Every organization has a compensation strategy that portrays its approach to managing employee salary and benefits. Compensation strategy should be in the form of a written document to articulate transparency of the company’s criteria for employee compensation. An ideal compensation strategy is the one that successfully retains its employee’s engagement and entices new talent. Compensation
Every organization has a compensation strategy that portrays its approach to managing employee salary and benefits.
Compensation strategy should be in the form of a written document to articulate transparency of the company’s criteria for employee compensation. An ideal compensation strategy is the one that successfully retains its employee’s engagement and entices new talent.
Compensation is often perceived as just a salary that employees get. Although every little or big benefit offered to the employees comes under compensation cost. The total compensation package comprises the cost spent on the benefits of health, retirement, employee training, bonuses, and other non-salary benefits.
7 Ways To Develop An Effective Compensation Strategy
1. Allocating Budget
The compensation strategy should possess the criteria for allocating compensation costs into incentives and salary.
Budget allocation enables managers to determine how much to spend on the salary, benefits, and other incentives from a total compensation cost.
For instance, if your compensation budget is $1000 and you have allocated 90% for salary and 10% for benefits, then you have to decide how that 10% will be spent. One way is to reserve 7% for health benefits, 2% for retirement, and 1% for tuition reimbursement.
A budget allocation plan for the salary and benefits may benefit you in controlling labor, health care, and other incentive costs.
2. Developing Salary Ranges
Developing salary ranges is one of the compensation strategies that ensure market competitive salary. Setting a benchmark for employee salaries within the same industry makes your organization highly competitive.
Internal Researching and accessing sites such as salary.com or payscale.com can help organizations to establish a competitive salary ranges that reflect average salaries in a specific district.
The vendor often helps steer small organizations towards effective salary ranges, whereas the HR department develops salary ranges for the large companies by conducting internal research.
Your salary ranges must align with the job descriptions. So, take time to analyze all the jobs to grade position’s value and decide a matching payscale.
3. Conducting Salary Audits
Salary audits help the organization to align its salary ranges with the prevailing compensation trends in the dynamic marketplace.
During an audit, the goal is to figure out the competitiveness of a particular job and the demand of the competitive market.
Think, will this profession expand or die?
Lagging in the changing market may cost you the loss of valuable employees. Therefore, keep your organization updated with the changing trends to surpass the competition.
4. Offering Exclusive Compensation Package
The strategy that most of the organizations use is offering benefits packages along with the salary which positively influences employee engagement.
They aim to provide an exclusive compensation package in the competitive market because they know how influential a role it plays in a candidate’s decision of either accepting or rejecting a place within an organization. It also helps to retain the talented employees of your organization.
For example, some employees do not quit their jobs only because of the inescapable benefits.
5. Managing Performance
Every organization must incorporate an organized performance management system to ensure employees are performing optimally to achieve the company’s goal.
An effective management process entails setting yearly goals, providing performance appraisal, and giving proper instructional scaffolding to employees.
You can boost your employee engagement and productivity by developing an effective compensation strategy.
6. Comply with Legal Laws
An ideal compensation strategy acknowledges all federal and state laws to ensure legal compliance.
The organization should have no room for biasness during the recruitment and must act in accordance with the laws of DOL and FLSA, such as paying for overtime, and minimum wage.
7. Building Structured Organization
Structured organizations are always in benefit. Every business requires someone to take responsibility for generating an annual report, conducting a salary audit, and raising the process timeline, thus ensuring a focus on each compensation area.
An effective compensation strategy can help the organization build an appreciating culture where employees are recognized and rewarded for their good performance.
Recruitment of the right talent, clear articulation of the goals, performance management, employee recognition, and reward are the key factors that determine the success of an organization’s approach.
The Bottom Line
What is being offered to the employees is important for them and for organizational growth. Recognizing each employee’s demand calls for art and science. You can achieve the desired performance and results from your employees by incorporating these interconnected elements such as access to student loan forgiveness programs, into your organizational system; clear aims and objectives, valid information, ideal communication, clear incorporation, and continuous evaluation.