21 Mar What is Your Organization’s Compensation Definition?
A quick search for “compensation definition” tells us that this important aspect of business refers to the “direct and indirect benefits that a worker receives from an employer.” Yet, compensation meanings can be different from one organization to the next. How should compensation be defined in your company? Here’s a brief guide to help.
How to Define Compensation in Your Organization
Know Your Competitors
The ability to pay competitively can influence your company’s success in terms of attraction and retention of top talent. Yet, there are many variables which can influence how competitively you should pay. For instance, you may aim to pay in the top quartile for talent in very high demand, whose contributions are essential to the success of your business. Understanding how competitors in your market and geographic area pay their workforce should be one factor you use to form your compensation decisions – but not the only one.
Consider Skills, Experience, & Education
Additional guiding principles for setting pay ranges are the employees’ roles and levels within the company, but factors such as skills, experience, and education may also be factored in. Categorizing by skills is a good way to help you define compensation, as roles such as management can vary significantly from one branch or department to the next.
Factor in Performance
Pay for performance is a leading compensation strategy, and for good reason. When implemented properly, it rewards top performers for their hard work, while encouraging others to improve. For best results, performance metrics and rewards must be clearly defined, and managers should have ongoing conversations with their direct reports to discuss how they’re progressing towards their goals.
Consider Other Forms of Compensation
Of course, it’s important to note that the definition of compensation encompasses far more than base pay. It can also include bonuses and benefits, so consider this when establishing what compensation means to your company. Once you’ve weighed these factors, you can then form a compensation philosophy that is both competitive and fair.
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