Should internal Talent Valuation be 'Mark to Market' each time new talent is hired ??
The greatest 'Chakra-vyu' for HR leadership emerges when external talent is hired at a market negotiated price-point but which immediately cascades and stirs-up an hornet's nest from internal talent seeking 'mark to market' compensation revisions.
I was speaking at a Compensation Managers' Convention and the debate evolved around this issue.
Whilst it is true that each time new hiring is made, Management cannot afford to lift the compensation table up for all. However, it cannot also pretend to be blind to the reality that it may be underpaying its good quality comparable internal talent and such new hiring may suddenly demotivate and disengage them.
What therefore should be the way-out...???
Firstly, as a rule, an organisation must do a 'Competency-Performance-Pay' audit. And this is how it goes....
Comparative talent should first be clustered into three Competency based slots - 'AMC', 'MMC' & 'BMC'...Above Market, Mark to Market and Below Market Competencies. This lets the talent manager know who to pamper, who to manage and who to maintain.
This cluster needs to be further refined with actual on the job performance....in a 9 Box - 3X3 matrix as under...
Performance
Exceeds Meets Under
AMC. 1. 2. 3.
MMC. 4. 5. 6.
BMC. 7. 8. 9.
Compensation for Boxers in 1, have always got to be higher than that of the new hire. This talent has already proved itself internally whereas the new talent hired has yet to prove. No logic justifies 1 Boxers to be paid lower than the new hires. 2 Boxers and 4 Boxers have logically to be paid on par with the new hired talent. Both these Boxers need to be corrected suitably...1 to be placed higher and 2 to be placed on par with the new hire. This should be rather immediate or at the time of Annual Review but for Boxers in 1 you could give retrospective effect.
3 Boxers may grumble but you need to put Performance enhancement arguments before them. But do seriously promise to review their compensation at the annual increment time IF performance improves. Boxer 4s should be correctly placed at the Annual Comp review time. For 5 Boxers, correction at annual increment time IF they continue performing at sustained standards is in order. For Boxers 6 you need a PIP. Boxers 7, 8 no changes in compensation required but a PIP with a long-term replacement plan has to be contemplated. Boxers in 9 need an immediate replacement strategy.
Likewise if any Boxers in 6, 8 & 9 is paid above 'Mark to Market' median, you need to control cost by compensation alterations (reduce their fixed salaries and enhance performance linked Variable pay-outs).
Otherwise happy and engaged professionals become unhappy and disengaged suddenly by such an event not directly impacting their lives. But people being people their emotions and self worth gets disturbed by the fact that the Co they have sweated and contributed for has now undervalued the worth of their contributions in comparison with another unknown new hire.
This is what causes the pain that leads to serious disconnection and disengagement. You need to handle it proactively if you want to influence sustained Engagement of performers and insulate their attrition.