Different organizations use compensation strategies to make out how employees should be rewarded for the roles which they play as individuals in the running of the organization. Compensation is one way of motivating those employees who do not bring forth a good performance in the organization to perform better. Additionally, this helps in motivating the hardworking employees to outdo their records and perform even better.
The best way for an employer to make a decision on how each employee should be rewarded should be based on a laid down strategy, as opposed to mere observation. A good compensation strategy ensures that there is fairness and equity when rewarding each employer. There are three concepts that should always be included in an effective compensation strategy. “These include the association of the duties that each employee is supposed to carry out, an evaluation of the performance of each individual employee, and the pay that each employee is accorded” (Gomez-Mejia, 1992, p. 57). However, it is ideal and unfair to make an assumption that the more duties an employee is allocated, the more the performance he/ she deliver. That is why there needs to be an effective grading system in the whole strategy.
The layout of the compensation strategy of an organization can be used to gauge how the benefits and payments of employees are executed. “It, therefore, serves as a guide that should be clearly written down with complete articulation of the approach used by the management in its formation” (Graham, 2008, p. 51) There are a variety of concepts that should be put into consideration when designing an effective compensation strategy.
The strategy should incorporate a distinct layout of the budget allocation of the organization. This means that, the approach used by the organization to allocate compensation payments to each employee should be clearly indicated. This promotes transparency in that there is visible disintegration of funds, in order to promote equity. This also makes sure that the complete organizational budget is laid out from the beginning of the whole process, and this helps to avoid any potential budgetary complications. This aspect tries to put some facts together such as the percentage of the total budget to be spent on salaries, how much percentage to be used on employee benefits as well as other organizational incentives. For instance, if 80% of the total budget is used to clear employees’ salaries, and the remaining 20% spent in employees’ benefits, how exactly is that 20% broken down. With this kind of arrangement, it is possible to figure out that maybe 10% is used on health benefits, retirement takes up 6%, and the remaining 4% spent on entertainment allowances. Budget allocation helps in control of such calculations.
It is also extremely essential to develop a system of salary ranges of employees. This ensures that the payment of employees is relatively at per with that of employees in other institutions. It is important to have a pay structure and a benchmark of related jobs within the same industry. Salaries should be regulated in order to fit in a certain mean circle in order to avoid irrelevant injustices in the compensation system.
In addition to those, it is important that the organization does salary audits from time to time. Purposefully the audit is meant to create a comparative platform from which results will be used to make decisions for adjustment of employee remuneration and benefits. The job market is like any other in the dynamic characteristic that can drive it to change from time to time. Particular posts that exist have a designated range in an industry, for this reason, the range should be competitive to maintain and improve employee retention. Attractive compensation is also a good source of motivation that will make the employees meet the set targets for company performance.