Why You Should Pay Your Employees At Market Rate.
The following is adapted from Pay Matters by David Weaver.
“I can’t live on what I’m making now,” she said, holding back tears.
Her name was Sarah, and she was in her boss’s office, giving him an ultimatum. She was in her early twenties at the time, and she’d been busting her butt for that company for over two years when she’d finally had enough.
She handed the CEO her personal budget, which included everything down to the penny…except for rent because she was living with her parents to make ends meet.
The CEO looked at her in surprise.
She said, “Do you think I’m doing good work for you?”
“Of course you are.”
“Then why don’t you pay me like it?”
Luckily, the CEO came to me to get help. I met with Sarah individually, and she showed me her budget the same way she did with the CEO. Now, I’ve been consulting people on compensation for decades, but Sarah was the first and only person I’ve ever worked with who was so desperate that she shared her personal budget with me.
Yeah, it was that bad.
Although she didn’t have the experience to say it, what she was trying to communicate to her CEO and to me was, “I think I’m being paid below market, but I have no idea if that’s right. All I know is that I can’t live like this anymore.”
With the CEO’s help, I got my hands on her job description and did a market analysis. It turns out that her instinct was right: based on the market, she was underpaid by about $10,000 a year. She felt like she was underpaid, and she was. Where there’s smoke, there’s fire.
I took the results to the CEO.
“What do you think we should do?” he said.
“Pay her at market rate — give her the $10,000 increase.”
“What if she leaves?”
“She’s guaranteed to leave right now if you keep making her live like this. At least you’ll have a chance if you give her the increase.”
He gave Sarah the increase, and she was thrilled. Fast for- ward three years, and she was finally able to move out of her parents’ house and buy a home of her own.
Sarah mustered a lot of guts to finally speak up about being underpaid. But what if she hadn’t? And what about the months, or even years, that people in your organization are suffering in silence, all because they suspect they’re underpaid, but don’t speak up because they can’t be sure?
You don’t realize it until it’s too late — when hardworking people like Sarah leave your organization, and you’re left looking at the embers of their departure. You may never see the signals like smoke filling the office, alerting you to a fire you were never trained to see.
WHAT’S YOUR PHILOSOPHY?
More often than not, when people leave a company, it’s because of compensation issues. Without a well-defined compensation program and a philosophy to drive it, you’ll continue losing good people, and you’ll continue to have no idea why.
But here’s the kicker: even when people are paid well, if they don’t know why they’re paid well — because you don’t have a definite compensation plan and haven’t communicated it to them — they will still be dissatisfied.
Everyone assumes compensation expertise means you just
run a bunch of numbers and do analysis. That’s only partially true. It’s as much art as it is science. There’s a lot of judgment and independent decision-making involved, and yeah, it’s a bit of analysis, but it’s not what you think it is.
For more advice on employee compensation you can find Pay Matters on Amazon.
David Weaver is President of the Compensation and HR Group and is responsible for compensation consulting within the organization. Previously, David spent twenty years managing a human resources membership organization, and he also held positions with industry leaders as a corporate human resources professional.A graduate of the University of Massachusetts at Amherst, David has also made his mark in academia. As adjunct faculty member for both Northeastern University and Newbury College, he taught courses in Compensation Management. Currently, he is an instructor for the certification program at the Compensation Analyst Academy.
