Pay: Cost or Investment?

Susan and I had the opportunity yesterday to hear a presentation on assessing pay evaluation by Mark Wallace and Tim Hill of the Hay Group. In it, they talked about the difference between when companies look at pay as a cost or when they look at it as an investment. The difference in how these two world views impact behavior is significant.

When pay is viewed as a cost, it is managements job to minimize it. With this perspective, companies tend to look at pay benchmarks, limit pay increases and create estimate salary budgets for review. However, when pay is viewed as an investment, management’s job is to optimize that investment. Companies actions take on a whole different flavor. With an investment perspective, companies look at how pay drives performance and motivation. How does the pay structure align with the roles and responsibilities of the job. How does the pay opportunity spur employee motivation or engagement. How can pay, recognition, benefits and incentives be leveraged to drive organizational success – as measured on many levels (not just cost savings).

Which pay philosophy do you think is better? I know which one I do.

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