Although there are many factors that are considered when determining the correct HR strategy of an organization, today’s compensation system is a critical component to maintaining or increasing market competitiveness and ensuring an organization’s success. It should support your organization’s ability to recruit and retain the right talent required for success by linking pay and rewards to company goals.
The first step in designing a successful compensation system is to fully understand the strategy and goals of your organization. This should be the foundation for the design of all pay- and rewards-related programs. Too often a compensation strategy is developed in a silo without giving this any thought whatsoever. And without business and compensation alignment, you will be spending what is typically the organization’s greatest business expense on skills you may not need or want—or at the very least, a skill that is not critical for business success.
Whether you have a formal compensation system or not, how you address pay will have an impact on the organization and communicate a message to employees—intentional or not. With a fully aligned compensation system, pay and rewards can be directed toward accomplishing business goals and ensuring that your employees have the skills to accomplish those goals and are paid accordingly.
Here are my top recommendations for what a highly effective compensation system should accomplish:
Communicate company goals and strategy to employees
Demonstrate the importance of pay and rewards within the organization
Support an aligned performance management system
Ensure your ability to attract and retain quality talent that you require for success
Provide visibility of any misalignments with company objectives
Maintain consistency in the application of the compensation system through a strong compensation administration program
Also, remember, for better or worse, your compensation system does speak to employees. Use it as another tool to teach them about your business, how it links to compensation and how it impacts bottom line results. And, the good news: this education tool is free, plus it can provide a high rate of return. By educating your employees, they will understand how to do their jobs better, which will result in higher performance, leading to improved company results and the organization’s ability to pay higher compensation. It’s a win-win all around!