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BLOG: Compensation Best Practices

Creating a compensation plan is the ultimate balancing act. You want to compensate your employees fairly but you must also consider affordability. You want to provide earning opportunities that are market-based and reward results  but you also don’t want to foster a sense of entitlement. You want to provide excellent benefits to your employees, but you also want to guarantee that programs make financial sense in the long run. Therefore, it is important to understand all components of effective compensation plans. Tom Nunn, Business Strategy & Executive Coach includes the Best Practices below when developing and administering compensation programs.

Align with the Company’s Strategy

Effective compensation programs should be in sync with both your staffing firm’s business mix and strategic objectives. Business mix considerations include “high-touch” relationship based vs “low or no touch” MSP type business, Direct Hire or SOW/Managed Services offerings. Strategic objectives can range from GM% improvements, signing up new or growing business with existing customers, expanding offerings, individual or team performance or improving operating profits.

Reward the Behaviors that Drive the Results

Effective compensation programs at all levels in a company need to incent the behaviors that drive the desired results. Simply put, incentive pay plans enable firms to achieve specific goals by rewarding individuals who contribute to those goals.

Numerous firms consider incentives a critical tool for performance improvement. According to a 2021 World at Work poll of privately held companies, 93% of respondents stated that their organizations offered short-term incentives to employees and 51% stated that they offered long-term incentives in addition to normal compensation.

Rewarding good performers and pushing poor performers “up or out” has a substantial correlation with improved company performance overall. To accomplish this goal effective training & performance tracking, strong leadership & accountability systems as well as a focus on both positive recognition for good performance and ongoing focus on staff that need to improve must be in place.

Well Communicated, Transparent and Easy to Understand

You must be upfront with your staff regarding their compensation and make it easy to understand all the components of the plan you are offering. It’s also important that the administrative aspects of plan are well understood; when di I get paid, how are commissions or bonuses calculated, what is the criteria for getting salary increase, etc.. A transparent system is a more equitable system that is less prone to headaches and affordability

Whether you’re communicating compensation and benefits information to the CEO, the management team, a single employee, or the entire workforce, it’s a good idea to have a firm grasp of what you’re going to say and practice delivering it beforehand.

Be candid about your goals and successes, including missed targets and how to get back on track, as well as areas for performance improvement. Whether it’s a one-on-one conversation or a group chit-chat, leave time for questions and don’t worry if you don’t have all the answers right away; you can always return with them later.

Uniform for Groups of People Performing the Same Role

When you begin hiring more frequently, you must have techniques, tactics, and procedures that are replicable on a wider scale. If staffing firms develop a culture of unadvertised specials with small pockets of differentiation that can feel like larger-scale injustice.

As Nunn stated, a scalable compensation structure is a more equitable compensation structure. However, this does not mean that everyone is compensated equally. What is the distinction? Equal compensation – that is, everyone earning approximately the same amount – implies that all employees contribute equally. That is never true.

Fair pay is defined as a remuneration that is clearly and transparently linked to performance. Paying people fairly – in proportion to the value they add to the business – is crucial for scaling a business, since it incentivizes employees to contribute to that growth.

“All of this is part of a performance-based culture,” Nunn explained. “You truly want to provide fantastic rewards for individuals that add exceptional value to the firm.”

TechServe Alliance members can access Current Industry Compensation Trends webinar through the TechServe Online Learning Center.

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