Comp Guide For a Small Company: Time Now to Standardize Practices

Note: This is the final article of a 4-part series on compensation practices for small companies. In this series Margaret O’Hanlon shows how a small company typically deals with compensation, discussing each of a few key practices and what problems these may create as the company grows. She offers her insights on how to improve these practices to avoid difficulties as the company expands from under 100 employees to 1,000. Links to the previous sections are here.

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Once your company has grown past 500 employees, you are on your way to becoming a mid-sized company. Suddenly the company size becomes a game changer for everyone, including human resources. One morning you look over your cubicle wall and realize that you don’t really know many of the new employees. You can name them, for sure, and you might know what they are working on, but you haven’t been able to track their progress the way you did with the first few hundred employees.

When we think about operations and logistics, human resources doesn’t always come to mind, but as you grow past 500 employees, it becomes logistically impossible to follow many of the practices you relied on earlier. After all, your main goal in the early days was to move fast and respond to all requests by the end of the day. By the time you realize you don’t have everyone’s email address memorized, it is time to invest in organizing practices and systems.

The Healthy Gadgets Example

Case background: Let’s take another look at Healthy Gadgets, the medical device company whose growth we’ve been tracking through the series. The employee count is up to 843. New products are in the pipeline, so they’re  hiring engineers and scientists. But they’re still studying how to deploy the sales force, so while the number of salespeople hasn’t taken off yet, sales needs more of HR’s attention than some other departments.

HR operating context: Every department is working on developing reliable SOPs. Human resources knows it needs to make the time to do the same. With the executive group pressing for new business opportunities and markets, HR needs to be able to shift focus from putting out fires to designing manager-led practices so HR can be freed up to work on strategic issues. With HR practices being distributed over a larger company, consistency is becoming HR’s new deliverable.

The size of the HR staff needs to keep up with manager demands. And it’s important to note that while many HR practitioners have participated in compensation projects, Healthy Gadgets needs an experienced specialist to help it address complexities — especially in sales.

Salary administration practices

Salary structure: There’s no getting around it. It’s time for Healthy Gadgets to create a salary structure — or be crushed under the weight of 843 different salaries and possibly as many titles. Competitive salaries can be addressed one by one, I suppose, but internal equity issues will only become a more pressing issue as the company grows. Implementing a salary structure will enable you to address internal equity by identifying job value to the company and by grouping jobs into salary ranges.

In salary administration, being “consistent” translates to acting “systematically,” in other words, following the same practices in every part of the company. Healthy Gadgets’ HR staff institutes a system that, they communicate, “We’ll never stray from” — no matter who is making the pay decisions: HR, execs or managers. And this system begins with a compensation philosophy statement and policies so everyone knows how compensation judgments are made and why.

Bonus: Healthy Gadgets’ business model has shifted from “Let’s get going” to “Grow, grow, grow.” At this point in the company’s evolution, executives have a clear idea of what goals have to be met to keep the company’s reputation healthy. Healthy Gadgets will demonstrate that it is serious about success in the marketplace by connecting the bonus plan design to these goals.

When high growth is key to a company, leaders may ignore the “means” as they rush to the “ends” they are expected to deliver, creating employee relations issues and weakening the culture. This can be avoided by including both company goals and division goals (or even department goals, if available and sound) in the bonus plan design.

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Job titles: A cautionary note on titling for Healthy Gadgets: It will be that much more difficult to create a titling procedure if you wait until you have, let’s say 1,500 different titles. Yes, making titling systematic is a nitpicky sort of project, but the clarity it offers pays dividends. Experience has shown that the managers who crabbed about the time they needed to spend on this kind of project will inevitably become believers, especially if the titles help them address their employees’ career development questions.

Payroll provider: By this point in its growth, Healthy Gadgets has put up with repeated service lapses by the payroll provider. Like most HR administration service providers, theirs runs on a very, very small margin that allows for limited customer service and next to no customization. Under these circumstances, a certain level of dissatisfaction is inevitable.

If your company is this size, make sure you’ve talked to other users before you shift to a new provider, so you can weigh what you’re getting into. It’s important to recognize that churning providers may offer you and your employees limited or no relief, as payroll administrators all work on the same business model. In the meantime, you’ll be wasting time and money reformatting databases for the administrators’ use.

Remember that, given your size, it’s almost time to consider a more-full service provider like Workday. Instead of putting the decision off as long as you can by fixating on the cost, recognize the time/value savings you’ll  be able to achieve if you plan ahead. Get the lowdown from other users so you don’t make the same missteps that other companies have made during implementation.

This article was first published on Compensation Cafe.

Here are the other parts of this series:

  1. A Small Company Guide to Growing a Healthy Compensation Program
  2. Comp Guide for a Small Company: Why You Need a Salary Survey

  3. Comp Guide for a Small Company: Make Your DIY Communications Effective

Margaret O'Hanlon is founder and principal of re:Think Consulting. She has decades of experience teaming up with clients to ensure great HR ideas deliver valuable business results. She has worked with early-phase and Fortune 500 companies, as well as universities, non-profits and local firms. Before she founded re:Think Consulting, Margaret was an Principal in Total Rewards Communications with Towers Perrin. Contact her at mohanlon@rethinkconsulting.com.

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