April 15, 2019
When it comes to your organization’s compensation programs, none is more important than your base pay program. A base pay program provides structure and organizes your jobs so you can attract and retain talent. It establishes a baseline for merit pay, salary range variations, and regulatory compliance. And finally, it helps ensure internal and external equity and non-discrimination in compensation.
As you can see already, your base pay program is fundamentally critical to your company’s compensation and total rewards systems. Let’s take a closer look at what your base pay program should include and how to make sure your program doesn’t leave you vulnerable to market and regulatory forces.
Why Your Base Pay Program Matters
Well-crafted base pay programs are important for many reasons. For example, they can do the following:
- Provide appropriate pay ranges for recruitment
- Promote accurate job descriptions
- Provide a basis for determining the external value of jobs to market
- Provide baselines for reviewing employee performance, rewarding desired performance and behaviors, and career pathing
- Ensure total rewards costs are maintained and managed appropriately
- Help reduce turnover through improved employee morale and engagement when pay is not a dissatisfier
- Position your company to be on solid ground for regulatory audits and less vulnerable to potential fines
What to Include in Your Base Pay Program
The fundamental elements of a base pay program include the following:
- Compensation philosophy
- Market data guidelines
- Job analysis
- Job documentation
- Job evaluation
- Market data
- Base pay structure
- Key messages
Your compensation philosophy establishes what percent of the benchmarked market pay rate you want to target for your various employee groups. For example, you might choose to have your non-management pay at the 50th percentile, also known as the market average, while your management pay philosophy targets the 75th percentile.
Market data guidelines are critical if you want to properly benchmark your base pay to your industry and market competition. Being improperly positioned in the marketplace puts you at risk for employee turnover if your base pay is too low; or at risk for higher employee costs if your base pay exceeds market norms.
Job analysis and documentation are critical to establish where your base pay aligns, internally and externally. Job analysis is a systematic and formal study of job content.
Job evaluation, on the other hand, helps determine the relative worth of the position to the organization, identify and correct any pay inequalities, and facilitate assignment of pay levels for each job.
Market data, typically derived from salary surveys, provides pay rates for jobs so your internal positions can be benchmarked against comparable external positions.
Your base pay structure provides the framework for your base pay program. It must be properly set up to help your organization operate efficiently and fairly while also minimizing the risk of exposure to regulatory reviews and potential penalties.
Finally, because communication is critical to the success of your base pay program. key messages must be included to eliminate confusion and keep employees informed.
Other Benefits of a Well-Designed and Managed Base Pay Program
A fundamentally sound base pay program carries many benefits beyond those already noted. It can, for example:
- Increase employee loyalty by lowering turnover due to less employee dissatisfaction with pay relative to the market and relative to internal peers
- Establish a compensation system that is fair and free of gender or minority inequities
- Provide solid comparative information for pay and total rewards areas needing adjustment
- Highlight possible base pay, equal pay, and overtime administration issues that could make you vulnerable to a regulatory audit and fines
- Position your company to more effectively and efficiently attract new employees, including coveted top performers
How to Improve Your Base Pay Program
Unfortunately, few organizations have the internal resources to objectively and effectively review and enhance their base pay program. After all, it takes your HR team away from critical duties, demanding weeks or months of concentrated effort to analyze internal compensation levels, develop a compensation philosophy, conduct a detailed and industry-specific market pricing compensation survey, and design and integrate manageable updates!
Because of this, most organizations benefit from engaging an external total rewards consulting partner to review and revise their base pay program. At Total Reward Solutions, for example, we assist organizations by:
- Developing a project plan, gathering resources, and defining a cohesive Compensation Policy
- Developing market data guidelines and matching your jobs to market descriptors
- Conducting market pricing of jobs
- Creating a salary structure and slotting your roles into that structure
- Conducting an incumbent analysis so short- or long-term adjustments can be made to create alignment with market conditions
The Bottom Line:
If your base pay program is inadequate or outdated, your organization could be at significant risk, both market-driven and regulatory. If that is the case, you could probably benefit from a base pay system review. At Total Reward Solutions, we can work with you to update or overhaul your base pay system as needed. Our full base pay system analysis process typically contains 15 essential steps designed to cover critical aspects to keep your company competitive and reduce risk. To learn more, contact us today at 317.589.8529.
Cassandra Faurote
About Total Reward Solutions:
Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.
Call us today at 317.589.8529 to discuss how we can help your organization develop and implement competitive and effective compensation and total reward programs.