Developing a Comprehensive
Compensation Program

A compensation strategy defines how an organization views and manages employee pay and benefits. The strategy serves as a guide and should be defined in a written document that clearly articulates the organization’s approach to compensation management. An effective compensation strategy serves to motivate current employees and attract new ones. Some people think of compensation as merely salary but the real cost of total compensation includes every aspect of employee benefits. The cost of health benefits, retirement benefits, tuition reimbursement, bonuses or other incentives are real costs that need to be considered part of total compensation. The first step would be to set a budget allocation. The strategy should include the organization’s approach to allocating compensation dollars into salary and benefits. How much of total compensation budget will be spent on salary and what percentage will be spent on benefits and other incentives. The second step would be to develop salary ranges. Developing salary ranges is critical to ensuring employee pay is competitive with other organizations. To be competitive, it is important to benchmark like jobs within the same industry and create a pay structure. Salary ranges can be developed internally by conducting research or utilizing sites like salary.com or payscale.com to determine average salaries in a particular geographic area. It is important to look at all jobs and determine what work is done, how the job is slotted and establish salary ranges that match all job descriptions. The third step would be to conduct a salary audit. Markets change therefore it is important to perform routine salary audits to ensure salary ranges reflect current compensation trends in a particular industry. How competitive are those particular jobs and what is the external market demanding? Is it a growing or dying profession? Failing to keep up with market competition can lead to loss of valuable employees. The fourth step is to create benefit package. Benefit packages are used to attract and retain employees. Being competitive with health, retirement, tuition reimbursement and other benefits can be the determining factor for a job candidate who is deciding whether to accept a position with an organization or an employee deciding to stay with an organization. The fifth step is to structure a performance management process. A performance management process ensures that employees are meeting corporate objectives and are assessed on a regular basis. This process should include development of annual goals, annual performance appraisals and a structured process for coaching and mentoring employees. Compensation strategies can positively influence employee engagement and employee productivity. The sixth step would be to create a legal compliance strategy. A well-defined compensation strategy will incorporate legal requirements to ensure the organization is in compliance with all federal and state laws. A structure would eliminate natural biases made in hiring decisions and ensure compliance with Department of Labor and Fair Labor Standards Act laws such as minimum wage, overtime pay or Lilly Ledbetter Fair Pay Act of 2009. The Lilly Ledbetter Fair Pay Act of 2009 is a federal statute in the United States that was the first bill signed into law by President Barack Obama on January 29, 2009. The Act amends the Civil Rights Act of 1964. The new act states that the 180-day statute of limitations for filing an equal-pay lawsuit regarding pay discrimination resets with each new paycheck affected by that discriminatory action. The last step would be to have a structured administration. As with any other business process, structure is important. Developing an annual review process, salary audit, raise process timeline and making sure someone is responsible to ensure all areas are completed is critical to successful compensation management. Finally, a comprehensive compensation strategy can be the foundation for creating an environment that recognizes and rewards employee performance and helps to establish a strong culture of employee engagement. Organizations are only as successful as their approach to hiring the right people, setting clear expectations, managing performance and recognizing and rewarding employees for a job well done. (1) Your organization has several years of significant profits and the employees want a share. I would give some employees an annual 3% raise and others as much as 5%. I would also implement programs that would allow employees to earn safety points for working safely that will turn into gift cards at the end of the year. I would also invest in having appreciation lunches that would show gratitude for the success of the company. Last but not least I would give out 50 dollars gift cards at Christmas time to say thanks for a job well done. (2) Your organization has several years of break even or losses and employees want a raise to keep up with the competition. In order to continue to give employees raises I would need to cut cost in other areas of the organization. Some cuts would consist of bonuses, gift cards, and overtime. If that does not resolve the issue then I would start laying off employees.