Base Pay – What Is It Good For?

 In Compensation, Performance, Retention

As HR professionals we have any number of tools we can deploy, but few are as high-profile as base pay. It’s one of the largest expenses for many organizations, so how do we get the most bang for our bucks? What if we adopt a pay-for-performance philosophy, and leverage salary increases to motivate our employees? After all, this is America! It only makes sense that if you hold out the promise of higher pay, people will perform better!

Well, no.

heap of American dollars

While it may be a logical assumption, don’t expect pay-for-performance to have a dramatic impact on your employees’ behavior. I remember being shocked to learn, back as a lowly grad student, that a raise might have an impact on an employee’s behavior for two weeks. After no more than two weeks the raise is old news and behavior returns to the base line. Two weeks of marginally improved performance in return for 52 weeks of salary increase sounds like a pretty poor deal for the employer.

However, there are times when investing in base salary can be one of the keys to success.

When we recruit that perfect candidate, the salary might not be the reason our offer is accepted (if it is, we won’t expect to keep her long, a better offer might come around tomorrow). There are a variety of other selling points that we might rely on. Some of the usual suspects are:

  1. “It’s really interesting work”
  2. “You’ll be part of a great team”
  3. “We’re growing and you can grow with us”
  4. “Our mission sets us apart”
  5. Insert yours here

On the other hand, salary can definitely be the reason our offer is rejected. Let’s face it, before we can make that pitch we need to pay the price of admission – we need to make an acceptable salary offer, which typically means a market-competitive offer.

Now we have an acceptable salary offer, we’ve made our pitch, and the perfect candidate has become a Star Employee. We have her and we probably want to keep her. As our star gains skill and experience, her market value will rise, and her acceptable salary level is likely to rise as well. If we don’t want a competitor to steal her away, we have to find a way for her salary to keep pace with her rising market value. Oh, you say, how do we make that work with average salary increases hovering around 3%? We find a way or risk losing our Star! Maybe we build a career ladder, name her Senior Star Employee and get her a promotional increase. Maybe take a total compensation approach and pump up her bonus.  This is our opportunity to get creative. Some might even consider it the fun part!

So to answer the original question, what is base pay good for, at least two things: recruiting and retention.