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How to Manage Compensation

COVID-19 has turned HR processes on their head and companies are having to adjust quickly. As a result, companies need to revisit compensation programs to prepare for the future by reassessing job levels, reviewing spans of control, and planning for compensation reviews.

1. Job Leveling: Jobs are not the same going forward

The pandemic forced companies to restructure operating models and in some cases, pivot their business in order to better position themselves for recovery. Teams have been combined, new lines of business have been established, and layoffs occurred - all resulting in role expectations expanding.

Job leveling ensures that job structures align with business needs and expectations.

It is synonymous with career paths and allows companies to establish expectations for promotions.

For many organizations, “lack of growth opportunity” is consistently the top reason why employees leave. Communicating career paths for your employees will improve engagement and retention. Categorizing each role into job levels also helps identify gaps in the workforce and establish consistent titles across the organization.

Definitions for each job level should incorporate level criteria and expectations of the job that managers can communicate to employees. Level criteria include things like organizational impact, work latitude, responsibility, and typical years of experience.

It will be easier to determine who should be promoted with clear job levels, and how to fairly compensate employees for their latest roles and responsibilities. Leaders can then reevaluate existing positions and identify new roles needed that align with the company’s business strategies going forward.

2. Span of Control: Organizational structure has changed

The span of control is the headcount reporting to a leader; it’s important to assess annually so you can calibrate managers’ scope and ensure responsibilities are being managed effectively. Each functional area’s span of control should be reviewed after organizational restructuring and mergers or acquisitions for optimal productivity and efficiency.

ratio of up to 1:10 (manager to employees) was typical in companies before COVID-19, but this ratio may broaden with time. Managers with direct reports who have very similar roles can have a wider span of control. However, less experienced managers should start out with fewer direct reports (a narrow span of control).

When reviewing spans of control within each department, look for trends and gaps.

Span of control. Managers with 10 or more direct reports may result in more advancement and careeer progression for individual contributors, fewer managers in the organization (resulting in better communication throughout the organization, and a potential for managers being overloaded. Managers with less than 10 direct reports may result in many levels of management with less direct reports, can encourage empowerment in employees, and may lead to micromanagement.

CultivatePeople recently conducted a span of control study for an Insight Partners company. The results showed the Senior Manager and Senior Director job levels are underutilized. This gap resulted in the organization leaning heavily on the Manager and Director levels.

Senior Manager and Senior Director job levels should be leveraged as a career path progression and promotion opportunity. Many organizations skip this level by promoting someone from Manager straight to Director and then find employees not meeting the expectations of their new role.

Be proactive and regularly assess not only your organization's span of control but the appropriate compensation that should align with each leader's scope and impact on the organization.

3. Compensation Review: Compensation Ranges Need Updating

As many companies increase their remote workforce due to COVID-19, they can open their talent search nationally, or even globally. Revisit compensation structures to incorporate new remote compensation strategies.

Before COVID-19, many companies were paying large premiums to align with the geographic differential of major tech hubs. Your market is no longer restricted to an expensive hub when you can hire from anywhere.

As companies start to look for more talent in the suburbs like Boulder and Austin, the result will likely be lower geographic differentials in cities like San Francisco and New York. The salaries offered in San Francisco may neutralize the U.S. national going rate.

As a result, companies will leverage variable pay like bonuses and equity grant opportunities more. Leveraging incentive payouts aligned to significant contributions versus increases to base salaries limits recurring financial risk to the company. When cash budgets are tight, equity is a good retention tool to leverage for top performers.

What now?

Reset and reimagine your compensation philosophy to align with the changing business. Reevaluate the organizational structure and employee compensation to set your company up as we move forward from the pandemic.

Compensation is the biggest expense and investment that companies undertake in support of their mission. As your company positions itself to recover from the pandemic, does your compensation strategy align with your new business strategy?

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#Compensation101 #SpanofControl #CompensationReview