Most employees are far removed from the design and analysis of their compensation plans. Behind the scenes, the employer is investing time and resources in designing the plans that attract, retain and motivate top talent.
While every company plans compensation packages differently, there are some core strategies that can be applied to attain success in recruitment and retention.
You can plan big with these five strategies to building a successful employee compensation plan:
1. Communication is key.
Good intentions behind the design of a compensation plan do not necessarily deliver the intended results. Communication is the driver. Management is responsible for communicating the “why’s” and “how’s” of the plans it has designed. In addition, keeping people abreast of performance — both corporate and individual — is paramount when a company has a pay-for-performance culture.
2. Good corporate strategy equals successful compensation plans.
All too often, compensation plans are in place because “it has been done in the past.” For a compensation plan to be truly successful, it must be tied directly to corporate strategy.
One of the biggest failures of pay plans is they do not take into account all the key drivers that will make the company successful. Without this “linkage,” pay plans can actually promote unwanted behavior that offsets the overall strategy of the company.
3. A sound employee performance evaluation process is essential.
The employee evaluation process may be tedious, but it is the catalyst that drives most, if not all, pay decisions. The employee evaluations and the process utilized should have direct ties with the compensation plans used. It gives the company the ability to show definitively that results impact rewards.
4. Pay is not perceived the same by all.
Abraham Maslow’s theory of the “hierarchy of needs” directly pertains to this strategy. Base salary and benefits are typically essential to all employees in the corporate workplace. These are key “building blocks” of pay.
Beyond these basic building blocks, the “hierarchy of compensation needs” changes as much as the demographics of the organization. Giving appropriate consideration to these unique needs and tailoring portions of total compensation allows an organization to reinforce its culture while maximizing the utility of the total compensation dollars.
5. Recognition, recognition, recognition.
Acknowledgement is a fundamental human need. Compensation is a great way to express appreciation and acknowledgement of a job well done; however, compensation plans are typically based upon milestones in the calendar year.
Remember, everyone wants a “pat on the back” or some form of recognition when they, as an individual or as a team, have achieved something worthwhile. Recognizing and reinforcing top performers through compensation will promote the corporate culture, promote desired work ethic and achieve results.
Well-designed compensation plans have the ability to propel an organization forward. These strategies, among others, should be considered by those responsible for compensation design — the CEO, CFO or vice president of HR — in order to achieve success. Leading organizations are built on talented, committed professionals — competitive, well-planned compensation packages are vital to recruiting and retaining these top performers. ●
Brent Longnecker is chairman and CEO and Chris Crawford is president of Longnecker & Associates, and are experienced in the field of compensation and corporate governance consulting. They have authored 15 books on compensation, including “The Power of Restricted Stock.” For more information, visit www.longnecker.com.