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BASE PAY

Earlier, we said that most American workers no longer saw a direct relationship between their base pay and their performance.  In fact, for most workers there is very little relationship, since most workers in the same job get paid about the same. When an employee doesn't see a relationship between his or her behavior and an offered reward, the reward is not motivating. As a result, for most employees, their base pay is not motivating. Sure, if you offer an employee a 20 percent increase provided his performance improves, his performance might improve until he gets the raise. However, once he finally gets the raise, don't expect his higher level of performance to continue. How many times have you seen average or just "okay" performers blossom just before their annual review only to return to their old selves once the review was over?

If the base wages you pay employees don't motivate them to high performance, what do you get for the wages you are paying?  You get them to come to work for you (to show up most of the time) and you get minimum performance (high enough so they will not be fired). It's sad, but that is all you can expect.  Since that is all you can expect, you should adjust your base compensation strategy accordingly.  

The base wages you pay and annual increase you offer should be the minimum you must pay to attract and retain the basic talent you need. Your objective in setting base pay rates should be to compete in your labor market for employees. You must offer base compensation that is equal to or almost equal to that offered by competing businesses in your geographical area. You don't want lo be the highest-paying employer, since high pay (base pay) is not going to guarantee you high performance. Neither do you want to be the lowest-paying employer, since you want to be able to attract the basic talent you need. It is much better to be near, but slightly below, the average for your area. How do you determine the average? First, you should clearly define the job you are filling.  What are the education, training, skill, and other requirements for the various jobs you offer? Then check salary surveys for your area. Thousands of such surveys are conducted throughout the U.S. each year. To find a survey covering your type of business and your area, try contacting the following:
Chances are, one or more of these sources can lead you to a recent salary survey that is right for you. Also, check published reports of salaries in trade magazines, newsletters, and in your local papers.

When you locate a survey, obtain a copy and check to see what comparable jobs are paying. You should note not only the average pay, but also the low and the high pay for that job in each survey.  Also, check the age and tenure of employees and turnover data for companies included in the survey. Age and tenure information is important since companies with a younger or newer work force may be paying lower rates because they have many people in entry level positions. Turnover data is important because a high turnover figure might signal that these companies are losing employees due to low wages. Finally, check more than one survey. Surveys vary greatly in accuracy, number of companies covered, etc. Some are notorious for undervaluing jobs, while others go to the opposite extreme. Use these surveys as a guide only.  Just because the wage data are reported to the nearest penny doesn't mean they are accurate.

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