Adopt a Forward-Looking Approach to Compensation Management

Compensation Management is one of the important responsibilities of HR people and line managers. Failure to manage this sensitive matter well can cause many employee problems that, in turn, can affect the performance capability of your organization.



An area that needs careful thought is the management of incentive compensation. Compensation and incentive compensation management require a lot of planning. This where you can use strategies in the effective use of financial rewards as one of your motivational tools.

In formulating a compensation plan, you need to consider the following:

• Formulation and approval of a comprehensive compensation plan
Your compensation plan needs to cover most things from attracting people to join the organization, to engage employees, and to retain them for the long term.

Also included are compensation policy for employees who had reached the maximum of their pay scales, succession and employee career development plan, and how compensation is apply within the overall objectives of the organization.

• The compensation package for various groups of employees
Your compensation package needs to include both monetary and non-monetary compensation, incentive compensation programs, and benefits.

The compensation package is intended to attract the right talents. The inclusion of retirement plans in compensation packages is for the purpose of inducing employees to stay until they reach a certain age at which they will enjoy certain monetary benefits.

You may also have to see how the compensation package fit into the performance management system.


• The compensation strategy or strategies you will adopt


• Incentive compensation programs
Incentive compensation programs are intended to increase the productivity of employees. This is to bring about a performance-driven staff. Bonus is one of such incentives.

Your incentive compensation program can include a retirement plan. Such a plan has the potential of making people stay with your organization for a long time.

• (Perhaps) whether or not to implement a deferred compensation policy
Compensation management may also require whether or not the organization can defer compensation under certain conditions such as during recession or when financial performance is not satisfactory.

This is pay owed to employees which your organization has to pay when it has the money.

Another instance is to defer paying bonus to top management or forfeiting part of the bonus due to unsatisfactory performance.

• Whether to use executive compensation consultant(s)
You may decide that senior executives' pay and benefits are so crucial to organizational success that it becomes necessary to engage executive compensation consultants.

On the other hand, you may decide that the organization's HR experts are good enough for the purpose of determining the compensation package for junior employees.

• whether it is advisable to use incentive compensation software in compensation management

Other matters you may have to consider are the relevant information found in salary or compensation survey(s), whether compensation consultant can make any marked difference, and whether you have an in-house compensation consultants.

Definition of Compensation
By the way, people differ in their understand of the meaning of "compensation." Some define it as being the monetary award for loss, injury or suffering. Some others understand it to mean the sum total of the monetary and non-monetary pay including benefits given to employees. Here, we are using the second definition.

In addition, you need to determine the different features of the compensation package(s) with respect to executive and non-executive compensation plans. Bonus is an effective incentive if done right. Include where possible.


Compensation-Performance Relationship
You also need to take into account how the different performance levels of employees are treated under the compensation plan. Of particular importance is the executive compensation package. This is especially true of CEOs' pay.

Seen as Being Manipulative
Exercise caution while doing all these. If you are not careful, there is the possibility that your compensation strategic plan is viewed as being manipulative.

Do not allow employees to conclude that they will only enjoy pay increases in future if they can keep attaining the targets that keeps on getting higher year after year.

This is where you performance appraisal system can play a critical role. Reward people based on their actual performance on the job and exclude factors that have nothing to do with performance of the job.

People Involved in Core Business Activities
Consider adding features that demonstrate the importance of certain areas of the organization's activities, particularly sections closely involved in revenue generation, production, marketing and revenue collection. You will these activities as being connected to the core business of the organization.

Give them the rewards due based on outstanding performance.

Compensation, Misconduct and Indiscipline
Your compensation strategy has something to do with misconduct or indiscipline. You can decide not to pay any compensation for absence from work. This is apart from poor performance on the job.

However, the HR policy, the employee handbook as well as the disciplinary rules must have stated these things very clearly.

Work in Progress
Compensation management is work in progress. The search for better approaches does not cease.

Look out for any matter or issue that may weaken your compensation management plan which, in turn, can undermine the motivation of your people and organizational performance.

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