The Impact of Geography on Compensation

Employees expect to earn a fair wage. They routinely assess their compensation with other job opportunities. Before any decisions can be made about a system of salary administration, a board of directors must establish the role compensation will play in the achievement of organizational objectives. A credit union has three options:

• Be a Pay Leader Among Its Peers This tends to attract the best and brightest talent while serving as an effective retention tool. This strategy is the most expensive plan of action.
• Pay the Market Based on Peer Comparisons This tends to allow an organization to retain present employees but can create difficulties in attracting top talent to make a lateral move.
• Underpay According to Peer Comparisons This strategy only works when an organization’s staff perceives that internal equity exists among positions and job satisfaction levels are high. Employees know they could make more money elsewhere but choose to remain with the organization due to other factors. This strategy is the least expensive option, but the weakest retention strategy.

In choosing a pay philosophy, a credit union must decide which philosophy will work best to help achieve the organization’s long-range strategies. What is right for one credit union is not necessarily right for another.