Companies are strategic about product development, market positioning and advertising. But if you pull back the layers at many companies, you might find that they aren’t strategic about one of their most important components: people. Human Resources strategy is an area rife with opportunity for companies to increase their bottom line and continue to position themselves competitively in the marketplace. Everything from budget management to employee engagement indicates that strategic HR is critical to a thriving business.
One area of this vast opportunity is compensation. Competitive compensation ties directly to retention and attraction efforts. To put it simply, it’s easier to attract candidates and keep existing employees with great pay practices.
Here are some key findings:
This last statistic is one of the most shocking. Of the companies polled, only a little more than half have a strategy around compensation.
Additionally, many states have enacted pay transparency laws. Among the requirements, companies must now disclose pay ranges for open positions and, in California, companies must now provide current salary range information for a position in which any internal employee occupies, upon request. This means the job-seeking and employee world now have visibility to whether or not your company is competitive and equitable with compensation. Attracting employees and retaining them just got a little more complicated.
Historically, pay practices were driven by an owner’s budget or, in larger companies, executive decision making. Now, they are being impacted by law.
So, how do companies set about developing competitive compensation? There are a number of areas to consider: First, be thoughtful about developing a compensation philosophy or strategy. This is the “why” behind a company’s pay practices. Begin to evaluate your culture and consider the internal factors that affect pay. Then, conduct a salary analysis of your existing workforce. Finally, comes implementation.
According to SHRM “Compensation philosophies are typically developed by the human resources department in collaboration with the executive team. The philosophy is based on many factors, including the company’s financial position, the size of the organization, the industry, business objectives, market salary information, the level of difficulty in finding qualified talent, and the unique circumstances of the business.”
Once a strategy is established for your business, dig into the jobs and salaries of your current employees. Are there any inequities? Is there pay compression from employees who’ve been at your company for a long time? Evaluate other types of compensation, such as stock options and benefits. Once all factors have been accounted for, compare the salaries of your employees to the going market rate.
Following the development of compensation strategy and comprehensive internal salary analysis, it’s time to implement. Create salary bands and make any necessary adjustments to employees’ pay. Two key steps will help make this process go as smoothly as possible. Create a communication plan and equip managers with training to handle these conversations well.
While developing a competitive compensation strategy may take some time, the results will speak for themselves. You will find that your company will have a stronger position in the marketplace by offering competitive compensation. And you will also find that your employees will feel more valued and appreciated.
We here at Clarity HR Consulting have created and implemented comprehensive salary analyses and completed compensation projects for many of our clients. We would love to talk with you about compensation strategy goals for your company and how we can come alongside you to accomplish those objectives. Book a free consultation today!
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