Questions on
Compensation Strategy

People ask questions on compensation strategy from time to time. Immediately look into these issues. People in HR are expected to find the solutions.

This will help you to make timely changes to strategies adopted by your organization. This will include your compensation and benefits system.

As the Human Resource Manager, you need to pay attention when people start to question your compensation strategy. Such questions remain relevant whether during difficult or good times.

Questions on compensation strategy raised from time to time include:

  • Why do you need to prepare and implement a compensation strategy?
  • How can you align compensation to your company or organization's strategy?
  • Will it enhance employees performance? How can you ensure this happens?
  • How effective is seniority as a factor in determining compensation levels?
  • How do you differentiate between the strategies for senior and junior employees, for executives and non-exectives?

Questions on compensation strategy are inter-related

The last question raises the issue of seniority in service and seniority of position as factors in determining compensation level. Let us look into this one first.

Whether the use of seniority is an effective way of compensating people depends on whether we are referring to service or position.

Seniority in service is not a good determinant of the quantum of compensation. An employee who had worked for a longer period of time is not necessarily a good performer.

You can use seniority of position as a measure of compensation. A senior position has more responsibilities and higher exposure to risk. Based on this, an employee receives a higher level of compensation.

If you give a particular employee more responsibility, it is reasonable to pay him or her more than another employee who holds an equivalent position but given less responsibility. Here you use the scope and extent of the duties and responsibilities as relevant factors.

Now the other questions.

You need a compensation strategy to attract potential employees having the right talents, and to motivate and retain them once they are working for your organization.

Before trying to relate your compensation strategy to the goals, you need some idea whether aligning compensation improves employee performance.

Aligning the key compensation factors to the overall objectives has the potential of motivating employees. There are surveys that confirm that highly motivated employees are more productive. Of course, you need a carefully-prepared compensation package suitable for each group of people in your organization.

Understand your organization's goals, present compensation policy and practices, current employee motivation level, performance data, organizational structure, demography, among many others.

Only after knowing all the relevant information on these many questions on compensation strategy can you determine the linkage or alignment to the organization's strategic objectives.

In order to do this, you need a good compensation framework that links every compensation factors to your organizational goals. (You will note that key activities are carried out in order to achieve the organizational goals.)

This framework requires you to consider all the factors stated above.

This framework may vary depending on the extent of your organization's operational activities and whether it is localized or globalized.

In short, your compensation strategy must work in harmony with the organizational goals, taking all relevant factors into consideration.

How can you ensure this happens?

You need a strategic fit. Carefully examined whether your compensation strategies are linked to your recruitment, retention and motivation strategies.

For example, are your pay system making talented people join your organization instead of another? Is the pay level fair and competitive enough to make key employees stay? Is your combination of compensation items motivating people to produce superior work?

These are among the questions on compensation strategy that you need to ask in order to come to a good decision.

When there is a strategic fit, compensation plays a vital role in increasing your people's motivation and this has the high potential of leading to higher productivity thus resulting in organizational success.

Questions compensation strategy arise when people are not convinced of their effectiveness or suitability. Alertness to such matters and the expressed opinions on the best possible answers can help you in the long run. Apart from this, think through the questions posed in order to find the answers.

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