In today’s competitive job market, an effective compensation strategy is an essential tool for employers in attracting and retaining high-quality candidates. This priority has come sharply into focus in the wake of the COVID-19 pandemic which saw millions of employees leave their jobs in search of better.

During this unprecedented period, coined the Great Resignation, the labour market has experienced unusually high attrition rates as increasing numbers of workers reevaluate their expectations and priorities in life and vote with their feet. As a result, employers everywhere are being compelled to review their compensation strategies in order to win the war for talent and create long-term success. In this article, we will outline some tips to help your organisation develop an effective compensation strategy that reflects a fair and balanced approach to work and pay.

What is a Compensation Strategy?

A compensation strategy is made up of various components each designed to reward or compensate employees for their work. These typically include the following:

  • Salary: This comprises the base pay an employee receives for carrying out their work duties and is typically calculated on an hourly, monthly or annual rate.
  • Incentive pay: In addition to base salary, incentive pay, also known as variable pay, aims to motivate employees by offering them additional sums based on their performance, achievements, and other factors. Incentive pay includes things like commissions, performance-related bonuses, referral awards, stock options, and profit-sharing.
  • Benefits: Benefits are a non-salary related form of compensation designed to enhance the financial security and well-being of employees. They can include things like health insurance, retirement contributions, gym memberships, childcare, and travel cover. Benefits may also include other indirect offerings like stipends, which aim to add to the overall attractiveness of an employee’s compensation package. You can visit this site to learn more about ‘What is a stipend?’
  • Paid time off Any mandatory leave may be supplemented by additional paid time off to ensure employees are well supported and achieve greater work-life balance. This might include ‘duvet days’, holiday purchase schemes and even a policy of unlimited annual leave.

Developing an Effective Compensation Strategy

By developing a fair and comprehensive compensation strategy employers are able to demonstrate the value they place in their employees, ultimately helping them to attract and retain the best candidates for their business.  The following steps can help your organisation in this respect:

Define your organisational values

Your compensation strategy should reflect the values, culture, and mission of your organisation. By identifying the areas that are most important to your business such as work-life balance, fairness, or equity, you can then begin creating a compensation strategy that aligns with these.

Set a budget

According to some estimates, salaries can account for a significant portion of a business’ operating budget, ranging between 18% to 52%. By calculating how much of this will go towards salaries you can then determine what is available for allocation in other areas of compensation such as incentive pay and benefits.

Assess your roles

An assessment of the roles within your organisation will enable you to design a compensation strategy that is best suited to serve the needs of your employees. For example, an organisation that is predominantly remote-based may need to take into account allowances for home office setups or internet and phone reimbursements. In contrast, a largely office-based workplace may benefit from travel cover and childcare support.

Conduct research

To ensure your offering is competitive it is essential to conduct research to see how it fares in the wider market. This should include benchmark studies that compare your compensation practices to those of similar companies in the market. Gathering relevant industry data will reveal the average salaries and market rates for similar roles within your industry and the availability of qualified candidates to fill these roles. This information can then be used to structure a compensation package that reflects the market rate or exceeds it in order to entice the best candidates.

Create a salary structure

Define the levels of remuneration that should exist at each level of your organisation. This will ensure employees with similar experience, job responsibilities, and tenure should receive comparable pay. By creating a salary structure with defined pay grades you can provide a compensation strategy that is fair, transparent and equitable for all employees. This should also account for career advancement by setting out avenues for promotion and salary increases that recognise skill and experience.

Review your strategy

Continue to evaluate your compensation strategy through regular reviews. This will allow you to identify any gaps in pay and make necessary adjustments to ensure it remains competitive, attractive, and meets the needs of your employees.

An effective compensation strategy is an essential tool for not only attracting and retaining the best calibre of candidates but also ensuring the highest levels of productivity and performance within your organisation while helping it stand out as a leader in implementing fair and transparent pay practices.