The right compensation plan helps organizations attract or retain employees, sustain high morale, and motivate personal growth. Plus, compensation also boosts the loyalty of employees, which means that business owners no longer have to spend time and money on recruiting new candidates.
Interestingly, 43 percent of American employees feel like they are underpaid. In the years leading to the recession, wages increased by four percent every year.
Since then, American employees have only experienced annual salary increases ranging from two to three percent. Several economists believe that the rising costs of benefits and lack of employee skills are the primary contributors to the decline of wages.
However, you should remember that compensation has a significant impact on the performance of your employees. A well-compensated employee will remain loyal and become more productive, which ultimately leads to higher profits for the business.
Creating an appropriate compensation plan enables you to allocate employee wages and benefits appropriately.
In general, a compensation plan details the employees’ salaries, commissions, benefits, bonuses, and terms of payment.
Remember that creating a compensation plan isn’t a matter of personal preference. Consider state and federal regulations when coming up with a pay philosophy.
Scroll down to find out ways on how you can develop a compensation plan that can translate into increased employee retention and loyalty.
Set Up a Pay Philosophy
The initial step in creating a compensation plan is deciding your pay philosophy. In other words, you have to consider how much you want to pay your employees.
Take into consideration factors such as performance bonuses, benefits, incentives, and company-provided perks like free lunches and gym memberships before coming up a fixed salary.
Also, research the employee salaries of your competition. Talk to people within the industry and describe the duties and responsibilities of the position so you can compare oranges to oranges instead of apples.
Subsequently, gather all the data and input it on compensation management software for an accurate assessment.
Likewise, don’t forget how salaries are viewed internally. More often than not, employees share their compensation with each other.
Make sure that everything is fair when it comes to responsibilities and experience required to do the job.
Choose the Right Payroll Program
Bear in mind that businesses have to establish workers’ compensation coverage, federal and state tax forms after setting a compensation strategy.
Take the headache out of the payroll by taking full advantage of compensation management software. Generally, a compensation management program provides managers with an automated way to distribute funds for their direct reports.
Moreover, using compensation management tools give the means for businesses to get a clear picture of their workforce and make appropriate pay recommendations.
Best of all, the right payroll program can also reduce labor and planning costs. In a study based on the Society of Human Resource Management, researchers revealed that compensation management programs could minimize the time spent on salary planning processes by 65%.
Conclusion
Ultimately, every organization should understand the flexibility HR managers can have in creating a compensation package, which can attract, maintain, and develop a quality pool of talents.