Compensation is one of the most important and complex aspects of HR consulting. It affects not only the attraction, retention, and motivation of employees, but also the alignment of business goals, performance management, and legal compliance. How do you integrate compensation with HR functions to create a coherent and effective strategy? Here are some tips to help you.
Before designing or implementing any compensation plan, you need to understand the client's needs, challenges, and objectives. What are their industry, market, and competitive position? What are their culture, values, and vision? What are their current and future workforce requirements? How do they measure and reward performance? How do they communicate and engage with employees? These are some of the questions you need to ask to assess the client's situation and expectations.
Viewing Compensation through a wider lens is also important for HR professionals i.e Total Compensation/ Total Rewards versus only direct Compensation/ base pay. Take home pay is most important, yes! ( and needs to be fair and equitable) however, it is not the only method of ensuring EVP. Employees also value workspaces that value them and via its Compensation framework implement meanful benefits and employee development polices and programs. This is not about gimmicks that do little to move the employees standard of life forward but meanful benefits that considers the employees overall welfare.
It's important to understand that different sectors of business will yield different needs when it comes to pay. For example, in the public sector, pay is often more constrained, and set on a scale pre-determined by the state or federal government. Conversely, in the private sector, the business can determine those pay characteristics to help better position themselves within their appropriate segment.
Based on the client's needs, you need to define the compensation philosophy and policy that will guide the decisions and actions related to pay and benefits. The compensation philosophy is a statement of the principles and goals that underpin the compensation strategy. It should reflect the client's mission, values, and culture, as well as support their business strategy and objectives. The compensation policy is a set of rules and guidelines that specify how the compensation philosophy will be applied and administered. It should cover the scope, structure, components, and processes of the compensation system, as well as the roles and responsibilities of the stakeholders.
Companies can lead-lead, lag-lag, or lead-lag the market when it comes to a compensation philosophy. This refers to where your company is positioned relative to the market data that is published for all organizations around pay. Lead-lead is ahead of the market all year. Lag-lag is behind all year. Lastly, lead-lag means you lead the market for half the year, and lag the second half. The latter being one of the most common approaches organizations take to remain competitive, while participating in the normal salary survey cycles.
Once you have the compensation philosophy and policy, you need to design the compensation structure and components that will translate them into practice. The compensation structure is the framework that defines the levels, ranges, and differentials of pay within the organization. It should be based on a systematic and objective job evaluation method that determines the relative worth and contribution of each job. The compensation components are the elements that make up the total rewards package offered to employees. They can include base pay, variable pay, benefits, recognition, and non-monetary rewards. They should be aligned with the performance management system and the market trends.
Cuando incluímos el concepto de compensación o recompensa total es cuando conectamos todos, no se trata sólo de salario, se trata de construir una propuesta de valor completa donde consideremos, además del salario equitativo y competitivo, beneficios flexibles, bienestar, un buen ambiente laboral, reconocimiento, opciones de formación, oportunidades de desarrollo, una cultura sólida, etc. Y todo esto, teniendo en consideración las necesidades de la empresa y tambien de las personas.
Depending on the organization, I have seen both broad-based structures, and very specific structures. A broad-based structure is good for organizations with copious amounts of employees as it helps to create a career lattice, and therefore more opportunity to move cross-functionally. This refers to broader titles and wider pay ranges which are more encompassing, as opposed to very specific titles for people in similar roles, with more constrained pay range spreads.
After designing the compensation structure and components, you need to implement and communicate the compensation plan to the client and the employees. This involves setting up the systems, tools, and procedures to administer and monitor the compensation plan, as well as providing training and support to the managers and staff involved. It also involves communicating the compensation plan to the employees in a clear, consistent, and transparent way, explaining the rationale, objectives, and expectations of the compensation plan, as well as the benefits and opportunities for them.
Having a communication strategy and incorporating recommendations from line leaders is key. You want the information to be consistent, clear and easy to understand. Employees want to know how this will impact them personally.
On this note, I feel it is pertinent to mention pay transparency, which is becoming a law in many states as we speak. Beyond being transparent with your employees and managers, soon it is predicted that organizations will have to be fully transparent with potential candidates as well. In certain states, you currently are required as an organization to post a pay range that reflects what you would reasonably expect to pay a candidate for the posted role. This is particularly true for remote work postings in which you could be recruiting from a state which requires transparency. It has created a new level of competition for organizations who previously used this private information as business intelligence.
Finally, you need to evaluate and update the compensation plan regularly to ensure its effectiveness, relevance, and compliance. This involves collecting and analyzing data on the outcomes, impacts, and costs of the compensation plan, as well as soliciting feedback from the client and the employees. It also involves benchmarking the compensation plan against the best practices and the market conditions, as well as identifying and addressing any gaps, issues, or opportunities for improvement. You should also review and revise the compensation philosophy, policy, structure, and components as needed to reflect the changes and developments in the client's organization and environment.