Surveys show that people are most likely to leave an organization because of what they view as poor management or poor leadership. This may be true, but we seldom see a concerted effort to retain an individual with critical talent by replacing the supervisor, manager, or other leader they work for and object to. Rather, the “solution” is most commonly to offer more money to keep the employee. We suggest that before you conclude that your organization has a management problem (or both a management and a pay problem), there are some diagnostics you can perform to evaluate your pay system right now. There are probably also ways you can evaluate the management system now, but our interest here is pay—because that is most often the reason given for leaving even if the actual issue may be management.

Here are the clues to determine if pay needs a top talent tune-up:

• Your organization’s best people are leaving: And those whom your organization could afford to lose are staying. When you review the situation, the top-performing people are NOT paid more than average performers.

 

• Your organization is making last ditch stands: Managers are trying to save employees on the way out the door. Your organization is offering needed employees more money after they tender their resignation.

 

• Hiring the best talent is tough: Your organization must “overpay” new hires compared to what current excellent people are making. It is more profitable for employees to quit and then get rehired at a higher pay level.

 

• Competitors are hiring the best people your organization wants: You seem to match offers but are still losing out. Your organization is not in the race for the best people in the market—they are going elsewhere.
  

None of these are that difficult to explore, and the answer may be telling in terms of where pay fits in your organization as a tool of retention or as a weapon for defection. It is in the data—few companies, however, review this as part of a pay evaluation process.

Download your company’s actual total pay on an employee-by-employee basis on a computer. Then determine the bottom-line ranking of the workforce by employee based on individual performance or sustained value to the business over time. If you are not able to do this easily, that will tell you something about what may be dysfunctional in your organization’s pay-for-performance scheme. Here is what you do:

1. Rank employees in order of pay from top to bottom.

 

2. Rank employees from top to bottom in terms of performance or value to the business.

 

Then see what the relationship is between employee pay and performance—all things aside, are the high performers in the top 50% of the pay ranking or not, particularly in comparison to other jobs at their same organizational level? There are a lot of reasons for people’s pay being what it is, but without doubt the top performers should be paid at least in the top 50% of your workforce. The obvious solution is to implement a plan to more correctly relate pay to performance. The workforce knows whether pay is related to performance even if the company may not—they know who the top-performing people are and pay is seldom totally secret.

If the organization decides to buy someone back, does the resulting pay better align the employee’s pay to their performance ranking or not? Where in the ranking of pay and performance did the individual fall both before and after the buy back? If pay is really aligned with performance, are talented people leaving or staying? And when you need to pay more for someone outside the company than someone inside, where does the internal employee rank in the relationship between pay and performance? Although you may hire talent for more than someone who is ranked in the lower 50% of the workforce, it is another issue to hire talent for more pay than your high performers at the same organizational level.

Also, where do you pre-rank someone you want to hire compared to others in your company? Are they projected to be in the top 50% of performers or in the bottom 50%? You would need to question hiring anyone projected to be in the lower half of the performance continuum, but the pay-comparison process is worth doing to assemble an offer that makes sense—both internally and externally in a talent-scarce market for excellent people.

Not the Whole Story but a Start

Clearly this is just a place to start the diagnosis but not how to finish it. The first challenge is finding out how pay relates to talent value in your business. The second challenge is major, but much more important—fixing the relationship between pay and performance.

PATRICIA K. ZINGHEIM and JAY R. SCHUSTER are partners in Schuster-Zingheim and Associates, Inc., a compensation and total rewards consulting firm founded in 1985 in Los Angeles. They advise clients on incentives/variable pay, base pay management, performance management, total rewards strategies, executive and sales compensation, and recognition. They received WorldatWork’s 2006 Keystone Award, the highest honor in the compensation, benefits and total rewards profession. They are the authors of the books, High-Performance Pay: Fast Forward to Business Success (January 2007 publication), Pay People Right! and The New Pay. Their Website is www.paypeopleright.com.