How is the Traditional Compensation Approach Different from a Modern One?

In recent years, many employers have been using modernized approaches to compensation as a way to engage and retain workers. If you’re like many companies, chances are you, too, have implemented some modern-day tactics into your compensation strategy. Yet, in order to know where we can improve with our compensation planning, it’s important to first understand what we’re moving away from. As such, it’s helpful to see how a traditional compensation approach differs from a modern one.

Let’s take a look at how separates traditional compensation from modern-day approaches:

  • Traditional Compensation:
    • Used to support traditional job hierarchies
    • Focuses on duties and tasks
    • Rigid in structure; not much room for variations
    • Information only shared on a “need-to-know” basis
  • Modern Compensation:
    • Structured based on company values and strategic objectives
    • Focuses on employee contributions; used to motivate
    • Agile enough to be updated with changing business needs
    • Transparent; information is shared to clarify expectations


While each company has different needs, many organizations can benefit from moving towards a more modern approach. In specific, all companies should be structuring their compensation plans based on their business strategy. In doing so, you’ll ensure your compensation plan is supporting the outcomes you wish to achieve.

Likewise, many companies can benefit from developing salary ranges. In fact, The Thriving Small Business deems salary ranges a must-have component for an effective compensation strategy, stating that it helps ensure your pay is competitive enough based on your geographic location, industry, and size.

Finally, greater levels of transparency are increasingly necessary in today’s workforce. To adapt to factors like new regulations and the availability of salary information at employees’ fingertips, organizations seek proactive ways to become transparent about pay. Perhaps more important than disclosing actual figures is making your pay policy public knowledge. According to the Wall Street Journal, having a standard compensation formula helps employees see that “their own pay was determined fairly and what to do to increase their compensation.”

One thing’s for sure: companies collectively are moving towards modernized compensation approaches, and the changes are paying off. By clarifying expectations and pay structures, using flexible salary ranges to support changing business needs, and tying compensation structures to business strategies, organizations can achieve more with compensation planning than they’ve ever done before.

HRsoft is a leading provider of strategic talent management software that improves manager effectiveness and business results.  To learn more about our compensation management Software, COMPview, click the button below!


Learn More