Far too many companies make compensation planning harder than it needs to be. By approaching the plan with the goals of keeping it simple and transparent, organizations can get started quickly.
In simple terms, compensation planning helps companies accomplish the following:
- Recruit and retain top talent
- Improve employees’ job performance
- Be confident about compensation discussions
The best companies have up-to-date compensation plans that support their business objectives and ensure their long-term success. A well-developed plan is based on many factors, including a company’s financial position, the size of their company, the industry, salary survey information, and the level of difficulty in finding qualified talent.
Below are some steps to you can take to get you started with planning compensation.
1. Complete your job descriptions.
Make sure you have written job descriptions for everyone in your company.They don’t need to be 100 percent complete, but they will be essential for matching skills, responsibilities and experience to each job position.
2. Develop your compensation philosophy.
Decide how competitive your company wants to be, e.g., lead the market, meet the market or lag the market.
There is no one best compensation strategy, and which strategy is appropriate for your company should match the particular circumstances of your mission, vision and culture and support your overall business objectives.
Our recommendation is to “match the market” as the starting point. Why? If you don’t pay your people competitively with the market, somebody else will. The benchmark data for cost of replacement is 2-3 x base salary, and the new employee will be paid at the market rate regardless of how high or low the existing employee was compensated.
This is a simple start. By formalizing your compensation planning, you elevate your company to one that is working to be the best in its industry. That is a great message to send employees, potential employees and your competitors.