Creating an Employee Compensation Plan

Employee Compensation Plan

To lure and retain high-end talent, your organization needs a solid compensation plan, and you’re at a disadvantage if you don’t have one. Here’s what you need to know about creating an employee compensation plan.

The Issue

To have a good shot at attracting and retaining high-quality employees, you need a well- thought-out compensation plan. Companies that insist on paying their employees whatever they want will ultimately come out on the losing end when it comes to talent recruitment and retention. You also need a plan in place so that you can properly budget.

Just What is a Compensation Plan?

Also called a “total compensation plan,” this includes employees’ wages, salaries, and benefits as well as total terms of payment. Such plans also comprise all benefits, scheduled raises, union extras, or vendor discounts you provide.

Which Aspects of My Company Must the Plan Support?

You want a plan that’s aligned with your company’s operating needs, overall strategy, budgeting aims, and strategies regarding talent retention.

What Are the Benefits of a Strategic Employee Compensation Plan?

For one thing, such a plan helps keep rivals in check regarding base pay and incentives, as well as total compensation and benefits. In addition, because word gets around, a solid plan can reap the consideration of quality employee prospects. Further, an effective plan fosters employee productivity. 

What is Meant by Direct Compensation?

When it comes to employee compensation, there’s direct and indirect. The former includes hourly pay, salary, bonus pay and commission. Meanwhile, indirect compensation can include personal time off, flex time, healthcare and retirement benefits.

How Do You Put Together a Compensation Plan?

First, note that there’s no blanket template for how to do this. However, there are some overarching steps you can take that can help you get there:

  • Sketch a plan out. That means establishing a program objective as well as some goalposts. In addition, write a job description for every position and create a starter budget for your workforce.
  • Assign a supervisor. You need a compensation manager, which usually is someone in HR. This person figures out the going industry rate for positions, determines job classifications, and researches the selection methods for direct compensation.
  • Establish a compensation school of thought. For example, you need to decide your level of marketplace competition. To wit, will you lead the field in direct compensation, or be that company with okay pay but awesome bennies?
  • Figure out whether you’re going to have pay tiers, and within which job classifications.
  • Put together opportunities for promotion within each job classification. People want to know they can advance and how to do it.
  • Decide salaries and hourly pay rates. At this point, you’re getting down to your budget’s fine points.
  • Bring others in-house aboard. You need leadership on board with your plan.
  • Figure out a roll out plan. You want all employees to lean about the program at the same time.
  • Keep an eye on the plan so that you can pivot or otherwise adjust or modify, depending on what competitors do and to make certain you’re legally compliant. 

In the end, compensation plans can help your wooing and retaining the best employees possible. Be certain that you are thorough in your approach, which means the process may take some time. You also want to positively communicate the plan to your workforce so that it’s well received.