It’s hard to believe, but 2017 is right around the corner. And now that we’re in the fourth quarter of 2016, many companies are focused on budgeting for the year ahead. Planning for the distribution of next year’s compensation budgets can be particularly difficult, and isn’t as simple as just adding 3% to the previous year. Without a solid compensation strategy, it will be difficult to retain current staff and attract new, top-tier candidates.
For success in 2017, it is important that companies take the time for effective compensation planning – which is the process for the distribution of increase dollars. To do this successfully, you should make sure that your compensation is tied to market rates from those organizations against whom you compete for product and labor. With the appropriate market rates understood, the challenge is to insure that compensation dollars are distributed based on employee performance, and that your increases are in line with company budgets. Without this data, your company could be at risk to under- or over-pay employees, impacting engagement, retention, and your bottom-line.
What should you seek to accomplish in your compensation planning? Consider the following checklist of questions you should be asking yourself to formulate your strategy for 2017.
Is our pay externally competitive?
Identifying how your pay levels compare to other companies in your industry (by way of employer-reported market data) will help you readjust for 2017. Your company must offer competitive salaries to retain your current employees and attract the best candidates for your open positions.
Is our pay internally equitable?
Internal equity is just as important as external competitiveness. The right compensation strategy is one in which employees in similar roles, with comparative skills and education, are compensated at a similar rate. Not only is this mandated by law, but with equitable pay levels, employees can be confident they are paid what they deserve – and that their compensation is not impacted by their gender, ethnicity or other demographic differences.
Are we spending within budgetary constraints?
Sure, paying employees competitively is crucial, but the company must also ensure its compensation strategy isn’t breaking the bank. Rather than offering blanket increases, your compensation planning should allow you to provide variable increases based on individual performance, as well as changing rates for your different job families (such as roles that are in higher demand).
How is our compensation strategy helping to attract, retain and motivate employees?
While money isn’t everything, it does mean a lot to employees. When satisfied with their compensation, they will be more engaged, likely to stay on the job and do their best work. If pay-for-performance isn’t included in your compensation strategy today, it may be time to implement it. Rewarding great work and recognizing strong performance is an important way to keep employees engaged and motivated. Performance based raises show employees that you value the work they’re doing and the hours they’re putting in.
How do we identify top performers?
Providing the same salary increases across the board, though it may seem fair, can actually do more harm than good. Consider it from the perspective of your top performers – shouldn’t they receive a higher increase than those not performing at the same level? Having a consistent method to evaluate performance for each position or job family will help you identify those who exceed expectations and have a positive impact on your organization.
Do we differentially reward top performers?
Once you identify your top performers, it is important that they be compensated appropriately for their work. There are many different way to distribute the numbers, but the key here is to make sure that your employees understand the compensation philosophy. While it’s definitely important to reward the employees who are moving the needle, it’s even more important that the entire team understands how they can become a top performing employee (and how they are being measured). When employees understand the compensation philosophy, they are much more likely to be engaged and feel empowered to put in the extra effort.
How can we reinforce a performance culture?
Transparency and open communication around your pay philosophy is key to getting employees to understand how compensation is determined. Reminding employees at the start of the year about how their performance is evaluated – and how it ties into any pay increases – will reinforce the company’s culture of performance (where an employee’s work output is directly tied to their level of compensation).
Preparing for 2017
Developing an effective compensation plan can be challenging, requiring an in-depth look at market data, employee performance and company budgets, and an understanding of how to use that information appropriately. But with the above questions as a guide, and the right tools in place, your organization can use these final months of 2016 to create a successful compensation strategy for 2017 and beyond.