Question

First, review the module resources and consider the following scenario: You have been asked to evaluate whether your organization's current pay structure makes sense in view of what competing organizations are paying. In your initial post to the discussion, address the following:

• How would you determine what organizations to compare your organization with?

• From an internal perspective, what are the potential consequences of having a pay structure that is out of line relative to those of your competitors? Consider the impact of pay and incentives on employees' motivation, engagement, and retention? Provide supportive examples.

• What recommendations would you provide to ensure improved motivation, engagement, retention, and competitive advantages in the marketplace?

Answer 1

Our reading states, “From the employer’s point of view, pay is a powerful tool for furthering the organization’s strategic goals”. It is one of the most important leverage points offered to attract and keep desirable employees within an organization. From an employee’s standpoint, pay structure has a direct effect on their motivation levels, performance, engagement, attitude, and retention with an organization.

In order for an organization to compete for talent, especially in areas that are saturated with an abundance of the same industry, they must employ a procedure called benchmarking. Benchmarking is a process wherein an organization compares its own practices against those of their competition. In essence, the organization uses their internal job descriptions and matches them to established salary survey jobs in order to identify the external market rate for each job position. Through the use of pay surveys an organization can benchmark against both the product market and labor market competitors. By implementing this process, an organization has a guide to make pay structure decisions including hiring, promotions, internal equity salary adjustments, and overall compensation budget planning.

A competitive payment structure is very important for an organization. On the one hand, if an organization’s payment structure is too high wherein an organization finding it is overcompensating its employees, they are unnecessarily increasing operating costs. On the other, if the pay structure is too low, an organization would have an issue attracting and retaining qualified talent ultimately losing the most important asset an organization has, human capital. A pay structure on the low side contributes to motivation among the employees diminishing, engagement to dissipate, performance levels to decrease, and loyalty to the organization to fall. From an organization standpoint, they lose the strategic connection to how the organization competes and drives value through its people.

A strong payment structure is needed to meet the recruitment, motivation, and retention of employees. It’s vital for an organization to be able to balance their overall needs for internal equity and consistency while responding to the desire to remain competitive in the product and labor markets. From the start, an organization’s hiring practices need to balance the realities of the market with internal equity demands, so new hires need to be compensated at the right levels from the very beginning. An organization needs to listen to its front-line managers, as they are most likely to have the insight in foreseeing and determining pay structure issues. Additionally, even though increases may not occur on an annual basis, the examination, benchmarking, and maintenance the organization’s payment structures need to be conducted regularly in order to remain competitive and align with organization’s need and labor market. Finally, many people think of compensation and pay structure as simply salary. However, the total cost of employee compensation includes every aspect of employee benefits. This would encompass the cost of health benefits, retirement benefits, tuition reimbursement, bonuses, incentives, or any other non-salary benefit that is considered part of a total compensation package.