importance of a compensation and benefits strategy

What makes compensation and benefits so important? First, your employees want to be paid — they need to be paid.

Secondly, salaries and benefits comprise a large percentage of the company's budget. For most businesses, labour costs represent anywhere from 15% to 30% of the company budget, but these costs can be much higher for some businesses. Therefore, it only makes sense to have a strategy for an expense representing nearly a third of the budget.

Finally, developing an employee compensation and benefits package is not as easy as only setting wages and adding some benefits. Developing a compensation package requires strategic planning and intelligent choices regarding what benefits should and shouldn't be included in salaries. Understanding these choices' impact on your organisation and current and prospective talent can help you develop a package to achieve your business goals.

benefits of having a compensation strategy in place

A strategic compensation plan offers numerous benefits, including:

gives the company a competitive edge

A comprehensive employee compensation strategy can give your company a competitive edge by ensuring it offers the specific salaries and benefits talent in your industry want. Highlighting these compensation and benefits packages on your career page and job postings can increase your company's potential to attract and acquire top talent.

builds loyalty

In a recent study, 60% of workers who believe their employers care about their wellness plan to stay at their current job for at least the next two to three years.

Offering your employees the types of benefits they want can go a long way in showing them that the company cares. Over time, this sense of caring can build loyalty among your workers and improve employee retention rates.

increased productivity

Research shows that workers are 13% more productive when they're happy. Creating a compensation and benefits package focusing on workers' physical, mental and financial health can increase their well-being and productivity.

compensation strategy approach

One approach you can consider when developing your compensation strategy is to determine whether you want to be:

leading the market

This is an aggressive strategy where employers decide to set salaries above standard market rates. This approach can give your company a competitive edge and make it easier to acquire talent. You may also offer a lighter benefits package since wages are higher. The downfall is that higher wages mean higher labour costs.

lagging the market

Lagging in the market means employers set salaries lower than standard market rates. This method is common among nonprofits, attracting workers due to their charitable services. The risk of low wages is that the company may struggle to attract and retain workers. With this strategy, employee benefits, such as flexible work schedules and paid time off, are even more critical.

meeting the market

Meeting the need is the most common option and requires employers to set salaries close to market standards. Choosing this option allows companies to maintain competitive wages while staying within budget. This strategy makes benefits a handy tool for attracting and retaining talent.

Remember that this is only one way to evaluate your compensation strategy. It's also important to consider what type of company you want to be, how much you want to differentiate from the competition and at what cost.

how are employee compensation and benefits calculated?

The first step to calculating employee compensation for your workers is to set a salary range for each position. Typically, employers base their salary fields on industry standards. Most employers use detailed salary surveys to identify average salaries for their respective industries.

Once a salary range is in place, HR teams must determine where the specific pay for each employee falls within the pay range. Typically, when making this determination, employers will look at various data points, such as particular job duties, years of experience, required qualifications and location.

Employee benefits are a little more challenging to calculate per employee. In most cases, employers add up all costs associated with benefits and divide them by the number of employees. This calculation can serve as a rough estimate to determine the total compensation costs for each employee.

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