In today’s dynamic and turbulent business landscape, attracting and retaining the best talent is top billing for many hard working HR teams.
One vital tool every HR professional needs when creating satisfying and engaging workplaces, is a well-crafted compensation and reward strategy – and they’re not merely about salary figures and benefits. An effective compensation and reward strategy can be an immensely powerful tool that can unlock the full potential of a business and its workforce.
Their importance means that designing an outstanding compensation and reward strategy requires careful planning, analysis and alignment to your organisation’s key goals and values. Otherwise, your strategy will have little in the way of direction or key metrics to success!
Also, remember that an effective compensation and reward strategy is not just about paying and rewarding employees well. It’s also about creating an environment where employees feel valued, motivated, and invested in the success of your organisation.
With all that in mind, let’s dive straight into the key actions you should take when designing your own compensation and reward strategy…
1. Understand your organisation’s core objectives
A great compensation and reward strategy can help unlock the true potential of your people and your business. So, the first action you should take is understand your organisation’s core objectives, and what its ultimately looking to achieve. It is important that your reward strategy also aligns with you core values and company culture.
Start by identifying what success looks like to your business, and the key performance indicators (KPIs) that you can measure that success by. Once you’ve done this, you’ll have a better idea as to how your compensation and reward strategy can support the measurable business outcomes you’ll want to achieve.
2. Conduct a review of your current compensation and reward structures
If you want to attract and retain the best talent out there, you’ll need to find out just how an attractive proposition your business is from a compensation and rewards standpoint in the present. So, perform a thorough review of the current compensation structure within your business, including salary levels, benefits, performance-based incentives, and any type of bonuses your business offers.
With the information you gather, you’ll be able to analyse how well your compensation and rewards packages align with the market rates and industry standards, which leads nicely onto…
3. Conduct benchmarking and analysis
Next, you’ll need to know where your company stands in relation to your industry competitors. This is especially important if your business operates in a niche sector, or requires employees with in-demand or hard-to-find skillsets.
Researching and benchmarking the compensation packages and benefits offered by your competitors and companies in similar industries is vital. Doing this will help ensure your organisation remains (or becomes) an attractive option to potential new joiners, and a competitive business that employees will be happy to remain at for longer.
4. Involve your employees and gather their feedback
As your compensation and rewards strategy will affect your employees, it makes sense to involve them in its creation. Look to collect feedback to understand their preferences, expectations, and pain points regarding rewards. This engagement can increase employee buy-in and satisfaction with the overall strategy.
One simple way to do this is through a Pulse Survey. By asking simple yes / no questions such as ‘I believe I receive a fair wage for my role’ or ‘I feel my efforts are rewarded by the business’, you can gather actionable and measurable responses from the survey’s participants. When it comes to developing your strategy, a pulse survey can help you identify what’s already working in your organisation, what’s not, and what can be done to improve things.
5. Create employee groups
Next, look to segment your employees based on their location, roles, responsibilities and individual contribution to your organisation. You’ll need to do this as different employee groups may require a different approach to compensation and rewards.
For example, the role of a customer service agent will likely have vastly different KPIs compared to that of an engineer. As a result, you’ll need to consider how your overarching compensation and rewards strategy can appeal successfully to employees in varying job roles, have differing measurements to success or career aspirations.
It’s also important to understand differences of compensation in different regions, within one or multiple countries. In addition, you’ll want to consider whether certain reward elements are attracting in-person roles, while others for remote or hybrid employees.
This is where your previous benchmarking exercise and an HR system can bring great benefits. For example, Cezanne HR’s integrated Compensation Planning module makes it a lot easier and efficient to apply benchmarking data to different employee groups. It does away with the need for manual spreadsheets and hard-to-manage macros.
Instead, it allows users to see relevant benchmarking data in one central database based on employee segment– helping HR professionals guide their people managers into providing fairer, more accurate reviews for employees.
6. Align your strategy with your company’s performance management programme
If you’re looking to boost productivity and performance in your business with your compensation and benefits strategy, tying it in with your company’s performance management programme is essential. This way, everyone is clear as to what their goals are, what they need to do to achieve them, and their progress against key indicators of success.
In addition, look to establish clear performance evaluation metrics for your strategy, and link them to any reward or recognition system you already have in place. This will encourage your employees to strive for continued excellence and give you the opportunity to reward those who contribute significantly to your organisation’s success.
Of course, you’ll first need to ensure that your performance management programme is fit for purpose – just read this article to find out if yours is or not…
7. Consider the rewards and longer-term incentives you’ll be offering
When we think about rewards, it’s very easy to simply jump to rewards of the monetary-based variety. Although rewards such as traditional cash bonuses do have a vital role to play in many organisations, non-financial and experiential rewards are also something you should give serious consideration to – and with good reason!
Research by McKinsey shows that today, 55% of employees prefer non-financial awards over monetary-based counterparts. These can be experiential rewards, offering personal and memorable experiences to employees. Experiential rewards allow deserving employees to celebrate their success how they want to, and also be perceived as more meaningful, too.
Experiential rewards can give your employees positive associations to your business that last much longer than a transactional reward – which is brilliant for staff retention. Another example of non-monetary based award can be company culture, personal development or flexible work environments – something today’s workforce value now more than ever.
Along with short-term performance-based rewards, consider implementing long-term incentive plans to align employees’ interests with the long-term success of your business.
8. Ensure legal compliance and minimise bias
To avoid any legal issues, before you implement any new compensation and reward strategy, take the time to ensure that complies with all relevant labour laws, regulations and ethical standards. This is especially important if you’re introducing your strategy into a multi-national organisation with offices in multiple countries. You may also want to check that your strategy will support any DEI initiatives being undertaken, and that it avoids any gender bias.
9. Communicate your compensation and reward strategy clearly and involve managers and senior leaders
When you’re ready to roll out your compensation and rewards strategy, be transparent about its launch and how it will affect your employees.
First, ensure your leadership team understands the strategy and will be able to discuss it with your employees. Clearly communicate the strategy to your employees too, your criteria for rewards, and how they can progress within the system. This type of open communication fosters trust and ensures employees understand their value within the organisation.
Need to brush up on your own communication skills? Then check out these insightful TED Talks on the subject.
10. Conduct regular reviews and adjustments
Last, but by no means least, a good compensation and rewards strategy is not a fire and forget exercise! The working landscape is incredibly dynamic and always shifting; so, regularly review and assess the effectiveness of your strategy along with your key stakeholders, and adjust as needed to remain competitive – especially if the core objectives or circumstances of your business change…