The First Step to Designing a Competitive Compensation Plan: Define Your Strategy 

Total Compensation Statement Software

The First Step to Designing a Competitive Compensation Plan: Define Your Strategy 


Before you can establish a competitive compensation plan in your company, you must first create a strategy that fits with your organizational goals. I’ve found that it can be helpful to ask yourself a set of questions (which I’ve provided below) to establish a foundation upon which you can build your plan.
What Is A Well-Defined Compensation Plan?

A well-defined compensation plan begins with a core compensation philosophy. It should be built upon extensive research into your company values, market data, economic conditions and industry best practices. Ultimately, a solid compensation plan aligns organizational goals with your comp planning strategy.
Questions To Ask When Building A Compensation Philosophy Statement:

A compensation philosophy statement will summarize your organization’s comp strategy, guidelines, and goals. It answers a number of fundamental questions, such as:

  • What are our enterprise goals?
  • What are the actions and behaviors that will lead to the attainment of these goals? (and thus should be compensated)
  • How should performers who drive these actions be paid?
  • What should be the company stance on competitiveness? (What are the strategies and techniques that might be leveraged to gain an understanding of how the salary structure is positioned with respect to the rest of the market?)
  • How should the compensation dollars be allocated to achieve the maximum impact? (Example: If 80% of the comp budget goes into base pay, how can the rest of the money be used to offer attractive perks and rewards to the employees?)


When you answer these questions, you can develop a clear compensation statement that’s aligned with recruitment, performance, market positioning, employer branding, and ultimately, your enterprise goals. With this information, you can build a robust pay philosophy that does the following:


– Embodies the beliefs core values and stance of your company and its C-Suite executives

– Takes into consideration the fact that a company needs to maintain profits yet be internally equitable and externally competitive and thus focuses on the economic conditions within the industry to be feasible and viable

– Respects industry best practices and laws such as FSLA, thus being legally compliant

– Dictates recruitment decisions so that new talent is always given a starting package that is reflective of the scope of development within the company and organizational values


What Are the Best Ways To Align Compensation With Your Enterprise Goals?

The best compensation structure is one that is well aligned with enterprise goals. For example, if your organization has decided to focus on improving customer service, then the behaviors and actions that can lead to the realization of this goal include responsiveness, going above and beyond the call of duty, and high Net Promoter Scores. It is the duty of the organization to identify the employees who display these traits, and then reward them accordingly.

A ‘softer,’ more inward-focused goal might be to create a culture of pay for performance. Under such circumstances, the process of identifying star contributors needs to be refined and defined, and compensation calculation will be directly linked to the result of performance review, manager input, and productivity.


As you can see, there’s a lot to consider when creating a competitive compensation plan. HRsoft takes the complication out of designing a compensation plan through its automated tool, COMPview.


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