What is Compensation Management?
Compensation management may sound like a complex topic, but it’s actually fairly simple. Employees get hired by a company, perform work for that company, and expect to get paid. Using compensation management is a way for companies to show their employees that they appreciate all of their hard work, which in turn creates an overall better work environment. By definition, compensation management is the distribution of monetary payment to an employee as a reward for the work performed. Of course, each company follows different procedures and protocols when providing compensation, but typically the overall goals remain the same.
What are the goals?
We are going to dive a little deeper into the overall goals of compensation management as listed above. This not only acts a form of payment to employees, but has psychological and financial long term benefits for a company and its staff. Harvest HCM and other businesses strive to find quality, long term employees that enjoy their job and do it well. Effective compensation management can:
- Reduce employee turnover rates
- Improve employee morale
- Increase company loyalty
- Create a healthy work environment
Types of Compensation Management
There are different ways to pay your employees and every company has its set of preferred methods. Just to name a few:
- Base Pay
- Overtime Pay
- Insurance, vacation time, retirement plans
Setting a base pay is a good way to start new employees off. They will know what to expect within their first few months of employment and recognize that there is room for further growth and increase in compensation. Many companies encourage employees to work extra hours by including overtime pay, ultimately providing an incentive for covering shifts. Salary is also a standard form of compensation that can potentially increase with time and expertise. Aside from monetary payments, many companies offer insurance policies and plans for employees and their families. This often includes health and dental coverage.
Offering PTO hours or weeks of vacation time per year is an effective way to encourage and reward hard work. Beneficial retirement plans can attract potential employees as well as retain quality employees for long periods of time. Upholding great retirement plans reflects well on the company itself because not only are its employees building a retirement fund, but the company reveals how important individuals’ futures are.
Compensation Tactics to Keep Employees
Creating a compensation plan is essential for every business. Statistics show that the most profitable companies have high employee retention, which leads to company loyalty and strong relationships among employees, management, and corporate. Companies such as Harvest HCM create software that makes it easier for businesses to compensate their employees, thus helping boost happiness and productivity among all sectors of the company. Keeping your employees is one of the major keys to success, and below we’ll discuss a few ways on how to do just that.
A Mix of Salary and Incentives
These concepts serve two different purposes all in the effort to meet the same goal. Providing your employees with a salary ensures that they are completing the tasks that are required of them. Providing an incentive, such as a bonus or commission, gives them a reason to go above and beyond. A sales person will work harder to make an extra sale for their company and an employee will work extra hours if the business is short staffed, but both will be rewarded for their time. In this case, everyone wins! Companies should practice this strategy in order to increase overall productivity, motivation, and satisfaction.
Pay as Much, or More Than the Competition
Our country thrives on capitalism, and with that comes the beauty of competition. When job hunting, employees typically compare the average wage for a certain position with what companies are actually paying. If your company pays significantly less than the competition without providing other non-financial rewards, then chances are employee retention will be low. Every few years, it is a good idea to reevaluate the current compensation plan and make adjustments as needed. Being generous with employee salaries makes a company stand out among other businesses and can be the driving force for new applicants.
Reward Top Performing Employees
Gifting top performing employees with bonuses, vacation time, etc. shows the staff that hard work is not only expected, but appreciated and rewarded as well. Distinguishing staff members that exceed expectations with ones that simply meet them can determine if certain needs are not being met within specific departments. Compensating moderate level employees more modestly than star performers gives others a goal to reach, something to work even harder to earn. Using this same principle, employees that fail to meet expectations will receive no additional bonuses for that quarter.