How to Build a Successful Compensation Strategy

Written by Heather Bussing

March 12, 2022

How to Build a Successful Compensation Strategy

A compensation strategy brings together the important elements of your organization. It should reflect the culture and values, the business priorities, and make compensation decisions efficient, fair, and compliant with employment laws.

It seems like a big task, but the right information and tools can make a huge difference.

Why You Need a Compensation Strategy

For many industries, especially those based on service, labor is one of the largest business costs. Organizations are also seeing higher than usual turnover, which is also expensive. And employment is highly regulated, making compliance a continuous priority. In short, making compensation decisions without an overall compensation strategy can cause all sorts of financial, legal, and practical problems.

Compensation is also the primary exchange with employees for their time, work, creativity, and care. Understanding that exchange and what you want to inspire in people is the essence of compensation strategy.

Once you are clear on what goes into pay and how it fits into your overall business strategy, it becomes much easier to make sound and fair compensation decisions, stay on top of compliance, and effectively work toward your business goals.

4 Steps to a Successful Compensation Strategy

There are four main parts to a compensation strategy. The idea is to integrate your compensation philosophy — what goes into pay and why — with your budget and overall business strategies. This allows you to set priorities, make informed decisions, and track to see if it's working.

  1. Assess how compensation fits into your overall business strategy.
  • Start with recent budgets to see where the organization prioritizes resources and whether the current allocations seem to be working.
  • Look at how people are paid in the organization and what goes into pay decisions. Are they performance-based or determined by step or grade based on role? Who gets bonuses and why? What is your time to promotion and how does that affect compensation and retention?
  • Get feedback on pay and benefits from employees. Find out what people use and what they would like to have. Remember that benefits are never one-size fits all.
  • What is your recruiting and HR strategy and how does pay fit into having the people you need to achieve your goals?
  • Are there outside market issues that you need to account for?
  • Do you need help from compensation experts?
  • Do you need data or tools to assess, benchmark, and track compensation?
  1. Determine your approach to pay and map out the components.
  • Identify your objectivesand how important compensation is to get there.
  • Look at your internal alignment. What are your pay structures and levels? Where are there differences and why? Decide what to keep and what to change. Pay structures should support your compensation strategy, workflows, and inspire employees.
  • Are you competitive? Benchmark your pay by industry and location. Compare your competitors' pay and benefits mixes. Decide whether to match, beat, or differentiate your pay structure.
  • Figure out how transparent you will be about pay in recruiting and internally and how to handle pay equity
  • Should employees contributeto benefits? What aligns best with your budget, recruiting, and HR strategies?
  1. Implement your compensation strategy.
  • Allocate budget. Factor in all pay, bonuses, raises, and benefits including any stock and retirement plans.
  • Choose benefits. Make sure employees have the information they need to make informed choices, especially on healthcare coverage and deductibles, co-pays. Find a mix of offerings that employees can choose from. Employees who have student loans may want help paying those. Others may be focused on help with childcare or retirement contributions.
  • Look at your vacation policies and how to encourage people to take real breaks. Also know what your vacation liability is for vested but unused vacation time that would have to be paid out on termination.
  • Check your sick leave, military leave, and bereavement policies to make sure they are compliant everywhere you have employees.
  • Set up a process to continuously monitor pay equity, competitive pay in your market, and steps to address any issues.
  • Communicate all changes and provide resources for employees to understand any changes, the choices they need to make and any deadlines, and answers to common questions.
  1. Track your progress and adjust if needed.
  • Competitive compensation and pay equity shift a little every time someone is hired and someone leaves your organization. The market is always changing too based on many factors that you can't control.
  • Make sure you have the right tools to track and monitor pay both internally and externally so you can see what's happening, know if your strategy is working and make adjustments.

Get Pay Right's team of experienced compensation consultants can help you develop a sound compensation strategy designed for your organization and needs. Contact us to schedule a free consultation.

Our compensation software and tools can make determining the right compensation easy. With up to date information and tools that allow you to test options, track compensation, and assess pay equity, we can help you develop, implement, and monitor your compensation strategy.

Find out how we can help you get pay right.

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Embracing Fair Pay in the War for Talent

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about the author
Heather Bussing is a California employment lawyer and analyst in the HRTech industry. She writes regularly at and loves helping organizations prevent problems and build more human friendly workplaces. She also loves photography and posts a landscape every morning on twitter @heatherbussing.

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