What Are The Three Main Strategies for Managing Rewards and Compensation?
A business is only as strong as its employees. When employees are dissatisfied, the business is running on borrowed time. With the help of reliable compensation and reward consulting, you'll be able to keep your employees happy.
Having effective rewards and compensation packages is a must-have for any business. Below, let's dive into the three major approaches to reward and compensation management.
Defining Compensation and Rewards
Before we discuss these approaches, let’s first define what compensation and rewards are.
The relationship between the employee and employer is transactional. An employee works and, in return, gets paid for it. The employee’s salary is his compensation.
On the other hand, rewards are outside of the usual compensation package given to an employee. It is normally given to an employee who has performed exceptionally well. Rewards are also tools to encourage hard work and loyalty among employees.
Rewards are given to deserving employees based on performance evaluation. For it to become effective, the amount should be based on the employee's worth to the business. The current financial standing of a business should also be a determining factor in the reward offered to employees.
What Is a Compensation Strategy?
A compensation strategy is a company's system to pay and provide employee benefits.
An effective compensation and pay strategy is needed to attract the best talent in the industry. But creating one can be a challenge for a small business.
Why Do You Need a Compensation Strategy?
All aspects of your business can contribute to its success or failure. That includes your compensation strategy. There are three main reasons why you need an effective compensation strategy:
It allows you to hire the best talent available.
It makes the retention of top-performing employees easier.
It minimizes employee turnover.
A good compensation strategy will also ensure that all money spent on rewards and compensation aims to achieve the company's overall goal.
3 Major Approaches in Reward and Compensation Management
Strategic goals set by the company should determine how much you pay and reward employees. Here are the three main approaches for compensation management that you should be aware of:
LEADING COMPENSATION STRATEGY
Under this strategy, the company offers higher compensation than the going market rates. This makes it easy for a company to attract the best people and retain top employees. It also builds a good reputation for a company.
The obvious downside is that it can be costly, and only a company in good financial standing can offer this. Also, a company that may experience a bad period in terms of finance may have to reverse this strategy, wiping out all the gains made.
LAGGING COMPENSATION STRATEGY
This is the opposite of the Leading Compensation Strategy. It offers below the market rate. There are three kinds of organizations that offer the lagging compensation strategy:
A financially unstable company
Companies that are non-profit driven
Startups
While this strategy can help with the finances of a company, it will not help with employee retention. Also, it's unlikely that a company using this strategy will attract top talent.
MEETING THE MARKET STRATEGY
Meeting the Market is the most commonly used compensation strategy today. It is paying within the current market rate range for salaries and rewards. This strategy ensures employees get compensated properly, ensuring they will still perform in their jobs.
By adding more rewards to your strategy, you can attract even more talent and still enhance the reputation of your company.
Determining Rewards and Compensation
While you need a strong compensation strategy, you should also be flexible. Not all recruits and employees are the same. You may have to adjust the compensation you offer depending on the employee. Here are a few factors to consider when determining rewards and compensation:
The performance of an employee. The top-performing employee deserves more compensation.
An experienced talent will expect higher compensation.
The current wage of a prospective recruit. Most of the time, you will have to offer higher compensation to attract a prospective employee.
These are the things you should know about rewards and compensation strategies.
Design an Effective Compensation and Reward Strategy with FutureSense
At FutureSense, we believe in putting people first. We have been enhancing corporate performance through all-encompassing people management techniques.
Our team of experts can work with any client to create answers for their HR, organizational development, and pay difficulties because they have the industry expertise and experience to do so.
For more information on compensation and reward consulting, and to learn more about the proper way of giving back to your employees, contact us at 888-336-0909 at FutureSense today!
About FutureSense
FutureSense is a management consulting firm that provides integrated solutions to build and sustain human capital capacity. The firm can work with you by offering support and guidance to manage your workforce. To learn more about FutureSense, please visit FutureSense.com.