The people behind a company are often its defining resource, so attracting and retaining top talent is of utmost importance. WorldatWork, a human resources association, recently outlined the greatest motivators for employees based on their generation. A sense of purpose was the top motivator among Baby Boomers, followed by compensation. For Millennials and Generation Xers, compensation was ranked most important, followed by a sense of purpose.
While compensation is not the only factor that contributes to satisfaction and engagement, it is a critical factor in attracting, retaining and motivating human capital. Therefore, establishing a strong compensation program could be the key to retaining top talent and gaining that competitive edge. We’ve broken down the major components of a strong compensation program and outlined some important steps that can help you improve your program.
A compensation philosophy serves as the foundation for establishing a strong compensation program. This is where an organization will identify various aspects of the program to ensure it aligns with the company’s overall mission, goals and values. The philosophy should be developed in partnership with company leaders and provide strategic program direction. The compensation philosophy defines the competitive labor market and dictates where the organization wants to position itself within the market.
The compensation philosophy may also outline cultural choices, company opinions and other strategic positions that the organization may take in relation to its compensation program.
The philosophy should be a living document. As time goes on, an organization’s goals and structure may change, or other situations may arise that could impact how a company views its compensation program. Thus, an annual review of the compensation philosophy is recommended to ensure the document fits the organization’s needs. Once a compensation philosophy is established, it’s time to focus on job descriptions.
Job descriptions are a great place to start when evaluating positions and looking for candidates to fill vacant seats. They should play a key role when hiring, onboarding and conducting performance reviews, and need to be evaluated periodically. Maintaining accurate job descriptions can help employers provide detailed information about open positions to potential candidates or third-party sources who might assist with the hiring process. Not only can this help ensure that the best people are hired for the job, but it also sets expectations for both employees and managers regarding job responsibilities.
When job descriptions are updated and clearly defined, employers can move forward with a market analysis.
According to WorldatWork’s 2016 Compensation Programs and Practices Survey, 53% of organizations complete annual market pricing for company positions. This helps identify any market fluctuations and gauges the competitiveness of base pay and incentives. Organizations can tailor the scope of survey data for a particular job, giving employers the most pertinent salary information.
At its core, establishing a strong compensation program is intended to ensure that employees are compensated fairly and equitably. In addition to external market data, it’s important to factor in budget availability (whether or not the company can afford the salary) and internal equity (the value an organization places on a position). Once these have been confirmed, positions can be placed within the company pay structure and employers can shift their focus to plan design.
During the plan design stage, employers need to structure pay scales to ensure things are equitable and fair across the company. Two core concepts addressed in this phase are:
– Pay grades: How many should a company have? How far apart should they be?
– Pay ranges: How much of a spread should the ranges have? How does the organization want to use them?
Once the plan design is established, organizations can begin implementing the new plan.
Establishing a strong compensation program can be a difficult process. There will likely be a mixture of excitement, dread and indifference among employees. Establishing a thoughtful communication strategy can go a long way toward successful implementation. The communication can be as simple as an informative, company-wide e-mail, or as thorough as personalized, one-on-one meetings between employees and managers. It’s important to use a strategy that will be the best fit for the organization. Following plan implementation, employers have reached the final phase of this process – the review stage.
Conducting regular compensation program reviews can help the program remain relevant and effective. This is also a great opportunity to shore up any components that were not initially addressed. Some important questions to ask throughout this process include:
– Does my organization have a written compensation philosophy?
– How complete is it? Does company leadership agree on it?
– Has it been communicated to employees?
– Does my organization have job descriptions for every position?
– When were the descriptions last updated?
– Does my organization have a consistent pay structure in place?
– When was it last reviewed?
– Does my organization have a compensation communication plan?
You should continually gauge the effectiveness of your compensation program. If your program doesn’t help attract, retain and motivate your human capital, you may be losing key talent to competitors. The experts on our HR Consulting Team can guide you through this process and help you reach your compensation goals.
It’s time to get your competitive edge back – let us help.
This article originally appeared in the 2017 | ISSUE THREE of the SilverLink magazine, under the title “Stiff Competition | How Does Your Compensation Program Measure Up?” To receive a complimentary subscription to the SilverLink magazine, sign up here.