As a new manager, no one told me that it was my responsibility to
actively address each new employee’s salary; I naively assumed that an
annual salary review process was sufficient (and since none of my former
managers had actively managed my salary I didn’t have any better example to
follow)
In the high tech boom of the 1990s, as I hired new graduates fresh from
school, I quickly found that after 6 months their salaries were no longer
competitive; the tech boom was magnifying a problem that had always existed
and still exists today
In light of what I was seeing as a manager, my previous experience as an
employee made more sense to me: the only way to obtain any real salary
increase was to find a job at another company and to negotiate a pay
increase
As a new manager I wanted to “do better” for my staff than previous
managers had done for me, and so after discussion on this subject with my
boss we obtained assistance from a contact of his in our company human
resources department
This active management approach was suggested by that human resources
person, but the specific methodology described in this presentation is much
more specific and detailed than he suggested
Grounding Statements
This presentation is intended to provide a new manager with the
nitty-gritty details on how to move a newhire’s starting salary to defined
targets
This presentation assumes that you, the manager, have created salary
scales and associated targets for the various positions your manage; thus,
when employees are moved into your remit, you assign each employee to a
specific scale
Salary Management Tools
Annual Merit increases; where an employee is reviewed and assessed and a
salary increase is assigned based upon that employee’s performance against
objectives that have been previously established with the employee
Periodic Career Development (CD) increases; where in response to an
employee’s development (that is, attainment of new capability) that employee
receives a salary increase that is not tied to their annual Merit increase
Salary scales with established minimums, maximums, and a “Market Target”
for each role (with normal salaries clustered around the Market Target); in
a large corporation these salary scales are set for you, but in a smaller
company you may have to establish these yourself
Guiding Philosophy
Each employee is expected to take 18 to 36 months to reach their full
potential within a specific role or position. Over that period, the manager
should apply regular salary increases in response to the employee’s
development, such that at the end of the development period the employee’s
salary is appropriately placed in the cluster around their target salary
If the manager does not consciously and actively address an employee’s
salary, the employee’s salary will typically fall behind that employee’s
expectations and result in decreased employee job satisfaction. By
proactively addressing salary with your employees you establish appropriate
employee expectations instead of allowing inappropriate expectations to
establish themselves
Salary Management Process
This process should be invoked whenever an
employee:
Joins your organization
Is promoted
Their job/role changes
Their performance changes
The salary scales change
The process steps:
Determine the employee’s target salary.
Establish their development velocity.
Build a CD/Merit plan for them.
Execute the plan in response to continued development.
1. Determine Target Salary
The employee’s specific job/role should determine the Market Target you
assign to that employee
There are two types of factors to be considered: role-specific factors,
and employee-specific factors; where role-specific factors affect all
employees in that role, but employee-specific factors only affect that
individual employee
If a specific job/role requires skills your industry considers scarce,
it is usually appropriate to establish a higher Market Target for the
individual assigned to that role; that is, individuals who possess industry
scarce skills are only paid for those skills if they are in a role that
requires those skills (the is a role-specific factor)
It is also normal for
an organisation accumulate specific individuals who have unique
institutional knowledge about your organisation, and so are critical to its
ongoing success; establishing a higher Market Target for these critical
resources is normally one of the actions taken to ensure these individuals
remain with your organisation (the is an employee-specific factor)
2. Establish Development Velocity
Every person is different, and everyone
develops at a different pace; where each employee is rewarded differently
based upon their individual performance
Some people develop quickly, some not so
quickly; 18 to 36 months are the upper and lower ends of an employee’s
typical development timeframe
By observing and working with the employee in
their first few weeks in a new role, determine how long you expect them to
take to become fully productive
Write a development plan with the employee
and obtain agreement from them on its timing & content; this is a validation
of their development velocity
Writing and obtaining agreement from the
employee on their development plan (along with annual objectives) is an
important part of setting appropriate expectations
3. Build CD/Merit Plan
Some definitions:
To achieve regular salary
increases assume 1 Merit plus 1 (or possibly 2) Career Development (CD)
opportunities each year; this give 2–3 Raise Events per year
The difference
between the employee’s current salary and the target we will call the Gap
The number of months to develop will be called the Velocity
The Raise
Events, Gap, and Velocity are used to calculate the amount of each CD/Merit
event required to achieve market target at the end of the development period
Sample
Salary Management Worksheet
Employee
Months
In Role
Current Salary
Target
Salary
Velocity (months)
Months
Remaining To Develop
#
Merit/CD Raise Events
$ Amt.
per Raise Event
% Amt.
per Raise Event
Employee One
3
$ 50,000
$ 60,000
20
17
3
$ 3,333
6.3%
Employee Two
24
$ 45,000
$ 55,000
36
12
2
$ 5,000
10.6%
4. Execute The Plan
Keep in mind that your plan is both a
guide and a baseline:
As a guide it is not meant to be followed
religiously—“do the right thing” given the employee’s performance and
situation, don’t just follow the plan for its own sake
As a baseline it
tells you whether the employee is on track to achieve market target within
the planned time-frame—that is, are you, the manager, doing your job
Continuously watch for employee development that you can reward with a
CD Increase as per your plan—that is, sometime during each quarter, reward a
specific achievement with the planned raise for that quarter (remember that
no development means no increase!)
Be open and up front with the employee about their velocity and their
pay scale, without committing to a specific target salary
As you approach the end of the plan, fine tune the employee’s target
salary—for example, high performers should end up above the market target
Salary scale increases are an opportunity to revisit an employee’s
position on the salary scale—for example, don’t automatically increase
employee salaries so that they hold their position relative to the market
target; instead, apply the process and potentially increase their salaries
in response to continued development or a need to continue to pay
competitively for that individual in that role
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