Define your compensation policy

When properly managed, compensation can be a powerful driver to communicate company strategy and get people to implement it. Indeed, compensation is highly visible and meaningful to the entire workforce.

Base pay should represent the ongoing value of employees.
Base pay should be defined in line with the market. But it can also be used to demonstrate how much value the company places on certain strategic skills or to stimulate ongoing performance. Base pay is also a means to align workforce efforts with company strategy.

Variable pay is the best way for a company to stimulate performance.
Variable incentives effectively focus the workforce on short-term results. They should thus be established based on criteria that are consistent with company strategy. Naturally, these incentives should be motivating to the workforce.

It is often necessary to change compensation policy for certain types of employees.
– Too many companies respond to the scarce resource problem by offering excessively high fixed starting pay when they hire new people. However, compensation has a significant impact on profit margins. Companies should therefore consider using other retention mechanisms, such as a fulfilling work environment or an active personnel development policy.
– Salespeople are too often compensated principally based on revenues generated. However, it is important to develop indicators that integrate customer satisfaction and sales profitability.