Market a Future

Compensation is about more than salaries and incentives. Done right, it defines a financial partnership that links ownership's vision with the vision of employees. It creates a unified financial vision for growing the business. All stakeholders feel a sense of stewardship about building the future company and believe that achievement will be personally meaningful.

A tall task? Of course. But if your pay strategy doesn't have this outcome as its target, what does guide its development?

My experience has been that most organizations don't have an ideal they follow when developing their compensation plans. As result they lose sight of the proverbial forest because they're focused on individual trees. "What should we do about our bonus plan this year? Should we increase the payout or not? Should we include this group of employees in the higher payout? And what should we do about our salary structure? Is this the year we redo our pay grades?" These are important questions, certainly, but they have no context.

This "silo" approach to rewards engineering ultimately leads both company leadership and employees to be disillusioned about pay. Inevitably, resentment emerges on all sides. Employees are seen as acting as entitled by company leadership and the owners are viewed as being "tight" by the workforce. There is no unified vision, only universal frustration.

The antidote for this syndrome is to engineer a total compensation structure. This approach, among other things, means the business doesn't make a decision about one element of pay without considering its impact on another. For example, the company doesn't decide it is going to peg salaries at the 5oth, 60th or 70th percentile of market pay without first determining what performance it is willing to invest in and how that investment should be structured. This assumes an organization has a compensation philosophy that helps it make such decisions. That philosophy might state that the company believes in providing high--even unlimited--earnings potential to employees that help create value in the organization. It then goes on the define what value creation means. ("The first 'X' million of operating profit will be returned to the company. The next 'X' million will be split 50/50 between the company and value sharing for employees. There is no cap on the amount that can be shared with individuals in the organization that create superior value.")

When a company adopts this approach, it might determine to establish a threshold at the 45th to 50th percentile of market pay for salaries but be at 150% of the market in total pay. The point is there is needs to be a cohesive plan that ties the financial focus of all parties to the company's future in a unifying way. Pay plan decisions are not made in isolation. Companies that are having success in all aspects of their business get this and there is no dissonance between their growth goals and the way they define the financial relationship with their workforce.

To learn more about these principles, download VisionLink's white paper "The Future of Compensation: What's Next and Why," or view our recent webinar entitled "The Most Important Compensation Plan a Company Can Have."

Article Categories: Compensation And Business Growth
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