Any seasoned business leader knows the value of talent acquisition and retention and, thereby, that of compensation plans or payment packages. Lever's 2022 employee retention study states that salary and potential bonuses motivated 46% of the surveyed employees to continue at their current jobs.
Competitive and flexible compensation plans help organisations fairly reward their talent and forward their business goals. From motivating employees and reducing talent loss to attracting skilled talent, carefully drafted compensation strategies can benefit an organisation in varied ways.
Compensation planning refers to structuring ways of rewarding employees for their work in keeping with the larger organisational goals and budgetary limits. These plans may include cash and non-cash benefits extended to employees in exchange for their work. Basic salary, commissions, overtime pay, and fringe benefits like paid holidays are essential to a compensation plan. Even one’s raise schedule and bonus structure are included within these plans.
While under the umbrella of a company’s HR and talent management departments, drafting a fixed or flexible compensation plan also requires inter-departmental input. The plan must blend employee needs and company budgets while ensuring legal compliance. As such, the core management, HR, finance, accounts, and legal teams play a part in distilling compensation strategies and plans for various employee brackets.
Now that you know what a compensation plan is, it's time to move on to the various types of compensation plans:
Payscale’s latest report suggests only 55% of organisations have adopted a formal compensation strategy. If, as an employer, you’re looking to formulate a compensation plan, here’s a list of actionable steps to follow:
Step 1: Ascertain the objective of your compensation planning strategy.
Step 2: Create a compensation committee and appoint a compensation manager to oversee the planning and implementation process.
Step 3: Set a budget for each employee category.
Step 4: Ensure compensation plans align with your company’s goals and employees’ wants.
Step 5: Conduct market research to ensure the plan remains at par with other companies operating in the industry.
Step 6: Rank jobs to create pay tiers by creating salary ranges and pay grades based on employee experience within each range.
Step 7: Implement the program and take periodic employee and stakeholder feedback.
Step 8: Be prepared to adapt the compensation plan to remain competitive and legally compliant.
No two compensation plans can look alike since each reflects specific organisational goals, employee needs, and budgetary parameters. Your compensation plan should reflect the company’s values and create a long-term framework for a fair rewards system, boosting employee morale and productivity.
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Compensation planning has the following objectives:
Compensation planning varies for different companies. For instance, the compensation plan for a marketing manager will include their base pay, performance-based commissions, and benefits like healthcare and paid leaves.
The 4 common types of compensation plans are:
The structure of compensation plans will vary depending on the company in question and the strategy followed. However, most consist of a basic salary, commission or incentives, any applicable overtime pay, and fringe benefits like medical insurance and retirement benefits.