The First & Second Step to Designing a Competitive Compensation Plan: Define Your Strategy

STEP I

Before you can establish a competitive compensation plan in your company, you must first create a strategy that fits with your organizational goals. I’ve found that it can be helpful to ask yourself a set of questions (which I’ve provided below) to establish a foundation upon which you can build your plan. Take in-depth look at compensation management software,

What Is A Well-Defined Compensation Plan?

A well-defined compensation plan begins with a core compensation philosophy. It should be built upon extensive research into your company values, market data, economic conditions and industry best practices. Ultimately, a solid compensation plan aligns organizational goals with your comp planning strategy.

Questions To Ask When Building A Compensation Philosophy Statement:

A compensation philosophy statement will summarize your organization’s comp strategy, guidelines, and goals. It answers a number of fundamental questions, such as:

• What are our enterprise goals?
• What are the actions and behaviors that will lead to the attainment of these goals?(and thus should be compensated)
• How should performers who drive these actions be paid?
• What should be the company stance on competitiveness?(What are the strategies and techniques that might be leveraged to gain an understanding of how the salary structure is positioned with respect to the rest of the market?)
• How should the compensation dollars be allocated to achieve the maximum impact?(Example: If 80% of the comp budget goes into base pay, how can the rest of the money be used to offer attractive perks and rewards to the employees?)

When you answer these questions, you can develop a clear compensation statement that’s aligned with recruitment, performance, market positioning, employer branding, and ultimately, your enterprise goals. With this information, you can build a robust pay philosophy that does the following:

-Embodies the belief score values and stance of your company and its C-Suite executives

-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

-Respects industry best practices and laws such as FSLA, thus being legally compliant

-Dictates recruitment decisions so that new talent is always given a starting package that is reflective of the scope of development within the company and organizational values.

What Are the Best Ways To Align Compensation With Your Enterprise Goals?

The best compensation structure is one that is well aligned with enterprise goals. For example, if your 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,’ more inward-focused goal might 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.

As you can see, there’s a lot to consider when creating a competitive compensation plan. HRsoft takes the complication out of designing a compensation plan through its automated tool, COMPview. To learn more, visit the COMPview product page here.

STEP II

How to Factor In Your Critical Talent when Building a Competitive Compensation Plan

After you’ve identified the strategy for your compensation plan that best meets your organization’s goals and company culture, the next step is to begin identifying your top performers. This is a critical step, because your top performers are the backbone of your company and are most likely to help you continue achieving aggressive results. Below, I’ve collected some tips for identifying your organization’s top performers.

According to Dr. John Sullivan, top performers:

-Achieve 10 times more than an average worker, yet require less than two times the pay

-Drive the face of innovation within the company

-Are great role models and mentors and have a positive effect on the productivity of average employees

According to a study by Monster, high performers on average may contribute $60,000 more to the company annually than their counterparts. So, when building a more competitive comp plan, it’s not just about attracting these high performers, it is about identifying the ones you have and retaining them.

Here are some additional factors to consider when identifying top performers:

• Who are our most critical talent on an ongoing basis?

• Who possess unique skills that are hard to come by?

• Who takes the most initiative on independent projects?

• Who consistently completes deliverables on time and on budget?

• Who has the most impressive performance review scores?

• Who amongst the star employees are at-risk for turnover?

Once you’ve answered these questions, the next step isto look into how top performers 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 Keep in mind that the responsibility of identifying your organization’s best performers can be shared among multiple contributors –it shouldn’t fall solely on one individual alone. Here are some effective tactics you can use for getting multiple people on board with efforts for identifying top performers:

Hiring & Line Managers–Hiring and line managers offer probably the most well-informed opinions when it comes to identifying top talent. Because of their day-to-day interaction, they are well aware of the strengths, weaknesses, and intrinsic value of the employees on their team (or employees who were recently recruited, in the case of a hiring manager). Their insights are invaluable and can help you better allocate compensation resources where they can produce the best results.

Performance Management (PM)–Performance management is another avenue that yields reliable data to identify key employees. You likely have some sort of performance review process in place that you can leverage as a valuable resource. True performance management is a continued process through which objectives are established, progress is assessed, and feedback with ongoing coaching is provided to make sure the employees are meeting their career goals and objectives. An effective PM program will help organizations clearly and consistently identify critical talent aligned with its goals.

Succession Planning–Ted Bauer says that only 37% of companies have some sort of succession plan in place. Is your organization included in that figure? Succession planning is directly tied to both core and leadership skills. Since it is a roadmap to nurture talent that can take on expanded roles, it is a great tool to spot performers who outpace the rest and have been tagged as future influencers.

Stay Interviews–Although a relatively new concept, the underlying premise is as old as management itself. Stay interviews are structured conversations between a leader and their direct reports designed to uncover actionable items to increase retention. Stay interviews not only can help identify your top performers but also those that are at risk of turnover.

If you’re not currently practicing stay interviews or performance management as described above, HRsoft has solutions that can work with your company’s existing process to help you identify and retain your best talent.