Designing compensation programs is a complex and challenging task for HR professionals, finance professionals and executives. In addition to their significant and long-term financial implications, compensation programs impact numerous workplace programs, including: talent acquisition, employee retention, workplace culture, performance management, labour relations and more. As such, it is critical for business leaders to utilize be informed and responsible when managing compensation in organizations.
Below are ten best practices for leaders to help in the design, implementation and management of high-impact compensation programs:
1) Establish your organization’s compensation philosophy and strategy early-on
In order to maintain consistency, clarity and support compensation decisions, it is important to establish a formal position outlining the organization’s overall position on employee compensation. An organization’s compensation philosophy and strategy should address the weighting of total rewards components (base wage, STIP, LTIP, benefits, etc.), the basis for compensation incentives and its position relative to industry competitors. Establishing your compensation philosophy early-on will help guide compensation management over the long-term.
2) Ensure your compensation programs are fully-compliant with applicable legislation
To ensure employees are being compensated fairly, it is important to comply with all legislation that applies to your organization. As a starting point, employers should familiarize themselves with pay equity legislation and their provincial employment standards legislation (or the Canada Labour Code for federally-regulated employers). In addition to complying with jurisdictional minimum wage and overtime requirements, employers may have additional obligations such as conducting a job evaluation process in order to meet pay equity requirements. Before an organization can manage compensation strategically, they must first meet their compliance requirements.
3) Focus on sustainability and scalability
When designing a compensation structure, organizations should consider both their current and future organizational needs. By anticipating long-term staffing levels, the types of skillsets that will be required and the evolution of the organization structure, organizations are more likely to build a scalable and sustainable compensation structure.
4) Document your compensation programs
Organizations are advised to document all elements of their compensation programs thoroughly. This practice helps maintain clarity and consistency with compensation practices and ensures employees have clear written explanations regarding compensation protocols. In addition, this allows organizations to avoid relying on memory when addressing compensation-related disputes.
5) Make data-driven compensation decisions
In many cases, compensation decisions are still being made based on gut feel, personal opinion or subjective information. Compensation program planning is far too critical for this approach. Compensation-related decisions should be made based on objective data. Internal data, such as employee survey feedback, can help assess internal satisfaction with current compensation programming. External compensation benchmarking can help ensure that an organization is in-line with their compensation philosophy and assess its position relative to its competitors.
6) Make internal communication a priority
Compensation is a significant consideration for the majority of employees. Employers should make it a priority to communicate the organization’s compensation philosophy and strategy regularly as well as provide updates on the timing of changes and reviews. The more an employer controls internal messaging related to compensation, the less of a chance speculation and rumours will gain traction.
7) Educate your workforce on compensation fundamentals
It is recommended that organizations take the time to educate their employees on compensation fundamentals to establish a foundation for more meaningful discussions about their pay. These sessions can be included in an organization’s orientation program or can occur periodically throughout the year. When employees have been educated on fundamental concepts such as the value of their total compensation package, the organization’s annual compensation budgeting process and sustainable compensation practices, they can begin to appreciate the complexities of compensation management and the value of their overall package.
8) Review your compensation programs thoroughly and regularly
As mentioned in point #5, it is important for companies to make decisions related to their compensation programs based on objective data. It is recommended that organizations establish a regular compensation review cycle to ensure that their total reward program is competitive, meets employee needs and is sustainable. An annual review cycle, aligned with the budgeting process and an analysis of the results of internal employee satisfaction surveys is a common practice.
9) Always meet your compensation commitments to employees
When an employer establishes a timeline or makes a commitment to their employees, it is critical that they are met. Although HR leaders, Finance leaders and executives are dealing with heavy workloads and conflicting priorities, when a compensation-related commitment is made it must be kept in order to maintain trust and credibility among employees.
10) Engage third-party subject matter experts as needed
Compensation management is incredibly complex and, as previously mentioned, can have significant and long-term financial and HR impacts. As such, it is important for HR and Financial specialists to acknowledge that they may required outside support for managing compensation. There are a number of highly-effective compensation firms in Canada that can be engaged to help employers navigate complex scenarios, plan their compensation program or assess what is currently in place to ensure there are no gaps or deficiencies.
Compensation management presents an excellent opportunity for HR leaders to demonstrate strategic value to their organization. Staying informed of compensation trends and legislation is a wise strategy for HR leaders to help support compensation management in their organization and proactively manage any potential risks.
Jason Fleming, CHRE , Strategic Advisor – Cannabis at Work
