How do you adapt your compensation approach to different employee groups and locations?

the best compensation approach for different locations depends on your company's specific goals, workforce demographics, and operating environment. Carefully consider the pros and cons of each approach, analyze relevant data, and involve stakeholders in the decision-making process to ensure a fair and effective compensation strategy. Remember, transparency and clear communication are crucial throughout the process to ensure employee understanding and acceptance of the chosen compensation approach.

To be truly robust, any compensation philosophy must take into account two factors: internal logic, and external market reference point. For the first, your jobs must align logically with each other, both vertically in different levels of job family, and horizontally, across disparate corporate job functions (i.e., Product Development, IT, Finance, etc.). If the pay ranges associated with jobs don't make sense, it can result in employee dissatisfaction, confusion, and attrition. Next, determine how you want to stack up against the external market. Although most companies target the aged median, it may make sense to target a %ile above or below, depending on corporate goals. Is turnover acceptable? Target a benchmark accordingly.

It's helpful to consider that some of the categories most helpful in compensation program design are not necessarily the obvious ones. For example, consider a privately held company whose compensation strategy includes equity (stock options) as a potential mode of compensation. In this instance, it may be helpful to consider a category of financial risk tolerance. Employees with a greater tolerance for risk are more likely to value, be motivated by, and purchase stock options, whereas employees with low risk tolerance are more likely to value cash compensation instead. Thinking along these lines will help you design compensation programs that appeal to all groups.

Your pay structure is how you choose to align your internal compensation approach to the market. It needs to accommodate your employee segments across functions and levels, and needs to have a strategy for localization (both across countries if you are global, and in-country if your philosophy chooses to differentiate by cost of labor). In an era of pay transparency, the compensation structure is a visible artifact that will affect how the market views your organization, and how your current employees understand their growth opportunity.

Pay structure is the architecture into which jobs and pay ranges are slotted. Determining an appropriate pay structure enables seamless job progression, pay budgeting, and promotion. How much do I want my ranges to overlap? How wide do I want my ranges to be? Do I want progressively wider ranges for increasing seniority? Do I want disparate range progressions for exempt/non-exempt jobs? There is no one-size-fits-all answer to these questions. This will depend upon business needs, hence it is crucial to have buy-in from executive stakeholders and affected employees.

Adapting the compensation approach involves considering various factors such as skill level, experience, market rates, and geographic location. For instance, high-demand skills might warrant higher pay regardless of location, while cost of living discrepancies may necessitate adjusting salaries in different regions. Additionally, offering flexible benefits like remote work options or localized perks can further tailor the compensation package to meet the diverse needs of employees across different groups and locations, ensuring fairness and competitiveness.

Don't sacrifice practical application for the sake of elegance! Oftentimes it is tempting to create simple, straightforward rules, that are universally applicable. Although these are easy to communicate, they run the risk of sacrificing applicability to the on-the-ground real life cases. Listen! Are your employees concerned about implementation? This is a good reason to slow the process and revisit axiomatic assumptions.