3 steps to aligning compensation planning with organisational goals in summary:
- In this blog, we look at the 3 steps HR professionals should take to ensure their compensation planning strategy aligns with organisational goals.
- Step 1 involves getting the basics of compensation planning right, and understanding organisational priorities, goals, values, vision and culture.
- Step 2 looks at how to ensure your strategy and alignment are right, and step 3 involves continual evaluation and measurement.
Whether your organisation has ambitious growth plans, or is simply looking to improve staff retention and acquisition of top talent – aligning compensation planning to organisational goals is critical.
Indeed, making pay, reward and development opportunities less reactive and more strategic — and the decisions around them fair, business-centric and transparent — can drive everything! From improved sales, to supporting employer brand advocacy.
That’s because compensation impacts everything: from motivation to productivity to the entire talent management life cycle. Yet, despite it being clear that compensation planning is linked to overall business performance, understanding how to do it in a business strategic manner (that links compensation to a business’s goals, values and cultures) is no small task.
So, read on to find out more about how to create a strategic compensation plan that drives maximum ROI from your compensation strategy.
Step 1: Getting the basics of compensation planning alignment right
The first step in business-aligned compensation planning is understanding organisational priorities, goals, values, vision and culture. Is it customer service, market share, or being an employer that grows its staff that drives the business forward? This is the north star that shapes strategic compensation planning.
Once you understand your organisation’s goals, look to analyse your current compensation plan. You’ll need to take stock of salaries, pay grades, performance-related pay and progression; but also a number of other compensation and reward-based activities.
Those could include off-cycle rewards, cash bonuses, stock awards, incentive L&D, co-creation in salary review, public celebrations of individual success and overall approach to performance management… That’s no small list! Ultimately, you’ll need to analyse if compensation at your business is strategic or reactive.
Now, that might sound like a lot. But, getting a clear view of your compensation strategy allows you to align it to your existing talent and organisational agendas.
When you look at your compensation ‘as it stands’, you can then benchmark against industry norms. So, survey employees and analyse the data you collect against how productive teams are, against attrition rates, and against employee satisfaction.
That’s the first big step in understanding if compensation does align with business goals. Or, in layman’s terms, learning if your bonuses are set strategically enough to drive sales growth and improved customer satisfaction. Tools to help with this range from pulse surveys to independent audits… but even getting the basics down, like knowing where pay policy and pay data are kept, are a great place to start.
Step 2: getting strategy and alignment right
Once you really understand your compensation plan (be it an existing or new plan), you’re well on the way to the second step: getting your strategy and alignment right. This will include creating a guiding policy and then communicating it with critical parties and key stakeholders (such as managers, who likely lead pay and performance reviews).
You’ll also need to set compensation KPIs to be linked to business or team goals, be clear around metrics, explain why reward might be differentiated, and plan to gather feedback. These are critical steps to ensure compensation planning is a strategic boost. Indeed, to ensure your compensation plan is working for the business, it needs to drive the individual employee, as well as team behaviour you need.
Communication is also vitally important. This means employees should know the business’ compensation strategy, with transparency around pay grades and how to access rewards and bonuses. Your managers also need to be clear on the compensation planning strategy and how it drives team efforts towards organisational goals.
Company-wide meetings, online comms, and good use of performance reviews are critical, as are clear responsibilities around comms. Here, transparency around compensation decisions is critical to ensure buy-in. With few companies having limitless resources, you’ll want to ensure your compensation plan has the desired impact as early as possible.
The implementation of strategic compensation planning will require thoughtful consideration. The right individual needs to oversee compensation planning, understand how to monitor it, and what HR technology is needed to support it.
Specifically, think about how your managers can access pay and performance data – as well as compensation policy – in a place that allows them to make fair pay decisions at speed. HR and finance leaders also need to understand how any implementation impacts the business agenda.
Step 3: Review and measurement
The final step is to understand how strategic compensation planning impacts your business’s agenda. As such, ongoing review is an important part of the strategy. During your ongoing reviews, ask yourself: does your compensation plan benefit key business goals? How do you know this? What are you measuring? And is that the right data point?
Reviewing the compensation strategy regularly allows organisations to understand the effectiveness of the strategy on important business facets. These can include employee engagement and retention as well as core business metrics, such as sales or market share.
To do that well, regularly review how the compensation strategy compares to external market norms and industry benchmarks. Then, return to the analysis undertaken during the initial set-up of a fair compensation plan and see how it compares.
Lastly, along with undertaking data-led monitoring of employee productivity and ROI around key compensation decisions, consider getting feedback from employees on your compensation planning strategy. A pulse survey is a brilliantly simple (and effective) method of doing this, as you can ask relevant and timely questions, such as:
- Are you happy with your compensation levels?
- Do you perceive compensation at this firm to be fair?
- I understand what I need to do to achieve in my role
Making compensation planning work for everyone
Of course, none of that is easy. But get it right, and the benefit can be a compensation strategy that truly aligns with the business, moves from being reactive to proactive, and delivers true ROI from the employee cost base as well as sustainable growth. It’s crucial for the success of any organisation.
And yes! Getting there will require those tasked with compensation planning — be they CFO, finance manager, senior HR managers or people ops — to deeply understand business objectives, be able to analyse the compensation plan in relation to that, and understand key compensation drivers and metrics. But it doesn’t stop there…
Creating a workable plan that delivers for individuals and the business, communicating this and adapting it, and continuously reviewing are also vital to success. Get it right, and your compensation planning strategy can become less of a cost and more an investment in better employee and organisational outcomes.
Dan Cave
Dan Cave is an award-winning HR journalist and editor. He’s been reporting in the HR space for over five years and works across the national business press.
