Many organizations tie job performance to wage increases. They often use management by objectives (MBOs) to gauge employee performance. MBOs require set measurable objectives that are used to assess job performance. In terms of sales, for example, MBOs can be tied to the number of customers brought in or the amount of new revenue added to the bottom line. In product management, MBOs can be tied to product production costs and delivery dates. These kinds of measurable performance metrics demonstrate to bosses, peers, and bosses’ superiors that the job is getting done effectively.
However, achieving MBOs does not necessarily mean a raise is deserved.
Meeting individual performance objectives are required for any job at any level. MBOs are the bars that need to be reached justify excellent job performance, period. If a raise is desired, performance should be dictated by going above and beyond MBOs, as well as a number of factors that are not related to performance review.
Gauge Salaries Against the Market
All Human Resources departments should initiate a company-wide review at least once a year to make sure salaries stay competitive with the market. Examining the salaries at all levels of the organization will help the company stay competitive and assure that employees are being appropriately compensated. It also helps to keep employees motivated.
“Paying your employees well is not only the right thing to do but it makes for good business.” -Jim Sinegal
This exercise must be performed regularly because if salary levels become too disconnected from the norms within the market, it’s hard to readjust them. Whether the staff is being overpaid or underpaid, it’s disruptive to make an immediately large adjustment up or down to bring salaries in line with the industry average.
At the same time, reviewing salary requirements regularly provides an opportunity to make adjustments to job descriptions and changes in responsibility. Additionally, external elements such as changes in the cost of living can be appropriately factored in.
How to Set Salary Levels
The best way to assess salaries is with a wage range or “wage band” based on the industry standard and the cost of living. Every employee with similar job responsibilities falls within the same wage band, with allowances for variations in job performance, duties, and time with the company.
“I explain the law of compensation like this: ‘Returns are minimal in spite of massive effort at the start, yet returns can be massive with minimal effort over time.”— Robert Kiyosaki
Automated systems are available that make it easier to standardize the salary review process. However, the HR team has to begin the process by assembling a salary profile for each employee, including:
- An assessment of industry standard salary figures for each position to make sure the wage band is current with the market.
- A full financial history for each employee, including starting salaries, pay increases, and bonuses.
- An analysis of the financial metrics for each position as it relates to the company overall. How does compensation fit within the overall budget? For example, if an employee is responsible for servicing clients by billing by the hour, run a billable efficiency report against the time-keeping system to determine if the billable hours are covering their salary.
“If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don’t have to manage them.” – Jack Welsh
Once salary profiles and analyses have been completed, each employee can be matched up with the wage band for his or her position. Now it should be obvious whether adjustments are required.
At this point, the HR department needs to meet with department heads to review their findings and discuss what kind of wage increases, if any, are appropriate. Implement any salary changes as required, and give the department managers the insight and background they need to go back to the employees and explain the reasoning behind any salary changes.
While job performance is always a factor in compensation, if it becomes the only factor, then the company’s salaries will quickly become out of step with the competition. Adopting a carefully thought out, standardized process eliminates any guesswork behind salary decisions, and ensures that every employee knows they are being treated fairly and equally
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