Salary, healthcare and retirement remain the three cornerstones that hold up any solid compensation package. Creatively using these in constructing a salary package is one of the best ways to ensure it’s both fair and right. While not always an easy task, it is what separates the myth holders from the fact finders.
Myths are everywhere. They exist in every aspect of life and business. Some myths are fun to talk about. Like the one that bulls get angry when they see the color red and that’s why matadors use a red cape to entice the bull. The fact is that bulls don’t like bright colors.
Or that George Washington had wooden teeth. He didn’t. But he did suffer from dental problems. His false teeth were composed of ivory, gold, lead, and even other human teeth, but never any wood.
The dictionary defines a myth as a traditional story, especially one concerning the early history of a people or explaining some natural or social phenomenon. Myths can also often involve supernatural beings or events. But the not-so-fun myths, like those traditionally believed in the world of compensation, can be detrimental to the health of an organization.
Unfortunately, the evolution of these myths strengthen over time and become tradition for compensation professionals to rely upon. These widely-accepted “truths” become institutionalized. Even compensation professionals are not immune to the fact that if they hear something over and over again, they tend to stop questioning its truthfulness and accept it as a matter of fact.
The following are five of the most common compensation myths. Understanding the truth and not falling into the myth-trap will help you to better serve your organization and its employees.
Compensation Surveys Will Always Tell You How Much You Should Pay
The fact is that market data is one ingredient you can use to help you decide how much to pay a particular employee, but it’s not the entire recipe. The data is certainly helpful and can provide good benchmarking, but you also have to consider what is in the data.
Does the data cover the same required skill set, knowledge and talent needed? Is the survey including similar benefits offered by your organization? Is it from your organization’s region or one similar? In other words, only your expertise and that of the company leaders can make the final decision. Only you can decide what would be a competitive rate to keep good employees and attract future talent. Surveys only help to provide a good starting point.
The Gender Pay Gap Inside Companies is 20%
The fact is that gender pay gaps within individual companies tend to be in a range of 2% to 5%. Still not right, but not as large of a gap as most often reported in the media. Any pay gap is unacceptable if the pay is different between male and female or any other comparisons if based on the same job performed with the same skill set.
According to a study by Payscale, in 2021, women earn 82 cents for every dollar earned by men. However, when comparing two people in the same profession, with the same seniority, and working the same number of hours, women earn $0.98 for every dollar that a man earns. Again, there should not be any gap, but the gap generally isn’t as high as the myth.
A lot of organizations broadcast loudly that they will not accept any gender pay gap, but many do not perform their due diligence in studying variations. A recent study found that two-thirds of compensation professionals say pay equity is important at their organizations, but only 46% plan to conduct a pay equity analysis in 2021.
CEOs Need High Pay to Motivate Them
The fact is that most high achieving CEOs will work hard regardless of amount paid. Most CEOs are at a certain level of self-motivation and tend to be high achievers already. If they’ve made it to the top, they are probably determined to perform well if only for the sake of their reputation.
When deciding the salary for a CEO, it’s tempting to pay top dollar so as to not lose the candidate to the competition. But if the job is a challenge, as in a turnaround, the qualified CEO candidate would probably accept the position with a reasonable salary. Overpaying to make a statement would not be necessary in this case.
Salary is the Most Important Factor for Job Applicants
The fact is that although pay is important, it is not the only factor considered when accepting a job. Of course salary is important for supporting families and lifestyles, but it is not the most important factor.
A recent study of employees conducted by CEO Magazine found that:
84% want flexible working arrangements
67% want career development and potential growth
49% want work/life balance
26% want recognition
Compensation professionals have to be creative in today’s competitive talent search. Part of a good salary package could include flexible hours and paid education that would help with career advancement.
Performance Reviews is When Employees Get a Raise
The fact is that the annual performance review is an outdated tool. It was conceived in the 1960s when carmakers, steel manufacturers and other industrial giants needed a system to help them keep up with their thousands of employees. It was thought to just give everyone an annual review once a year. Over time, it became what the employee looked forward to because that is when they received a raise.
Today, companies like General Electric, Accenture, Deloitte, Adobe and Microsoft have thrown out the annual review. Instead, they give daily or weekly or whenever performance reviews. The thought is that companies should not wait all year to tell an employee where they are failing or succeeding.
Many of these companies are handing out raises based on performance at various intervals. The employee isn’t waiting for June 1 or whenever to receive feedback and/or an increase in salary.
Stick to the Facts
There are so many complexities involved in compensation and so many more compensation myths not covered here. In today’s competitive market environment, it is important that we look at pay strategies on a case-by-case basis.
We don’t need to follow the herd and buy into the common myths of yesterday. Since it’s probably the organization’s largest operating expense, we need to make the extra effort (and investment), into making sure we get it right.
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Salary, healthcare and retirement remain the three cornerstones that hold up any solid compensation package. Creatively using these in constructing a salary package is one of the best ways to… Read more
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