Strategic Reward Management - ready to think out of the box?
Whenever companies want to review its salary policy, the first thing they do is get compensation surveys from a recognized provider. This is a very useful step in order to know where the competition stands (“what are the others doing? Where do we stand against the competition?”). Usually, once a company has compared all benchmark roles to external reference points, it has to define its market stance, its remuneration strategy (“where do we want to stand against the competitors”?).
Let me tell you something: so far, I have never seen a company choose any other market stance than “P50”, also known as the “median” of the market. But does it make sense? Well, it depends.
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In a typical compensation survey, the population is divided into a hundred “reference points” – called percentiles – ranking from the lowest (P1) to the highest (P100). So theoretically, you have a hundred options to choose from. The question is: how come companies hardly ever consider any other percentile than P50?
My hypotheses are:
- Some companies assume that the median is a good representation of the whole market. But in fact, there are a lot of data to analyse when you want to get a good overview of a market, and statistics provide you the following relevant data :
- The “arithmetic means”, which almost always differs from the median and gives a different perspective on the market. It is an interesting number to know, as it may shed light on the look of the population distribution: are there many outliers? You can tell a lot by comparing the median and the means. Most providers also give you the means as a comparison point for the median.
- The“mode”, which is the value that appears most often in a set of data – this would be the most commonly attributed salary on the market for a specific role. Unfortunately, I am not aware of any compensation survey that provides the mode. The reason might be that the data set is too dissimilar to identify the mode, but I am sure the providers can come up with values rounded to the nearest hundred or even thousand, which would be relevant enough to me. As a client, why not ask?
- The “standard deviation” may help figure out if the sample was homogeneous or not, or also if the distribution looked like a G-curve (“normal distribution”). Again, as a client, asking for the information can never harm.
- Most companies are unsure how to interpret the data, and go for a “play it safe” approach by taking everyone else’s supposed market stance (P50). Okay, let’s say you read a survey saying that your “average” colleague is going to wear a lot of blue this season. What is your reaction? Go to the nearest clothes shop and buy as many blue pieces as you can? I think a self-confident person would go for another colour in order to make sure he/she stands out– and he/she will. In the end of the day, how do you want to compare to your competitors? “Be equal?” Huh, really? Don’t go for this strategy unless you are convinced it is the best fit for your needs. Don’t hesitate to ask for advice on the matter.
- Some companies believe that employees are going to find out about the market stance. But nowadays, in most developed countries, compensation and benefits packages are quite complicated to understand, let alone compare. Personally, I don’t believe that employees can guess what the company reward positioning is, unless companies communicate their effective market stance (which they hardly ever do). Besides, a lot of companies choose to convert part of the salary in benefits for tax-efficiency reasons, which gives a wrong perception of the base gross salary. So companies are reluctant to communicate correctly about the pay packages they offer, as the risk for misunderstanding is high.
- Employees are not fooled by a high gross salary any longer: they tend to consider the package as a whole (benefits). So, if you have tax optimized your packages and are following the P50, you may be paying above the market but are still communicating you offer “market aligned” packages! Besides, intangible remuneration is complex to evaluate, but is more and more valued by employees (training opportunities, exposure to complex or international environments...).
My advice to set your market stance is: start analysing your HR KPI’s and all relevant information about them. How do you attract new recruits in the first place (atmosphere, learning opportunities, pay…)? Do you have a high turnover rate? If so, why are employees leaving? Be honest about your answers. Then set your priorities: which issue do you need to tackle first?
Then build your strategy depending on these strategic decisions. If you don’t have any attractivity issue, why pay above your current pay system? If you don’t have a high turnover rate and pay above the market, why go for P50? Don’t forget that intangible rewards are just as important as a good pay system: NWOW, possibility to travel, etc.
Be bold – why do like everyone else and just “follow the trend”? Setting your market stance at P50 or above may be expensive and inefficient if the need for it is not demonstrated. What matters most is what and how you communicate around your reward strategy – an open, honest communication is the best way to differentiate yourself from the competition.
