(And Getting What You Pay For)
by Jack Ruffer

A well-crafted compensation plan is the key to recruiting and retaining employees.

We all work for different reasons but the one thing we all share in common is that we all need to have a roof over our heads and food on the table (the bottom rung on Maslow's hierarchy). The wages/salaries we earn provide for those basic needs.

Having been associated with the CID management industry for some twenty years in one capacity or another (homeowner at four associations; board member at two associations; board president at one of those associations), I've formed some opinions as to what makes an association management company successful and what constitutes an "also ran."

There is no question in my mind but that having the best available people at all levels of an organization is the best way for any organization to be successful. The questions then become, "How do I attract the best people?" and, "How do I retain those people?"

Aside from having inspired/thoughtful leadership and good working conditions, compensation (and other incentives) are very high on the list of inducements, but it is my impression that very few companies have established their own compensation philosophies and strategies in order to hire and retain the best people. It seems that most (but not all) companies pay the minimum necessary to fill the position and offer raises only when they are about to lose their most productive employees. Few have a rational plan they can point to. Those companies that have adopted compensation philosophies/strategies are to be commended for their foresight. They can look forward to a much brighter future than their competition. So, for the next several months, I'll be discussing the issue of compensation.

Determining wage and salary payments is one of the most critical aspects of human resource management because (1) the organization's reward system has such a profound effect on the recruitment, satisfaction, motivation and retention of employees and (2) wages and salaries represent a considerable cost to the employer. A carefully designed wage and salary program that is administered according to sound policies and consistently applied rules is essential if human resources are to be used effectively to achieve organizational objectives. In essence, a wage and salary program should be designed with the following goals in mind:

• To meet the needs of employees, including desires for security and self-esteem

• To motivate workers to achieve desired levels of performance

• To be cost-effective or based on what an organization can afford to pay

• To be competitive with other organizations providing similar goods or services in order to attract and retain human resources

• To comply with wage and salary provisions in the labor contract and with federal and state laws and regulations

• To be fair and consistently applied throughout the organization

• To be understood and accepted by employees, who must perceive the program as fair in order to feel satisfied with their pay.

The goals of the wage and salary program suggest that intricate and inter-related factors affect the pay structure of an organization and the pay scale for given jobs. Each employer has the difficult task of weighing these factors and making numerous decisions that ultimately determine how much a specific employee will be paid.

Most people would probably agree that some jobs are worth more to an employer than others. For example, negotiating multimillion-dollar contracts with electronic sub component suppliers is considered to be worth more than manually assembling those sub components.

It is important that the organization know the typical wages or salaries being paid in the labor market for the various jobs represented in the organization. If a management company pays its association management clerical staff only half as much as other companies in the community or region, for example, it is likely to lose most of its association management clerical staff and find it impossible to recruit competent replacements. If competent association management clerical staff members are in very short supply, competition will probably drive up the salaries paid to these staff members. The decision to pay average, below-average, or above-average wages in relation to the external labor market (quartile or percentile ranking) is a major strategic decision in human resource management.

Consider Economic Realities

The wage and salary structure and pay decisions affecting individual employees will also be directly influenced by economic realities. Two of these realities are the organization's ability to pay and inflation. If a firm has been highly profitable for several years in a row, it is much more likely to pay significantly above-average wages and to grant liberal pay increases than if it is losing money. If an organization is losing money, there is a strong possibility that a reduction in wages and salaries will be one of the options examined.

If inflation is driving up wages and salaries in the external labor market, many organizations may find it difficult to maintain appropriate balances within their wage and salary structures, particularly if beginning wages and salaries are going up faster than a company can adjust its wage and salary structure. This creates salary compression - a narrowing of the differentials job levels - and reduces the organization's ability to grant merit increases because so much money is required to adjust the overall structure.

Perceptions of equity are important to job satisfaction and performance. Tb feel fairly treated, an employee must feel that personal contributions (education and training, skill, seniority, effort, and job performance) correspond to personal outcomes (pay, recognition, privileges, and job satisfaction). In addition, these personal contributions and outcomes must be in line with those of other employees, particularly coworkers and employees in the same organization. If they are out of line, job performance and job satisfaction will suffer.

Job evaluation is the systematic determination of the relative worth of jobs in a particular organization. This procedure is used to answer such question as: Will technicians be paid more than assemblers? If so, how much more? Will word processors be paid more than secretaries, or should both groups receive the same pay? On what basis can these decisions be justified?

Basically, job evaluation involves gathering information about jobs and then comparing them, using specially constructed scales. The result of this comparison is a hierarchy of jobs based on the extent to which each job presumably contributes to organizational effectiveness. The hierarchy is used to establish and justify different levels of pay for the various positions within the organization.

Identifying Job Factors

There is no easy, precise way to determine the exact contribution each job makes to overall effectiveness. A key concern in job evaluation then is to identify job factors that are considered to be of value and to determine systematically the degree to which each is present in each job. Responsibility, skill, effort, and working conditions are examples of factors that are commonly considered appropriate dimensions for determining relative job worth, or value to the organization. The choice of job factors - and the use of job evaluation itself - reflects basic assumptions consistent with equity theory: (1) it is logical to pay more for jobs requiring greater skill and training and demanding more from employees in effort, responsibility, and training, and (2) people feel more fairly treated if pay differentials reflect a hierarchy of jobs based on relative worth.

Most organizations that pay wages use job evaluation. For example, if the General Manager of a homeowners association simply decides (with the concurrence of their Board of Directors) that a Customer Services Specialist should be paid more than a receptionist, an informal job evaluation procedure has been used. Although this procedure may have been too subjective and too quickly applied, nevertheless a rudimentary form of job evaluation has occurred. Unless the decision has been made to pay the same wage to everyone in the organization, the question becomes what job evaluation procedure should - be used and how systematically it should be applied.