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Compensation Strategy: Balancing Company Goals With Industry Shifts

Part 1 of a 5-part series on how to build a compensation strategy for your company that balances corporate goals and industry shifts, supports business strategy and ensures pay transparency.

Fair Pay for Employee Contributions

When managers discuss pay with their employees, they often encounter questions for which they need to be ready with an answer. Employees want to know they are receiving fair pay for their contributions and may wonder:

  • How is my pay linked to performance?
  • How does it compare to other salaries within the company?
  • What about similar positions in other companies?

Answering these questions is important to retaining talent, which is why all organizations should be equipped with a compensation design that balances company goals and industry shifts. Establishing a clear and standardized compensation philosophy enforces transparency across the organization and eliminates guesswork when employees seek to find out why they are being paid the way they are.

What’s more, a well-developed compensation strategy helps to support the execution of the business strategy while maintaining competitiveness.

Tactics for navigating compensation challenges

Designing a compensation strategy that balances internal and external factors requires consideration of many complex variables, including:

  • How to link business and compensation strategies
  • Key compensation principles to consider
  • How to develop your company’s compensation philosophy and goals
  • Methodology for designing a compensation strategy
  • How to maintain a competitive pay philosophy

Linking business and compensation strategies

To ensure a company’s compensation strategy is impactful, it needs alignment with the broader business strategy. Given that compensation typically comprises 30-60% of overall business expenses, it’s crucial for organizations to discern the factors influencing pay structures. Consequently, the fundamental cornerstone in crafting a robust compensation strategy lies in its integration with the overarching business strategy.

The business strategy informs the organization’s direction relative to its overall environment. It comprises both short and long-range goals and objectives and can encompass its SMART goals, pay-for-performance objectives, or any other goal-setting methodology the company utilizes.

The jump from business strategy to compensation strategy is often made without considering a crucial middle part: the human resources strategy. This entails the organization’s overall plan for attracting, retaining, and motivating employees, and should not be overlooked when developing a compensation strategy.

In the next part of this series, we’ll cover key compensation principles that enable effective pay strategies.

Does your compensation plan
give you the right balance?