How to Develop a Compensation Strategy for Your Business
Compensation is the watchword, but what exactly does it entail? Commonly, it is used amongst employers and employees alike to refer to salaries but in a more formal terminology. However, compensation includes far more than just the basic salary of an employee. Rather, it comprises of basic salaries, provided health benefits, and any additional perks such as transportation allowances, annual paid airline tickets, or even tuition fees for the employee’s dependents.
According to the Bayt.com Middle East and North Africa Salary Survey, job seekers consider compensation as the most important deciding factor when choosing a job. Despite this, less than half of the organizations surveyed as part of the aforementioned research reported having a compensation strategy or a dedicated team for this function in place.
For an organization to grow and succeed, it needs talented and skilled individuals under its belt. Since top talent is highly sought after, certain incentives, such as an attractive pay structure, are crucial to hiring them. For this reason, formulating a compensation strategy should be of paramount importance to your organization and practice of this activity should be considered a priority.
The question asks itself: How should you determine your compensation strategy?
Due to the importance of defining your compensation strategy, Bayt.com, the Middle East’s #1 job site has compiled a set of practices to keep in mind when formulating it.
1. Financial Feasibility
A compensation strategy should be formulated with both short and long term effects in mind. What this entails is looking ahead for a minimum of one fiscal year, while keeping your organization’s current expenses in mind. If you scale your compensation packages too high without forecasting your expenses, you run the risk of biting off more than you can chew and failing to compensate your employees as promised. Scaling your compensation packages should be done with the assistance of your financial department and senior managers, all of whom will bear a clear idea of how your organization is faring financially. It is pointless and risky to over-promise and under-deliver.
2. Reasonable Competitiveness
The job market is competitive, with companies fighting for top talent. In response, you need to make sure that your compensation package competes well with other organizations to help you attract and retain talent. Remember, your employees are the cornerstones to your company’s success. A top talent deficit at your organization is likely to adversely affect your success. Talented employees and job seekers are always looking for offers that are in their best interest. Offering competitive compensation packages will increase your organization’s chances of obtaining the best caliber of talent and creating a competitive edge for your organization through your human capital.
3. Ensuring the Achievement of Company Goals
Your compensation strategy ought to be structured in a way that motivates employees to reach their goals while simultaneously contributing to your organization’s overall objectives. You can do this through two different methods:
- Monetary Compensation
With regards to monetary compensation, you can reward your employees differently depending on their position in the company. For example, it is commonly acknowledged that the majority of sales professionals are entitled to a predetermined commission rate that depends on the targets set for them, but what about other job roles within your organization? You can still create performance-based compensation arrangements for non-sales positions. Every function or department within the organization could have some sort of financial compensation agreement in place on top of their basic salary. You could, for example, set targets for your marketing department in terms of social media reach or PR value, for which you can reward them with quarterly bonuses if they achieve or exceed those targets.
- Non-Monetary Compensation
Some examples of non-monetary compensation include: additional vacation days, added health benefits, or upgrades to existing health insurance, hosting office parties, offering certificates and prizes, etc.
These forms of compensation will increase motivation for existing employees and encourage job seekers to join your organization. While financial compensation can certainly seem more attractive for certain employees, it is up to you to create a balance between both forms of compensation based on your capabilities.
4. Annual Salary Audits
Employees, especially those with the right skill-set and experience, are keen on continuously improving themselves as well as their income. This is a reality that cannot be dismissed by organizations and must be acknowledged and given importance. Therefore, you will need to create a systematic performance measurement system. When creating such a system, you should consider your succession plans and potential raises to salaries. Based on your performance measurement system, you can move on to creating annual salary audits that bear increased rewards to employees based on their overall performance. These rewards could take the form of promotions, annual raises, or even quarterly bonuses. Keeping such policies in place will hugely motivate job seekers to join your organization as well as impel your existing talent base to remain loyal to you and your organization.
To conclude, you should note that compensation strategies are not simply meant for attracting the best talent to your organization. They are also aimed at retaining your existing talent and increasing employee loyalty. When your talent base discern that they employer truly cares about rewarding their effort, success and achievements, they are more likely to remain motivated to bettering themselves and continue adding value to your organization and contributing to its success.
Take a look at the Bayt.com 2017 Compensation Trends Survey to get a better idea of how organizations are compensating their employees globally and how you can accordingly create competitive compensation packages.