Setting up a compensation plan can be a long-term and complicated process. However, you can get started on this important task by keeping the following guidelines in mind:
- Determine your company’s vision. How can your benefits package reflect this? An employee-oriented business wants to nurture its staff and keep them for many years. A strong retirement plan with a generous matching system entices employees to stay. A tuition reimbursement plan works, as do commissions for sales positions.
- Recognize that your compensation plan needs to fit your budget, particularly for a startup. Your compensation plan should stay consistent, even in off years. Especially in high-profit years, you don’t want to offer a meager compensation plan. Flexibility is the key: Offer bonuses based on production or sales. This serves as an incentive for staff to work harder.
- Research the options. There are many benefits to include in your compensation plan besides bonuses and merit incentives.
- Offer a compensation plan with a mix of benefits. Offer long- and short-term options: Reward employees in the short run, but also connect with such long-term benefits as a healthy retirement plan, health plans and even dental plans, if you can swing it. And don’t forget flexible spending benefits. Consider family-oriented benefits such as on-site child care or day care reimbursement. Tuition reimbursement is another popular idea.
- Don’t be too generous with your compensation plan. Avoid resentment among your staff — it’s easier to add a benefit than to take one away. If your business isn’t doing too well, don’t subtract benefits. A better way to go is to be realistic when designing your plan.
- Put your compensation plan into company policy books. Involve your lawyer to ensure that nothing is vague. Go over benefits plans with new employees.
Motivating employees is the name of the game in this competitive environment. Controlling costs and ensuring equity of compensation programs are features of most well-designed plans. Mirror the culture of your organization by establishing a compensation philosophy that reflects your compensation strategy. This helps in recruiting and retaining employees. Does your compensation plan reflect how much you value certain positions in relation to other positions at the company?
That’s why an effective compensation administration program works — but how to accomplish this?
- Job analyses should be conducted, describing each job.
- Job evaluations should determine what jobs are worth on absolute bases and relative to other jobs in the organization: It makes sense to give jobs that are of greater value to the organization higher labor grades.
- Job pricing establishes rate ranges: minimum, midpoint and maximum dollar values for each labor grade.
A growing number of employers are incorporating performance-based compensation plans to boost productivity and maximize return on investment in compensation. Basically, the idea is to reward occupations that produce. Traditional salary increases aren’t as connected to performance as they should be. Conversely, a well-thought-out performance-based bonus plan can be tied directly to the results of the company.
Developing a performance-based compensation plan isn’t easy. Don’t set performance targets too low or use the wrong metrics in determining an employee’s performance. But you can ignite your business through motivating plans that ultimately make your business grow.