I Get Money: Compensation Strategies Don't Just Happen

Compensation strategies vary, but cash is still required to make it work. With businesses owing trillions in debt though credit lines, leveraged financing, SBA lending and more, the flexibility in simply adding 3-6% to compensation becomes more difficult to guarantee.

There are a few ways for additional monies to be secured. Again, the route of credit expansion remains the most popular. Adding debt to an already encumbered business, with small businesses (100 or less employees) averaging over $650,000 in SBA loans, has proven to be difficult in this recessionary environment. With almost 600,000 businesses closing each year, bankruptcy lingers for years with these business owners. For those publicly traded companies, shareholder and board influence continues to offset debt with massive layoffs, by percentage. Debt is being managed and may not allow for additional extensions by current creditors.

We are also seeing a hike in the costs of goods and services. What once was a Denny’s Grand Slam breakfast for $3.99 now sells for $32 in some establishments (with many Denny’s shuttered). Curtailed consumerism is happening is a variety of B2C environments; just look at the number of retail and restaurant closures in the news lately. Some hospital systems in larger metropolitan areas have merged, allowing for the closure of some facilities, cutting back on physical plant and staffing costs (even unbridled hospital billing is hitting a threshold in some markets) Manufacturing facilities have gone from three shifts to two in response to reduced inventory demands. This is not true for all manufacturing or distribution organizations, but it is worth noting the ripple effect of rising prices.

As managers, executive leaders and human resources practitioners, we must work hard to work within constructs. What are our limited resources? How do we best support the needs of our talent and handle the fiscal responsibilities of the organization? There is no silver bullet.

Having spent time with compensation experts this past week, the strain on their “magic” was palpable. While many professionals in human resources have moved on since the pandemic, those who focus on benefits and compensation need to be valued and cultivated. There are not many running to become the next compensation expert. Our compensation staff are not magicians – math can only math so much.

When is the last time your team has had a real discussion about compensation strategy? Have you talked through pay for performance and merit-based systems? Do you have the people analytics to help support a position? What about pay equity? Is it a nice idea of one that is being addressed? What is happening with talent acquisition and pay bands? Are you competitive in pay and are you researching those benchmarks? These questions will likely have multiple sub-questions. It’s a process.

Cash is king in a world of debt. How financially sound are the decisions for compensation in your organizations? And is there data to support it? Getting money from Finance for your budgeted increase is not easy, and it should be a metrics-based process. There is money, to be sure, but where it is and how it is to be used is where we come in. Let’s build and affirm comp structures.