A STRATEGIC WAY TO CALCULATE PAY
By Anne Fisher

(FORTUNE Magazine) – LET'S ASSUME THAT the most sanguine projections are all true and that hiring will take off (at last) in the fourth quarter. A pressing question if you're intent on boosting your headcount: What do you pay the new people? Bloated by the anything-goes late '90s, then shriveled by "we can't afford that" ever since, pay formulas at many companies have been battered. So compensation expert Peter LeBlanc at Sibson & Co. pulled together a panel of executives from 15 big clients, including Procter & Gamble, Nationwide Insurance, and Wendy's, to figure out a sensible way forward. The result is so obvious, it's beautiful: Rather than using straight market pricing--that is, trying to match what other companies are paying--consider structuring pay to support your own company's strategy. In high-impact jobs (think brand management at P&G or merchandising at Target), then, be ready to pay above market for the hottest talent. In less crucial areas you'll still want to be competitive, but you can hold the purse strings a bit tighter. Sibson calls that "strategic work valuation," but it looks a lot like plain common sense, or how you might approach paying people if you were starting your company from scratch.

In determining pay, LeBlanc says, "lots of companies still use what we call generic criteria: How many people do you supervise? How big is your budget? We say, Who cares? The only thing that matters is how much or how little a given role contributes to overall corporate strategy." Consider Dayton-based Standard Register, one of five companies--including Circuit City and Becton Dickinson--that have adopted the Sibson system. (For a detailed report, see "Improving Pay Productivity With Strategic Work Valuation" at www.sibson.com under Publications.) Standard Register, an old-time documents and business-forms giant, has been obliged to transform itself to compete with the Internet and desktop publishing. The skills and aptitudes that worked a few years ago no longer fit the company's strategy for survival, and it has revised the pay structure to reflect that. "When I described [our new approach] to a board member, he said, 'Don't we already do this?'" says Jay Romans, a senior HR executive there. "But until now, how jobs were valued was mostly based on the external talent market."

Great, but nothing is perfect. For one thing, before you can assign pay priority to roles in your company, you need a clear consensus on exactly what your strategy is and which roles count most. Call me cynical, but I'm imagining that could inspire howling turf battles, the kind that could kill any sincere effort at strategic work valuation in its cradle. If it does catch on, Sibson's approach would certainly change job seekers' priorities: To maximize pay, target only companies that consider your skills strategically essential. Speaking of which, and I'm just thinking out loud here, the Sibson approach assumes that the most money buys the best talent. Hmmm. Are we sure about that?