How to Build a Fair and Equitable Compensation Plan

Every company needs a compensation plan to attract and retain top talent. The compensation plan consists of a method for compensating employees including direct and indirect compensation for services rendered. Direct compensation includes hourly pay, salary, bonuses, and commission, while indirect compensation includes but is not limited to insurances (e.g., medical, dental, vision, life, and disability), retirement plans, stock options, vacation, student loan assistance, opportunities for advancement, childcare, flexible work schedules, etc. The plan needs to begin with goals and objectives as well as a budget.

The first step in developing the compensation plan is to set goals and objectives and a budget for personnel. Analyzing well-developed job descriptions help to inform the process. Research relevant market data to determine the range of direct compensation that will make your company competitive enough to attract top talent. Include data from platforms such as Glassdoor and Payscale to inform your initial decisions.

Now that you have determined base salaries or hourly pay, you can determine the total value of your compensation package by adding bonuses, equity, and benefits. Depending on the culture of your organization and employee needs will help determine what benefits would be of value. Once the cost of the benefits package is determined, the base salary or hourly pay can be adjusted. 

The next step is to create a matrix to organize your data for ranking jobs in each area so you can develop a pay scale for each job category. Issues to consider once the draft matrix is complete is the availability of skilled workers. If there is a scarcity of talent needed in a certain area, you may wish to offer 10 – 20% above the market rate. Another consideration is the employee’s location. Employees living in urban areas frequently have a higher cost of living compared to employees living in rural areas. Creating an adjustment for the cost of living may need to be added. Experience levels also need to be factored into the pay scale.

One of your goals for the retention of employees should be to build a compensation package that considers advancement in the company. Include levels within each position and job classification from entry to senior in the matrix. Be sure that all employees can advance within the structure. Finalize the draft matrix and budget. Make sure the compensation package aligns with all company policies.

Before presenting the plan to the company’s leadership, test it for equity, fairness, legality, and competitiveness. While all these concerns should have been addressed in the process, it is always wise to have outside experts review the plan to ensure that they have been. Make adjustments if necessary.

The next step is to get approval and build buy-in from the company’s leadership. Leadership must be on board to support the implementation of the plan.

The final step in the process is to develop a communication plan to unveil the newly developed compensation plan. It is best if all employees learn about the plan at the same time to avoid the rumor mill. Use a variety of methods to communicate the plan to employees including large and small group gatherings and print and digital methods. Develop a Frequently Asked Questions document to help explain the information and add employee questions to it as you implement the roll-out.

Lastly, consider taking a bold step by being transparent with your plan. Buffer, co-founded by Joel Gascoigne and Leo Wildrich in 2010, adopted “transparency” as a core value in their company and they share salary data on all employees within the company. By being transparent with all employees, it increased employee engagement and ownership that drove productivity, work quality, performance, and revenue. Would you like to emulate Buffer practices?  

For assistance on creating or updating an existing compensation plan, contact Deliver Workforce Solutions at www.deliverworkforce.com or contact Katherine Schadewald at (518) 708-3316.

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