The best, most effective pay programs align with business and talent strategies and reflect an understanding of the internal and external factors that influence strategic compensation recommendations and decisions. Yet not all organizations ensure that their compensation programs are designed and delivered in a way that strategically supports business needs.
We will work with you to create a compensation program that aligns with and supports your business and people strategies as well as provides guidance for all employees, from frontline workers to organization leaders.
The touchstone of effective compensation design
The heart of an effective compensation design is your organization’s compensation philosophy. Serving as a blueprint to guide the design, management and communication of compensation programs, your organization’s compensation philosophy typically defines your desired:
- Competitive marketplace (i.e., markets in which you compete for talent)
- Target competitive positioning
- Pay mix
- Pay for performance approach (e.g., fixed vs. variable pay, pay and performance curves)
- Communication and governance methods
Key considerations for an effective compensation program design
Additionally, a compensation philosophy answers fundamental questions about your organization’s approach to compensation design.
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Purpose
What is the purpose of our compensation programs? What messages do we want our rewards to convey to employees? Does every pay element serve a purpose?
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Scope
What is our compensation program offering (i.e., base pay, variable pay, career progression opportunities)?
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Fairness
How do we balance competing priorities (e.g., internal equity, market competitiveness, individual performance)?
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Consistency, segmentation, balance
How consistent or segmented should our approach be across roles and departments? How should we balance global consistency with local flexibility?
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Market position
Where do we want to position ourselves compared to other companies or industries with which we compete for talent? How do we define our competitive labor market?
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Performance
How will we define performance for the purposes of pay? How will we measure and reward for company, group and individual performance?
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Affordability
How will we manage and govern our overall compensation costs?
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Governance
Who makes pay decisions? Who governs how these decisions are made and administered?
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Strategic alignment
How do compensation programs support our values and drive our business strategy? How do we enable both our HR and total reward strategies with compensation programs?
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Transparency
What level of communication do we want to have about our pay programs? How transparent do we want to be? What will we need to do to comply with all the various pay disclosure laws around the world?
Other factors informing your compensation philosophy
Along with your organization’s business and talent strategies, other internal factors such as employee preferences and current compensation programs, also influence philosophy. External factors, such as the broader business climate and current market practices, have a part to play too. Together, these internal and external factors inform your compensation philosophy.
Designing effective compensation programs
With an effective compensation philosophy in-hand, you can:
- Assess current compensation programs
- Identify changes needed to improve those programs
- Create a roadmap for prioritizing changes
- Implement incremental changes or introduce an entirely new compensation design
Based on what you learn from those four steps, you can identify the opportunities for improving your compensation program design. From there, you can take an informed and thoughtful approach to your pay programs and policies to ensure they make sense for your workforce as well as your organization. Your compensation design should be built to address pay at every employee level and segment, from frontline workers through to executives. We can help you get there.
