As much as 70% of a company’s operating budget can be allocated to labor costs alone. The sheer size of this line item, paired with the rapid pace at which salaries are increasing for hard-to-fill roles, is enough to leave any employer second-guessing decisions on pay – and is all the more reason to have a well-thought-out compensation strategy in place to guide you.
How can you, as a business leader, make sound, informed decisions around compensation strategy to ensure your business stays competitive? First, figure out the overall budget you can dedicate to labor costs. Then consider your company’s top goals.
Compensation strategy starts with the B-word: Budgeting. Before making any other decision, you must know exactly what you’re working with. What is the total amount you’re able to spend on bonuses and/or raises this year? How much do you have slated for labor costs across the board? Having designated budget buckets will offer a healthy amount of restraint or freedom (depending on the circumstance) when it comes to your HR team making decisions about a new hire’s salary or managers determining an employee’s raise.
Once a compensation budget is determined, consider your organization’s top goals. What roles and responsibilities will be vital in helping your organization reach those goals? Who are your impact players? What major positions within your company must be filled with top talent? Building attractive compensation packages for this group is a wise first step in developing your overall strategy.
You know you need to offer highly competitive compensation packages to attract top talent, but actually figuring out what kind of salary ranges, in addition to benefit offerings, it will take to achieve this is, well, complicated. And if you’re like many employers or internal HR professionals who don’t have the bandwidth to carry out competitive analysis for every role, help from a data software platform could be the ticket. Many platforms generate fair and competitive salary ranges depending on a position’s geographic location, required skills, years of experience, etc. But buyer beware: Access to these programs does come at a cost, and even using these systems requires a lot of time and energy.
The easy option? Partner with an HR consultancy that not only has access to salary data platforms and can use them on your behalf but have people on staff who are experts at developing compensation strategies from start to finish so you can rest easy.
There’s a lot that goes into compensation strategy – your company’s stance on when bonuses and raises are earned, unique benefits that are given or increased based on tenure, etc. – and the above steps just scratch the surface. But taking these initial steps will go a long way in providing guidance and confidence when it comes to making compensation decisions, be it for a new hire’s salary or a well-deserved pay bump for a tenured employee.
Written by Katherine Daniel and spotlighted on the Wilmington Business Insights.
