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Is your Compensation Plan working for you?

By September 14, 2016July 23rd, 2018Human Resources

by Nancy Owen, PHR

compensationAs we near the last quarter of the year many employers are reviewing their compensation plans to be sure they align with the organization’s goals. If you are reviewing your current plan, or developing one for the first time, there are a few things you should consider.

The term “compensation” refers to the combination of wages, salary and benefits an employee receives in exchange for work. Make sure your plans are a benefit to both the organization and to your employees. You will want everyone to be happy when it comes to compensation.

First and foremost: is your compensation plan in compliance with all federal, state and local laws? These regulations include the federal overtime and minimum wage laws (which will change in December 2016), the regulations surrounding healthcare insurance reform and workers’ compensation laws. How about 1099 independent contractor regulations? The best thing you can do is to have your legal counsel review your plan when you are pulling it together to make sure that you are adhering to all required laws and regulations. In addition, you need to ensure that your plan is free from discrimination.

Does your company have a pay philosophy? If so, does it match the company’s vision? Are you a pay for performance company or do you cover cost of living increases? When you design your plan you should be thinking about your company’s long term goals and not necessarily the short-term goals. This way your plan can withstand the test of time and will not have to be changed every year. We all know how employees feel about change in the workplace.

Can you afford to pay your employees what your plan dictates? What if all your employees succeed in making their goals? Can you afford to pay out what the plan promised in bonuses or commissions? Are you having a good year this year but haven’t in the past and may not in the future? You will want to be sure you are looking at the trends that could change your profit margins.

If you are an employee-orientated company, as most companies are these days thanks to the demands of the millennial workforce, then your plan should be designed to hold on to employees. You will want to look at pension and retirement benefits as part of your compensation.

Is your compensation plan up to date with the market value? Find out by conducting research within your industry to figure out the market pay rate for each position. This will give you a good idea of where you land within your industry and within the nation. What percentile do you want to pay? Average? Above average? This is also the starting point if you were to develop salary bands. In most cases you have to pay to attract top talent. Keep in mind that the job market changes constantly. Some positions will become more valuable and the market will yield fewer candidates. That shift will drive the range higher from time to time. This can work the opposite way as well. It is a good idea to review your compensation levels every few years to make sure that you remain competitive in attracting new talent.

How well do your employees understand your compensation plan and the philosophy on which it is based? Clearly communicating compensation plans to employees is worth the effort. It can lead to harder working, more loyal and satisfied employees.

How about bonus plans? Are they aligned with your company objectives? The bonus structure can be set up so that you are awarding employees who meet the company’s goals and increase revenue, create new business or even retain your current customers. Your plan can be designed so that you are rewarding employees who contribute to the company growth and profitability.

Consider offering a compensation plan that consists of a mixture of different benefits. Short-term and long-term disability, for example. College tuition reimburse. Remember today’s workforce demands a work life balance so consider child care reimbursement or pet insurance.

In summary, when the company vision and philosophy are reflected in your compensation plan, and your employees have a clear understanding of that plan, then you are setting everyone up to win!!

If you have any questions about compensation plans or any other HR issues, send us an email at

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