Fair compensation is one of the things that employees consider when looking for and staying in their jobs. While a solid compensation and benefits package is a good start, we need to take it one step further.
It’s essential to have a reliable framework when making organisational decisions, including paying employees properly. If we feel like our compensation scheme isn’t working, it’s time to reflect and reassess the status of the current system.
This article outlines the advantages of a structured, well-thought-out compensation strategy and provides tips for successful implementation.
What is a compensation strategy?
In simple words, a compensation strategy refers to the plan that describes an organisation’s overall benefits and compensation.
This document contains details about the company’s goals when laying out benefits and pay ranges for different roles. It also provides a clear set of criteria for evaluating employees when deciding on their salary.
A compensation strategy typically includes the following:
- Basic pay: This refers to the initial salary without the benefits, bonuses or raises.
- Bonuses: Employees are rewarded with bonuses for meeting their quotas and performing their job duties well.
- Commissions: After completing a specific task like selling products or services, employees get commissions or an extra amount from a successful deal.
- Paid time offs: While there is no minimum requirement for PTOs, many organisations calculate added compensation based on the length of employment or the average number of hours worked in a particular time frame.
- Overtime pay: This pertains to the amount received by employees after working extra hours beyond their regular shift.
- Flexible working arrangements: Many employees are allowed to work on a more convenient schedule other than the regular 9-to-5 shift.
- Other monetary and non-monetary benefits: Some companies provide care packages for their employees during birthdays or other special occasions.
How do you develop an effective compensation strategy?
There are several factors to consider when implementing a compensation scheme. After all, employees are now seeking more benefits like health care and retirement plans on top of their pay cheque.
An effective compensation strategy begins with proper planning. Here are some tips for creating a compensation scheme that works for your organisation.
Evaluate the talent market
If you want to attract top talent, you must keep up with the current trends in the job market. One way to stay ahead of your competitors is by researching compensation data for various job positions. For instance, entry-level roles are different from specialists and more tenured positions.
Conducting research on the current job market includes examining the current related trends like salary metrics. You can pull valuable insights from this data and see how you can implement them in your strategy.
Identify your potential hires for competition
One of your top priorities should be identifying which potential employees you are looking to hire. It’s essential to be clear and specific in terms of your target positions and candidates. You can set proper budget allocation by identifying the roles that your company highly needs.
In 2022, the talent market has become more competitive than it has ever been. While more and more organisations move forward towards the hybrid future, many employees have become independent and resilient.
The new workforce knows how to set their standards high and ask for a higher pay grade equal to their skills and capabilities.
Determine your company’s competitive edge
The next step is to understand your unique offering to employees for your pay scheme. By knowing your strengths, you can adjust your strategy as needed.
The competition will always be out there, so it’s essential to make your strategy on par with the rest of the playing field to attract talent. Begin by determining your strategies outside compensation, including other benefits you can offer to achieve a more meaningful employee experience.
By identifying your company’s competitive advantage, you can attract top talents and retain more employees. For instance, you can discuss opportunities for promotion and pay raises to motivate your potential hires other than discussing your baseline offer.
Compare and contrast latest compensation data
Conducting market research provides you with good insight into the updated rates that other companies offer for similar job roles. You may opt to look at online databases for salary analysis and metrics to get a better grasp of what these offers look like.
With proper research about current compensation data, you can look into the recommended salary range based on the demand, location and job responsibilities. This enables you to adjust your pay scheme according to qualifications, experience and performance.
Discuss compensation packages with your employees
Employees are at the receiving end of your payment scheme. By requesting and responding to feedback from employees, you can create a compensation strategy that works.
To ensure pay equity, you should be transparent with your employees regarding their salaries so you can help them set their expectations. That said, it’s best to lay down your strategy outline and discuss how employees can earn based on their pay grade level.
If top performers earn more in your company, it will also encourage new hires to perform at their best. Furthermore, you can boost your employees’ morale by asking their feedback about their current salary and benefits.
Review and modify your compensation strategy
Plan and update your compensation strategy on a quarterly or annual basis annually to ensure smoother business and people operations.
You need to determine what you want to achieve using a compensation strategy. Is it for attracting top candidates or decreasing employee turnover rates?
By tracking the results, you can also align them with your company goals and other important HR management functions.
