Deciding on what to offer the chosen candidate for a key spot in your organization beats three cups of coffee in assuring a sleepless night. The offer has to be comprehensively attractive. Ideally, it is at or above what your competitors might offer, a margin above their current pay, appropriate to the candidate's qualifications, and in line with the salaries of your incumbent leadership.  You need to make an offer that is just and can stand up to scrutiny from multiple angles.

The good news is that if you make a consistent review of your compensation program a top priority, you can approach this goal gracefully. This requires commitment, planning and discipline. It also requires an understanding of pay and the human psyche.

While money may talk, when it comes to motivating employees, research shows that it is overrated. From the early 20th century on, psychologists have been studying the role employees' pay plays in motivating performance. While pay can sometimes motivate certain behaviors on a short-term basis, it seems it doesn't last. Intrinsic factors like the opportunity to contribute, enriching work, etc. generally exert a stronger pull.

One clear conclusion about pay does jump out of the research: the amount of pay received is not a real factor in motivation, but the fairness of one's pay, if perceived as off-kilter, is an extremely potent demotivator.

Hence this prescription for developing a compensation system: Make it FAIR!

And, we would add, it should not be so complicated that people stumble out of the HR office massaging their temples.

How do I define the fairness of my pay?

  1. How it compares with that of my internal peers
  2. How it compares with that of people above and below me
  3. How it compares with my equals in the industry
  4. How it reflects my effort and results

You can address the first three points through a well-executed compensation review. Every other year usually does the trick. If you are a non-profit, these reviews are not only smart practice, but part of how you maintain your tax-exempt or tax-favored status with the IRS.

To meet fairness criteria 1-3:

Establish a compensation committee at the board level to administer the review and ensure members meet the IRS criteria for "no conflict of interest."

Use appropriate, independent sources of data for competitive pay range information. Select your surveys from reliable sources that cover a broad spectrum of your competitors for talent.

Conduct a review of job descriptions and examine the real responsibilities your associates assume. Such job re-evaluations may unearth changes caused by the organization's growth or adaptation to market changes.

Document the process, per IRS rules (by the end of the next meeting or 60 days after the meeting where the update was approved).

Number 4 deals with the thornier issue of rewarding performance. There is no more "just" sounding notion than pay for performance, yet none more perilous. Tying results to outcomes is fraught with sand traps. Team dynamics can waylay a person's achievements, business goals may shift and a myriad of other uncontrollable events can occur to take an incentive pay plan from motivating to dispiriting. Approach with caution!

A final word of advice. Keep your current associates' pay up with the market. We have seen companies go through an entire search process only to learn they can only afford their top candidate if they stretch, contort or abandon their current pay ranges...often throwing key incumbents under the bus.

There are no perfectly fair compensation systems. Only ones that reflect a serious intent which includes intelligence and forethought, aim toward the (albeit elusive) goal of justice -- for all!

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LeaderStat specializes in direct care staff, interim leadership, executive recruitment, travel nursing and consulting for healthcare organizations nationwide.