YOU HAVE PROBABLY HEARD the phrase before: if you pay peanuts, you will get monkeys.
One interpretation is that if you pay low wages, you will get bad staff. Another is that if you want the best employees, you have to pay top dollar.
This falls under the category of compensation and benefits. It is one of several issues covered in the staff survey for companies participating in the ongoing edition of the Barbados’ Best Employers programme.
This is an era when more than ever businesses are required to pay big salaries and offer various other benefits to recruit highly qualified personnel. Then there are those who also have to spend big to poach top performers from other companies, usually as part of their effort to gain a competitive advantage.
But how big a role do the compensation and benefits of employees play in the overall success of an organisation?
Last month, PayScale, a United States pay consultancy, released its 2016 Compensation Best Practices Report. It found that while 73 per cent of employers said they paid their workers fairly, 36 per cent of workers surveyed agreed. The results were based on research involving 7 600 business leaders and 71 000 employees mainly from the US and Canada.
Commenting on the findings, Pay Scale senior vice-president of marketing Tim Lowe said: “It is not just in attitudes about pay fairness but in questions such as whether employees feel valued at work – only 45 per cent do – while more than two-thirds of employers say that employees are their greatest asset. Something’s not coming through; there’s a huge perception gap.”
The compensation and benefits issue was further explored by PayScale marketing segment manager Hedge Stahm.
“Human capital is a company’s most important asset. It’s also typically the largest operating expense, and thus can have a major impact on profitability and overall success. To keep employees engaged and productive, companies must compensate them appropriately – without overpaying them and running the risk of eroding the bottom line,” he said in a recent blog posted by the company.
“According to a report by the Human Capital Management Institute and Human Concepts, the total cost of a company’s workforce can average nearly 70 per cent of all operating expenses. In other words, your payroll has a major impact on your bottom line.”
Most value from payroll
Stahm said the “truly innovative companies” invested in compensation management software to help get the most value out of their payroll.
He added that there were a number of scenarios where not having the right compensation tools and processes could hurt companies financially.
“If you are relying on free data, or worse no data at all, you are at risk of overpaying employees. If you are overpaying by just two per cent on a US$10 million payroll, you are potentially misallocating US$200 000. If you’re not using fresh data, there is no way to know if you are paying more than the market rate,” he said.
“In the 2016 Compensation Best Practices Report, compensation – defined as seeking higher pay elsewhere – was a top reason people left companies in 2015, second only to ‘personal reasons’. If you’re not paying your employees fairly, chances are someone else will. Turnover is more than an inconvenience; it can be incredibly costly.”
Stahm also pointed out that compensation was “directly tied” to a company’s revenue. He presented a scenario to illustrate this:
“Let’s say that at the beginning of the next month, you are scheduled to release a new product. With this product release you expect to make US$100 a day in new revenue. However, two weeks before your new product launch, your [vice president] of development leaves for higher pay elsewhere.
“This delays your product launch, causing you to miss out on the expected revenue. Not only are you missing your revenue targets, you now have to explain that to your investors and board of directors. That’s not a position you want to be in.”
Compensation and benefits can be so pervasive that they become engrained in an entity, in other words part of its culture.
“How you pay, and how you communicate pay, is crucial to your company culture. You can choose to pay fairly and transparently to become the employer of choice, or, you can take a guess at pay and keep quiet about your pay practices and be the company . . . everyone flees,” he said.
“How you communicate pay is as, if not more, important as what you pay . . . The goal of your compensation strategy is to better align your workforce to company goals.” (SC)
