As consultants to employers on their employees’ compensation for the past thirty years, we have seen that the cost of employees’ compensation is an overall concern of business owners and managers. Whether working in a small factory or with one of the local larger employers, one could recognise that although the details may vary, the concerns remain the same. Everyone puts in their best efforts to figure out the best way to control effectively the cost of employees’ compensation while retaining the best talent.
Should employees negotiate their salaries with the employer? The interview is a crucial part of the recruitment process and should definitely not become a salary negotiation process, where the prospective employee is more interested in securing a pay rise rather than understanding the specifications of the job. The interviewing process is not a ‘deal or no deal’ game where the luckiest potential employee manages to obtain the best deal. In effect employers, who favour this type of approach, would be contributing to local wage inflation. It basically leads to an employee doing the same job whilst earning more money.
Wage inflation contrasts with wage evolution, which is fuelled by the added value of what an employee produces and what he or she is expected to deliver. Whereas wage inflation reduces competitiveness, wage evolution leads to increased productivity.
There is however another option for employers. Employers who want to succeed in managing their labour costs must have in place a compensation plan in place that motivates employees, controls compensation costs and ensures equal pay for equal work. Companies should establish a compensation policy and implement this, together with the other business strategies in the organisation. The employees’ compensation policy should fit into the overall strategy for recruiting and retaining employees. Many employers look at salary surveys to see what other employers are paying. Once they access the market data, they set their salaries on the lower, median and upper quartile ranges, usually depending on the overall company performance.
The primary intention of the local surveys being carried out by consultants should encourage fair compensation to help businesses remain competitive in today’s challenging labour market. At MISCO, we encourage employers to use these reports along with other resources such as performance appraisals and job evaluations, to provide compensation that reflects the appropriate job value, while keeping in mind the current labour market conditions. Our reports are not targeted at individuals who prefer to negotiate their salaries as if one is negotiating the purchase of a property.
Employers are to tie in their HR strategy, and therefore also their compensation strategy, to the business strategy of their organisation. This will help the employer to determine the value of each post in their organisation structure.
Whilst employers tend to look more often at the monetary aspects when devising their compensation policies, there are a number of non-monetary benefits that can be taken into consideration such as Employee Development Programmes, the organisation’s reputation as reflected in its CSR, brand equity and employment history, motivational leadership and management. Flexibility and family friendly measures are also elements which need to be considered in the compensation policies.
It is only once employers transform these elements into a meaningful compensation policy, one could be in a position to maximize the return on investment when it comes to compensation whilst attracting the best talent on the island. Employers should have clear parameters of what should be the minimum and maximum salaries to be able to maintain internal relativities and avoid internal disruptions which ad hoc negotiation and which the absence of a compensation policy could lead to.
Having an appropriate compensation strategy in place not only supports the motivation and development of the human resources of a company, but it also helps to attract and retain the top talent from the job market.