A Guide to Payscale Philosophy and Strategy With People Operations

As the workforce moves towards more freelance, contract, and part-time engagements, companies need to make sure they are compensating their employees in a way that meets today’s work style. In addition, as a rising number of organizations adopt remote work, there is an increased need for clear communication regarding salary negotiation, benefits packages, and incentives.

Creating a compensation philosophy that aligns with your company strategy is one way to strengthen hiring and retention. Compensation is also a pivotal component of people operations. Here’s how to create a compensation philosophy, tie it to business goals, apply people operations principles, and attract top talent.

Creating a compensation philosophy

A compensation philosophy defines your company’s view on the value of employees, how they should be paid, and what benefits they receive. The key to building a practical compensation philosophy is to know what you want to achieve and what you’re willing to do to get there.

While your philosophy will be unique, we recommend adopting a Fair Pay philosophy:

• Compensation should not depend on age, gender, race, or any other protected category.
• Keep pay consistent across similar roles and competitive in similar areas or locations.
• Pay people what they deserve — both for the work they do and their experience.

The focus of any company is to create and sustain a competitive advantage in the marketplace, beginning with an effective compensation strategy. If you’re not compensating your employees properly, they may not stay with your company for long.

The key to building a practical compensation philosophy is to know what you want to achieve and what you’re willing to do to get there.

Defining and reaching your business goals

The next step in creating a compensation strategy is deciding on what you want. Start by looking for:

• Skill sets needed for hires
• Which roles and positions to fill, in what order
• Which incentives should be used to attract the talent necessary to reach desired outcomes

Start at the finish line and think about how you plan to get there. If you have more than one goal, decide which goals are most important and rank them. “Must have” and “would like to have” are two categories you can use to inform the urgency behind each goal and what talent you’ll need to accomplish them. Use this list of what you want to achieve in the next 12 months as a starting point to identify places where you’re missing talent.

With each gap, compare data from compensation benchmarking tools to determine how much you’ll have to spend to attract needed talent. You might end up having to pay more for more urgent roles. Share this information with your leadership team and decide on how you’ll attract talent. Will it be from within, or will you need to look outside your organization to fill the roles?

Considering your budget

Talking about compensation without considering the budget is like driving a car on fumes; the conversation will only get you so far. Your budget will show you what resources are available, how much they cost, and how those funds are allocated. Use it as a decision-making tool to tell if enough money is available to meet operational costs, find more revenue, or if you need to cut expenses.

From here you can make more detailed decisions like how many people you can put on payroll, what type of incentive strategies there are, and salary ranges for positions you want to fill.

You can also find the best level of employee compensation (salary, benefits, and flexible benefits) as well as the kinds of workers you want on your teams (contract, full time, part-time, and freelance).

How much?

The final step in the budget conversation will involve knowing how much you should pay for your talent. While you can ask friends, colleagues, and mentors how much they might pay to hire and retain talent for particular roles, the best way to gauge how much to pay someone is through using a benchmark tool. Compensation benchmarking provides pay transparency and equality which employees enjoy — especially if it applies to promotions.

And yes, you could go with Glassdoor, LinkedIn Salary, or Salary.com, but we suggest using Zenefits 2021 Compensation Management Tool to make data-driven decisions about your compensation strategy. It can help you understand where you are in the market, what needs to happen to close any gap, and how much you need to invest to close it.

But what if the numbers indicate you can’t afford to hire the talent you need for achieving your business goals?

Think you can’t afford it?

Just because you can’t offer top dollar for talent doesn’t mean you can’t afford to keep or retain potential hires. Smaller businesses might not have big pockets but have more flexibility when it comes to incentivizing workers. You can use both monetary (equity, performance-based bonuses, or profit sharing) and non-monetary perks (flexible work hours, additional PTO, career opportunities) — which can be legitimate incentives for employees to join and stay with you. Consider adding monetary value to each perk to quantify its value. As your business grows, you can increase these perks to make them more attractive.

How compensation relates to people operations

You’ll need to determine what kind of culture you want to create and how compensation ties into this.

Compensation is a pivotal component of people operations because it directly influences how successfully an organization can attract and retain the very best talent. So if 55% of America’s workers are planning to leave their jobs within the next year, you can bet that half your team will be gone.

Although it is not the only factor that motivates people, compensation plays a significant role in how people feel about their company. Employees who feel taken care of will more likely stay with the company, which will help ensure a good staff retention rate. The benefits of having happy employees include them being more productive and efficient and ultimately customer satisfaction.

Compensation-related decisions are fundamental to your company’s success, so be sure to include HR in these conversations. First, you’ll need to determine what kind of culture you want to create and how compensation ties into this. You’ll also want to be sure you have adequate data on the labor market and the salary levels for your area.

Final word to the wise

Clearly communicate your incentive structure to employees. Employees with role clarity are 53% more efficient, while role clarity increases overall work performance by 25%. This should encourage you to make sure employees are aware of available incentives, how to earn them. and how to ask for additional incentives if desired ones are not currently offered. Get your strategy out there where employees can refer to it whenever they choose.

If this was helpful and you’d like to learn more about how to create a compensation strategy that will help you attract and keep top level talent, download our People Operations Guide to Compensation.