Kevin Bass: How to make compensation position-based and person-influenced

We've all heard colleagues say: "They're the perfect candidate! What's the highest we can offer?" Discussions around compensation pay ranges and limits can be some of the most difficult that HR professionals and people managers face.

While it’s usually a case of managers wanting to do the best they can for their staff, it’s more often than not down to managing expectations between the employee, manager and even HR. What is the right amount to pay for a role? Is pay even the main consideration?

One way to look at it is that pay should be position based, person influenced. The core compensation package is rooted in the position itself; whether that’s a business analyst, underwriter, or facilities supervisor. But there also needs to be a certain margin of flexibility to accommodate individual cases.

Making pay position based

As a first step, it’s important to purposely separate the position from the individual; this excludes any of the usual personal factors such as level of talent or job experience, but it’s also key to avoid any sort of diversity bias related to gender, nationality, socio-economic background, and so on.

Job descriptions: you’ll need quality job descriptions, not ones that include a laundry list of tasks and are three pages long. They should be crisp, clear and provide action-based tasks. If the content is longer than a single page it’s probably too long.
Benchmarking: benchmark the right jobs with your market peer group using third party industry surveys so you know where you stand. This is absolutely critical to get an objective view on positioning and will be your main tool to combat “gut” feelings or individual anecdotes. In some cases there may also be internal benchmarks to consider for purposes of internal equity.

Making pay person influenced

While the initial baseline will be set in terms of the job itself, there are naturally some factors to consider in regards to the incumbent, for example:

Talent and performance: these are the most fundamental drivers for the business to be successful and usually lead to a premium on pay positioning.
Development: in some cases you may have individuals who are taking a significant step and stretching into a new role, and these may require more conservative positioning before they are able to completely fulfil the job requirements.

Overall you can think of the approach as an elastic band: the more you pull away from the position benchmark (in either direction), the more justification is needed.

At this point you may say to yourself: "That’s all well and good, but how does that approach fit into our rigid pay structure?" The answer is that your pay structure should follow this exercise, rather than the other way around. If your pay ranges are based on accurately benchmarked roles and you update them regularly to stay relevant, in time this should address the vast majority of friction come pay reviews or new hires.

So let’s say you’ve got all the right pieces in place with a market benchmarked position that’s flexible on individual factors, but you’re finding expectations still aren’t being met? In this case I’d say 9 times out of 10 the issue likely isn’t compensation based to begin with – if there’s one thing that everyone agrees on it’s that you can’t buy your way to an engaged employee.

Kevin Bass is compensation and benefits manager at Allianz