Rules, Tools or Somewhere Between: Where Should Your Pay Program Fit?

I see many organizations (particularly those whose compensation programs are in a bit of disarray) struggle with the question of whether - and how much - to enforce order and control.  Still others have structures and policies so closely defined that managers feel handcuffed and unable to use any judgment in making pay decisions?

What's the right approach?

I find that the following simple model helps my clients reflect and decide on the degree of structure and control that best fits their situation.  I think of the control as a continuum.  At the one extreme, we have Rules.  In a Rules scenario, we build a program with tight constraints and relatively narrow parameters around managers' pay decisions - basically locking them into a set of prescribed choices.  At the other extreme, we have Tools.  In a Tools scenario, we have some basic guidelines in place to support and influence managers' pay decisions, but we allow them a tremendous amount of flexibility and discretion.

Where on this continuum should your organization be?  I think it depends on your managers and the degree to which you have invested or are willing to invest in their decision making capability.

Cue the visual...

 

Do you have inexperienced managers?  Not willing or able to invest in the training and information necessary to bring them up to speed in pay decision making?  Not in a position to hold them accountable for making pay decisions well?  Then you'd better find yourself a seat close to the Rules end.

A more seasoned group of managers in place? Willing and able to invest in the education they need to make informed and effective pay decisions? Is your leadership committed to holding managers accountable for sound pay decisions, including consequences for those who cave in and take the easy way out?  Then feel free to move closer to the Tools end.

Don't view it as a permanent decision; it doesn't have to be.  Many organizations initially implement a program closer to the Rules end, with the objective of moving incrementally toward Tools as the organization gains experience and expertise in good reward management.

Where does your pay program fit?

Comments

[Mark Bugaieski]

I totally agree, Ann. We are toward the "tools" end. You have to be pragmatic when making a comp/hiring decision. In the visual, I'd add data. This is where HR is critical. We need to access correct market data and feed it to managers.

[Ann Bares]

Mark:

Good point. I assume that any structure is built on sound and correct market data, but you're right in calling it out as its own critical element.