An effective compensation strategy is about far more than just money
The research shows compensation matters and it impacts employee attitudes and performance, but it is not the only factor. Compensation can impact employees both positively and negatively. Perceived fairness and consistency are essential elements of a pay for performance compensation strategy.
An effective compensation strategy should:
- Meet basic financial needs. This helps with their security needs (Maslow’s hierarchy) and allows employees to focus on their work without worry.
- Be clearly linked to established performance measures. Performance measure need to be clear and based on organisational culture and strategy priorities. What we reward gets repeated. If we reward poor behaviour (even though it achieves results) those behaviours become part of the culture (The way we do things here).
- Be fairly and applied consistently. Employees need to know that they are being paid fairly (compared to the market and colleagues), and that the pay-for-performance strategy clearly differentiates between high and low performance. An effective compensation strategy rewards high performers who act in line with cultural and strategic goals.
- Be easy to understand and transparent. Compensation is something that can easily be misunderstood. Management can reduce confusion by helping employees understand how compensation decisions are made based on individual performance, budget, performance of the organisation as a whole in the market. Give managers talking points, tools and training so they can help employees understand how their own performance impacts their compensation and what they need to do to achieve higher levels within the organisation.
- Be an integral part of the overall talent management plan. The compensation strategy impacts retention, recruitment and succession planning as well as moth-to-month performance and motivation. Pay-for-performance plans have been found to significantly influence top performers in their decisions to join or leave an organisation.
An effective compensation strategy is an important element of your talent management process as it impacts employee performance, retention and motivation.
Latest posts by Richard Riche (see all)
- Harnessing the power of psychological safety at work - 2 January 2019
- 5 keys to creating sustainable continuous improvement - 19 November 2018
- Using organisational voice to support Change Communication - 28 September 2018