The Compensation Paradox

Tips for making market competitive and fiscally responsible compensation decisions during volatile economic times

I hear it all the time from clients – the exasperation is palpable. “With so many people being laid off in the life sciences industry, why are we still paying through the nose for talent?”

Yes, we are experiencing unprecedented (tired of hearing that word yet?) economic conditions. However, despite recent, unsettling headlines regarding workforce reductions, the number of open jobs in the U.S. still exceeds the number of candidates available to fill them. Although the fever pitch of the 2021 – 2022 buyer’s market has cooled off a bit, talented people remain in high demand.

So, what’s the salve that will soothe the blistering issue of how to attract and pay for the talent you need to achieve your business objectives while managing an increasingly tight budget? The answer is not as complicated as you might think. The following are tips to help you develop competitive, compliant, and cost-conscious compensation practices.

1) Data is your friend: reliable data sources are critical!

As I’ve stated in previous blogs, the days of finger-in-the-wind exercises are over. Board members and other stakeholders expect management teams to leverage third-party, objective data sources to inform compensation philosophy and pay practices. Although there tends to be a love/hate relationship with compensation surveys, they remain the gold standard when it comes to reliable and valid data.

It’s critical to work with analysts, consultants, or other experts who understand survey methodology and functionality and know how to interpret the data. I’ve seen pay ranges miss the mark simply because survey users didn’t understand the intricacies involved in benchmarking.

Before looking at benchmarks, it’s important to have a job description that can be used to match the job to data in the survey. Is the job leveled correctly, does the scope, level of discretion and decision-making, etc. match your job requirements? Do you pay at the market 25th, 50th, or 75th based on experience and credentials? Are you benchmarking based on similarly situated companies? Often, survey data are misunderstood and/or misinterpreted, which can lead to disastrous results. Proceed with caution!

Compensation surveys are critical, but so is anecdotal information from candidates, recruiters, and hiring managers. This leads to our next tip…

2) Understand the market: talk to people in the know

Market-driven compensation decisions should be informed by both survey and experiential data.
Over-reliance on survey data can lead to rigidity in decision making that paralyzes the offer process and inhibits well-informed pay decisions. They are called compensation “ranges” for a reason. Getting locked into thinking “we have to pay everyone at the market 50th” can lead to inflation, deflation, pay disparity, and salary compression issues.

Tap into resources that have their finger on the pulse of the talent marketplace. Their gut check can help determine whether the survey data you’ve referenced is an accurate reflection of market dynamics, especially when it comes to hot skills and/or in-demand jobs, which survey data is not as good at capturing.

Talk to recruiters, search firms, and colleagues, and ensure your company is capturing candidate expectations. Start to build your own repository of candidate compensation expectations so you can better determine what’s competitive and fiscally responsible. Timely insight from those in the know may make the difference between an offer being accepted or declined.

I can read your thought bubble…”So what you’re saying is rely on survey data, but don’t?” That leads to my final tip – the importance of flexibility…

3) Be consistent while remaining flexible: the paradox of compensation management

When budgets are tight, business leaders and compensation professionals can look to variable pay as a means to keep fixed compensation costs under control.

One opportunity is to leverage survey data and anecdotal data to inform how you think about annual incentive targets, equity grants, and other performance driven pay components. For example, consider a shared risk sign on, where the bonus is paid out in increments, over time, as defined by the achievement of business objectives and individual performance objectives. Establishing a win-win variable pay component in the compensation package where new hires and existing employees have skin in the game provides the flexibility to reward top performers while keeping your budget in check.

That said, I’m an HR professional and I cannot in good conscience write a blog about compensation without mentioning compliance! According to calculations from analysts at Payscale, at the start of 2023, one in four workers are now covered by one or more forms of pay transparency legislation. This underscores the importance of consistency in your pay practices. Pay transparency also means your candidates are more likely than not to have a well-informed idea of their value in the market. Those salary ranges on job postings are a treasure trove of data waiting to be mined. Leverage them!

If you are interested in learning how Mix can help you get a handle on compensation in your organization, please contact me. And be sure to watch this space for more information on how to weather the storm!

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