Employee Compensation

Determining Compensation: 4 Simple Tips to Follow

Base and bonus structure are areas where "keeping up with the Joneses" is very, very important.
Determining Compensation: 4 Simple Tips to Follow
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Employers put a lot of thought into their compensation packages. However, no matter how generous they think they're being, the talent they hire will often inform them of just how competitive they really are.

Related: What Payroll Schedule is Best for Your Business?

Kara Hamilton, for example, who's vice president of people operations at Smartsheet, said her own SaaS-platform company had experienced some issues attracting and retaining talent.

"Soon after building our internal recruiting team, we realized our base and bonus structure was not yielding the results we desired," Hamilton told me via email from her company in Bellevue, Wash., which manages and automates collaborative work. "The HR leadership did some market research and reached out to other technology firms in our area to discuss best practices."

Through this research, Hamilton said, her team determined a new and more workable compensation structure. "It seemed heavy at the time, but it proved to be competitive with the market and yielded great hiring results," Hamilton shared. "We are always keeping a proactive eye to make sure we are staying with the market conditions.

"Being complacent can create unnecessary retention risk."

Determining the value of current and future talent should not be a set-it-and-forget-it strategy. While knowing the best practices requires a lot of time and energy, it makes the process a lot easier.

Here are four things employers need to consider when determining compensation:

Look beyond performance.

When it comes to determining salary, employers should look at more than just job performance. Knowing this, many companies, in fact, are now ditching annual reviews and instead using more continuous, performance-oriented dialogue and feedback.

These frequent check-ins give management more real-time visibility of employee performance, but that's just one piece of the puzzle.

Related: How to Attract -- And Retain -- Staff When You Can't Pay Big Bucks

Lara Albert, director of solution management at SAP SuccessFactors, said she's come to understand how companies balance performance with other factors when they make compensation changes.

Albert, whose HCM software solutions company is based in San Francisco, said companies are investing in group-based talent reviews and ensuring that their calibration process looks at several different angles to categorize employees.

When employers examine current job performance, they consider several factors. For example, Albert explained that those factors include: goal achievement, difficulty of goals achieved, presence of positive and negative job relevant behaviors, manager-evaluation of performance, peer feedback, achievement of development goals and job tenure.

The next step entails looking at future job potential factors, Albert said. These include employee-career interests, acquisition of specific job experiences and development of new skills. Finally, in order to guide pay decisions, companies consider non-performance data, including current pay levels compared to the market, previous pay increases and perceived retention risk.

"What's key to remember is that in addition to employee performance, other things influence compensation," Albert said via email. "While performance evaluations should influence pay decisions, they shouldn't determine them."

Know what competitors pay.

Even if a company's pay is competitive, it will have trouble attracting and retaining talent if its competitors are willing to pay more. By keeping an eye on how well competitors pay their staff, employers can determine whether or not they themselves need to start paying their team more.

As the vice president of human resources at Segment, an analytics API and customer-data platform in San Francisco, Adriana Roche said she saw the importance of understanding competition. "We were looking at an employee and at the market data," Roche said via email. "We saw that they were within the band, but when we tried to hire their peers from companies we admired, we saw a need to increase those bands.

"It wasn't fair to hire someone off the street at a higher band and not give our current employee an adjustment."

Offer other forms of compensation.

Money isn't the only thing that can show employees their work is valued. Amit Yoran, CEO of Tenable, a cyber risk-management company in Columbia, Md., put it simply: Compensation comes in many flavors.

"It's not just salary, 401(k), medical/dental and equity," he said in an email. "All of those things are great, but they're table stakes. In the modern business environment, where technology and best practices evolve at crazy-fast speeds, you need to invest in continuing education for your people."

Along these lines, his company provides a professional development program to its entire staff. Employees have the ability to select seminars, conferences and certifications that will help them continue to move their careers forward. "This program is above and beyond the standard tuition reimbursement program," Yoran explained.

So, implement continuing education at your company. And don't forget to include benefits and opportunities that employees find valuable. They will help flesh out your company's total compensation package.

Help employees set goals.

Employees thrive when they earn recognition for their work. Platforms like FlexAwards help employers personalize digital recognitions and rewards in an instant, so employees feel noticed right away.

The problem is knowing which employees are most deserving of rewards like raises and bonuses, and why. This is where goals come in.

Goals play a crucial role in the employer-employee relationship. If everyone is on the same page about what goals an employee is working toward, it's very clear what "going above and beyond" looks like.

Fred Stevens-Smith, CEO of Rainforest, a QA testing service for web and mobile applications in San Francisco, said his company highlights the value of goal setting. "With regards to the role, it's absolutely crucial that every single employee at your company have a professional goal to hit that's attainable within the next 12 to 18 months," Stevens-Smith said via email.

Related: How to Incorporate This One Employee Perk to Improve Your Business

"Whether that goal is framed in terms of a particular title or for responsibilities or performance, having a clearly defined and mutually agreed upon goal is key," he wrote. "From there, it's a matter of coaching the employee toward the goal and rewarding them with the title or responsibilities when they hit the goal."

So, the overall goal, then, becomes simple: When employers help lay out objectives, the only thing employees have to do is focus on achieving them.

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