Why is Compensation Strategy Critically Important

The current competitive conditions in the business world make it difficult to acquire and retain the top talents. Once the organization is able to identify, it can be unable to offer the right pay and to manage the pay increases to retain top talents. The compensation strategy is the extremely important piece of the overall HR Strategy to keep the company competitive and successful.

On the other hand, the compensation strategy is important to keep the personnel budget under the control and to manage the jobs in the right salary (pay) brackets.

The compensation strategy differentiates the organization on the job market and builds the attractiveness of the company for the top talents. They love to be hired by the attractive organization, they do not like to be hired by the average company offering the same conditions as any other average organization in the industry.

Competitive Advantage and Compensation Strategy

Today, the products are similar. It is difficult to distinguish the cars from different car makers. The employees are in the same situation as the consumers. They have the problem to distinguish the employers and they are not able to recognize the excellent organization, when it is not different from the rest. The competitive advantage is the essential part of the mix for the success.

The organization has to present itself differently, not just by the presentation, but it should differentiate itself by the different approach toward its employees. The compensation strategy is one of the most successful differentiators.

The excellent compensation strategy does not just differentiate the organization from the other organizations on the job market, it brings the differentiation into the organization as well as the successful employees and top talents feel the success in their pockets.

The effective compensation strategy makes people feel the success and they speak about their successes with their friends. It build the extremely excellent competitive advantage among the competitors as the people feel, the organization really values the success and it can pay the successful employees.

The effective compensation strategy manages the personnel expenses of the organization, but it supports the performance management and differentiates the employees as the successful ones are not motivated to search for a new job opportunity. The good compensation strategy does not provoke employees to search the web job boards during the working hours, it makes them to focus on delivering the results as they can be highlighted and they feel the highlight in their salaries.

The successful compensation strategy gains the competitive advantage and can speed up the innovation processes and improve the performance management practices in the organization.

For what HR Processes is Compensation Strategy important?

The compensation strategy is not important just for the competitive advantage, but it supports the other HR Processes and helps them to become highly efficient HR Processes and being on the top in the industry (when measured and benchmarked).

The compensation strategy has a strong influence on the performance of the whole Human Resources, which is a good vehicle to manage the performance of Human Resources, but has to be managed carefully as it does not destroy the performance of the whole organization. Smart compensation strategy supports the HR Processes and helps to bring the top talents from the job market to the organization and helps to retain the best talents in the organization as they do not feel the need to find a new job opportunity elsewhere.

Recruitment and Compensation Strategy

The effective Recruitment and Staffing cannot exist without the effective Compensation Strategy. The recruitment can be based on the excellent HR Marketing Policies, but the HR Recruiters have to be able to offer the competitive salary packages, which are competitive externally and fully aligned with the policies and the compensation strategy internally. The recruitment of the best top talents from the job market cannot be based on exceptions from the compensation policy.

The recruitment and staffing processes have to be supported and backed by the excellent compensation strategy as the HR Recruiters can offer the competitive conditions to the right talents from the job market and they are able to identify the key job positions, where the compensation strategy allows to be more aggressive against the pay market.

The job candidates are extremely sensitive to the salary package offered in the Job Offer letter and the compensation and benefits department should measure the number of failures in the job offer acceptations. It is the extremely important sign of the wrongly set compensation strategy, when the job candidates do not accept the job offers made by the organization.

Motivation and Compensation Strategy

The salaries or bonuses are extremely important for the motivation of employees and managers. Generally, the motivation is not about the compensations, but the compensation should support the general motivation framework in the organization.

Even the best managers in the world are not able to keep highly motivated teams, when the compensation strategy is not in line with the job market. The employees usually know the common levels of salaries in the industry and when the organization is below the median or the average, it has to compensate the difference in other area. But, when the difference is too high, the compensation by a different motivation tool does not work and the employees start to feel demotivated as they receive no equal value for their effort.

Talent Development and Compensation Strategy

The compensation strategy provides the key support to the talent management processes in the organization. The talents have to be clearly supported by the compensation strategy as the talents usually expect higher salary increases than the average employees and the compensation strategy has to allow the limited freedom to managers to do so.

The successful top talents management cannot survive without the adequate support from the compensation and benefits side. The talents have to feel the different approach of the organization and the compensation is extremely important in this. The top talents cannot live on the promises for a long time. They have to see the real improvements and advances. They deliver, they expect the organization the same.

The compensation specialists have to co-operate closely with the career advisors and career development specialist to introduce the right mix of the career opportunities and the compensation strategies for the top talents.