Your Compensation Plan in Today's and Tomorrow's Economy

Your Compensation Plan in Today's and Tomorrow's Economy

A number of companies are beginning to wonder if they have paid enough attention to their compensation plans over the past few years. No problems yet -- just an uneasy feeling something may not be quite right.

Others are clearly questioning whether their incentive and stock programs are helping them achieve their financial and business objectives and giving them the best return possible by motivating and encouraging the right behaviors and results.

Stories about other companies losing key players to better paying jobs are beginning to strike closer to home.

Some companies find it difficult to say that their pay rates and benefits packages are competitive because they haven't checked the market for several years.

In our experience, companies are facing these questions, and many others, regarding their compensation plans as we move into the last quarter of 2004. The long-awaited economic recovery continues to arrive, gradually increasing the pressure to effectively respond to these concerns and thereby retain key talent and motivate employees.

The fact is, however, that there is no one certain answer for all companies regarding these issues. Every company is in a different situation and market space. It is critical to understand what has been happening in the market regarding pay and incentives and to ask a few questions about your own company's experience to determine if any action is required.

Generally, pay levels have increased approximately four percent per year for the past several years -- so if your compensation program has not changed in that period you may be behind. Across-the-board pay increases are becoming a thing of the past for companies seriously interested in retaining top talent. Many companies are turning to pay-for-performance and flexible, variable pay approaches. Stock continues to play a large role in many companies, but it is not granted as broadly as before. Having said that, if the incentives and stock currently offered by your company are not inspiring actions that give you the "best bang for the buck," then you should seriously reconsider your current approach.

Defining your company's compensation philosophy sets the foundation for developing a competitive compensation plan. Once it is decided what approach the company should take, based on a solid understanding of what your industry and other firms like yours are doing, that philosophy should be captured in writing and shared with managers and employees as the cornerstone of your overall program. At the appropriate time, very clear communication of your compensation philosophy and how your plan works for all participants will help employees and managers perform their jobs better by clearly defining what the company has to offer and how that is valuable for everyone.

Not knowing where to start is many times the greatest hurdle to solving complex problems like employee compensation. That is when the perspective of someone knowledgeable of today's market conditions and how other companies are answering these questions can be invaluable to help jump-start your actions. Your objective is to get the absolute most for the dollars your company spends on payroll. But you won't know how to get there if you don't know where you are today.

When determining any actions to enhance your compensation plan, remember that clear goals and objectives and two-way communication are essential to ensure success. Capturing the innovation, contributions, satisfaction and loyalty of employees are the goals of effective compensation programs and so employee participation is important to the process. It is never solely about pay, but rather the personal investment and creativity that employees are willing to share with your company that is important. To achieve this you've got to get them involved.

If we can help you review, research, plan or deliver on any aspect of your company's compensation program please give us a call. We'd also be happy to do it all in collaboration with you so that you retain the experience and knowledge and can better manage the return on your investment going forward.

The economy definitely is changing and business activities are ticking up. As a result we all are concerned about keeping our key players as we get busier. At the same time our top performers may begin seeing better opportunities for themselves at other companies, the result of the same improved business climate. By reviewing, planning and updating your approach to your compensation plan now you may be able to prevent critical talent losses and unnecessary associated costs in the future. Let us know if we can help. You can reach us by phone at 925-867-4400 or at compservices@merithr.com.

Merit Resource Group helps businesses in all stages of development manage their critical human resource issues to increase business success. Merit's HR Assessment helps its clients align policies, procedures, compensation plans, training, employee survey and staffing needs for greater business results and Return On Investment in their people.