Compensation Philosophy and Communication

Is it time for your organization to overhaul its compensation philosophy? If you are like most employers facing a tough economy, the answer is an emphatic "yes!" You can't afford to keep using yesterday's strategies in today's business environment. In 2009, approximately 4 out of every 10 companies instituted salary freezes in a desperate attempt to stay afloat. The pain is likely to ease this year, but it is no longer possible to ignore one fact: employers need a higher return on their employee compensation investment.

Benchmarking Compensation

Accurate salary benchmarking is one way employers can begin assessing their pay structure. Many organizations have no clear idea how they stack up to their competitors in the contest to attract and retain talented employees for critical positions.

Knowing who you want to compete with is important when it comes to determining the pay and benefits you offer. Some companies are interested in being a top-ranked employer nationally. Others intend to source talent locally and can adjust their compensation accordingly.

Balancing Pay Types

Base salary and incentives should both play a role in your compensation plan. Do you have a solid evaluation program in place to monitor and improve performance? If so, you can shift more money into incentive pay and stop spending it on fixed salary increases.

This approach gives you a higher ROI than base pay because you can easily identify employees who underperform. They will forfeit their at-risk pay and you can reinvest it where it will make a difference. Your top performers will have plenty of reason to stay with your company since their work is recognized and compensated appropriately.

Communicating Successfully

When employees are first introduced to your new compensation model, their reaction will be more positive when they have all the facts. Make sure HR and all levels of management are communicating regularly with employees about how their pay is determined. Every worker should understand exactly how their performance is evaluated.

This means your managers must know how to set intelligent, achievable objectives for each of their employees. Now is an excellent time to invest in training for your management team. That way, they can lead effectively using realistic, measurable goal setting and frequent feedback to encourage productivity.