back to blog

Nailing a Compensation Plan Rework

Maintaining a competitive compensation plan is crucial for attracting and retaining top talent. But’s not easy. There’s just so much that goes into a compensation plan besides wage or salary. When bonuses and commissions come into play, creating calculations that are structured in a way that is easily understood, communicated, and accepted (if not celebrated) can feel downright impossible. 

What are the indications it’s time for a compensation plan rework? And what are some steps to undertake it? Let’s take a look:

Is It Time for a Compensation Plan Rework?

Employers should consider reworking their compensation plans when they encounter the following signs:

  • Outdated compensation structures: If it has been more than a couple of years since your last update, your compensation structure may be outdated. The pandemic dramatically altered how employees viewed compensation, and, in many areas, there seems to be no going back. Trends in total rewards packages that include compensation but also benefits, recognition, and career development should be considered holistically because they each affect the whole.
  • Internal pay inconsistencies: Disparities in pay for employees performing similar work can indicate the need for updating. Roles with some of the most complicated pay structures—including sales and executive roles—also tend to maintain the most gender and other pay discrepancies. Keeping on top of these inconsistencies can be good for business but it can also be essential for compliance when it comes to changing pay equity laws.
  • Market changes: Significant changes in market conditions, such as shifts in the demand for certain skills or roles, can necessitate a review to ensure competitiveness. Bear in mind that market changes can also cause pay compression within an organization. Pay compression is the shrinking or disappearing of a healthy pay difference between a role and the job or manager/supervisor above them.

Where to Start

If you’re like most employers, you can generally agree that, given the factors above, it’s likely that you do need to update your compensation plan. But where to start? How do you decide what needs to change and how?

A knowledgeable consultant can be your best path forward, and here’s why: There’s a lot of legwork that needs to happen. Who on your team has the time and expertise to make it happen? The most fundamental research that needs to be done include:

  • Market research, including industry and market survey information, to compare your organization’s compensation against relevant benchmarks. It’s crucial to do this often and extensively. Pay rates and ranges can change dramatically over a very short period, as can industry outlooks.
  • A review of your current policies to uncover where changes are needed and how these changes regarding compensation will be structured, communicated, and governed.

When it’s all said and done, as Trinet points out, your reworked, refreshed compensation plan should:

  • Support your business strategy and your operational and workforce needs.
  • Keep you competitive within your industry.
  • Attract and retain high-performing, qualified talent.
  • Improve employee performance and job satisfaction.
  • Help define your competitive market position in terms of base pay, incentives, and benefits.
  • Help establish a total rewards plan based on your compensation budget, competition, and business conditions.

It should be reasonably adaptable to changes in the business environment, market conditions, and legal requirements. And employees should feel that it’s generally fair and equitable regardless of whether that worker is in the warehouse, performs sales, or is eyeing the C-suite. Above all, your compensation plan needs to be clear and transparent.

Many employers assume that the pay itself is king when it comes to recruitment and retention. That’s not entirely true. As the employee recognition platform Whistle points out, employee satisfaction can be more directly tied to feeling valued. Value, of course, can be exhibited through pay. But when you don’t know when or how compensation will be rewarded, when you feel that you may not be getting what you were promised or what other similar workers are getting, or when you feel that your organization is hanging on to outdated benchmarks, your sense of being valued can plummet.

Nailing these factors is easier said than done, but it’s worth the effort to get as close as possible. Employee pulse surveys and other additional research in the initial stages of a compensation plan rework might be needed to strike the right notes.