It is believed that management consulting is something complicated and cumbersome. Something that an ordinary company does not need. I disagree with that. There are a lot of things that are “not tuned” and, thus, bring the organization more harm than good. Take, for example, such a thing as salary. Most likely, a lot of managers will say that everything is very clear with the salary: you pay more — the motivation is higher. More progressive managers will probably say that money motivates the worst of all, and that salary increase reinforces motivation for a very short time, just a few months, or even less.
Not bad. But even such an advanced answer is only the tip of the iceberg of managers’ necessary competencies in the field of properly organized motivation of subordinates by means of salary.
In this article I will share with you some tips on how to improve the motivation of your team by building a competent salary policy in your company. By following these tips you will make your company more progressive and attractive on a labor market, which in turn will help you entice better qualified professionals. And thus you will get a competitive advantage.
What Salaries to Set for Your Staff?
The main reference point when deciding on the salary for your employees is the labor market in your industry. By setting salaries, you thus position your company on the labor market. This is similar to how you position your product on the market: setting the price above the market, below the market or on the average market price.
Of course, you must position your company on the labor market not solely by the size of the salary, but also:
- by advanced, modern and highly competent management of the company,
- by challenging projects being implemented,
- by providing opportunities for self-realization and professional growth of your employees,
- by healthy working atmosphere,
- by quality of the product (service) and so on.
So, simplifying the situation to a certain extent, I would say that:
- if you set salaries above the market, then specialists on the labor market will perceive you as the most attractive employer. You will draw the most qualified professionals in your field, which will allow you to form the most qualified team in your industry.
- If you want to hire employees with an average market competence - set the average market salary.
- If it is more important for you to reduce company’s costs than to achieve results, then set the salary below the market. In such a company, obviously, the level of employee competence will be low, as well as the level of their motivation.
Although the salary is rightly considered one of the most inefficient means of motivation, especially for highly skilled professionals, nevertheless, the high level of salaries comparing to the labor market almost always indicates the leadership status of this company. As a rule, the best industry professionals work for such companies. It is difficult to find a company that would be a leader in its industry, while offering meager salaries.
When and Why a Manager Must Revise His/Her Subordinates’ Salaries?
There are three main reasons why a manager should regularly review salaries of his/her employees:
- Inspiration. Because it inspires them for professional and personal development.
- Feedback. Because in this way you, as a manager, provide feedback to subordinates, so their development is assessed properly and encouraged by management;
- Control. Because it allows a manager to control and direct professional development of his/her subordinates.
A clear, understandable and transparent opportunity for salary increase does not leave room for manipulation both by employer and by manager. That is why every employee in your company should know:
- when his/her salary can be revised;
- what is the possible amount of increase or decrease in his/her salary;
- under what conditions his/her salary may be revised.
Annually — optimal for most companies.¹
Why this approach is competent:
What is the possible amount of increase or decrease
Depending on various factors, I recommend setting this amount in the range of 5-15%. The exact percentage must be specified in the company's salary policy and should be known to both employee and manager.
IMPORTANT: This percentage is not negotiable during the annual salary review.
The amount of increase or decrease in salary:
|Under what conditions||Conditions must be:
¹ There may be exceptions that are affected by various factors, for example: the company's planning cycle, production cycle, specificities of the market or the industry in which the company operates, and others.
I strongly recommend do not revise salary in such cases:
- For the period that has already ended.
- For an already agreed future period (within the agreed planning horizon, usually a year).
- When employee results grow. This is, actually, a particular case that belongs to the previous paragraph. But I decided to separate it, because it is a typical example of managerial incompetence. It is a quite common practice when a previously agreed and approved salary amount is reduced (by changing, for example, a remuneration formula or a commission’s percentage), since employee work results have exceeded initial goals approved by a manager. And now the subordinate “earns too much” on the manager's opinion.
Should Employees Know Salaries of Each Other?
Did you pay attention to the fact that most companies do not publish salaries in their vacancies? Moreover, majority of companies prohibit their employees to disclose the size of their salaries and even generally discuss their salaries? As a rule employees forced to sign a Non-Disclosure Agreement. And in the event of disclosure, the employee is usually dismissed.
Probably the most popular reason by which top management justifies the necessity to conceal salary amounts: “It gives us an opportunity to squeeze a newcomer for smaller salary, so we save on the wage fund, which is the notable part of our company expenses.” Excluding, of course, the answer: “This is our trade secret.” Certainly, there is no rational explanation for such a secret.
In my mind keeping salaries in a secret is a typical demonstration of managerial incompetence, as well as not understanding human psychology and the nature of motivation.
Why keeping salaries in a secret does not make any sense?
- Because it does not work. Salary amounts become known to employees after some time working at a company. This is the human nature: what is known to more than one person is no longer a secret. Even much more sensitive government information with very limited access and extremely strong secrecy (including long prison terms for disclosure) is obviously impossible to keep in a secret, as experience shows. What to say about salaries amounts in a commercial company? Especially when it comes to salaries in your own department, yeah?
- Because for most commercial companies there is no rational need in it.
- Because a company deprives itself of the advantages and benefits (described below) of transparency and openness.
Why should a salary scale and structure be kept transparent?
- A transparent and understandable pay hierarchy in a company motivates employees to develop and grow within the organization, following career vision and a clear salary roadmap.
- There will be less unethical manipulations from management and employees.
- Less tension inside working teams and departments, because employees receive same salaries on the same positions (with the same functionality and area of responsibility).
- Honesty in relation to employees.
- There will be no objective injustice in paying for work.
- The company declares its positioning to the market.
- The company demonstrates openness to the market and attracts specialists in accordance with its positioning.
So, in this article I shared with you some tips on how to improve the motivation of your subordinates by building a competent salary policy in your company. I'm sure that following these tips will make your company more progressive and attractive on the labor market, which in turn will help you entice better qualified professionals. And thus you will get a competitive advantage.
I believe I also managed to convince you that management consulting may not be cumbersome, as it is considered to be. As you can see, management consulting can be simple and effective. And most importantly - useful for companies of any size and stage of development.
Of course, in the format of a short free article, that promotes competent people management, I cannot describe all the nuances encountered in practice. In addition, each company has its own individual characteristics that need to be considered when developing a salary policy. Therefore, if you want to get a comprehensive consultation, taking into account specifics of your company, I invite you to order my executive coaching.
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