Getting Compensation Right

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There is no such thing as the perfect employee compensation package, but by keeping a few principles in mind you can get closer to the mark.

Compensation should reflect the current value that an employee adds to the organization and also incentivize them to perform to the best of their abilities in the future.

 

Reflect the Value the Employee Adds to the Organization

Determining the value each individual employee adds can be very difficult. I learned this from my career in reliability and quality engineering. I noticed that people who worked in sales tended to have higher salaries than many of the very bright, educated, and hardworking engineers that I was working with.

Why was this? Part of the answer was that the sales people could clearly show the value that they added to the organization. Revenue is easy to track and it’s on the company’s profit and loss statement for all of management to see. Acquiring and growing revenue is massively important, but for a manufacturing company, so is maintaining quality and reliability. When your products are faulty or low quality, the sales team’s job becomes much more difficult.

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How would you go about determining the value that a reliability engineer adds to an organization? This is tricky because a reliability engineer prevents problems and builds value cumulatively over many years. People tend not to think about or are incapable of determining the massive liabilities a successful reliability engineer enabled the company to avoid or the customers that the company would have lost if reliability issues had started cropping up. The better the reliability engineer does her job at reducing product failures, the less vital to the organization she will appear to be. Management might begin to ask, “Why are we spending so much on reliability when we only have one or two reliability related incidences per year?” Unfortunately, the value that the reliability engineer adds to the organization may only be realized when she’s no longer there and costs begin to rise and customers begin to complain and take their business elsewhere.

Just because an employee can’t easily quantify the value they add to the company doesn’t mean they aren’t very valuable or critical to the operations of the company. Consider carefully how it would impact the long-term health of the company if the employee in question were to suddenly disappear. A good leader must think long and hard about the true value each employee provides to the company and compensate them to reflect that value.

 

Incentivize Good Work

It is amazing how well employees manage themselves, solve their own problems, and find more efficient ways to work when there is a financial incentive to do so. This is why I am a big proponent of the idea that all employees should have some portion of their total compensation come in the form of performance-based pay.

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Work with each employee to decide on smart key performance indicators that will direct their efforts towards departmental and company-wide goals. Or, build a timeline with goals that must be reached in order for the employee to qualify for bonuses. Most employees want to do good work; it’s up to you to provide the financial justification for them to do it.

 

Remember…

Getting employee compensation right can feel a bit like trying to hit a moving target, but don’t give up. A great compensation structure will unlock the tremendous potential of your workforce and help to ensure that key employees don’t slip away to your competitors.


 

“Hands Giving Money Isolated On White Background” courtesy of David Castillo Dominici at FreeDigitalPhotos.net

“Engineers Discussing In Front Of Pc” courtesy of -Marcus- at FreeDigitalPhotos.net

“Business Handshake Over A Coffee” courtesy of stockimages at FreeDigitalPhotos.net

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