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Practices for Developing an Effective Compensation Strategy


Make no mistake: Today’s employees want more than just a paycheck. But while benefits like fulfilling work and work-life balance are valuable, surveys of employees and job seekers alike show that compensation remains their top motivator.

If you’re looking to develop or revisit your compensation strategy, consider these best practices.

Keep criteria specific and measurable

It’s intuitive enough: When making decisions about numbers, it pays to stick with what you can measure. Unfortunately, data shows that over a third of employees believe their salaries reflect what managers “feel” they deserve, not their actual performance or market rates.

Within each role, you’ll then be able to set up ranges or pay bands that take into account variables like individual performance and skills. If you’re just getting started with this process, Rassas recommends working with third-party compensation consultants or recruiters to identify what the top and bottom of those ranges should be.

Be clear about the role of performance

Performance-based compensation models are popular, particularly for sales or quota-driven roles. But when HR teams and managers aren’t transparent about what it takes to earn a promotion or raise, that can frustrate employees and drive top performers away. If you’re going to adopt a pay-for-performance model, be clear about your rationale.

Leverage total rewards statements

Compensation is about more than a biweekly paycheck — it includes bonuses, 401(k) matches, stock options, and other benefits. Even employer-sponsored healthcare represents part of the total rewards pie. According to the Kaiser Family Foundation, employers spent an average of $7,188 to insure just one employee last year — and $20,576 to insure those with dependents.

For companies that cover most or all of their employees’ premiums, the costs are even higher. That’s where total rewards statements come in. These itemized one-pagers highlight all the ways you’re compensating individual employees — in dollars. Provide employees with total rewards statements at least once a year. Recruiters can also use forward-looking versions to win over candidates. In either case, total rewards statements typically include:

  • Salary

  • Supplemental wages (bonuses)

  • Commission

  • 401(k) employer matches

  • Stock options

  • Paid time off

  • Profit-sharing

  • Employer-paid premiums for health, vision, and dental insurance

  • Stipends

  • Disability and life insurance

  • Employer-paid Social Security and Medicare taxes.

Stay receptive to change

Setting a compensation strategy isn’t something you do once. As your company scales and market expectations change, your HR team needs to revisit its approach to comp.

Stay flexible. While your HR and leadership teams are responsible for making the final call, it’s essential to listen to employee feedback. Incorporate Likert-scale prompts into your existing employee survey rotation, including:

  • I believe that I am compensated fairly for my work.

  • My compensation is competitive relative to my local market.

  • I understand how merit increases work at this company.

  • Compensation at this company is fair and reflects performance.

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