What is Compensation Planning?
If you want your employees to stay motivated and remain at your company, then you’ve got to pay them for their hard work. Quality performance deserves a good reward, right? That’s why a total compensation package should have various parts to it that provide for your employees and let them know they’re valued.
What should a compensation plan entail?
These plans should include base salaries, bonuses, salary increases, standard of living increases and incentives. Basically, a good compensation plan is a reason for an employee to stay and fulfill the company’s purpose for existing in the first place. It should benefit the employee, but it should also benefit the employer. When you are setting one up, consider the following:
- Think about your company’s purpose and how your compensation plan can help you achieve your goals: These shouldn’t just be short-term goals for the purpose of temporarily revving up your employees. A compensation plan should have a long-term growth plan that will incentivize your employees to remain in your firm for a lengthy period of time, raising profits and thereby growing the company. Think about what it is you really want to do and how you want to achieve it.
- How often and in what form will these incentives be paid: Will you have a 401K with a matching system? That would make employees want to stay at your office. What about quarterly bonuses? You could also decide to pay employees in stock shares or cash depending on achievement or performance metrics like sales.
- Make sure these incentives fit into your budget: Everyone wants to be the nice boss, paying out as much as possible to their employees. Even if your business is doing really well right now, remember that it might not do so well next quarter. Plan for the worst. However, don’t let this make you Mr. Scrooge. Perhaps let a financial consultant do the balancing act for you so that nobody can blame you for being cheap.
- Research market rates for each position: The last thing you want is to bring in someone like an attorney and then realize you’re paying them far below market rate. Do your homework and make sure you’re paying your employees what they are worth. That way, they won’t jump ship or start a side hustle. You would only have yourself to blame for that.
- Set incentives based on work quality and expectations: Once you have an idea of the employee’s experience and abilities, you’ll be able to adjust their pay based on that. If he isn’t quite up to snuff, you can adjust his pay down a bit until he picks up the necessary skills and experience he needs to bring his rate up again.
- Make sure these incentives are in writing: All of these policies should be clear, in writing, in your company’s handbook. Nothing should be vague or left to chance. You should also review these policies with new hires so that nothing is questioned or left unclear.