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Define And Communicate Your Compensation Strategy

by Jonathan Jones

Many companies try to keep their pay policies secret. Usually it is because the owners do not have a compensation strategy. They may hire people at a base level and give the whole company the same 1% to 3% annual raise. The only way to get a “merit” raise is to leave the company for more pay. When employees are confused about pay, it can lead to lost performance, disengagement and unnecessary turnover.   

Define your pay strategy. Think about what makes your company profitable and what helps it grow. Each role in the company should have an impact on quality, service, profitability and growth. All aspects of the company can be measured in some way. Understand the numbers, and pay people accordingly. If some people are performing better than others, they should be paid more. If you realize people are not performing, do not be afraid to let them go. Consider a profit-sharing program to help employees connect with the performance of the company.

Once you are confident in your policy, communicate your compensation strategy and the value of each role.  Don’t be afraid to let employees know that some people make more money than others. I see many companies that have interdepartmental rifts because of the perception of inequity. Executives and great salespeople usually make more money than office and line workers. Their pay is usually more at risk than others’, and their lives are usually rearranged to fit the time need of the prospects. Make sure everyone is aware of the sacrifices they make. Openly reward profitable behavior.

A well-thought-out compensation strategy, effectively communicated and executed, can be a competitive advantage for your company culture.

Jonathan Jones (Jonathan.jones@vistagechair.com or 314-608-0783) is a CEO peer group chair/coach for Vistage International.
Submitted 7 years 307 days ago
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Categories: categoryCulturecentric Leadership
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