Before you think about designing and implementing a compensation plan, you must first develop a clear and compelling compensation strategy.
Six steps to a sound compensation strategy
To develop a successful compensation strategy you need to take the following steps:
- Define your compensation philosophy.
- Link compensation to your overall business strategy.
- Change the culture and reinforce it with compensation.
- Reward the behaviours that drive the results.
- Think total compensation.
- Measure your return on invested payroll £s.
1. Define your compensation philosophy
A sound compensation programme begins with a clear, focused compensation philosophy that defines and answers fundamental questions such as:
- What do we want to pay for?
- How do we want to pay for it?
- What is our competitive posture?
- How will we split up the pie?
We recommend developing a total compensation mission statement that clearly specifies the results you want to accomplish, the behaviours necessary to achieve them, what you will pay people for, and how you intend to position your company in the marketplace. This lays the foundation for your entire compensation programme. It serves as a compass and a beacon to guide you through the difficult task of creating and implementing the programme.
Who creates the total compensation mission statement? Depending on the size of the company and the management structure, any or all of the following: board of directors, board of advisors, CEO, top management team and representatives from others in the organisation.
Your pay philosophy should:
- reflect the values and beliefs of the owner/CEO/management team
- reflect the economic realities of your pricing structure and market share
- take into account “softer” issues such as corporate culture, industry standards and your growth strategy
- provide a foundation to make consistent hiring and promotion decisions.