Canadian HR Reporter

CANADIAN HR REPORTER September 21, 2015 FEATURES 31 COMPENSATION The benefits of differentiated pay Properly calibrating pay differentials can avoid negative employee reactions By Ken Abosch S hould an organization pay employees differently based on either the role they perform or the results they generate? e answer is an em- phatic affirmative. The notion of fairness quickly enters into a debate around the merits of differentiation, with different interpretations of what "fair" means. One version of fair is to pay everyone equally. is approach is not embraced by or- ganizations that are committed to performance-based rewards. However, when it comes time to hand out raises, most companies try their best to spread very small merit increase budgets across all employees and this results in minimal differentiation in salary increases and fewer distinctions in pay levels over time. The other definition of fair stipulates that differences in pay are defensible when calibrated to differences in responsibili- ties and contributions. is ap- proach is more consistent with a pay-for-performance philosophy but is also more challenging to execute. Calibration requires an organization to have the tools and expertise to compare and contrast differences in duties and responsibilities. It also requires commitment to providing honest individual performance feedback and to pointing out differences in performance that may not be popular. It is human nature to want to avoid confrontation, but this ap- proach requires full disclosure that some jobs have different ac- countabilities and impacts than others. It also requires candid dialogue between managers and their direct reports about their strengths and weaknesses. Employees know that differ- ences in role responsibilities and the contributions of specific indi- viduals in those roles provide dif- ferences in value to the company. Contrary to what many executives think, employees are not demor- alized by differences in compensa- tion that are based on differences in role or individual performance. In fact, it is just the opposite. It is pay inequity, not pay inequal- ity, that causes negative employee reactions. Pay inequity can result from either unequal pay (with equal contributions) or from equal pay (with unequal contributions). How differences are established Here are the most important el- ements to consider when differ- entiating the worth of roles and individuals: • Individual potential is an as- sessment of the value an indi- vidual could have to the orga- nization over time. is factor projects how high an individual could climb in the organization based on her past performance, ability to assume greater ac- countability and her potential to exert broader influence on broader organizational results. • Individual performance mea- sures the specific accomplish- ments an individual demon- strates against annual perfor- mance goals. To properly moti- vate employees, it is important to distinguish the efforts and results achieved by individuals even when large numbers of em- ployees may be working against the same goals. • Education analyzes the quality and comprehensiveness of aca- demic preparation required to perform work assignments. is factor considers the depth and breadth of academic training as well as the reputation of the insti- tution providing the knowledge. • Training and experience for many roles is as critical or even more critical than academic preparation. e required lev- els of work experience gained through on-the-job train- ing or other training experi- ences should be factored into determining a position's worth. It is not unusual for an orga- nization to apply these elements to create a hierarchy of roles that builds from lowest to highest value. Basic entry-level unskilled or semi-skilled support roles typi- cally comprise the foundation of the hierarchy. Skilled technical employees and entry level profes- sionals overlap with the top end of the support layer and continue up to expert level individual contrib- utors. Entry-level management (supervisors and managers) often lines up equally with advanced and expert individual contribu- tors and ultimately feeds into the highest level of organizational roles — the leadership level. ree additional considerations are increasingly being considered to determine the value of roles within businesses today: SATISFY > pg. 33

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