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Recruiting and Hiring Advice

 

Compensation Strategy

By: Laleh Hassibi, PayScale.com

One of the most daunting challenges faced by HR professionals is getting executives on board with your proposed compensation plan.

As HR professionals know, compensation is an area of HR responsibility that can have a dramatic impact on strategic business outcomes.

Your job is to get executives to engage early on in the process by asking them for permission to align compensation strategies with business goals. Once you have their buy-in, take some time to understand these two important aspects of your compensation planning:

Who is your competition for talent?
Before you can ask yourself “How do I design a compensation plan?” you will need to work with your executive team to better understand the market you are recruiting within. You may in fact compete for talent from organizations that are quite different from yours.

Here are some common competitive talent scenarios that could apply to your company:

You compete for talent with a different organization type than your own.
An example of this is a non-profit company hiring for an accountant job description.

Many people understand and argue that salaries will be lower if you work for a non-profit organization as opposed to a for-profit company. But what about a position that is in high demand in any type of organization?

Having someone with good accounting knowledge is just as critical in a in a non-profit organization as it is in a for-profit company. Therefore, the challenge may be to benchmark this against a different competitive set.

You compete for talent with a different sized company.
In most cases (although not all), the size of the organization has a correlation with pay.

Generally speaking, the larger the organization, the higher the pay, as the organization has more capital to invest in wages. Even though small company wages are growing faster those of medium or large businesses, average salaries often still lag.

Be mindful of how your wages stack up when you are benchmarking, since you may be competing in the same talent pool as larger businesses.

You compete for talent nationally rather than locally.
Most organizations have a subset of their job postings that they recruit nationally. This is often the case with executive positions, but it may also be the case for highly-specialized positions that are specific to your industry.

If your target job seeker is geographically mobile, the geographic influence of pay may be less pronounced.

In such cases, you may want to consider pricing these jobs nationally. Additionally, you may need to price these jobs nationally to attract a sufficient candidate pool.

How competitive do you want to be relative to the market?

In addition to defining your competitive set, consider how competitive you want to be relative to the market overall.

Here are some competitive variables to mull:

  • Your company’s expected rate of growth over the next year and beyond
  • Your company’s ability to attract and retain talent
  • Predicted changes in your industry
  • Rating your company’s finances against the competition

As an example, a very common approach for a high-growth tech company would be to target the 60th-90th percentile, depending on the position. The company may target the 40th percentile for support and administrative positions, the 60th percentile for developers and marketing professionals and the 90th percentile for sales positions.

Understanding the importance of different roles in the organization as they align with business goals is key to making good targeting decisions.

Employee compensation plan design is a blend of science and art. The artful part comes with understanding your organization and creating a perfect marriage between business goals and compensation strategy.

As your executives see you working towards these company objectives, you will establish human resources as an integral part of the business, allowing you to create a compensation plan that results in success. 

 

 
 
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