Published: Mar 15, 2024
Time to read: 4mins
Category: Compensation

6 Considerations for Aligning Your Compensation Strategy With Your Organizational Goals

Compensation management might be your most critical HR function. It impacts your total operating costs and touches every aspect of the employee lifecycle, including recruiting, engagement, performance, productivity, and retention. With so many aspects of your business riding on your compensation plan, defining a total rewards strategy that aligns with your organization’s overall goals is vital to your success.

Your team should begin by reviewing and documenting your organization’s current pay strategy and practices. Both areas are bound to be reasonably complicated, with no shortage of factors influencing the budget, employee eligibility, impact of performance on rewards, and the administration and timing of pay decisions.

As you review your current compensation strategy, consider whether or not it aligns with your organization’s business strategy and goals—and, for global organizations, whether plans differ by country.

To work this out, start with a thorough review of these six elements of your compensation plans:

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1) Pay-for-Performance and Merit Increases

How do you currently identify top performers? What factors influence your organization’s merit increases? You’ll need to know the answers to these questions before you can choose a compensation solution capable of meeting your needs.

For example, under a pay-for-performance structure, an employer may compensate employees based on factors such as:

  • Goal setting and achievement
  • Overall performance assessment
  • Contribution relative to peers
  • Skills development or competency growth

A clear view of goals, accomplishments, outcomes, and performance appraisals or feedback is critical in any successful pay-for-performance strategy.

2) Incentive Pay and Rewards

Understand your company’s policies regarding incentive pay and rewards. If you offer incentive payments, are they part of a contractual obligation, or can they be discretionary? What are the timeframes, guidelines, approvals, and requirements for processing and managing incentives? The complexity of your answers to these questions may dictate how configurable your compensation solution needs to be.

3) Off-Cycle Rewards

Awards are given for a variety of reasons, most typically in response to outstanding performance. Does your organization offer any type of off-cycle bonus for employees? How are they budgeted? Who can offer them (managers, co-workers, etc.)? What is the review and approval process? Again, these questions may have complex answers. It’s crucial to thoroughly understand your organization’s policies around off-cycle payments to find the right compensation solution for your needs.

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4) Long-Term and Stock Awards

If you offer long-term incentives or stock awards, you’ll need to know what groups are eligible to receive them. Be sure to have a clearly defined distribution process that’s part of your overall compensation strategy. Consider the timeframes, guidelines, approvals, and requirements for processing and managing stock awards.

5) Compensation Communication

Many organizations provide total compensation statements to increase transparency and better inform employees of their benefits. How do you currently communicate compensation decisions to your employees? Does your organization use compensation statements? Do you customize statements based on compensation programs, geographic locations, or other factors?

6) Manager Engagement and Education

In most organizations, managers will have the responsibility of making compensation decisions related only to their direct reports. It’s important to engage with and educate managers on your compensation strategy to ensure that everyone is aligned. Additionally, you must understand the data and analytics you make available to your managers to inform compensation decisions. It’s also helpful to have a plan for tracking manager decisions to ensure they work within your strategy.

Identifying and assessing these areas will reveal which processes need improvement before you select a compensation solution. You must optimize your internal processes to get the best ROI on your compensation system. Once you’ve evaluated your current state, you can create a needs assessment for a total rewards solution that solves your unique pain points.

Invest In a Compensation Solution That Drives Your Business Forward

Want more tips and tricks for finding your perfect total rewards solution? Download our ebook, ‘The Ultimate Buyers’ Guide for Compensation Management: How Your Strategy Should Drive Your Technology,’ or request a PeopleFluent demo today to see first-class compensation software in action.

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