Assessing Value: Example of a Compensation System

ValueA key element of the rise of human resources as a profession and an organizational partner relates to adding value.  The more we can turn our scarce resources into outcomes of greater value, the more we benefit the organization.  Put simply, value arises from putting less into a process than you get out.  Moreover, success aligns closely with how well we maximize our resources to produce value on a consistent value.  The human resource function possesses the capability to add value in two different ways: utilization of resources directly allocated to the function as well as advising the organization on how its overall resources can best be maximized.

Most of us seek to maximize value all of the time.  In our personal and professional lives, we calculate if a potential cost or investment equals what we receive in return.  Think about the last time you took your significant other out to dinner.  When you weighed the different restaurant options, you probably  compared location, atmosphere or ambiance, food quality, and service.  You might have considered a pricy, yet fancy option that has nice lighting, cozy corners, fantastic service, and gourmet food.  The type of place you leave after the meal not just satisfied, but impressed.  Alternatively,  a more moderately priced option might be more plain, but leave more money for other things.  As part of making a decision, we attempt to estimate the relative value of each.   In other words, would the extra comforts and enjoyment equal the additional cost or would the additional cost be better spent elsewhere?

This same type of valuing should be utilized when making decisions on the type of systems we utilize in our human resource functions.  In an organization, the primary method of assessing value of a system is how well it supports desired outcomes.  Lets look at an example.  Compensation systems or how we reward monetarily plays an important role in every organization.  Employees come to work for a variety of reasons, but take home pay represents one of those elementary components of the employee-employer relationship.

So, what should we assess our compensation systems with? There are three core criteria for assessing comp and class systems:

  • First, a system should be judged by how well it enables an organization to meet its strategic goals.  The most appropriate system aligns with the organization’s strategic goals and objectives and reinforces the associated outcomes.  Does your current compensation align with your organization’s strategic goals?
  • Secondly, the ideal system will encourage desired behaviors among employees within the organization.  In other words, the system communicates what is important to employees and sets the standard for behavior, activity, and interaction.  If an organization wants to perform at a high level, it needs a system that supports those types of behaviors and outcomes.   Conversely, if an organization cares little about performance, the system needs to support minimum standards or uniformity.  What does your organization communicate? What behaviors does it encourage among employees?
  • Finally, the ideal system will communicate to the market place the type of employer the organization is, so that potential employees can assess the match between themselves and the organization.  High potential as well as capability candidates seek organizations that match their goals.  The system demonstrates to a potential hire what is important to the organization. What are you communicating to the market? How is it impacting your ability to recruit desirable candidates?

 

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