How to Create an Effective Compensation Plan
Categories: Blog, Compensation, Strategic Planning
How do you create a compensation structure that is fair to all employees, attractive to new hires, creates excitement and loyalty amongst your team and engages their learning development while increasing productivity? Reinventing the wheel is not necessary, but creativity, communication, and evaluation of your existing plan are essential.
In my years of creating compensation plans for organizations, I have found the overall goals of the firm lack a link to a compensation process. For example, one of my clients would like to establish their firm as “the best place to work in town”. I love the goal but found it doesn’t link to any current processes. When employees read this statement every week in a staff meeting, it is fruitless, stands alone, and has become meaningless. Linking the goal to various processes, specifically a compensation plan, would benefit the firm across the board.
Create an Effective Compensation Plan
Follow these steps to create an effective compensation plan.
- Communicate your compensation plan to team members. Communication provides team members with a thirst to reach higher levels within the compensation structure and will increase employee engagement, productivity, and personal development.
- Perform a SWOT analysis of your existing compensation plan by studying the strengths, weaknesses, opportunities, and threats of your current structure.
- Complete a cost analysis by focusing on your overhead and human capital costs. Determine the affordability of new hires if desired.
- Create, review, and update your hierarchical organization chart
- Review job descriptions and create, clean-up, and re-align to match roles
- Determine roles for new hires if applicable
- Audit your current performance management system
- Establish goals, expectations, and incentives
- Collect and conduct 360 degree appraisals
- Analyze data
- Create professional development plans
- Integrate individual performance with compensation.
- Base/Benefits/Incentives/Extras: If you haven’t read our blog, Compensation Conflict? What Employees Really Want, please do! You will find some great ideas to incorporate with your compensation plan.
Cost Analysis Update
- Perform an overall cost analysis of your firm.
When compensation plans are effectively communicated; morale and retention will improve significantly. Download Ironstone’s Compensation Planning Checklist for use at your firm.
Still need some help? Our focus is on practice management strategies to enhance and improve both business and personal life. We support professionals who desire to make major and comprehensive improvements that examine all aspects, not just an isolated area for change.
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