There are several symptoms that can serve to warn employers that their compensation plan may be ailing. If you recognize any of these seven symptoms in your organization, you should take action to address them.

Fortunately, there are several warning signs that can alert employers when the compensation plan is not effective.

1. Poor job documentation. Even though it seems simplistic, if there is no focus on creating the appropriate documentation, the whole foundation of the program is at risk. Analyze each job. Ensure there are accurate job descriptions and job titles as this is one of the first signs that the overall compensation plan might not be doing what it is designed to do. (After all, how can pay be in alignment when the job itself is not what it was designed to be)?
   "No one likes to write job descriptions, but their absence, their antiquity, their inaccuracy, [all] create blurred lines of responsibility and accountability," Chuck Csizmar explained in a recent BLR webinar. "Without a proper description, does the employee know what they’re supposed to be doing? What you expect them to be doing? If not, that communications disconnect can make for an interesting performance review discussion at year end.
   "And how do you correctly market-price a job if the job description is inaccurate? How do you evaluate the job into your grading hierarchy? That’s why we call job descriptions the basics," Csizmar explained.
2. Absence of a procedures manual for managers. As with other job documentation, this is one of the basics. Most managers need guidance, and a procedures manual provides it. It also provides consistency in managerial actions; employees value consistency. While this does not need to be an inflexible rule-book, it should provide guidance and tell managers how to approach pay decisions.
   It should cover things like hiring, promotions, pay adjustments, performance increases, etc. It should describe the policies surrounding all types of pay actions, such as the amount of raise that is given when a promotion is given and who must approve any pay decision. "Lack of guidance ultimately leads to bad decisions, unfair treatment, and increased costs." Csizmar warned.
3. Using a one-size-fits-all approach. Not every region should be treated the same as every other region. It is tempting to create one standardized compensation program and use it universally, but doing so can be a mistake. Different states have different employment laws, for example. If you’re working in multiple countries this is even more complex.
   Employers need to understand the employment environment of each area where they have employees. Different regions (whether these are different countries, states, or even counties) will likely have different laws, different tax structures, different employee attitudes, and different competitive job pricing. As such, the compensation plans need to be different to reflect the reality in each area.
4. Invisibility of pay decisions. Employers should assess whether pay decisions are transparent or secretive. Of course these things should not be completely public in most cases, but it is important that the right people are reviewing these types of decisions before they take effect. What is your approval process? Is it known and followed by all? Is it used consistently? Is there something in the process that restricts improper increases from being approved?
   Transparency limits problems of inequitable practices – which, if left unchecked, eventually lead to decreased morale once word gets out. Having the right approvals process helps improve both the effectiveness and the equity of your rewards program.
5. Toothless performance appraisals. In a true pay-for-performance system, not every employee will receive a salary increase or bonus in a normal cycle. The higher the percentage of people who are getting raises and bonuses, the less likely that the program is actually achieving pay-for-performance goals. This often happens when employers focus on activity instead of results. Focusing on activity leads to more employees being rated highly, without much weight given to the real results created from the activities.
   Another concern in toothless performance appraisals is whether or not individual goals are aligned with the broader company goals. If not, then individual achievement will have less impact for the organization.
6. Limited reward differentials. To use a performance incentive to truly motivate employees, there needs to be enough of a reward opportunity for high performers to create the level of motivation and behavioral change. In a successful pay-for-performance program, high performers will be rewarded much more handsomely than average performers. If instead the differentials between rewards are quite limited, then the organization really isn’t making much of a reward distinction.
   In every organization, high performers will have similar (or maybe better) options in other organizations – so they’ll leave if they don’t have sufficient motivation and rewards for their efforts. Employers should assess whether the reward differentials truly serve to motivate.
7. Weak budgetary controls. It should be clear who has responsibility to monitor total payroll expenses and who can make payroll decisions. If the compensation plan does not outline these things clearly, there can be too much room for managerial decision-making, which can be a bad thing when uncontrolled and spread amongst too many people. Managers manage better with a budget, and tracking budgets can show where money is being wasted or spent unwisely. Put simply, having loose controls will increase the total costs of any compensation plan.

This synopsis only highlights some of the highest priority items in each of the seven warning signs. There are many more things employers can do to analyze the effectiveness of their compensation plans within each of the seven areas. For more information on this topic, order the webinar recording of "The Effective Pay Program: How to Spot and Fix Compensation Plan Deficiencies." To register for a future webinar, visit http://catalog.blr.com/audio.

Chuck Csizmar is a Global Compensation Consultant and the founder and principal of CMC Compensation Group, a professional services provider specializing in analytic, project management, and consultative services for US and international clients.