Revisit your company budget
You can also look into how your organisation allocates funds for compensation through the years. Doing so can give you useful information in making adjustments to your salary budget.
With regular monitoring of your budget allocation, you can easily determine whether or not your company can push through increasing the salary of your employees.
The key to every successful compensation strategy is being able to retain top talent while keeping the costs within your operating budget.
Set specific and realistic pay standards
The job develops along with employee expectations. As your business grows, make sure that your salary offerings also change with it. You will need to align the pay grade of your workers with the average salary in the industry.
Start by determining the appropriate rewards for your employees based on your needs. Make sure to be clear and direct for easy implementation. If you offer better than average benefits like health insurance, it can help motivate your workers to stay with your company longer.
Check for legal compliance
Is your current salary structure compliant with employment laws? Failure to implement updated regulations can put your company at risk. You have to ensure that your compensation policy aligns with your country’s Labour Code and Fair Pay practices.
Reach out to your legal department and see what works best for your organisation. Consider evaluating your compensation plan or seek help with us at Sprout Solutions for payroll management and analytics services.
Why is a compensation strategy important?
Implementing a compensation strategy can go a long way for your organisation. We have listed some of the benefits you can enjoy when you have a strong compensation plan.
It attracts quality talent.
Strong applicants pay attention to the compensation and benefits package when choosing a job. In this case, a solid compensation strategy can work in our favour. But how?
It gives a competitive advantage when recruiting the best candidates. After all, an attractive salary offer can persuade top talents to work for an organisation. These talents will surely value a well-thought out compensation plan when job hunting.
It boosts employee productivity and performance.
Nothing beats a happy, motivated and productive workforce when running an organisation. And what better way to encourage employees to do their best than with a robust compensation plan?
Employees feel appreciated when they receive rewards and appreciation for their performance. When they feel valued for their work, it improves morale and motivates them to perform better. In doing so, they deliver better results and contribute to business growth and success.
That’s why it’s important to reward employees who show exemplary performance. We can do this through performance bonuses, commissions, stock shares and other incentives.
It fosters employee loyalty
Employee trust and loyalty are crucial to any organisation. One of the best ways to secure this is through a reasonable and thoroughly planned compensation plan.
After all, a robust salary and benefits package can help retain employees. When you provide fair compensation, your team members are more likely to stay in your organisation. And if they feel valued, they won’t simply be working, but would instead perform at their best.
This way, you can save time and money that we would’ve spent on recruiting and training new candidates. You can also reduce turnover rates and cultivate empowered and motivated teams as you improve your compensation strategy.
It increases employee retention
In the 2021 Pulse of Talent study by Ceridian, 26 per cent of employees cite financial growth as a reason for exploring other job opportunities. Luckily, the right compensation strategy can help you address this problem.
Employees are happier when they know that they’re being taken care of. This endeavour includes providing them with a salary aligned with their skills and experience.
Moreover, if they know they’ll get rewarded for their efforts, they become more motivated to perform better. And when employees feel satisfied, they are less likely to leave your organisation.
It makes budgeting easier
A strong compensation strategy can also ease the budgeting process because it helps you make more informed decisions such as predicting the cost of salary increases and new hires.
A compensation plan also serves as a guide when discussing money matters. It helps your management become consistent when making adjustments to employee salaries.
It promotes fair payment practices
Lastly, a compensation strategy establishes how your company implements its pay practices. Setting the standards guarantees that different employees who do the same work receive equitable pay.
A 2019 study from Harvard Business Review study agrees with this approach. A 2019 study reveals that companies with structured management methods are more likely to pay their employees fairly.
In other words, a compensation strategy ensures that you pay your employees fairly. This practice prevents any imbalances when making decisions related to compensation. It also prevents employee disengagement and reduces attrition.
To sum things up, a good enterprise strategy is a great tool you can use to establish metrics when paying employees. It helps organisations attract top-notch candidates, retain talent and improve productivity. It also aids in allocating the proper budget and upholding fair payment practices.
An effective compensation strategy takes time and effort to complete, but the payoff is certainly worth the extra mile.
About the Author
Stef Miller has been writing since 2011 for personal blogs, but professionally, since 2018. Stef has covered a wide range of clients like real estate, medical, chiropractic, beauty and lifestyle, hr software development, digital marketing agency, pet products and a lot more. Now, she has been a full-time content writer in Sprout PH for over a year.