Compensation Strategy

The main objective of compensation strategy is to give the right rewards for the right employee behaviors.
Compensation is an important motivator when you reward achievement of the desired organizational results.

Compensation strategy can reinforce the organizational culture that you desire. You must clearly define the
objectives of your organization so that you can achieve them by using compensation strategy.

Types of Rewards
There are two types of rewards, monetary and non-monetary.

Monetary rewards include salary, bonus, commissions, medical and health benefits, holidays, and retirement
benefits.

Among the non-monetary rewards are meaningful and challenging works, recognition and career advancement,
safe and healthy working environment, and fair treatment.

How You Can Make Good Use of Compensation Strategy

You can use compensation to attract and retain competent people. When you want better customer service,
reward employee behaviors that produce superior service.

Do not harp on the amount of salary you are paying yet at the same expect good performance.

Equitable Compensation

Like employees working elsewhere in other organizations, your people are concerned with compensation
equity. Take this into consideration in drawing up your compensation strategy.

Determining Rates of Pay

 Pay increase based on employee's length of time spent on the job.

This is seniority-based pay that is a good motivator in employee retention. But here, you are not rewarding
performance.
 Performance-based pay is intended to motivate employees to perform better.
Such a plan is becoming more common whereby the manager and employee agree on the job goals and
performance criteria at the beginning of a specified period, usually at the beginning of the year. The effect of
this as a motivator can vary from time to time and from situation to situation.
 You can give pay increases based on job-related skills and knowledge.
This is intended to motivate your people to gain additional skills, acquire new competencies and knowledge.
Under this method, you do not pay employees for the job they are-doing, their job title or seniority.

Salary Increases

Your compensation strategy needs to align your compensation objectives to your organizational business
objectives.

Anomalous Salary 
If you have any employee whose salary is below the minimum for the job or too low in relation to the
employee's performance and experience, make the necessary adjustment.

Compensation and Strategic HR Management

Use compensation strategy to:

 monitor cost-effectiveness
Are you getting good returns from the compensation methods that you have adopted?
 verify legal compliance
Are there legislation that may prohibit the way your organization is managing its compensation
scheme?
 determine pay equity
Are you using strategy to minimize or eliminate pay disparity in order to achieve maximum employee
motivation? and
 link pay to performance
Corporate Transformation and Compensation Strategy

It is stated in a Report "Strategic Compensation: How to align performance, pay and rewards to support
corporate transformation" that it involves four strategic elements in a closed loop, or continuous process.
These are:

 translating business issues into compensation or HR interventions

 designing and delivering them with key objectives
 leading the resultant change process, and
 reviewing or evaluating the outcomes."

The Report finds that strategic compensation is a significant contributor to different forms of competitive
advantage, including

 better business results

 more effective performance
 stronger capability
 higher staff attraction and retention levels
 heightened motivation, and
 employee satisfaction.

Necessity to Rethink Approach to Compensation

Strategic compensation is the type of compensation that can achieve its intended purpose. Compensation
strategy is the course of action taken to ensure that this purpose is attained.