When to Upgrade Your Current Compensation Strategy

At the start of their journey with the company, the initial salary and benefits package seemed like a dream. However, fast forward to today, employees’ duties have grown significantly. They have developed new skills and become much more valuable to the company. The compensation they once found exceptional may no longer align with the scope of their current role.

If this situation sounds familiar, it may be time to assess whether the company has outgrown its current compensation strategy. This article will explore signs that indicate it is time to reassess employees’ earning potential. It will also discuss how to create an upleveling strategy that meets the company’s evolving needs.

Signs It is Time to Reassess Your Compensation Strategy

A solid compensation strategy is an investment that pays off through higher productivity, lower turnover, and sustained growth. If the current approach is not delivering results, now is the perfect time for a check-up. Tweak or overhaul to re-energize the team for the challenges ahead.

Mergers and Acquisitions

As the company grows, the compensation strategy needs to grow with it. One of the biggest signs it is time for an upgrade are mergers and acquisitions (M&A). When companies join forces, it often means more tasks for employees and a larger, more complex body overall.

To keep top talent engaged during this change, companies need to review current pay and incentives. Is the pay still competitive for the new roles and duties? Do benefits and perks still meet employee needs? Updating compensation is key to reducing turnover and keeping productivity and morale high.

During an M&A, the structure of the whole company undergoes changes. New sections are formed, reporting lines shift, and career paths evolve. Companies must make sure the pay philosophy aligns with future directions rather than past practices. Promote from within when possible. Craft compensation packages that value the extra skills and experience needed for new leadership roles.

Whether acquiring another company or being acquired, review and revise the compensation strategy. Keep a finger on the pulse of the new organization and stay flexible. When change is in the air, keeping the talent engaged and motivated is the best way to ensure success. With the right compensation approach, companies can navigate mergers and acquisitions smoothly.

External Influences

As the business grows, external factors may signal that it’s time for a strategy upgrade. If hiring new talent has become hard due to noncompetitive pay, that’s a sign the company needs to revisit its approach. When employees start leaving for higher pay elsewhere, that’s another indicator that the company has outgrown its current strategy.

Market rates for positions are constantly changing. The cost-of-living increases, new technologies emerge, and job needs evolve. If it’s been a few years since the review of compensation for various roles, chances are the pay has fallen behind what candidates can now command. Regularly gauging the latest pay surveys and reports of the industry can help ensure compensation remains attractive.

Competitors competing for top talent may also drive the need to refine their compensation strategy. If other companies are attracting employees with higher pay and perks, companies must adjust to stay competitive. While it is not necessary to match every offer, they need to provide strong enough incentives for the best people to stay.

When external pressures start to strain the compensation strategy, it’s time for an upgrade. Reviewing the market data and making selective changes to pay and benefits can help continue to attract and keep the talent that fuels the company’s success. Staying proactive in the face of external factors will serve the business well in the long run.

Emerging Trends

As compensation strategies evolve, signs may indicate it is time for an upgrade.

• Rising costs of living 

If the area’s cost of living is high but salaries remain stagnant, employees' pay likely is not keeping up with inflation. This can damage morale, retention, and the company’s ability to attract top talent. Updating the compensation strategy to account for rising costs of living shows employees that the company values them.

• New generation of workers

Millennials and Gen Z now make up a large portion of the workforce, and they have different views around compensation and benefits. They tend to value flexibility, learning prospects, and meaningful work over just high pay. If you want to attract and keep younger workers, consider revamping the compensation strategy to emphasize non-cash rewards and benefits on top of competitive pay.

Building an Effective Compensation Strategy: Key Elements

• Know the Business Goals

The foundation of any compensation strategy is understanding what the key business goals are and how employee pay can support them. Does the company focus on rapid growth or maintaining profitability? Knowing this helps decide if the budget is best spent attracting top talent or keeping high performers. Aligning pay with business goals will make the strategy much more impactful.

• Analyze the Market

Do some research on the pay ranges for positions in the industry and region. Check sites like Salary.com to see what competitors are offering for similar roles. Companies need to be competitive to attract good candidates, so aim for somewhere between the 25th and 75th percentile. Do not match the highest salaries unless necessary.

• Determine the Pay Scale

With research in hand, companies can now develop a pay scale. Map out salary bands for each position, with ranges from minimum to midpoint to maximum. This helps ensure pay is fair and consistent across the company. It also gives employees a path for pay increases over time based on performance and tenure.

• Review and Revise

The job market and business dynamics are always changing, so companies need to revisit their compensation strategy regularly. See how it impacts the ability to hire and keep top talent. Adjust the base pay, annual increases, or incentives to keep the company competitive. An effective compensation plan is never really done—it requires ongoing review and tweaking to be effective in the long run.

Conclusion

As the business scales and evolves, so must the compensation strategy. Keep an eye out for those clear signs that it is time for an upgrade. Do not get complacent just because something has worked so far. Be proactive and get out ahead of stagnation.

Your employees will thank you, retention will rise, hiring will get easier, and your bottom line will reap the benefits. Making these thoughtful changes along the way will keep the compensation plan working for you, not against you. Now get out there and take your business to the next level!