Employee compensation will make up a significant portion of the expenses that face the enterprise each month. The organization must maximize the spend on compensation to obtain a superior return on investment from their human capital – and this is one of the reasons that today the compensation that employees receive must be far more than money in the bank. Increasingly businesses are taking a holistic view of compensation. Benefits such as covering the healthcare and structured retirement plans are the sorts of value adds that encourage skilled individuals to target the company as an employer of choice – and promote employee retention.
One of the ways to ensure that the company does enjoy that superior return on investment in terms of human resources is to formulate a strategic compensation plan. This can be a challenge, the modern business is a complex entity – but without this plan, the company will not maximize the potential of its greatest asset – human capital and will not retail the employees that are key to success, they will be lost to the competition.
Here are some things to consider when formulating that plan.
Employees, by and large, will not be actively involved in the formulation of the strategic compensation plan – but they must provide input as to the factors that they consider important as part of an attractive compensation plan. Obtain information on which benefits they find important. The makeup of the workforce will dictate the sorts of benefits that should be offered. For instance, younger employees starting families may be interested in daycare subsidies, while older members of the workforce will be focused on retirement benefits.
Competition for skilled workers is fierce and the company must offer compensation packages that are comparable to those offered by competitors (in terms of benefits). It may not be necessary to exactly match the offerings of competitors – but by analyzing the what the competition is offering the company may be able to come up with creative offerings and allow human resources the information they require to answer common questions that will be asked by prospective employees during the interview process.
It is almost impossible for a company to provide every single benefit on an employee wish list. A close eye must be kept on operational budgets. The company must nail down just how much it can afford to spend on each employee in terms of compensation and benefits. Items such as existing benefits, compensation, and bonuses must be included, as must performance-related bonuses.
Compensation plans must also take into account a reward system for exceptional performance. There are a wide range of incentives that can be offered, from extra vacation days or financial compensation (or others), however, each comes with a cost and this cost must be factored into the compensation calculations.
A structured and strategically aligned compensation plan is essential for a business that wants to remain competitive in an increasingly cutthroat business environment – and that compensation cannot only be financial. Employees are becoming more demanding – and the organization must meet those demands if it is to take full advantage of the skills of its human capital.