Components of an Effective Compensation System

As a reflection of leadership’s strategy about how it values its employees, a well-established compensation system allows employers to optimize on employee engagement, productivity, financial resources, and organizational goals.

Consider the following components and how to apply them into your business today:

  • Organizational Goals. Make sure to pay employees for their individual performances as well as reward them for efforts which support the business goals of the company, department, and/or team.
  • Employee Communications. Realistically communicate the company’s compensation program. Ensure whatever the message conveys, it is done so in manner that is fair, competitive, appealing and respectable. If the market conveys a particular value and the employer offers below the market value, then employee dissatisfaction and turnover rates will likely increase.
  • Rewards and Recognitions. Ensure that project recognition is differentiated from individual recognition; in doing so, each employee’s value and relevance can be more easily identified.
  • Timely Acknowledgements. Pay attention to the timing of rewards since desired performance should be rewarded as quickly as possible.
  • Simple Measures. Keep performance measures as simple as possible, and limit the number of measures to track.

Taking care of employees with a well-designed and well-communicated compensation program will help in the long-term investment of your employees as the company’s strongest asset.

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