Employee compensation strategy done right

It comes to no one's surprise that good employee compensation is essential to keeping your workers engaged and loyal. Of course, it's not the only factor that counts, but it's definitely one of the most important.

Employee compensation can be split into wages, benefits, and incentives. Your employee compensation strategy should involve great incentives, bonuses and industry-standard cash payments to your staff. In short, your compensation of employees needs to be competitive. 

But what makes it "competitive" and why is it important to your business?

Let's dive in.

Why you should offer a competitive employee compensation

An industry standard refers to the average salary range an employee is paid for a specific position in their niche. A competitive salary is one that is either higher than this average or, at the very least, matches it.

Usually, small businesses try to cut corners when it comes to employee compensation. Now, of course, this is perfectly logical because you need to take your budget into consideration. However, this could do you more harm than good.

Your business runs on the efficiency of your team. A less than average compensation will attract and retain a less than average employee. In addition to this, there are two other benefits that you get from offering competitive compensation to your staff.

Maximise employee retention

If you want employee loyalty and high employee retention, you've got to offer competitive pricing. Not only does it keep them motivated, but they also realize that they're getting a better deal than most of their peers.

Creating a better brand

How many brands have come under fire for not paying their employees enough? Low wages are not only bad for your workers but terrible for your own brand image.

Defining an employee compensation strategy

A well-thought-out employee compensation strategy allows you to better prepare the employee benefits. Then, you can calculate and plan the wages you're willing to offer your team. It takes into consideration a variety of factors unique to your business.

Here's how you can start drafting your workers' compensation strategy.

1. Analyse your own needs

You need a customized employee compensation strategy that works for you. It could be that an upgrade in the worker paid health insurance is extremely relevant in jobs that involve more physical risks. On the other hand, perhaps your niche prioritizes other benefits, such as commissions on sales.

This is all about finding the right balance to make it affordable, structured, and competitive.

2. Offer non-traditional incentives

One way to address the issue of a low budget is to offer your employees alternative incentives, not necessarily monetary ones. For instance, giving meal vouchers through an expense management system is a great option for indirect compensation. Other types of compensation include:

• Allowing a more flexible working environment
• Providing a fantastic company culture, enhancing the sense of belonging
• Granting a variety of training and learning opportunities.

3. Draft your employer's USP

An employer's main USP (Unique Selling Points) is the ability to offer something that other employers cannot. If you feel like your business is on the verge of a breakthrough, let your staff know. Employees don't want to be a part of a company that has no future. 

Whether it's technological advances or simply a great idea, learn how to use your strengths as incentives for future hires.

Defining salaries and wages

A salary is what an employer pays an employee in exchange for their labor or effort. Similarly, a wage is what you pay your employees for their daily, hourly, or weekly work. Generally, salaries are fixed, while wages are subject to frequent change. 

While determining your employees' salaries, here's what you need to keep in mind. 

1. Above minimum wage

Your very first priority as an employer is to ensure that your salaries are higher than the standard bare minimum. Keep in mind that the National Minimum Wage in the UK is £8.72 in 2020. This is applicable to any employee aged 25 or above.

2. Do your research

Additionally, as we discussed above, it should also be on par with the standard in the industry. You also have to take a look at factors such as the value of the position and what the employee brings to the table. While an employee's salary history might seem relevant, you also want to ensure that it does not perpetuate low, uncompetitive or unequal pay.

3. Set a benchmark

You need to focus on distinguishing between positions and their respective salary trends. Doing research on individual positions allows you more insight into what you need to pay.

Additionally, once you know the market average, you can offer a slightly more attractive package. This will allow you to retain the very best in the field.

The incentives are particularly important for startups, for instance, due to the lack of initial capital to pay high salaries. Offering a flexible work schedule, hybrid working format, and profit sharing can be drivers to attracting top talent.

Here are a few that you should consider.

• Bonuses are additional pay given to workers, particularly for exceptional work
• Profit-sharing allows your employees to benefit from the company's success by sharing with them a percentage of company profits
• A stock option incentive allows your staff to buy stocks at discounted rates with a lower rate of taxation on the profit 
• A commission incentive is a way to encourage your staff to help with the direct sales of products or services. In exchange, they receive a percentage of the profit

These incentives are great for keeping your employee compensation plan competitive and motivating workers to be engaged and actively interested in your company's growth.

Regularly updating your employee compensation strategy

Your industry is constantly evolving, and your workers' compensation strategy needs to evolve with it too. Here are a few factors that should help you determine when your employee compensation system needs an update.

• Changes in the market indicate a change in demand for your service and changes in the industry standard of payment
• Competitor changes refer to an increase in the salaries offered by your competitors for specific positions
• Company growth in the form of expansion or increased profits
• Employee lifecycle, their loyalty to your company, the growing years of effort, experience, and knowledge.

Each of these changes must be acknowledged and addressed by tweaking your strategy from time to time.

Supporting your employee compensation strategy with HR software