Setting Compensation Priorities

Determining what's most important "right now" can be difficult in any context. The issue can take on an additional layer of complexity when trying to address which compensation program should get most of your attention at a given point in time. Should you perform some kind of salary study to see if you are competitive with the market? Is it time to revise the annual bonus plan? How are you going to address the promises made to key people that they will participate in company growth through some kind of long-term value-sharing arrangement? Is it time to begin sharing stock with employees? Is there an alternative to stock you should be considering? And so on. The list of issues can be endless--and every item on that list is important.

Unfortunately, there is no silver bullet solution for setting compensation priorities. And I don't know that I can, in a short blog post, define the best answer for the myriad circumstances businesses might be experiencing. That would be like asking a doctor to tell all potential patients what health measure is the most critical for them to address right now. It's impossible. That said, there are some logical questions that can be posed to help guide you in setting pay priorities. Here are a few to consider:

  1. Compensation Philosophy Statement. Do you have a written compensation philosophy statement? Does it clearly articulate what the company will pay for and how it plans to share value? Does it define where the company wants to be relative to market pay standards for salaries and total compensation? Does it establish a balance between guaranteed and incentive pay? What about between short-term and long-term incentives (or what VisionLink refers to as value-sharing)?
  2. Pay Grades. Have you established clear pay grades? Are you satisfied your organization is competitive with market pay standards for the most critical positions in your company? Are your salary levels consistent with your compensation philosophy?
  3. Incentives. What is most critical to your organization right now--sales growth, short-term performance (12 months or less) or long-term performance (12 months or longer)? I know they're all important, but which is crucial right now? Do you have an incentive plan that addresses that need? Is it clear? Is it "working?"
  4. Growth. Does your company plan to grow? Does it have a clear business model and strategy? (The model defines how the company generates and grows revenue; the strategy focuses on how the business will compete in the marketplace.) Have you identified a compensation strategy that reinforces your growth plan? Is it tied to specific roles and clear performance expectations?

I suppose the list of questions could be longer, but this offers some pretty good categories and issues to examine as you consider what pay programs might be most important "right now" for your company. I would also submit they are organized in a pretty logical order. First, define your philosophy. Be very clear and comprehensive. Next, make sure your pay grades and associated salaries are well defined and competitive--as well as consistent with your philosophy statement. Then, define what kind of performance you most need employees to focus on right now. Force yourself to be clear about that issue. (This isn't to suggest all three elements summarized above won't need to be ultimately addressed, if not right now.) Finally, be clear about your growth plans and how compensation can be used as a strategic tool to support that effort. Don't fall into the trap of ignoring this priority because you think today and tomorrow are all you can worry about "right now." The way you pay your people is a powerful communication tool. It tells them what you consider to be important. If growth is important to you, don't pay your workforce in a way that communicates it isn't.

In the end, sorting through these priorities is an important skill for any company that wishes to develop a value proposition that is a competitive advantage in recruiting and retaining premier talent.

Ready To Get Started?

If you would like to speak with one of VisionLink’s pay strategy experts, click on the “Request a Consultation” button below, or call us at (888) 703 0080.

Request a Consultation