The Key Principles of Compensation

The Key Principles of Compensation

For the majority of organizations, the core principles of compensation involve striking a balance between paying in a way that is externally competitive and internally fair. Yet, there are many different interpretations of what is fair. For this reason, it is critical to achieve clarity and agreement among key stakeholders on how the company should be paying its people. This will ultimately inform your rewards philosophy and help you assess the degree to which each driving factor should influence your total rewards decisions.

The Drivers of a Rewards Philosophy

A company’s rewards philosophy is driven by a few key factors: its employee groups, including generations, locations, and ethnicities; its business segments and sectors; its business growth aspirations; and, its business life cycle. While each of these elements drives the rewards philosophy in unique ways, one of the primary factors to look at when designing a compensation plan is the business’s life cycle.

The Business Life Cycles

A business may fall into one of the following stages: launch, growth, shakeout, maturity, and decline. Assessing which phase the business serves as a critical building block of developing a pay strategy. According to an HRsoft poll, 48% of businesses are now in the growth phase, while the maturity stage is a close second, with 42% of companies in that category. A remaining 10% are in the shakeout phase.

Because there are unique pressures and demands at each stage, compensation professionals must know precisely where their companies fall in order to develop pay plans that support the needs of the business at that moment in time. The plan should answer the question: How do we tie in compensation to help the company through this particular stage? While this is an ongoing question to which there is no simple, definitive answer, revisiting it regularly will help to ensure pay decisions are always supporting the needs of the company.

 

HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.

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