What Kind of Pay Offering Promotes a Growth Partnership?

Building a compensation offer that reinforces a sense of partnership with employees is less about how much they are paid and more about how they are paid. Why is that distinction so important? Because compensation is expensive, and if it’s not done correctly, your P&L will suffer, your ability to attract and retain top talent will diminish, and your growth plans will be inhibited.

That’s a lot of self-inflicted, preventable pain. To avoid that outcome in today’s ever-changing environment, company leaders must adopt a more strategic approach to compensation and how their pay offerings are structured. They need to think about the forms of compensation their employees should receive to ensure they drive the results they’ve been hired to produce. For example:

· Should employees receive high salaries and modest incentives—or vice versa?

· Should they be rewarded for short-term performance or long-term?

· What about the pay offering employers will be making to the people they want to recruit next year?

· What will top talent expect and how should that factor into a business leader’s compensation planning?

The combination of a highly competitive talent market and an unpredictable economy makes it difficult for enterprise heads to be confident about any pay strategy they consider. Chief Executive Magazine said it this way:

“There is a delicate balancing act happening in many organizations where there is a need to: Be conservative in hiring activity and managing variable labor expenses, and; Reward existing talent—and especially top talent—as competitively as possible.” (“Compensation Challenges and Opportunities in 2023”—Chief Executive Magazine, January 2023)

Adding to the dilemma most chief executives and owners face is the uncertainty they have about the impact incentive compensation has on employee performance. Every year, they pay thousands of dollars in bonuses and other financial awards but feel the results their people produce don’t justify those payments. They know they must be doing something wrong, but they can’t identify what it is.

Getting Compensation Right

The starting point in creating an effective pay strategy is defining the “job” that compensation should fulfill for your company. And to determine that, you must start by addressing why you pay your people at all. Too often, business leaders look at compensation as an issue they just have to “deal with” and don’t give it much strategic thought. Perhaps they institute an annual incentive plan because they think they need one to be competitive, but then end up resenting the plan because employees view it as an entitlement. So, they “fire” their bonus plan and “hire” another one in an attempt to change behavior or otherwise rewire the way their employees think.

Offering an annual incentive to ensure your rewards offering is competitive may be a legitimate reason to “hire” (institute) a bonus plan—if that’s the job that needs to be done. But if you want to be able to assess whether it’s fulfilling its role, you must establish the outcome you're looking for before you build the bonus plan.

A better approach to pay is to adopt the same mindset to compensation as you do in building a go-to-market strategy for the products you develop. Presumably, when you create a new offering for your customer base, you think about the issues it will solve for them. You carefully consider the audience to which you are appealing and then determine what your product will empower them to do easier, faster, cheaper, or better. When you get it right, the market responds by buying more and more of what you’re offering. When you don’t, your sales reveal you missed the mark.

Your compensation strategy should be no different. What problem(s) must compensation solve for your business? What is not happening currently that needs to happen, and how might a given pay strategy solve that problem? And who is the audience the value proposition must appeal to if the outcomes you’re looking for are going to be fulfilled?

To succeed in today’s business environment, companies need a compensation offering that will work in any economy and every talent market. They need a value proposition that is both complete and compelling.

To dive deeper into this topic, read VisionLink’s guide: How to Build a Complete and Compelling Employee Value Proposition. This handbook reveals the secrets held by compensation experts for building a pay strategy that drives profits, improves recruitment and retention, and rewards growth.