How to Build a Talent Management Strategy – Based on Compensation
By Barry MacLean
Organizations have integrated most of the key human capital functions – like recruiting, employee development and succession planning – into their talent management strategy. Yet, most are missing one other function: compensation. I believe that the most common disadvantage of talent management programs is that they exclude compensation as a prominent factor in employee development and retention.
Is there something fundamentally different about compensation that sets it apart from other strategic HR areas?
Talent Management vs. Compensation Management
I’d argue that there is – compensation management is job-centric whereas all other talent management functions are employee-centric. Think about it for a moment. Your talent management strategy is all about recruiting employees, training employees, aligning employee performance plans with corporate goals, planning employee growth and development, and identifying employees with potential then charting a course to help them realize it.
Compensation management, by contrast, is all about jobs: what they are worth in the marketplace, how they stack up against one another internally, what grades or bands they fall into, and what target incentives and equity compensation are associated with varying levels of jobs within the company.
That said, it doesn’t mean that’s the only role compensation can or should play. There is no reason why employee market valuation must be done exclusively on a job-centric basis. Given the mandate of attracting and maintaining top talent, it is imperative that employee market valuations also be done for individual employees. This, of course, requires good compensation data.
The Benefits of Using Compensation Data in a Talent Management Strategy
Many of the components that make up a talent management strategy – acquisition and mastery of knowledge, skills, abilities and competencies – are important influencers of compensation. Once organizations know how to build a talent management strategy that takes compensation data into account, they can place a market value on knowledge, skills and abilities. A talent management strategy based on compensation data means:
- Job offers tailored to the specific value an individual brings to the organization
- Career paths within and across job families that are anchored to actual market valuation of the knowledge, skills and abilities that differentiate one level in the career hierarchy from the next
- Merit systems that are based on the target market value of the employee so managers can determine the right competitive compensation package, and not simply merit increases from a matrix
- A talent management system that monitors the pay competitiveness of high potential employees, helping to identify flight-risk potential before a competitor attempts to lure your future talent away
Bringing Talent Management and Compensation Management Together
If compensation data has the potential to play such a vital role in talent management, why have so few companies taken the steps necessary to bring it about? One of the primary reasons is that market valuation of individual employees requires more compensation data about each employee: their skills, specialties, education, experience beyond the current job or even the current employer, and new certifications they’ve earned. Talent management strategies are our friends, here: HRIS and emerging talent management software applications allow us to collect and store this information – if we take the time to collect it.
Market valuation of individual employees is a companion process, not a replacement for, more traditional job-centric compensation management processes. Without the employee-centric market valuations, however, compensation data is relegated to the sidelines of the talent management systems. At the same time, without the valuation component offered by employee-centric approaches, a talent management strategy will lack a critical financial metric for making pragmatic decisions.
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