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COMPENSATION PLAN
For most organizations, their biggest expense and greatest differentiator is talent. And while it sounds clich,
how and what you pay your employees does have a big impact on the engagement, productivity and overall
retention of your workforce.
With disengaged employees at an all-time high, voluntary quits steadily rising and increasingly competitive job
markets for many industries, organizations are looking for new ways to attract, engage and retain their talent.
But you probably already know that. So what does any of this have to do with compensation planning?
Everything.
Compensation planning is no longer just about making sure everyone is paid correctly (although thats still
important). It is a strategic tool that can be used to help solve some of these key issues for employers. Yep, thats
right, compensation can be your secret weapon in the battle for better talent, productivity and business results.
To do this, now more than ever, organizations have to be smart and strategic in how they use their compensation
budget. Building a comprehensive and competitive compensation plan is one of the fastest and most effective
ways to maximize the investment made in the workforce.
This paper guide offers five quick and easy ways you can improve the competitiveness of your compensation plan
using many of the systems and resources you already have in place.
1. How to Define Your Compensation Strategy
2. How to Identify Your Critical Talent
3. The Process to Build a Pay for Performance Model
4. What is Needed to Pay Competitively and Accurately
5. The Creation of a Compensation Communication Plan
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Organizations that answer these questions can develop a clear compensation statement that aligns them with
recruitment, performance, market positioning, employer branding and ultimately the enterprise goals. With this
information, they can build a robust pay philosophy that does the following:
- It embodies the beliefscore values and stance of the company and its C-Suite executives
- It takes into consideration the fact that a company needs to maintain profits yet be internally equitable and
externally competitive and thus focuses on the economic conditions within the industry to be feasible and
viable
- It respects industry best practices and laws such as FSLA, thus being legally compliant
- It dictates recruitment decisions so that new talent is always give a starting package that is reflective of the
scope of development within the company and the company valuesthe companys focus and strategy
Aligning Compensation with the Enterprise Goals:
The best compensation structure is one that is well aligned with the enterprise goals. For example, if an
organization has decided to focus on improving customer service, then the behaviors and actions that can lead to
the realization of this goal include responsiveness, going above and beyond the call of duty and high Net Promoter
Scores. It is the duty of the organization to identify the employees who display these traits and then reward them
accordingly.
A softer goal, more inward focused goal may be to create a culture of pay for performance. Under such
circumstances the process of identifying star contributors needs to be refined and defined and compensation
calculation will be directly linked to the result of performance review, manager input and productivity.
TALENT TAKEAWAY
Invest the time to create a succinct pay philosophy that will guide your compensation strategy.
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After the answers to these questions have been taken into account, the next step is to look into how they are paid
and the reasons behind the existing pay structure. This deeper dive:
- Exposes the top performers you should be focusing on
- Exposes any gaps in your compensation strategy so that you can revise your approach
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TALENT TAKEAWAY
Identify the best tools that for your company to identify top talent.
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Once performance is quantified, it can be linked to rewards to create a fair and flexible Pay-for-Performance
Model. Some best practices of this process are:
Identify the triggers for top performersing what can truly drive motivation with the top performers. Not all
employees view higher base pay or even cash bonuses as the ultimate form of reward. It is important for
management to recognize what drives engagement and productivity for these employees so that some of the
comp dollars can be allocated to these triggers appropriately.
Identify clear cut objectives for employees. Pay-for-Performance demands that the what of performance
be very clearly articulated so employees know what they are working towards.
The following is a summarized checklist of what is needed to set up Pay-for-Performance that works:
Merit Pay
Lump-sum Bonuses
Individual Spot Awards
Individual Incentives
Some compensation components that you may experiment with when structuring Pay-for-Performance models:
Base compensation
Merit Pay
Equity
Special Recognition
Paid Time Off (PTO)
Opportunity Income (tuition, paid development)
TALENT TAKEAWAY
Structure your Pay-for-Performance plan to reward the employees contributing to your
organization and department goals.
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TALENT TAKEAWAY
Competitive compensation means paying the right compensation for the job, not necessarily the
most.
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So part of your compensation strategy is to sell the employee on their total compensation package. Its OK if
you dont want to look at it as selling, think of it more as communicating. Either way, if organizations are not
clearly articulating, communicating, and explaining the total value of employment to their employees they are
losing valuable talent they dont have to!
Here are some simple ways you can integrate a compensation communication process into your strategy:
1. Compensation Management Have a system in place that provides a clear and transparent process so
managers can easily extract compensation data for their staff. Quick and easy compensation answers means
more engaged and happy employees.
2. Total Rewards Communication Create a total rewards statement that summarizes the total net value of
employment. This can outline the direct or indirect value of many of the items shown in our list above
providing a more tangible value to their employment. Even better, implement a total rewards portal that
allows employees real-time online access to this data 24/7. This is particularly helpful for those using a
pay-for-performance model or for retaining employees with stock.
3. Walk Away Value Create a tool (we call ours the WAVE calculator Walk Away Value Estimator) that
can show the potential lost value of employment if an employee leaves. This can include loss of future wage
increases, bonuses, stock options, benefits and more.
TALENT TAKEAWAY
Implement a platform as a way to communicate the total value of compensation to your employees
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Summary
While recruiting, engagement and retention get all the headlines, you can see how compensation plays a vital role
in each of them. With a competitive compensation plan in place, you will better allocate available budgets to right
people and places within your organization.
In this guide, we discussed five ways you can build a more competitive compensation plan including:
1. Define Your Compensation Strategy Creating a clear compensation philosophy statement that
identifies your budgeting model, market positioning and organizational alignment.
2. Identify Your Critical Talent Utilize your hiring and line managers, performance management,
succession planning, and stay interviews to identify your key and at-risk talent.
3. Build a Pay for Performance Model Quantify employee performance and outline a clear model for
linking rewards to key productivity drivers.
4. Pay Competitively. Pay Appropriately. Know your data and know your market before you make
important compensation decisions.
5. Create a Compensation Communication Plan Utilize total rewards statements and/or WAVE
calculators to show employees the full value of employment.
Most importantly, compensation planning should no longer be considered just an administrative task. It is a
critical and strategic tool that can maximize not only the productivity of your talent but your investment in them.
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Resources
COMPview | Compensation Planning
Software
Automate, Align & Simplify Complex Compensation
Planning
Not sure where to start? We would love to help. Contact us for a
wide variety of additional resources and learn more about our
best-of-breed compensation planning software, COMPview.
Click here to learn more & watch a short demo.
About HRsoft
High Impact Talent Management
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