a Compensation Strategy
We started off by defining what I think are the three most important
ways to define a compensation strategy.
1. Define who the market is.
2. Know how competitive you want to be.
3. Choose what to reward.
If your organization (specifically your Exec team) can reach
consensus on the right strategy, then you can move onto
the next step of crafting a compensation plan. There are many more
moving parts after these things are decided. For example, you’ll need to
determine incentives, how often to analyze the market, and how you’ll handle
career advancement or promotions, but these things should be defined based upon
a well-crafted strategy.
In the webinar, we gave some examples of compensation strategies that worked at various client organizations. They were as diverse as the organizations we work with. You can listen to the full webinar for all the examples, but here is one client example that stands out.
We recently worked with a large organization that was concerned with
their across-the-board increase strategy. They also had a complicated
internal job evaluation method for determining pay ranges, but it was not
helping them stay competitive with external competitors. The first step in
the project was to meet with their execs team to work through the three
questions above to get to the right pay strategy.
- Who was their market: The nature of their
organization was that they were competing with other government agencies,
private enterprise, and casinos for talent. They would need market data that
represented the diversity of their business operations.
- How competitive were they going to be: Their
overall strategy was to be competitive with the market at the 50th percentile,
but there were some areas (especially in healthcare) where this strategy was
not going to work for them. So, they created a meet-the-market approach for
most positions with an exception for high-demand areas. In those areas,
they varied their strategy to target the 75th percentile.
- What to reward? Knowing that they had some work
to do to get their managers ready to reward performance, they decided to move
forward with a raise strategy that rewarded employees based on their position
against the market. For example, an employee who was paid at 80% of the
market, would receive a larger increase than an employee who was paid at 110%
of the market. In time, they will add an additional variable of
performance to the equation.
Since completing this exercise, the organization is well positioned
to compete for and retain the talent they need, keep operating costs in line
with board expectations and communicate clearly with employees how the compensation
plan was designed. The result: a successful outcome to a tricky problem.
This is just one example (of many) highlighting how a well-thought
out strategy can help to guide a compensation plan that will meet business
objectives. Tell us, do you have a compensation strategy that works well?