Employers grapple with many competing goals when it comes to compensation and pay raises. You probably want to reward specific employees who have made contributions to the organization and try to ensure your salaries are in line with what competitors are paying. But you also need to maintain a level of equity with other workers’ compensation. And, of course, you have to keep payroll costs in line. It is not easy to find a sensible balance.
Develop criteria
Money can be a sensitive subject for many people. Employees often view their salaries and raises not just as a means of providing for themselves and their families but as an indication of how the organization values their contributions. So, the ways in which you decide on, and communicate, raises and other salary adjustments can affect employee morale and performance.
If you have not already, consider developing a standard set of criteria to determine pay raises and apply it to employees within each department or group. Among the benefits of having set criteria is that it reduces the perception of, and opportunity for, bias. Even a perception of partiality can dampen employee morale. Over time, it even may harm retention and performance.
By standardizing the criteria you use to determine raises, you are less likely to wind up with significant variations in compensation between different groups of employees. You are no doubt familiar with the controversies regarding pay inequities between genders and other distinctions. Standardized criteria can help ensure that, as much as possible, compensation fairly reflects performance.
Focus on goals
Of course, these criteria should not prevent or inhibit you from recognizing employees who have met or exceeded their performance objectives. Tying raises to such goals is fine if the objectives themselves are clearly communicated, measurable, and challenging — but within reach.
Goals should be both specific to an employee’s actions and tied to broader organizational goals. For instance, a goal set for a warehouse manager could be to increase the percentage of on-time deliveries.
Some organizations use raises to recognize seniority. They say experience often has some impact on the contribution an employee makes. In addition, using raises as one tool to reduce turnover often makes sense, given the expense of attracting new employees.
Other organizations maintain that longevity does not automatically correlate with the value an individual brings. In addition, regularly rewarding employees’ tenure can lead to bloated salaries. Many organizations look at both longevity and performance when determining raises.
Keep searching
Naturally, all policies on raises and compensation should comply with applicable laws and regulations. This is yet one more issue to grapple with when searching for that often-elusive balance. Please contact us for assistance.