issue annual statements to all employees showing clearly that their total compensation exceeds the amount they see in their paycheck.
#2 - Solving dissatisfaction with the pay structure also requires eliminating secrecy about the pay policy, since it contributes to employees’ misperceptions about where they fit in the structure. Communicate clearly to them how individual pay is determined, including what pay scale exists, what percentages represent their position’s baseline requirements, what percentages are based on individual performance, and what percentages are based on organizational performance. Additionally, make routine revisions to the system and eliminate clear inequities. An adjustment to even one employee’s compensation can improve the way all the others view the pay structure.
#3 - Dissatisfaction with merit increases stems from a lack of clear relationship between job performance and pay increases. Thus it is important for companies to minimize across-the-board increases and base a larger percentage of pay on individual merit. Moreover, a merit increase for a particular employee needs to be substantiated, or else other staff will deem it to be subjective and emotional. Therefore, companies must be sure to conduct regular and timely performance reviews. When these reviews occur, we have seen that employees feel better about the linkage of their pay to their job performance. (For detailed information on performance reviews, please refer to our Jan 2006 article for WTT, archived on PrintLink’s Web site at http://www.printlink.com/resources_main.php.) Rewards for good performers can consist not only of pay raises but also things like recognition, training opportunities, or interesting assignments. Ineffective performance must also be managed through retraining, discipline, or termination of those who are clearly not doing their jobs. Otherwise, a lack of corrective action de-motivates other staff and makes them skeptical of the pay system.
Get Creative
As always, we want to emphasize that your primary staffing goal is to have the best possible person fill the job. So if you can’t afford to pay top dollar for a top performer, then rather than abandoning this goal, you need to get creative. For instance, instead of paying a mid-level salary, simply moving up to the 75% range or better can well yield faster results and higher payback from a new hire.
Or else you can devise an infinite number of creative compensation methods that are tied to reward for measurable performance. We see this creative approach gaining acceptance by both employers and employees and expect it will continue growing. It works because the employer has realized a value and a return prior to giving the reward, and the employee has been recognized and rewarded for contributing to the company. Everybody wins. And it just goes to show that sometimes if you aim for the top, you get over-the-top results.
