Strategically Appropriate Compensation

What are you worth? Who says so?

I’m reminded of a scene from the great movie, Midnight Cowboy, the story of a young man, Joe Buck, who goes to New York from Texas to make a lot of dough as a male hooker.

One of Joe’s first clients was a woman named Cass (Sylvia Miles) who didn’t realize she was a client. As she was about to leave her apartment, Joe attempts to get paid for his sexual services. Astonished, Cass freaks out and shouts:

SM-10-sylviamiles-midnightcowboy-te“You were gonna ask me for money? Who the hell do you think you’re dealing with, some old slut on 42nd Street? In case you didn’t happen to notice it, ya, you big Texas longhorn bull, I’m one hellavah gorgeous chick! You heard it. You’re twenty-eight years old. You think you can come up here and pull that kind of crap up here? Well you’re out of your mind. I could kill you with my bare hands. Will you get out of here!”

There you have it – compensation in a nutshell. Well, maybe there are some subtle differences, but it boils down to an exchange of a value proposition. For an organization, compensation is a strategy to attract and retain the best talent for the role. For an individual, they’re pursuing happiness.

Some may feel they’re underpaid – and under-appreciated since it’s not always about the money but rather what the money represents – while others know they’re on a bit of a gravy train and keep their mouth shut. But it’s all rather subjective, isn’t it?

Methodologies usually involve setting compensation levels (base salary/wages, bonus, benefits, pension) against the “market” and determining which percentile you want to position your organization at. Do you want the creme de la creme and pay base salary at the 99th percentile, or will something around the middle be adequate? Does it apply to everyone or just those with hard-to-find skills that will either make or break your company?

Of course, determining what constitutes the right “market” can be tricky and divisive. Are you competing with others in the same geography, or industry, or skill set? Are you a non-profit or a for-profit corporation? Where do you have to go to find your talent?

Also, finding the right balance of fixed cash (base salary) and variable (performance bonus) can be problematic but necessary if you want everyone to share in the risks and rewards of running the organization. What will your Chief Financial Officer vote for? Who wouldn’t like a guaranteed base salary with no risk? Actually, there are lots who want to go above and beyond and be able to be financially rewarded for the effort rather than coasting along.

In any case, the bottom line is: choose your compensation methodology and stick to it if you want to avoid verbal outbursts about perceived unfairness. There’s nothing quite like the subject of compensation to put people into a bad mood. Decide which other organizations and roles are appropriate comparators.

All of this is quite strategic. People costs typically form one of the largest expense items in a budget. If they – people – are as important as grandiose statements suggest, then landing on a compensation strategy and methodology will go a long way towards transparency and fairness, according to the competitive market. They may not like it, but they can understand it and the logic behind it. If ultimately it’s not working, people will make a decision that’s best for themselves: stay or go.

Remember: you can’t pull that kind of crap up here.

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