Money Talks: Make sure salaries align with company strategy

‘In the race to stay on par with our competition, we lose track of real value and performance’ - Parameswaran (2010)

Employers today are acknowledging the increasingly important role of reward programs to achieve their business goals. However, today's remuneration approaches, like the rest of the business world, are changing rapidly. As a result, the bridge that connects a company’s remuneration strategy to its overall business strategy can pose some challenges.

In this week’s blog post we talk about the importance of aligning an organisation’s overall strategy with their remuneration plan for business success, and share some tips on how to do so.

Remuneration Strategy

According to the CIPD (2014) it vital for businesses today to have a well-defined and implemented remuneration and reward strategy. Developing the right strategy can help you attract, retain and motivate the right people for your organisation (Hay Group, 2015). De Varo (2012) says the key is taking a data-driven approach so that pay and benefits are allocated toward the positions and workers that yield the greatest return; require in-depth training; or who are difficult to source.

So how can you implement an effective remuneration strategy?

1) Listen

As with any strategy, the power of listening should be your priority when it comes to remuneration. Listen to your employees, because they will tell you what they value and whether they’re motivated by raises, bonuses or other perks. Informal conversations are the best way to gather first hand information because employees can become disgruntled if employers conduct surveys and then disregard their opinions.

2) Awareness

Managers should be always informed about the existence of the remuneration strategy and they should know the implementation plan. The managers are the users of the remuneration policy and they should understand it is based on the approved principles from the strategy. The compensation policy can change on the regular (usually yearly) basis, but the strategy is consistent over a longer period of time and the managers can plan the career of their employees.

3) Align Goals

To effectively link remuneration to your overall business strategy, you must be able to identify the direction the organisation needs to move and communicate the desired actions to get there (McDermott, 2015). Remuneration strategy starts with identifying your top strategic objectives, defining what they mean in terms of organisational behaviour, and designing your remuneration plan in a way that rewards and recognises those behaviours (Mondaq, 2012). Compensation provides a very effective tool for getting employees to move in the same direction and follow the same path (Rosenfarb, 2004).

4) Results vs Efforts

Successful remuneration plans pay for results. At the same time, they also need to recognise effort because no matter how hard employees work, sometimes they don't achieve desired results. People can work hard and not reach their goals, and you can't ignore that, especially when factors beyond their control impact their performance. Pay for results, but build into the plan other ways to reward and recognise hard work (Rosenfarb, 2004). Ensure that top performers receive the largest raises and bonuses relative to actual, observable differences in productivity (De Varo, 2012).

5) Use past experiences and indicators

Most companies are sitting on a treasure trove of historical data, making it possible to ascertain the cost and output for each position at specific tenure levels and strategically apportion compensation to yield the best return. A review of previous successes and failures helps companies tweak designs and allocate expenditures toward programs that have successfully attracted, retained and motivated top performers in the past (De Varo, 2012).

What are the ways that your company links remuneration to their overall strategy? Is remuneration an important aspect when you are seeking for a job? We would love to hear your thoughts!

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