Almost every compensation consultant you come across talks off how it’s linked to business strategy. As much as there is merit in the statement, far too many compensation consultants are not very clear about how to establish this linkage. Not too many of them have clear answers of how will compensation strategy with a Business Strategy A be different from the one with a Business Strategy B.
Anyways while that is a whole topic of discussion in itself over the years I have found interesting learning’s with respect to compensation increases. Irrespective of how overall industry is moving you can move at a much faster rate by constant relook at the business model. In my experience whoever has understood the concept of how to manage aggressive rate of compensation increases, automatically picks up a lot of business perspectives as well and infact becomes a better business manager.
The basic premise is very simple and very powerful. High compensation increases boil down to increasing Revenue Per Employee (RPE). End of the day business must make more money to distribute more money…a stable state business or a stable RPE will only be able to afford industry driven compensation increases. For anything more you have to constantly increase the worth of every employee.
Some of the strategies that help in managing aggressive compensation rates are:
· Increase RPE
· Constantly increase product/service price and its value add
· Push less experienced (and hence cheaper) resources to manage bigger tasks
· Create process efficiencies at every milestone to manage same volume of business with lesser people
· Look for standardization, technology and other tools for freeing up resource bandwidth for more business
Till the day a business can keep creating more per person funds in the business there is no time limit to when you can manage aggressive compensation increases. I have witnessed in industries where average increments are to the tune of 8-10%, organizations who understand this connect better manage 30-50% for long durations.
Ofcourse at some point they will come to s stage of consolidation….but what the hell this is just one way of doing this. If this can survive you for a cycle of 3-4 years, by that time you would have created significant upside for the business and individuals. Post that there are other interesting strategies to deploy.
As much as this may sound easy to do in first read, mind you carrying this out is not so easy. Good part is most of the difficulties are in the mindset and our usual business sense. Usual mindset infact works almost opposite where one looks at decisions like higher number of people (to have more power, represented in this case by number of reportees), more senior people (which makes it easier to manage business).
This strategy is a complete opposite of the traditional way of managing business J
~~Rohit~~
Rohit Jain