The cost for everything is rising, including compensation, which is why now more than ever, you need a plan. Compensation planning is not only important for managing your budget, but it could also be the secret sauce for attracting and retaining top talent. Hiring managers can move more confidently when they know how much they can offer a candidate and your leaders can create more impactful development plans when they know what is available for raises and bonuses. And, by giving you a way to easily show that your company’s pay practices are fair and unbiased, comp planning helps you maintain compliance with the Fair Labor Standards Act (FLSA).
If you haven’t created a comp plan yet, no worries; it’s not too late, we can help. And, if you have created a plan but want to know how to check it, we can help with that, too.
What is Compensation Management?
Compensation management is how companies ensure that their salaries and bonuses are equitable, competitive and in-line with market data. The process to create a compensation plan also includes managing your employee benefits to make sure that your indirect compensation is meeting the needs of your employees. Why should HR leaders care about compensation management? Well, effective compensation management can have a big impact, whether negative or positive, on hiring, employee retention, engagement, overall company performance and brand.
How to Create a Compensation Strategy
While it’s true that salaries play a large part in the process of compensation, compensation methods can include a whole lot more. The process of compensation includes direct compensation (financial) plus indirect compensation (financial + non-financial). A successful compensation plan should have employee input, team buy-in and compliant policies that support pay equity. Below are just a few action steps you can take with your team to achieve a compensation strategy that works for your business.
Factor in all of the types of compensation you are already offering
When most people hear the word “compensation,” their minds almost immediately equate it with “employee salary.” Direct compensation is made up of:
- Hourly wages (including overtime)
Indirect compensation is made up of items such as:
- Company equity
- Benefits packages
- Paid time off
- Learning & development opportunities
- Company car
- Phones and laptops
Benchmark against the competition — To remain competitive in the market, leaders must research what other organizations offer their employees and identify any gaps that may exist in the current compensation plan. Even if you can’t match your competitors’ rate, having the information will allow you to address gaps and add emphasis to your other differentiators, like culture. You may also be able to find creative, lower-cost options to include in their total compensation package.
Allocate a budget — This step is critical when creating a compensation plan. Leaders should take a realistic look at their company’s human resources and operational budgets, including all costs such as taxes, payroll costs, existing benefits, compensation, and bonuses. Additionally, businesses should plan for rewards that can engage employees, increase performance, and entice them to stay.
Determine pay grades based on position types and duties — This is an effective way to establish a framework for compensation that encompasses entry-level positions, technicians, managers or supervisors, executives and any other roles. Having this framework will allow leaders to have a definitive amount of pay available based on the job’s requirements and level, taking the guesswork out of salaries and providing employees with a range for states with pay transparency.
Why is compensation management important?
Not sure if compensation management technology is for you? Here are the five benefits of a compensation plan management program.
- It helps ensure pay equity. The data you can collect from your compensation management software can help you determine if there is a gender, race or ethnicity wage gap at your company. Often, this data will uncover discrimination that your HR leaders are either overlooking or unaware of. View the regulations for pay equity in your state.
- It can help attract top talent. A good compensation management program can also help you ensure that the salaries your company is offering are competitive. You’ll have all the data you need to benchmark your salaries against the competition and your market to see if you’re either low-balling or being too generous with your job offers.
- It can help retain existing talent. While salary makes up a large part of a total compensation package, you also need to include bonuses, health and life insurance, vacation time, the value of stock options, retirement savings plan contributions and pension plans. When you can provide a big picture of your company’s contributions, your employees can easily see how much you’re investing in them. And when employees are happy, they tend to stick around longer.
- Reduced administrative tasks. Your HR professionals need to be focused on strategy, not data entry or questions from employees. Managers can be granted access to the compensation management platform, enabling them to see information they need to make a payroll or other compensation decision without constantly bugging HR.
- Fewer errors. Manual data entry in spreadsheets or software solutions that require duplicate entry because they aren’t connected to each other should really be a thing of the past. By using a compensation management program, your compensation manager can greatly reduce the number of data entry errors when information is entered “one and done” and carries across all relevant databases in your human capital management system.
How to Check Your Compensation Strategy
Investigate Whether or Not it’s Working
The objective of a compensation management plan is to attract top candidates and retain and engage existing employees through competitive compensation that aligns with your company’s budget, your local job market, and government regulations. Have you reviewed your exit interviews, employee engagement surveys and development conversations to learn how compensation is impacting employees and culture? If not, it’s time to start. When employees believe they’re being paid fairly they feel more valued and recognized. On the other hand, if they believe they’re undercompensated, they’ll feel underappreciated and likely start the hunt for an opportunity that offers them better compensation.
Communicate about Compensation (and Get Feedback!)
Communicating total rewards and compensation to your employees makes good business sense when it comes to outlining the full extent of your company’s value. By implementing a regular system for gathering and distributing this information (at least 1x annually), your organization can better demonstrate the investment in its employees.
“Employees’ salaries are just one component of their total compensation. When HR leaders talk narrowly about salary, most people think of the paycheck they get every 2 weeks with all the deductions taken out. They forget how much their company invests in them, from health and wellness benefits to training, learning, paid time off, and more.”Paaras Parker | Paycor’s Chief Human Resources Officer
Monitor Compensation Compliance
If you don’t have a handle on your compensation and salary bands across the entire company, you could very easily get into some hot water with the government. And ignorance is no excuse. If the IRS discovers that you’re paying some folks more than others and there’s a distinct pattern (such as paying men more than women who do the same work), the company could find itself subject to penalties, fines and even lawsuits. If doing this manually seems incomprehensible, a compensation management system might be right for you! Compensation management software can help your company stay on the right side of federal regulations.
What are the features that you should look for in compensation management software?
To streamline your compensation process, you should look for a platform that provides a single source of truth to manage compensation, not spreadsheets or duplicate data entry in multiple systems. Automated workflows and guided support tools can help you make more informed decisions and help ensure that salaries, bonuses and employee rewards are equitable and competitive.
Want to see how Paycor Compensation Management is designed to lighten the workload for busy HR leaders? Check out this quick video:
How Paycor Can Help
With Paycor Compensation Planning, you can finally say goodbye to the stress and uncertainty of managing compensation plans. Paycor’s Compensation Planning product allows you to:
- Plan and execute pay increases, bonuses and rewards across your organization
- See total compensation for each employee, including wages, benefits and taxes.
- Mitigate risk by helping you to monitor pay equity while also analyzing compensation trends.