Any employee who is with your organization for a while will surely require multiple compensation conversations; at least during the dreaded annual performance review! This methodology – done right – will eliminate all the angst and emotion generally associated with all compensation meetings.
The rationale for an “Employee Value Ladder” is that all employees have to add more value in order to receive more compensation. For this methodology to be effective, the value must be added in areas that are important to the customer – as delivered by your firm. Added value for which the customer will pay.
What will your customer value?
Here’s an example for you to consider. This is a story told by my former partner, Scott Kurish about one of his clients.
The client manufactured complete brooms that were shipped to his customer. In one of the final manufacturing steps, his employees polished the steel broom handle to a very smooth, chrome-like reflective surface. The owner was justifiably proud of the fine work done by his employees and may well have paid his employees a higher wage due to the nature of the fine finish work.
The customer, however, didn’t care at all for the polished broom handles. Not one bit.
As part of the intake process, the customer immediately covered the beautiful, polished broom handle with a full-length rubber sleeve which made the broom more usable for his customers. The additional polishing done by the original manufacturing firm was Muda (or ‘waste’). Worse than that, it was unnecessary waste that cost real money for the manufacturer and delayed the delivery time of the product.
The bottom level of the value ladder
It may be obvious that the bottom rung of the value ladder of compensation equals the pay rate for an employee with entry-level (demonstrated) skills. And so it is. The word “demonstrated” is the key.
At the tender age of 27, I got to hire my first employee: a receptionist/bookkeeper/office manager. I asked all the applicants if they could answer the telephone professionally, greet visitors to our office pleasantly, add and subtract numbers accurately, and, generally, keep the flow of office work humming along. All said yes. Those were the entry level requirements.
The woman I hired could not do any of it. In fact, she barely came to work. Since I ran a federally-licensed business (radio station licensed by the Federal Communications Commission) it was mandated by my boss that I had to hire a minority candidate. One, I soon learned, that would be nearly impossible to fire – for any reason. But, I got it done.
90 days later, I subjected all the new candidates to a full battery of testing to be sure they could actually do the work. The person I hired was a splendid employee for years!
Let’s take a closer look at an entry-level position.
What are the minimum requirements for your entry-level receptionist?
- Be able to type at a certain level of speed and accuracy;
- Have a professional, neat appearance;
- Can handle single incoming phone calls in sequential order;
- Can reliably transfer calls to the requested party;
- And has a record of dependability in previous positions.
The above bullet points are just examples. Your points will probably be much longer and more detailed. It is – and will be – very important that these requirements are written down as part of your human resources file. This is not the kind of list you want to have to come up with on the spot. Worse, you really don’t want to have to make this all up every time. Do you? Oh, and the starting pay is $26,000.
How does your employee move up the ladder?
The employee moves up the ladder, rung-by-rung, as he or she is able to perform more activities that drive your company’s value proposition offered to your customers. If you want to make your business life a lot easier, you’ll need to define the job, the tasks, and responsibilities, the actual rungs of the ladder and money.
Yep. This is the hard work.
The grunt work.
The “toil away in silence” work.
I would say this may be some of the hardest work that an owner or manager can do. You’ll be outlining real work tasks and responsibilities that are valued by your marketplace in the real world!
As hard as it is, this process will help you avoid simply reacting to an employee’s request for a raise. You’ll be setting baseline metrics that will serve you in any compensation discussion for the foreseeable future.
For out hypothetical receptionist, maybe a step up in ability is a capability to answer multiple incoming phone calls, properly prioritize each, and never lose track of who is on what line. Maybe he or she can demonstrate a real “ownership” mentality during calls so as to be able to track down an immediate answer for your clients; or an ability to consistently direct incoming calls to the proper party.
How many rungs on the value ladder?
Although the exact number of rungs on the ladder is, ultimately, up to you, I’d recommend no more than 3 or 4 for that kind of position.
That will be hard enough.
That’s because, in addition to listing abilities and competencies for each rung up the value ladder, each rung will also have corresponding compensation levels.
So your value ladder will have an entry-level rung and 2 or 3 additional rungs. The abilities demonstrated for each level will be listed for each rung along with the matching money to be paid.
It’s also critical to note that every value ladder has a predetermined top tier level at which the position would “max out” in value/comp. To illustrate, you really can’t afford to pay a standard receptionist $150,000 a year. Why? Because the marketplace will not support that kind of number.
There is no scenario which I know wherein a normal receptionist role would be rewarded by the marketplace at that level. Paying that kind of money for that position would seriously hurt your competitive position – in the marketplace. Make that kind of mistake in either compensation or in materials cost will – ultimately – put you out of business. It’s that simple.
When do you discuss the “value ladder?”
The absolute best time to discuss your company’s philosophies regarding compensation is before the new applicant is actually hired. (The second best time is today.)
You can simply start the discussion by introducing your compensation methodology (see the beginning of this article), For the position which you are filling, walk the applicant through the rungs on the value ladder. Give your interview a full picture of work that will need to be done and the compensation associated with each level. And highlight the top-out in the wages for the position.
I’d recommend you create a compensation chart for each position and make it look really nice and formal. If you need help, have someone on your staff look over the format and how it’s all laid out. These compensation charts – totally sourced appropriately – will become master documents in your human resources files.
I’d also allow staff members or applicants to review the document and take notes in your office. Nobody gets a copy. Mark all papers as “Confidential” and “Proprietary Work Product.” You might also require that anybody who sees these documents also sign a non-disclosure clause relating to them.