According to the latest 3R strategy survey on salary planning, 60% of companies link pay to performance. As companies implement more structured compensation programs and policies, it’s easy to think that compensation is something that is managed solely with structured data.
However, this scientific approach, while important to avoid bias, must be combined with company’s business context and insights.
In this article, we’ll explore why science and art go hand in hand with compensation programs. But first, let’s explain what science and art in this context is.
As your company expands, having an effective compensation program becomes essential to motivate and recognize talents.
Usually, science in compensation means having the right data points and metrics to ensure fairness in all compensation processes, especially when taking decisions. Monitoring compa-ratios, pay gaps and linking pay raises with performance ratings are a few examples of a more data-driven process that can be explained across the organization. Other indicators like job or company tenure, employee potential, etc. can also be used to provide more insights.
All these metrics aim to avoid unbiased decisions and provide clear explanations to employees on how decisions were made.
On the other end, other outside factors may be taken into consideration, and though not as structured as the other metrics, it can justify some compensation decisions towards employees.
Managers do have some leeway to decide by taking both data points and their business knowledge/external context.
In every compensation philosophy, a structure is established to reduce bias, unjustified gaps and provide trust in the decision-making process. Pay increases can be tied to performance ratings and compa ratio, etc.
However, it is also relevant to take other factors to put into prospective the data before making conclusions: business insights, team size, internal dynamics, labor market, etc.
“Compensation decisions are a mix between art and science: data should be read and analysed together with business insights and team’s context, in order to take the best compensation decision that is also commercially right for the business.” Erica Lauretta, Head of Rewards
Whatever the case, being able to justify the rational with both data-driven and business criteria is essential in compensation decisions. In conjuction, providing training on compensation metrics and giving flexibility when deciding on raises are key points to better involve managers in your recurring events.
Compensation is both a science and an art that needs to be structured based on one company’s context. Below are a few non-exhaustive examples of how to promote a fair and flexible compensation philosophy.
Expansion, new strategy or unexpected changes can occur to a business. Thus, it is key to incorporate the latest business insights and reflect them in updated rewards practices.
Providing clarity on how jobs mean in your organization and how to compare them is critical to assess decisions and provide relevant insights. Updating them and reviewing your compensation ranges becomes essential during each stage of growth.
It is important to provide separate events to talk about development aspirations in relation with business opportunities (usually within the performance review). Then compensation items can be dealt more precisely within the compensation review. This allows managers to take the employee’s inputs and ensure fairness during the decision-making process, while allowing more time to assess performance used for compensation guidelines.
Communication is core to any compensation program’s success, all stakeholders including leadership, managers, employees should be aware of how decisions are made and processes within main events. Manager’s ownership can be provided through dedicated training, especially when dealing with compensation topics.
Promoting the right practices will push a fair compensation strategy. With a structured compensation philosophy that mixes science and art, your company will progress towards consistent results and thus, will better recognize your employees.