Your team is the beating heart of your successful company. You’d be nowhere without them. You may have been on your own when you first started your business, but now that you’ve grown into a team, it’s vital to keep that team happy and intact. Making sure they’re fairly and even generously compensated for their hard work is one of your main priorities. But threading the needle of offering great pay and benefits with your company’s profitability and long term viability can be a challenge.
If you’ve ever felt like you’re walking a tightrope trying to figure out the perfect compensation plans, you’re definitely not alone. You want your offers to be competitive enough to attract and hold onto your top talent, yet not so generous that it hampers your ability to reach the growth and profitability goals you’ve set for your company and yourself.
In this article, we’ll look at the different components to consider when designing compensation plans, take you through a series of steps to help simplify the process while explaining how to create a compensation plan, and offer a few things to keep in mind as you begin to develop your plans.
Getting Started with Compensation Plans
What makes a good employee compensation plan?
Good compensation plans contribute to overall job satisfaction, financial security, and talent retention. Generously compensating your employees for their hard work is a main priority.
You want your plans to be competitive enough to attract and retain top talent, yet not so generous that it threatens your profitability and viability.
What do I want to think about first when designing compensation plans?
Reframe your labor costs from a major budget item to a strategic investment in your employees. Valued employees equal profitability and growth for your company.
Compensation packages reach beyond base salary, with many options to choose from in the form of bonuses, monetary and non-monetary benefits, and company equity.
Include your employees in the process. Open lines of communication foster a sense of agency and ownership within your team.
What are the next steps to developing compensation plans for my employees?
Define your business goals – your offers will depend on whether your focus is on company growth, stability, or maximizing profitability.
Incorporate non-monetary benefits like flexible work arrangements or other customized benefits customized for your workforce.
Work with a financial advisor, HR specialist, or other experts to craft the best compensation packages for your employees and your business.
What to Consider When Structuring Compensation Packages
While it’s easy to think of your labor costs as one of the major line items in your company’s budget, it might be helpful to think of them instead as an investment. When you invest appropriately in your employees, the lifeblood of your business, you can expect to see returns in the profitability and growth of your company.
As you begin to put together your offers, there are a few categories of compensation to consider. Remember: not every employee or job role will require all of these to be part of their package.
- Base Salary: This is the fixed compensation every employee receives, whether hourly, monthly, or annually. This doesn’t include bonuses, overtime, or benefits, which can supplement an employee’s total compensation.
- Bonuses: Bonuses may be annual or quarterly, and can be contingent on individual achievements or company-wide goals like enhancing profitability.
- Benefits: Compensation benefits encompass a broad range of non-wage perks provided to employees alongside their salary. These can include health insurance, retirement plans, paid time off, and other allowances like repayment of student loans.
- Company Equity: Profit-sharing plans or ownership interest in a business, typically in the form of shares or stock, are a great way to attract talent. Complex equity offerings can come in the form of employee stock options, restricted stock units, or phantom stock, among others, and allow employee shareholders to benefit from your company’s success and growth.
Steps in Designing A Compensation Plan
-
Clarify Business Objectives
Different compensation plans may align better with specific business goals. What you offer employees can depend on whether you’re looking toward rapid growth, maintaining stability, or optimizing profitability.
-
Analyze Job Roles
Identify key positions and associated responsibilities, then clarify the skills and qualifications required for them. A thorough analysis will help you determine the value each role brings to your company.
-
Research Market Rates
Industry salary benchmarks and compensation surveys help to understand the prevailing market rates for the roles within your business. This research will help you remain competitive and attract the right talent for your company.
-
Link Compensation with Performance Metrics
Clearly defined and measurable performance indicators play a pivotal role in steering desired behaviors and outcomes. Transparent expectations help your employees meet the overall goals of your company, as well as their own.
-
Recognize Experience
Greater compensation for your long-standing, loyal team members may be appropriate considering the value of their accumulated wisdom and dedication.
-
Be Flexible and Customize
The needs and preferences of your employees are diverse. Incorporating non-monetary elements like flexible work arrangements or customizable benefits adds an extra layer of versatility to your compensation strategy.
-
Follow the Rules
Ensuring compliance with relevant labor laws and regulations is crucial. Consultation with legal experts and HR professionals is highly recommended to navigate any complexities effectively.
Give your Employees a Voice
It’s easy to overlook, but involving your employees in this process is essential. While you have your objectives in mind, understanding what your employees want from their compensation plans is also important. Here are a few ways to involve your team in order to foster a sense of agency and ownership throughout your company.
- Clearly define your KPIs. When it comes to assessing job performance for bonuses and raises, giving your employees a say in the different metrics used to measure their success help them feel a sense of ownership and motivation to meet those goals
- Provide a forum for negotiation. It’s important to perform periodic reviews and make adjustments in compensation when it’s warranted. Try to avoid top-down directives and allow space for your team to express their needs.
- Stay competitive. Regularly reassess your compensation plans to ensure they stay competitive and align with your evolving business goals and the current market conditions.
- Think beyond salary and health benefits. Consider the concept of total rewards, which refers to the complete set of rewards and benefits that your employees receive in exchange for their contributions to your company. This approach aims to create a well-rounded and appealing package that addresses both the financial and non-financial needs of employees. Think about offering career development opportunities, hybrid work schedules, and recognition programs.
- Take a human approach. Don’t forget that your employees have lives and obligations outside of work. While not an expressed part of most compensation packages, a positive work environment that allows space for work-life balance is a very powerful intangible that can help attract and hold onto your best employees.
The Bottom Line
When crafting compensation plans, aim for the sweet spot between attractive and affordable, and get creative about customized non-monetary benefits. Be sure to factor in overall business objectives, job roles, performance metrics, and experience. Compensating your heavy hitters based on the value of their accumulated wisdom and longevity is a smart move, and a fair one. Bring your employees into the process, considering their goals and needs. Remember that flexibility, good vibes, and work-life balance are a powerful trifecta that won’t break the bank. And don’t forget: you’re making an investment in your team that will pay dividends for you and your business.
Conclusion
Making smart decisions for your company is what you do all day long. It is a significant reason you’re in a position to offer great pay and benefits to your employees in the first place. But you’re also busy running your successful business!
As a thriving business owner, we understand that learning the complexities of compensation package structuring may not be your jam. We recommended determining who in your organization will take charge of creating and implementing your company’s compensation programs and keep those lines of communication open. With so many variables and no one-size-fits-all solution, this can be quite the undertaking, so we also urge you to seek the advice of a financial planner or HR expert to help you make the best decisions.
For additional resources, check out this article from Business News Daily: How to Create a Desirable Compensation Plan from Business News Daily.
At SK Wealth, our financial planners are all about helping you make informed choices regarding your compensation offerings and your company’s overall financial health. Refined over the last 25 years, our financial planning process, known as The Integrated Financial Advantage™, provides personalized recommendations to empower you to live with intention, tomorrow and today.
