ALM #045: Let's talk about Salaries
Tips for Compensation Planners
Hey there 👋🏼
In today’s email:
Compa Ratio: Meet the target.
A Few Tips: Being a Comp Planner isn’t easy
Post of the week: 5-star on social media.
COMPA RATIO
We’re at that stage of the year that you’re either completing the End of Year Performance Review or have just completed it. And the last stage is the one that is the most nerve-wracking: Compensation Review.
Your teams will find out how they’ll deal with all the macroeconomic instabilities the world is currently dealing with: war, inflation, high-interest rates, etc.
If you’ve been following the newsletter, you probably already know I’m a big fan of The Pragmatic Engineer. A couple of weeks ago, Gergely wrote an issue on the expected compensation increases for this End of Year cycle. Please dive into the article below, but one of the main takeaways is that most companies will give out raises below the inflation.
If you want to see your country's inflation rate, please check TradingEconomics.
From the get-go, you can see a major difference between the bullish market and compensation cycles we witnessed in previous years.
It’s interesting to see this data when most people expect to match the current inflation to be able to deal with the price increases in their day-to-day livelihood.
Some of you are Compensation Planners - the ones that get to decide how the budget for raises is distributed in your team. For those of you who are in this position, get ready for a bumpy ride.
Expectations are some of the most challenging barriers to overcome, and here I want to highlight a method to assess the state of your team against key metrics.
Enter the Comparative Ratio, aka Compa Ratio.
The idea behind this ratio is to position each individual from your team against a well-defined target.
Many companies, particularly larger ones, have salary bands - pay ranges defined by the company per role. Usually, you use the Compa Ratio to compare the salary of an individual against the middle of the salary band for that position:
This will give you a percentage of where you will position each team member.
The possible outcomes are:
< 100% → Salary is below target.
= 100% → The target was achieved.
> 100% → The salary is above target.
This might seem like a straightforward ratio, but it’s a great way to create a layout of your team, understand where you need to invest, and use data to guide you through the decision-making process.
While you won’t use the Compa Ratio to make decisions exclusively, it’s an incredible way to generate quick ideas.
A FEW TIPS
I want to add some quick notes for all of you Compensation Planners.
Keep Emotions Out
This is one of the most valuable pieces of advice I can give, and I can’t stress enough how important this is.
As your team grows, you will have more and more singularities. If you let them cloud your judgement, you will reach a set of very hard-to-justify salary increases.
Data is Key
Once you set aside emotions, focus on data-driven decisions.
I usually start by ignoring any budgets, and try to lay out the landscape of my team, understand how the compa ratios are distributed, when was the last raise, when was the entry date, etc.
In my mind, there is no such thing as data overload. Not when it comes to something as important as this.
Tell a story
To me, it’s essential to be able to tell a consistent story that explains your thought process and that, from your macro vision, is very clear and aligned with your company's priorities.
Having data to support your decisions and not running away from your route will strengthen your story.
What if it leaked?
A couple of years ago, someone told me that the best way to think about salaries is to plan for the salary sheet of your team to leak and see if you’re ready to justify everything.
If you’re comfortable with what that sheet states, you can justify your decisions (again supported with data), and you know deep down that you fought for your team as a whole.
You’re not going to please everyone
This might seem obvious, but when you’re looking at that sheet, you want to be that fantastic boss everyone loves because you’re awarding amazing raises to everyone.
While you might live in an environment where this is possible, most managers don’t.
This is your job, your responsibility. You’re not supposed to be a friend. Your goal is to be fair and focus on the company's priorities.
This is the time of year when we go from best to worse. It’s a phase, and yes, it blows over.
You can do it!
POST OF THE WEEK
If there is something that you, as a team leader, will continuously work on is Team Communication.
Your team will go through several phases, some absolutely brilliant while others where you don’t understand why messages are not going through.
Keep working with your team, and clarify why you focus on a particular topic.
Use retrospectives, use transparency and focus, and above all, make it everyone’s job to keep fighting for a better team.
