How To Create A Strategic Compensation Plan
In order to create a strategic compensation plan, you have to align the contributions of individual employees with the goals of the company. Although, this is a fact many companies are aware of, they are always stymied with how to create a strategic compensation plan.
When creating a strategic compensation plan, it is imperative that performance plays an important role. In fact, many big companies practice this strategic compensation plan with varying degree of success. Usually, you have to rate your employees on a bell curve annual, assigning an overall performance rating from Exceeds Objectives to Does Not Meet Objectives; and if employees are rated as Does Not Meet Objectives, they have to go while others are rewarded with bonuses and raises.
Although many organization say that have a strategic compensation plan where they use pay for performance, many companies just are unable to execute this properly. There appears to be a broken link between the desire to differentiate pay based on performance and the ability to do so. And, in reality the ability to compensate individuals based on performance for large companies with employees across the globe is practically impossible.
This results in companies spreading merit and bonuses across the population of the employees. In other words, top performers of an organization do not get rewards commensurate with their contribution while under-performers are over compensated.
That is why it is important to create a strategic compensation plan so that top performers are rewarded and motivated. This means that a company will have to do employee differentiation, rating of employees, planning new base salaries so that it is easy to do compensation planning taking into account performances versus position-in-range, and finally planning new variable compensation.
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