Creating an Effective Compensation Plan
From recruitment to interview, a great deal of time and resources can go into the hiring of a new employee. Preparing for this process is important, and before employers even start looking for candidates they should be sure that they have a solid job description and a well-thought-out compensation plan in place.
An effective compensation plan helps employers simplify the hiring process by providing all of the necessary compensation details upfront. Consider these introductory steps* to get started.
1. A Great Compensation Plan Starts With a Strategy
Your business has finite resources, and you can only offer so much to each employee, which is why each compensation plan must be strategic. Your budget will first need to be taken into consideration to determine what you are able to offer.
Many employers and/or managers conduct industry-related research on average salaries to determine the base pay (hourly, annual salary, or commission only) for a role that they are looking to fill. This includes looking at the competition.
Depending on budget, businesses can try to match these salaries or offer more. Remember that top-talent often comes at a price, so you may need to make your offer more attractive.
2. Consider Potential Changes
When determining an employee's base pay, it's important to factor in any fluctuation. You may want to provide raises, for example, that increase pay based on the duration of time spent at the organization. Some employers consider cost of living adjustments as well.
Fluctuation can also include overtime, which may need to be offered to employees. This can be seen as an additional cost, and should be detailed carefully. A potential candidate, or even an existing employee, could also bring about a stage of negotiation/re-negotiation. You may want to consider several alternatives in case this conversation comes up.
3. Grow Your Compensation Package
Once you have established a compensation structure and conducted some initial research on pay, consider additional forms of compensation that your business may be able to provide within your plan.
These added incentives can help make your plans more competitive and attractive when searching for employees. Examples include:
Benefits (health, dental, vision, etc.)
Additional perks (memberships, stipends, exclusive offerings, etc.)
4. Document Everything
Put everything on paper. After you design a working plan for every level of employment, be sure to properly document the specific details. Use this documentation as part of the hiring process so that the talent will know what to expect upfront.
All details related to compensation can be written into an employment agreement, or contract. Once signed by employee and employer, your hiring process is nearing the end.
5. Make Necessary Adjustments
Be sure to track the progress of your compensation plans in order to keep the offerings competitive. Perhaps your retention rates are poor, and your plans are a core reason.
Your business may not get it perfect the first time, but, if you start fair, you can make adjustments that end with positive results.
Taking on the creation of a compensation plan can be very difficult, especially if you are not familiar with the process. SynchronyHR is here to help!
Our HR support services not only include assistance with compensation plans, but also hiring, onboarding, and more. Arm your business with a team of HR experts, and reach out today for more information.
*This blog is intended to provide general information about various aspects of employer-related issues, such as compensation plans, and should not be construed as legal advice.