Unweaving Compensation Strategy

Authors:  Sabrina Clay & Katrina Keys

All organizations should take time to develop a compensation strategy. It is essential to review industry-specific data to determine if any trends can positively or negatively impact your organization.

The best first step is to review your organization's specifics regarding size, culture, turnover, and benefits.  

Compensation strategies are based on three aspects:  

1. It is affordable for the organization; 
2. The structure ensures that employees' efforts are directed to achieving goals; and 
3. It is competitive so that people are attracted to the organization, and quality people are retained. 

Organizations must remember the components of their "total rewards" when reviewing, assessing, and determining their compensation strategy.  

Total rewards consist of: 

1. Compensation (wages, salaries, bonuses, and incentives)
2. Benefits (indirect pay, such as health insurance and stock options, and also social benefits such as parental leave)
3. Performance/talent management (incentivizes and rewards for achieving goals or objectives)

Compensation Philosophy
A compensation philosophy is a formal statement that documents the company's position about employee compensation decisions. It explains why and how employee pay determinations are made and create a framework for consistency. Examples include how starting pay is established for a new employee, bonus determinations, and how/when pay increases occur. The compensation philosophy can also be used to attract, retain and motivate employees. 

A practical compensation philosophy is based on accurate and up-to-date job descriptions, active performance management, and relevant salary administration.

The philosophy considers many factors, including the company's financial position, size, industry, business objectives, market salary information, the level of difficulty in finding qualified talent, and the unique circumstances of the business. H2R Solutions recommends that the compensation philosophy be reviewed periodically and updated based on the company’s current factors. 

Your compensation philosophy supports the organization's strategic plan and initiatives, business goals, competitive outlook, operating objectives, and compensation and total reward strategies.

Establishing Salary Ranges
Organizations need to determine where they want to pay specific jobs/job categories related to the market. This is often referred to as matching, leading, or lagging the market. For many organizations, a combination of these options may be most appropriate. Regardless of the path an organization takes, the compensation strategy will guide an employer's internal pay rates relative to the marketplace. No one strategy will work for every employer, and organizations will need to ensure the approach they choose matches their mission, vision, and culture and supports the overall business strategy.

Organizations should conduct periodic reviews of their salary ranges to ensure that they align with the current employment market and their targeted position within that market.
After all steps are completed, your organization is ready to move forward and get market data.  
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Remember that H2R Solutions exists to provide All Things HR to assist you in developing your compensation strategy by gathering data and creating pay ranges.  
H2R Solutions was founded on the premise of delivering extraordinary service to companies who need assistance, guidance, and expertise in human resources.   ​Our goal is to assist clients with strategically integrating effective HR processes, programs, and practices into their day-to-day operations. 

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