Magazine article Workforce

Compensation Done the 'Right' Way

Magazine article Workforce

Compensation Done the 'Right' Way

Article excerpt

In today's highly competitive marketplace, both employers and employees are acutely aware of the important role reward and recognition practices play in attracting and retaining talent. It's obvious from the incredible amount of benchmarking being done that companies spend significant time and resources searching for best practices.

When it comes to pay programs, mounds of data are gathered and analyzed in the hopes of finding that special base pay or incentive planthe plan that's proven to be effective in ensuring the "right" competitive position, keeping critical talent happy and motivated while improving performance.

Unfortunately, many companies are disappointed when they don't obtain the results they were expecting after implementing a plan that has been touted as a "best practice" by another company. Rather than achieving the results they were hoping for, their "best practice" ends up as just another ineffective human resources program or failed attempt.

While there's no doubt benchmarking is critical in the overall design process, it's most effective as a tool to help companies understand the competitive landscape. To truly achieve a best practice it takes more than copying interesting competitor practices.

In their ongoing study of best practices in the United States, Santa Clara, California-based Saratoga Institute has found that best practices more typically occur when a specific design approach is followed, regardless of the plan type or the specific elements of the plan.

A plan is likely to become a best practice when it:

* Meets the original objective for which it was designed.

* Drives desired, positive results relative to company culture and strategic business objectives.

* Addresses the specific needs, business philosophies and operating environment of the implementing organization.

When it comes to strategic compensation design, there are additional factors that are fundamental to achieving a best practice pay plan:

* Rewards must be linked to business strategy.

* Plan objectives must be clearly articulated (participants must know what is being rewarded and why).

* Behaviors motivated by the plan must support company culture and values.

* Payouts must be related to actual business performance and results.

* Plan design must be adaptable to changing business conditions.

* All elements of the plan, including expected performance and results, must be clearly communicated and fully understood by participating employees.

* Participating employees must be involved in the design process.

* Participants must believe the plan has value.

* All elements of the plan must be regularly reviewed for effectiveness in meeting stated objectives and achieving desired results.

To develop pay practices destined to become "best in class," an organization must first recognize the importance of building reward and recognition practices within a framework that ultimately addresses both the extrinsic and intrinsic aspects of employee recognition and reward.

This framework begins with the organization's strategic business objectives and then considers company culture, values, and performance measurement capabilities as critical elements in the overall design strategy. Programs are designed to motivate performance aligned with critical business objectives and reward contribution and results in ways that are meaningful to employees and consistent with company values. (See "Framework for Strategic Pay Design," on page 75.)

While there are a variety of pay systems considered best practices in today's market, here's an outline of several innovative design approaches-those we believe are most likely to result in best practices when implemented using a strategic design approach.

Market-based Career Band System to Manage Base Pay

This approach to base-pay management has proven to be most effective in non-hierarchical organizations that desire flexibility in managing individual base-pay levels and are committed to performance-based rewards. …

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