Magazine article Journal of Property Management

A Compensation Case Study

Magazine article Journal of Property Management

A Compensation Case Study

Article excerpt

Eastern Realty Investment Management, Inc., in Washington, D.C., recently instituted an innovative compensation program that eliminates rating of employees, largely disassociates the annual review from pay increases, and replaces salary increases with lump-sum payments once an employee's compensation reaches market level.

The company replaced its ratings-oriented employee evaluation system with a new one that is diagnostic rather than judgmental. The annual review is a review of strengths, contributions, and accomplishments as well as areas for future growth and improvement. It focuses on personal reinforcement and employee development.

"When employees were being rated and put in boxes, they saw it as unfair because inevitably different supervisors have different standards. Uniformly, employees who were categorized as average felt offended," says Christopher J. Whyman, president and CEO.

The firm's compensation system is based on the concept that no more than 5 percent of employees are high-value contributors who would be difficult to replace, while no more than 5 percent are substandard. The overwhelming majority of employees, once they are up to speed in their jobs, are solid citizens.

Another tenet of the firm's pay plan is the belief that all employees eventually reach a plateau, or a salary level consistent with their skill and contribution level. At that point, continued salary increases would move the employee ahead of the market rate for that job.

"We don't want to pay more than market rate because it would be difficult for employees to move from the company. They would probably be unable to earn as much elsewhere You end up with someone who is treading water and not really working that hard," Whyman says.

Whyman's predecessor had capped the salaries of employees whose compensation got ahead of market level. "A few employees got no increase for two years. That's unfair," he says, "but it's also unfair for the company to keep pushing the base salary up when they are already ahead of the market."

The firm's solution was to replace annual salary increases with lump-sum payments for those employees at market level. Employees generally are hired at the lower end of the salary market range. People generally become efficient in their jobs in about two years, Whyman says, so the company moves their salaries ahead fairly rapidly until they reach market level.

Once an employee reaches market level, they do not receive an increase in their base salary unless the market rate goes up. …

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