Compensation strategies help increase the motivation and retention of your employees. Compensation shows your employees and interested candidates that you value them. This may also be seen as an indication of how fairly they will be treated as an employee.
Having an established compensation strategy allows you to predict costs for hiring new employees and providing salary increases along the way. It also helps avoid situations where pay decisions may be inconsistently applied.
Compensation strategies can be used to:
- Hire and retain employees
- Increase your employees’ level of satisfaction with the job
- Reward and inspire peak performance
- Achieve internal as well as external equity
- Lessen turnover and boost company loyalty
Keep your employee compensation strategy updated with current market data so you can stay competitive in the candidate market. A strong employee compensation offer shows prospective employees how enthusiastic you are about having them on your team, and helps you land. In turn, existing employees should benefit from the same salary range increase to ensure that you can retain them by providing fair compensation.
Easy Steps to Create a Strategic Compensation Strategy:
- Understand what matters most.Find out what benefits matter most to your staff. By asking for input, you can create an informed strategic compensation approach that fits with your talent management strategy and will satisfy most employees.
- Benchmark Against Competitors.To remain competitive in your industry and the locations where you conduct operations, take time to benchmark what your competitors offer their employees. You may not be able to match them item for item, but with this information, you will be able to address gaps during interviews. Get creative about other, lower-cost options you can include in your total compensation package.
- Allocate Budget.Take a realistic look at your company’s operational budgets. Identify the total amount you can spend on any one employee. Factor in all costs, including taxes, payroll costs, existing benefits, compensation, and bonuses. Include plans for performance or merit increases that will take place as part of annual reviews.
- Plan for Rewards.As you make your budget, consider how you can use total compensation to engage employees, increase performance, and entice them to stay.
- Determine Pay Grades.Having this framework allows an organization to define the amount of pay available based on the job’s requirements and level. Pay grades take the guesswork out of salaries and provide employees with a range of what they can expect to make.
- Communicate About Total Compensation.The gap between expectations and reality is one of the largest issues between employers and employees that creates dissatisfaction. When you clearly communicate your total compensation strategy, employees know what to expect and appreciate all the benefits you are providing, in addition to the pay.
Appropriately compensated employees feel that they add value to the company. When employees feel appreciated, they feel good about coming in to work. This raises the morale of all employees and people are encouraged to come to work with a good performance.
Talent is your top competitive advantage, and compensation is how you show employees how valuable they are to your organization.