Is your compensation hierarchy flexible enough?
Posted by Anadi Upadhyaya on December 13, 2011
Deciding on who will get involved in the compensation allocation process varies from organization to organization and there is no fixed formula or hierarchy which suites all of them.
We usually have leads in organization structures to provide work direction to others. However, you may not want them to be included in compensation decisions. Hence, existing supervisory or position hierarchies may not work as your compensation allocation hierarchy for various reasons.
Who will get what in an employee stock options plan is decided by one set of people, usually middle or higher management, whereas how much performance bonus needs to be given to an employee is decided by a different set of people, usually immediate manager or lower management. Different types of the compensation decisions are taken by different people in management chain and it’s not your immediate manager who will always call the shots.
It’s likely that once you start allocating compensation to your people, you will figure out that you don’t have enough information to allocate compensation for some people and it would be better if a better suited manager decided their compensation allocation. You definitely cannot afford to create a new hierarchy from scratch in this scenario as the system is already live.
To summarize, a fully flexible compensation hierarchy is very much needed to meet your business requirements.
Does your compensation system provide this flexibility?
A checklist which can help you to perform a readiness check on the flexibility of your compensation system includes:
- Ability to support a compensation hierarchy similar to or different from your existing HR hierarchy.
- Ability to further customize the compensation hierarchy by including or excluding identified people or roles.
- Ability to realign people within the customized compensation hierarchy on a real-time basis with zero downtime.
- Ability to have different customized compensation hierarchies for different types of compensation.
Compensation is a fundamental reason people work and the above checklist will help you to put the right compensation distribution responsibility into the right hands, which will result in a robust compensation system.