How Much Should You Pay Top Performers?

Friday, June 28, 2013

Classical compensation and salary administration methodologies deal with jobs evaluated based on their required knowledge, skills, abilities, and level of responsibilities often using point factor analysis techniques, i.e., the Hay method. Salary structures and ranges develop around survey data for similar organizations. A typical salary range is from 20% below to 20% above the mid-point for a given cluster of jobs. Therefore, a range with a mid-point of $25 per hour would have a minimum or $20 and a maximum of $30, or a spread of 50% from top to bottom. The range’s maximum is the rate for top performers. However, at some point we realized this approach did not address the truly outstanding performer. Salary ranges have now morphed into “broad bands” with range spreads of up to 100% or more.

So again, I ask, how much should we pay top performers? According to WorldatWork’s 39th annual salary budget survey for 2012-2013, the 2013 average expected percent increase is 2.7%. Kerry Chou, a senior practice leader with WorldatWork, has suggested truly top performers be compensated up to 200% of the “meets” performer. How does an employer with a limited budget pay 200% the going rate, even for their top performers?

Good compensation practices generally include a mix of reward and non-cash recognition opportunities available for ALL performance levels. These opportunities include base pay, incentive/variable pay, equity shares, benefits, as well as non-cash recognition such as additional time off, advancement opportunities, special assignments, project leadership roles, and training/education. This approach permits organizations to develop middle performers into top performers and sustain top talent.

In a July 2012 Oracle whitepaper, compensation for top performers was characterized as “Talent Insurance”. The white paper goes on to identify a top performer as:

• Is a key contributor

• Demonstrates high performance

• Is capable of a lateral move

• May be qualified for a broader role within the same profession

• Has reached the potential to move upward in a management capacity

As an example, consider Ted who started as an entry-level design engineer, who later moved into sales and then into marketing, and is now working in finance after completing his MBA. While in design he routinely had lead roles on many projects, in sales, he was 150% to 200% above standard, in marketing, he revolutionized how the organization roles out new products through the use of social media, and now in finance he is reducing write-offs by 50% by pre-qualifying clients.

Does the organization have a plan for Ted? If so, Ted’s depth and scope of talents can be directed and any number of problem areas within the organization and even acquisitions. If there is no plan to compensate, reward, and recognize top performers like Ted, they will begin to look outside the organization and will eventually move on to your competitor. Or, worse yet, they will become your competitor!