BLOG: 5 Common Compensation Mistakes to Avoid

Managing compensation is one of the most challenging aspects of owning a business or working as a CFO or HR professional. Your compensation strategy needs to be flexible, effective, affordable and in alliance with your organization’s goals.

To help you craft effective compensation programs that are also within reasonable norms in our industry, we asked Tom Nunn, Business Strategy & Executive Coach of Tom Nunn Consulting, LLC to highlight some best practices and avoid common mistakes when managing compensation programs.

1) Offering Different Salaries to Different Producers

Staffing executives should craft a similar salary package for employees working under a similar job title. Designating different compensation packages to different producers doing the same job is only going to cause you more headaches and increase your chances of losing valuable employees.

“If you happen to leave a copy of everybody’s salaries on a printer by mistake and someone sees that, and they come in and say, ‘how come I am producing double than what that person is producing, but their salary is higher than me?’ That’s not a good position for you,” Nunn said.

2) Using High Salaries Instead of Guarantees

High salaries way above market are rarely effective or affordable. Yes, you can attract producers with a lot of experience on their resume but run the risk of not getting the production you need from them. Recruiters who try to lure candidates with six-figure salaries are unfortunately not in the race to get top talent. Instead, talk to your team about non-traditional benefits such as guarantees.

“There are ways to keep people happy without just hitting their high demands: guarantees, bringing people in—particularly if they have experience—and allowing them to ramp up, and also may be paying them a little bit of bonus money,” Nunn added. Offering guarantees to your potential employees is not only a cost-effective move but will also attract top performers to your company.

3) Incentivizing the Wrong Behavior

Incentives are an effective way to appreciate and motivate your employees. If you struggle knowing how to offer incentives to internal talent in a smart manner, you will be stuck in a loop where you are just spending money and getting nothing in return. “Don’t make the mistake of offering bonuses for activity that is not effective ln generating starts,” Nunn said. “It’s OK to have small bonuses available for “closest to the money” activity but getting starts and generating GM$ is where the real incentives should be.

4) Lack of Transparency

One of the common mistakes companies make is keeping their compensation process in a black box. Salary, incentives, bonuses—all these subjects are considered taboo in the work world for no reason. Keeping your compensation process transparent with your hires will gain you more trust and attract more talented candidates. Transparency can greatly impact productivity and even the retention rate.

5) Too Complicated or Hard to Understand

Sometimes, staffing companies go overboard with the compensation plan, making it very hard to even comprehend. According to Nunn, “If you have compensation plans for sales and recruiters which are very complicated, they will be less effective in driving the right behavior or to administer.”

Final thoughts

Your compensation plan should be simple and effective. When wrongly forged, it can cause you to lose qualified and high-performance candidates and create a rift between management and hires. Though these challenges may seem unavoidable, using the right tools and the right strategies will help you build good compensation plans, and a great working culture.

TechServe Alliance members can access Current Industry Compensation Trends webinar through the TechServe Online Learning Center.

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