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The Pillars of Compensation

In general, managers ask me, in relation to establishing a salary policy: what should I do to define a more appropriate salary policy? How to reward those who are dedicated to the company (those who are committed and in general have no specific hours to start or leave)?

What parameters can I use to establish a salary policy (internal adequacy, service years, market)? How can I reward and compensate top performers on the team (those who deliver quality, differentiated results)? How do I justify different salaries among people on the team?

Far from being a set of guidelines, this article is designed to provide insights and discussions about the pillars that can appropriately support a salary policy establishment process.

Regardless of the region, industry, predominant culture and source of capital (national or foreign), the salary level will always be among the five main reasons for discomfort and/or dissatisfaction in every formal and/or informal salary survey carried out by any organization.

Establishing the organizational climate and identifying key elements that can impact salary satisfaction are the first diagnostics that must be conducted in order to align with the strategy to be adopted.

However, as we think about this issue, some indicators should be included to provide additional transparency and credibility to employees, as well as additional confidence to managers. Within this premise I would like to highlight the nature of functions/roles, market, competences and abilities, performance, strategy and financial health of organizations as the main pillars of this process.

All job functions are important, but the relative importance among them is different. And that is where we can find the first indicator, which, when well weighted and assessed, can help establish an internal ranking among functions and, as a result, provide a pyramid of functions, which we usually call internal relativity.

Being aware of the value a function has in the market is an important element to estimate the salary policy to be adopted. The market is comprehensive, and by considering job function characteristics, it is critical that we map and select companies that can be used as benchmark for the policy to be adopted.

When in doubt, I have, as a suggestion, a question that can help select these companies, that is: to whom can I lose my people? Where can I get manpower for future hiring needs?

Compensating according to service years can be risky, as there is evidence that many service years do not mean that an employee has more knowledge and better performance, compared to a newer employee. Therefore, it is important to identify and analyze competences and abilities that can be used as a pillar when defining individual salary. Competences and abilities need to be linked to the performance, and that is where a manager plays an important role and needs to be trained to identify, within the team, those who are really adding value to their activities.

And how to align a salary by taking into account the job/position, market, and competences and abilities?

The compensation strategy and the company’s financial health are elements of this scenario and need to be aligned with established objectives. How am I going to pay and how can my business support the salary investment to be made?

Paying the first quarter, average, median value, third quarter or the highest market salaries. These are strategic decisions, and the chosen course of action can be different for functions that are regarded as key in the process compared to others.

This scenario needs to be aligned with an effective communication plan involving managers and employees to make the system more transparent. It is important to emphasize the implementation of policies, which requires follow-up, analysis, assessment and adjustment to maintain competitiveness.

It is important to point out that the market is dynamic and, in some segments, the pace of change can be fast. Therefore it is critical to be aware of its movements in order to sustain the pillars of compensation policy.

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