Compensation Strategies

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Afew strategic management philosophies can eliminate concerns about getting a proper return on employee compensation.

August 01, 2002

 

Bill Carpitella

A few strategic management philosophies can eliminate concerns about getting a proper return on employee compensation.

1) Make your compensation plan so simple your 10-year-old could understand it. When employees understand how they can control their future compensation, the chances of ensuring behaviors tied to compensation dollars increase.

2) Differentiate among A, B and C performers. Use the 70/30 rule in annual merit increases. “A” employees (those who exceed expectations and drive results) receive 70% of available monies. B employees (who mostly or fully meet expectations) get 30%. C employees get nothing. Incentive/bonus plans also should be weighted toward excellence.

3) Choose a pay philosophy. Understand the market compensation for each function in your organization and choose whether to pay below, at or above the market average. Paying at the 75th percentile indicates that a business wants only the best available talent.

4) Reward frequently. A monetary reward distributed immediately after a result of consequence sends a strong message about repeat performance. Monthly incentives and bonus payouts have an exponential effect on recurring performance, much more so than an annual bonus/incentive.

Bill Carpitella can be contacted at bill@sharrowgroup.com.

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