10 Tips to Managing Compensation in a Down Economy

When economic times are a difficult, insurers are challenged with lowering costs and finding creative ways to reduce expenses. KnowledgePay Inc., a company that provides solutions that integrate all sources of compensation and job data with analytic tools to drive HR productivity and business results, offers a checklist of tips for decision-makers on managing compensation, available at http://www.knowledgepay.com/10tips1.html. An organization's compensation philosophy is integral to its culture, say experts at KnowledgePay, which advises insurers and other companies to remain consistent with their company’s core values, mission and vision, even when difficult decisions are necessary. Companies that have always linked performance pay, for instance, should not change course and implement pay freezes, reductions or even layoffs based on unrelated factors, says the company.Another tip from KnowledgePay is to manage compensation by facts, rather than fall prey to knee-jerk reactions. Managers with the discipline to rely on solid compensation data, rather than emotion or headlines, have the best chance of achieving positive, long-term business results. Organizations should also regard the current crisis as an opportunity to review their overall rewards plan, to ensure it encourages behaviors that lead to company success. Management should focus on what is most important for their business to achieve, use their rewards plan to encourage those achievements and try to eliminate unintended consequences. Corporate compensation practices receive intense scrutiny these days, especially with the amount of pay information available online and increased career mobility among workers. Staying focused on future successes won't make today's difficult decisions any easier, but it can improve those decisions - consistent with company culture, based on facts, and focused on improving business results. "No one knows how soon the economy will turn around," said Kelley. "In the meantime, HR and compensation professionals will keep trying to turn lemons into lemonade. 'Ten Tips for Tough Times' is designed to help."1. Keep your compensation philosophy aligned with your mission - vision - values • Your compensation philosophy is integral to your company's culture. It tells your employees "the way we do things" and reflects the core beliefs of senior management. Stay consistent with those values, even when you must make difficult decisions. If not, you risk affecting employee engagement and productivity negatively. If you have worked to link pay and performance, then it probably won't make sense to suddenly decide on pay freezes or reductions, based on factors unrelated to performance — seniority, for example, or "fairness." 2. Manage by facts • In a crisis, we are all tempted to knee-jerk reactions — decisions made without a full understanding of the context and potential impact of our actions. You can avoid both "paralysis by analysis" and overreaction by disciplining yourself to use the best data and employ or even add to your arsenal of analysis and modeling tools. You'll get the best results, if you work to understand the relationships between compensation reduction programs and your key business metrics. 3. Make lemonade • Lately, we've seen organizations announce across the board pay reductions. Certainly there must be a great deal of angst in such decisions; they weren't made lightly. But, just as a "peanut butter spread" approach to pay increases doesn't help company's performance, pay reductions won't necessarily help either. Look for ways to use pay reductions the way you use pay increases - to differentiate activities and performance in ways that will improve results. 4. Embrace change management • Organizations like yours have embraced the concepts underlying change management for almost every operational endeavor. When you make compensation decisions in a downturn, you should be sure to deploy the best change management has to offer. Start by fully identifying all key stakeholders — as in other change efforts that list will get surprisingly long. 5. Challenge assumptions • Reconsider the paradigms you have taken for granted. For example, over years of working with market pricing data, the trend has always been that pay rates rise. Sometimes quickly, sometimes slowly, but always up. Many such assumptions may no longer hold true. As Dorothy once said, "I've got a feeling we're not in Kansas any more." 6. Share information • Even in good times, communication about compensation is often overlooked. In tough times, when the conversations are difficult, there's an even greater need for open lines of communication. Craft a top-notch communications plan to go along with any new compensation program, and make sure it gets executed! It's another chance to make lemonade out of lemons. 7. Consider your overall plan • Take a long look at your rewards plans. Do they incentivize behaviors that your company needs today? Look for unintended consequences in these changed times, and work to get rid of them. Remember, whatever your company rewards, that's what will get done. Understand what your business must achieve in today's climate, and make sure your rewards plans are focused on those achievements. 8. Understand your workforce • Different employee groups will respond differently to changes in compensation programs. If you have a mature workforce with a lot of seniority, employees may prefer reductions in base pay rather than to lose their job. A younger workforce, on the other hand, may focus more on the present value of cash compensation and be less forgiving of a base pay reduction. No one-size-fits-all approach is likely to be effective. It's up to you to understand what is relevant to your workforce. 9. Take the long view whenever possible • None of us has a crystal ball. We don't know how long or severe the current economic downturn will be. But we do know that ROI on human capital is central to our companies' ability to prosper. Studies show that the short-term benefits of reducing headcount are accompanied by problems whose difficulty becomes clear when the pendulum shifts and it's time to re-staff. The cost and lost time of recruitment and training, the missing productivity, and the lost institutional knowledge can be expensive. That's why it's important to think long-term now, even as you make short-term decisions. 10. Know your market • Even a modest investment of time and resources in understanding your labor markets can pay significant dividends in this crunch time and beyond. Know what your local and industry competitors are doing with regards to their pay and staffing practices. Not so that you can follow them blindly, but because understanding your labor market enables you to act in your organization's best interest.This document and other information about strategic compensation management is available free-of-charge at www.knowledgepay.com/10tips1.html.