Oftentimes, compensation is a word used amongst employers to refer to salaries in a more formal and inclusive sense. Compensation includes much more than just the basic salary of an employee. This term implies the inclusion of basic salaries, health benefits provided, additional perks such as transportation allowances, yearly paid airline tickets, or even tuition fees for the dependents of employees.
According to The Bayt.com Middle East and North Africa Salary Survey conducted jointly with YouGov in May 2016, job seekers rated compensation as the most important factor in their choice of a job. However, less than half of the organizations we surveyed reported having a compensation strategy or a dedicated team for this function in place.
An organization needs talented and skilled individuals to build a successful business, and because these talented people are highly sought after, an attractive pay structure is often key to bringing them on board. This is why formulating a compensation strategy should be a highly practiced activity at your organization.
How You Should Determine Your Compensation Strategy
Defining your compensation strategy is an important activity, as mentioned above. Here are some practices to keep in mind when formulating it:
1. Your Strategy Should Be Financially Viable
A compensation strategy should be formulated for the short and long term. This means looking ahead for at least one fiscal year, while keeping your organization’s expenses in mind. If you scale your compensation packages too high, and you don’t forecast your expenses, you might not be able to compensate your employees as promised. Scaling your compensation packages should be done with your finance department and senior managers, who have a clear idea of how your organization is performing financially. There’s no point of over-promising and under-delivering, especially in the phase where you’re formulating your strategy.
2. Your Strategy Should Be Reasonably Competitive
In a market where companies are fighting for top talent, you need to make sure that your compensation package competes with other organizations. Don’t forget that your employees are the essence to your company’s success. The absence of top talent at your organization is likely to reduce your success. Talented employees and job seekers are always looking for offers that are in their best interest. By offering competitive compensation packages, you increase your organisation’s chances of obtaining the best caliber of talent, and create a competitive edge for your organisation through your human capital.
3. Your Strategy Should Be Structured to Ensure Your Company’s Goals Are Achieved
It’s wise to structure your compensation strategy in a way that motivates your employees to reach their goals, while simultaneously contributing to your organization’s overall objectives. There are two different methods to do this:
Monetary Compensation
When it comes to monetary compensation, you can reward your employees differently based on their position in the company. For example, it’s well known that the majority of sales professionals receive a pre-determined commission rate that depends on their targets. But what about other functions within your organization? You can still create performance-based compensation arrangements for non-sales positions. Every function or department within the organization should have some sort of financial compensation put in place, aside from their basic salary. For example, you could set targets for your marketing department in terms of social media reach or PR circulation, and reward them with quarterly bonuses if they achieve these targets.
Non-Monetary Compensation
This is a different type of compensation that also lets job seekers and employees know that they’re being rewarded. Examples of this includes: additional vacation days, additional health benefits, or upgrades to existing health insurance, office parties, certificates and prizes, etc.
These forms of compensation, whether financial or non-financial, increase motivation among existing employees and motivate job seekers to join your organization. While financial compensation can be more attractive for certain employees, it’s up to you to create a balance between both forms of compensation based on your capabilities. Nonetheless, it is important that both forms of compensation are present in your overall strategy.
4. Your Strategy Should Include Annual Salary Audits
Employees, especially the ones with right skill-set and experience, are keen to keep improving themselves as well as their income. This is something that organizations can’t dismiss and must acknowledge. As an organization, you need to create a systematic performance measurement system, if you don’t already have one, and keep in-mind your succession plans and potential salary raises. Based on your performance measurement system, you can move on to creating annual salary audits that reward employees based on their performance. This can include promotions, annual raises, or even quarterly bonuses. Having such policies in place will greatly motivate job seekers to join your organization and existing employees to remain loyal to you.
Conclusion
Compensation strategies aren’t just meant to attract the best talent to your organization, but are also aimed at retaining your existing talent. When your existing employees notice that their employer truly cares about rewarding their success and achievements, they are more likely to remain motivated and to continue contributing to your organization’s success.
We highly recommend that you take a look at the Bayt.com 2017 Compensation Trends Survey to get a better idea of how organizations around the world are compensating their employees, and how you can create competitive compensation packages. We also recommend you to download this sample report on Bayt.com’s Payscale analysis to get a crystal clear idea on salaries, how they should be scaled, and how they go hand in hand with your compensation strategy.
