In the home furnishing industry, many stores are similar. What differentiates you from others is your pricing strategy, product mix, and customer experience. The same thought process for products and services pricing philosophy should be applied when creating your employee compensation strategy. Your employee compensation strategy is how you pay your employees, which includes commission plans, bonuses, profit sharing, and benefits. It should also provide transparency to your employees on how compensation, including raises and promotions, are determined. Your plan strategy should include the anticipated timing for merit or performance-based pay increases so that employees know what to expect.
Your employee compensation strategy or compensation philosophy should consider several factors. A well-constructed plan should motivate employees to achieve the business goals and the company’s mission, vision, and values through an attractive and comprehensive total rewards system and compensation package. This strategy should also demonstrate that your practices will ensure fairness in pay, promotions, and increases.
You must decide if you want to lag, lead or match your market’s compensation. You may choose to lag or pay less than the market rate if eligible workers are abundant in the area or if you have an all-encompassing benefits package. You may lead or pay more than the going market rate if you want to be more selective, have fewer qualified candidates available, have higher turnover rates, or want to increase morale and productivity. Suppose you have a more elevated-than-market compensation plan. In that case, you can use this to offset the cost of benefits or if you do not offer a benefits package. It is common for companies to match or pay the market rate to remain competitive in the market. The companies that match must realize that they may often have to play catch-up when market conditions change. You can use a combination strategy if you have both skilled and unskilled labor in your organization or challenging and easy-to-fill roles.
Design employee compensation strategies to reward the behaviors you desire. For instance, if your compensation plan rewards seniority, yet you want to be a performance-driven organization, it may be time to rethink the strategy. Your employee compensation strategy should regularly be updated to address market conditions. Turnover reports can determine if there is an employee trend of leaving due to compensation or benefits. You can also determine if adjustments and tweaks are needed to retain top talent.
You must understand that talent is a commodity and realize that “you get what you pay for.” Suppose you desire great employees who are engaged and invested in the organization’s success. In that case, ensuring an attractive compensation package designed to reward them is essential.
A strong compensation philosophy increases morale in the company. It allows you to recruit and attract top talent through an enticing offer. Regardless of your chosen employee compensation strategy, you should regularly monitor and analyze it to ensure it produces the desired results for your business.