A solid yet flexible compensation plan has many benefits for organizations as a whole: From creating values-based total rewards systems to staying competitive in tight labor markets, compensation plans are an indispensable tool. But they also come with big perks for HR managers, specifically.
Lou Lazo, Employers Council Compensation Consultant, has spent four decades working with human resources professionals on compensation and market pricing issues. Compensation plans bring order to a sometimes chaotic field. “The plan helps guide our decision making,” said Lou. “Instead of being stimulus-response, when the stimulus comes in, it’s laid against the plan we made. Our response is based on a contextual view of what’s going on.”
Here are five ways that compensation planning can improve HR managers’ impact, efficiency and job satisfaction.
1. Sync up with business goals
Lou suggests thinking of a compensation plan as part of the infrastructure that supports your organization’s goals.
“I’m always looking at the business first,” said Lou. “What is the business delivering? Who are the people needed to deliver it? How do I need to pay those people?”
The process of compensation planning itself can help clarify how HR can move the needle on those business targets. It also opens up iconoclast solutions that might be unique to your goals, market and circumstances. For example, HR departments generally strive to retain employees. “But what if, say, my high performers produce 1.5 times more work than average performers,” said Lou. “Am I better off always having high performers, even if I churn them? Again, it’s a business decision.”
When your compensation plan is synced with your specific business goals — instead of HR generalities — you’ll deliver answers that can make a big impact on your organization’s success.
2. Communicate clearly with your C-Suite
Building a compensation plan grounded on business goals also improves communication with your leaders and contributes to your organization’s overall health.
“You can say, ‘Here’s my understanding of our business context, and here’s the compensation plan based on it. Let’s talk it through,’” Lou said.
Those conversations ensure the C-Suite understands why you are making certain compensation decisions and gives them the ability to weigh in, add nuance and express any disagreement. Lou stresses that it’s ok if not everyone agrees with 100 percent of the plan. As long as a majority are onboard and the plan is approved, some variance of opinion is healthy.
“If five out of six people in the C-Suite say, hey, this makes sense to us, then number six is an outlier,” said Lou. “Agreement is a great thing to have, but what I really want is people to understand what I’m doing and why.”
3. Be transparent with employees
A detailed compensation plan tied to organization values helps both current and potential employees decide if the organization is a good fit for them.
“If you have a security-oriented compensation plan, for example, and this employee is more of a gunner — they want to rise fast — they’re going to look at it and say, ‘This company is not for me,’” Lou explained. “We want people to do that self-selection. Transparency is so important in a business relationship.”
Being upfront about how you compensate and why can save you and employees time. You are more likely to recruit and retain like-minded people and waste less energy and budget on replacing imperfect matches.
4. Empower frontline managers
“Our world is way too complex to have to answer every question, especially if it can be answered at the front line,” Lou said. A well-defined compensation plan gives managers the ability to make smart compensation decisions, respond to inquiries (including sensitive ones about pay compression) and motivate their employees well. It takes off some of the day-to-day execution pressure off the HR department, allowing for more high-level strategy bandwidth.
“As an HR professional, we sometimes think the best way to control the message is for it to always come from me,” Lou said. “But the best way to control the message is to get it out in a clear and understandable way to the frontline.”
5. Build your planning skills
Finally, compensation planning teaches lessons that transfer to other essential HR tasks.
“If you’re doing a compensation plan for the first time, you’re also learning the basics about how to plan well,” said Lou. “The beauty of a planning mental model is that you can follow the same pattern — start with goals, gather the data, analyze, communicate — for anything you do, from recruiting to rolling out a change to the 401K.”