Strategic compensation refers to the deliberate and thoughtful approach taken by organizations to design and administer compensation packages in alignment with their overall business objectives and goals.
It goes beyond simply offering competitive salaries to employees and encompasses a comprehensive framework that includes various components aimed at attracting, retaining, and motivating talent while also driving organizational success.
Strategic compensation refers to the deliberate and planned approach taken by organizations to design and implement compensation systems that align with their overall business objectives and goals. It involves considering various factors such as market conditions, organizational culture, employee performance, and retention goals to create a compensation structure that incentivizes desired behaviors and outcomes.
Compensation strategy refers to the overarching plan or framework that guides an organization's approach to compensating its employees. It outlines how the organization will use compensation as a tool to attract, retain, and motivate talent while achieving its broader business objectives.
The three main types of compensation strategies are:
The strategic compensation perspective emphasizes the importance of aligning compensation practices with the overall strategic objectives of the organization. It views compensation not just as a cost to be managed but as an investment in human capital that can drive organizational performance and success. This perspective considers factors such as market competitiveness, employee motivation, and organizational culture to design compensation systems that support the achievement of business goals.
An example of a compensation strategy could be a company deciding to offer higher-than-average salaries and performance-based bonuses to attract top talent in a competitive industry where skilled professionals are in high demand.
Building a strategic compensation system involves several key steps:
These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).
Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.
eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.
To design a strategic compensation framework, you need to understand the:
1. Components of strategic compensation
2. Designing a strategic compensation plan