Compensation Strategies in simple words

Compensation professionals provides a strategic contribution to the company when they answer ‘Yes’ to the following three questions

Question 1: ?Does compensation strategy fit well with the objectives of competitive business and HR strategies?

Suggestion 1: If HR says their strategy is to hire at the right time and they successfully hire the in-demand skills within the timeframe, regardless of cost, that isn’t a strategy. For instance, a company hires a JCB machine at a premium price to clear roads during a landslide in Himachal in June. However, that machine isn't useful during floods in Zirakpur in August. The JCB machine wasn’t part of a strategy, just an immediate solution to a specific problem. Once the need is over, the resource is deactivated.

Similarly, hiring a specific skill set at a premium and then letting it go when it’s no longer needed isn’t part of a long-term strategy. Competitive business requires a company to develop capabilities over time by anticipating future and present needs and various business dynamics. HR strategies should be built around these insights, deciding whether to hire, train, or build internal capabilities using resources mindfully. ?

Question 2: Does the choice and design of compensation practice fit well to support compensation strategy?

Suggestion2: Designing compensation plans requires aligning them with various internal and external factors influencing business growth. For example, if a company is in the growth stage and HR includes stock options in the salary structure, it might reflect a start-up mentality and be ineffective. Conversely, a mature business needs a compensation design that supports sustained growth.

The challenge intensifies when a company transitions from a start-up to a growth stage, or from growth to maturity. During these transitions, the compensation design must carefully consider the baseline requirements of the changing business landscape. It's crucial to craft a compensation strategy that evolves with the company, ensuring it supports and enhances the specific needs and goals of each stage of development.

Question 3: Does the implementation of compensation practiced effectively direct employee behaviour to enhance job performance that support the choice of compensation practices?

Suggestion 3: As observed, employees earning between 10-12 LPA typically prioritize monthly cash in hand to meet their loans and other essential expenses. In contrast, employees (not all but many) in higher salary brackets may not check their salary accounts for months. This raises the question of how to enhance job performance across all salary brackets through effective compensation practices.

Compensation practices must effectively monitor and govern incentives to directly impact employee behaviour and improve performance. A critical issue is maintaining a balance in salary limits to ensure employees can have a full career span within an organization, from hire to retirement. Simply increasing an employee’s salary to anything like 60-70 LPA based on current business returns can be detrimental, as the ROI can fluctuate or be replaced by others. This highlights the need for strategic HR practices in compensation, training, and career development.

Strategic planning, designing, and implementing sustainable compensation practices are essential, especially in a rapidly evolving tech industry with companies offering high salaries to attract talent. Employees also, must also understand the potential long-term drawbacks of crazy hikes ending up inflated high salaries, as they need a secure, sustainable career. Effective compensation strategies should ensure that employees' earnings are aligned with their long-term career development and the organization's stability.

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