If you’re looking for new ways to attract and retain employees while staying financially stable in a volatile economy, look no further than your compensation strategy. There’s a huge opportunity to stand out from the competition for talent. That search for talent is what’s driving 70 percent of employers to plan on making enhancements to their benefits and compensation strategies for 2023, according to Mercer.
But putting together a compensation strategy that’s sure to impress isn’t just about offering high salaries. It needs to be a comprehensive, thoughtful plan that defines all the ways your company compensates employees and why each component matters to your company and your employees. Done right, your compensation strategy can be a deciding factor for why employees choose your company and how your organization reaches its growth goals.
So what are the components of a compensation strategy, and how should your organization approach each one?
1. Salary Is Still the First Step
Salary is the most important component of a compensation strategy and makes up the bulk of total compensation, with benefits, bonuses, and perks making up the rest of the package (we’ll discuss each of these in subsequent sections). Salary includes:
Base Pay: Fairness Is the Ultimate Goal
Base pay can feel tricky, but the safest bet is to use reliable market data to find the minimum, median, and maximum pay for comparable roles. This helps you set a pay range for each role at your organization that’s fair and representative of your industry. Of course, you can choose to pay below, at, or above market rates, but that will depend on your overall compensation budget and how competitive the candidate market is for your particular industry.
Frequency of Pay: How to Support Employees Through Scheduling
If you’ve already set fair pay ranges, that doesn’t mean there’s no more wiggle room or ways for you to improve this part of your compensation strategy to better appeal to prospective and current employees. As we showed above, base pay is only part of an employee’s salary.
You can change the frequency of pay, for example, by adding weekly paychecks instead of monthly or bi-weekly to help employees feel more financially secure. In industries with high turnover and difficulty attracting workers, some employers are even adopting a strategy of paying employees daily.
Pay Raises: Why It’s Important to Be Upfront About Pay
More than anything, the key will be to clearly communicate your compensation strategy with employees and candidates—and most importantly, to tell them how they specifically fit into the whole picture. Before starting a new job, people expect their new employer to tell them their wages, including:
- What their base pay will be and how often they’ll get paid
- How and when they can earn or receive a raise
2. Use Bonuses and Incentives to Build in Flexibility
Now for another part of the total compensation package: bonuses and incentives. These can be commission-based or given as additional compensation outside of employees’ job tasks.
Here of employees’ job tasks. Here are some common examples of indirect compensation:
- Performance Bonuses
- Overtime
- Stock Options
- Commission
- Referral Bonuses
- Company Performance Bonuses
Employees deserve to be fairly compensated for their work, and most will expect some kind of raise or additional pay for their loyalty and performance. That doesn’t mean you have to give higher raises than your organization can sustain or pay employees above market rate.
3. Offer Benefits that Matter to Employees
Over three quarters of American workers say benefits are a necessity for companies to offer employees, with health insurance being the top benefit they look for at a new company. And seeing as healthcare costs continue to rise, organizations can’t afford to skip this type of compensation as a component of their compensation strategy.
As an employer, there are two main ways you can tailor benefits as part of your total compensation package.
- Choose which benefits you’ll offer.
- Decide how much you’ll contribute towards employee premiums.
Looking For the Best Employee Performance Strategy for Your Company? VITE is the perfect fit for you!
4. Don’t Forget Time Off—Why It’s a Key Component of a Compensation Strategy
In a report by Mind Share Partners, a nonprofit focused on mental health in the workplace, 84 percent of respondents “reported at least one workplace factor that negatively impacted their mental health in the past year.”
These were the top two workplace factors:
- Emotionally draining work (37%)
- Challenges with work-life balance (32%)
While you might not expect work schedules as a component of a compensation strategy, the time your employees spend working unavoidably affects their mental health and wellbeing.
5. Use Perks to Tailor Your Compensation Strategy to Your Employees
The needs of every person in your company can’t be met with a one-size-fits-all compensation strategy. You can use perks to customize compensation to the unique population within your company and tie your compensation strategy into areas both the company and employees value. Perks can also be a way to differentiate your company culture from others.
Benefits have a wage-base value, while perks are offered on top of wages and can cover something employees would have likely had to pay for themselves. As always, keep your employees in mind and think about their specific needs when choosing what to offer.