For most organizations, having a clearly documented compensation structure is important for a number of reasons. It means that every position within the organization has a pay grade, range, or level attached to it, which can enforce clarity and support the company strategy. It also allows employers to look at labor costs closely and helps to ensure that pay decisions align with the company culture. Finally, it lays the foundation for a robust and sustainable total rewards program.
Yet, according to an HRsoft poll, just 50% of HR or compensation professionals currently have an updated compensation structure within their organizations. The majority of remaining respondents were either in the process of building one or planned to create one within the year.
To build an effective compensation structure, total rewards design decisions should be made based on the employee behaviors the employer wants to encourage. It can also be used to curb negative behavior that would harm the company’s viability. Before these decisions can be made, however, there are a few key strategic elements which must first be in place. Here are the preliminary steps in building a solid total rewards design:
Develop a management philosophy
These principles should be based on the business leaders’ own personal beliefs and values. Although they do not have to match precisely, values should be aligned to help leaders establish how they want to run the company and make impactful decisions.
Identify the business strategy
The business strategy is the means by which the company plans to achieve its goals, based on the management philosophy and in a way that supports the company culture.
Establish a company culture
The company culture should be supported by the management philosophy and should encompass the employer brand. It should also cascade down into a strong employee value proposition and be a major guiding factor upon which many total rewards decisions are made.
Define your employee value proposition
This encompasses the offerings presented to employees in exchange for their contributions. It is defined by total reward elements and improves an employer’s ability to attract and retain quality candidates, as well as to help others self-select if they are not a culture fit, thereby saving the company countless hours and finances on employees who do not share the same values or work philosophies.
Create a total rewards strategy
The total rewards strategy is the stance that employers take in establishing their position on different decisions when crafting a total rewards program. It also highlights the acceptable and desired employee behaviors that match with greater business goals. These behavioral expectations can then be translated into measurable performance metrics to evaluate results against business plans.
Each of the business intangibles described above are closely linked. Thus, these steps are typically not completed in a linear fashion but instead are intertwined. The goal for business leaders should be to aim for purposeful alignment amongst these elements.
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