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Advantages of an Effective Compensation Strategy

What Is the Advantage of Taking the Time to Develop a Compensation Strategy?

The biggest mistake an organization makes in setting up a compensation program is to rush into getting the answers without carefully considering the issues. Next to your organization’s strategic planning efforts, dovetailing the compensation philosophy to support the organization’s strategic plan is paramount to success. Not sitting down with your senior management team and clearly discussing the basic strategic decisions around pay can be very costly not only in organization success, but can expose the organization to possible law suits. Because of this, it’s essential for your organization to sit down and discuss how to integrate general business strategy with compensation strategy.

How Do I Get Started with Developing a Compensation Strategy?

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  • Don’t assume that your senior managers are familiar with even basic compensation terms like ranges and what “total compensation” means. And, certainly very few understand the concept of compa-ratios.
  • If this is true, I’d start with a basic class in compensation so that, when you ask more detailed questions, there is a point of reference to even answer the questions.
  • Once this step is accomplished, you need to get a range of opinions from all the major stakeholders. In my sample of a compensation philosophy questionnaire, I have included both the board of directors and the senior management team.
  • E-mail works very well to get this information. I like to set the survey up so that the responses of each individual are confidential. Each participant will then see combined survey results.

Sharon’s Savvy HR Tip #1: It is important to get across to your senior management team that designing and installing an effective compensation strategy involves a long, difficult set of steps that take lots of time and effort to do right. It’s a great idea to publish a project plan, but make sure you don’t box yourself into deadlines that you do not have a good chance of meeting. For an organization of 500 employees and 75 unique job positions, this is a four to five month process and may take up to 20 percent of your time. This project can’t be done by yourself in a vacuum; you need to be very clear about what resources you need, mainly time from the senior staff to do the work, possibly consulting help and other resources such as salary surveys.


Sharon Koss
Koss Management Consulting

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Author of “Solving the Compensation Puzzle: How to Link Performance with Pay,” published by the Society of Human Resources Management (SHRM).

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