Creating a Compensation Plan That Works for the Workplace

Posted on February 4, 2019 by Rick Rossignol

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You have the business acumen, the capital, and the passion required to start your dream company. But you’ll need the right team to carry out your vision as well as the right compensation plan to pay them for their hard work.

What is a compensation plan? In short, it determines employees’ pay, overtime policies, benefits, retirement, professional development opportunities, and other compensation-related logistics. It also addresses how staffers are paid for time not worked, merit increases, performance reviews, and provides transparency on how pay decisions are made. These things are crucial for an employer to evaluate because their workers’ salaries and benefits account for some of a company’s most significant expenses.

RTR Consulting provides the following tips on creating a compensation plan that fits both you and your employees’ needs:

1. Define Jobs/Job Descriptions

Figure out just how much manpower it’s going to take to run your operation. What do you need help with? How many hours will each employee need to contribute? What positions are musts for your organization? Once you’ve established how many employees you’ll need, write job descriptions for each role. You can look at companies within your business’s industry to get an idea of what you should budget. Your list of job descriptions will help you determine the right amount of compensation per employee.

2. Salary vs. Hourly

A big decision is going to be deciding to pay your workers on a salary or hourly basis. Consider what kind of work each employee will be tasked with. While it’s standard for food and retail companies to pay employees at an hourly level, you’ll find that a salary pay rate is more common in more advanced professions, like managerial or office work.

Paying salary versus hourly has pros and cons on both sides. If your hourly employees are not being paid enough, you might find them “forgetting” to clock out while they’re on break or clocking in before they actually do any meaningful work. Salaried workers, on the other hand, may feel less incentivized to stay at the office longer if they’re going to be paid at the same rate no matter their hours. This is why it’s important for employers to set ground rules for both salaried and hourly employees as to what their expectations are.

Also, don’t forget to account for overtime pay. Overtime policies differ by state, so do your homework and check.

3. Base and Variable Pay

Decide if you will offer your employees base or fixed pay level salary along with variable pay. Fixed pay is given to an employee by his or her employer in exchange for the work performed. Variable pay, on the other hand, comes in the form of bonuses and incentives, depending on how long or how well an employee has worked at a company.

It’s a common practice for employers to conduct yearly performance reviews, giving workers the opportunity to earn a raise based on a small percentage of what they’re being paid. If you don’t offer raises, you’re less likely to retain your employees.

You must make sure that the salary and raises you’re providing are in line with industry standards and account for possible inflation, so be sure it’s within your budget to reward your team’s dedication.

4. Look at Competitors and Industry Standards

Take a look around and see what other companies are paying their workers. If your competitors are offering a much higher salary or far more benefits than you are, it’s time to adjust what you’re willing to offer. You don’t want to lose out on the best talent.

Take this time to consider the turnover rates at companies like yours. You can use websites like Glassdoor to see if employees were unhappy with their pay, benefits, growth opportunities, etc. If you notice a trend, be sure not to make the same mistakes as these companies.

Business owners shouldn’t have to be reminded that discrimination can have no part in how employees are paid. For example, you absolutely cannot pay employees differently based on gender, sexual orientation, and race.

5. Benefits

Remember, compensation doesn’t just mean paid wages. Compensation can (but doesn’t always) include benefits like life, health, dental, and vision insurance, long-term disability pay, 401k/retirement benefits, stock options, tuition reimbursement, professional development programs, and so forth. What can you afford to offer as far as benefits? If you can’t afford to offer benefits, will you offset that by giving employers higher salaries? Not every employer offers benefits but you’ll have a much better chance of keeping team members on board if they know they’re being taken care of.

RTR Consulting has more than 20 years devoted to developing effective and efficient human resources policies, procedures, and best practices for small, start-ups, and medium-sized businesses. Contact us today if you need help keeping your business running smoothly.

2 Responses to “Creating a Compensation Plan That Works for the Workplace”

  1. Dean Phillips

    I thought it was cool when you said that it’s a common practice for employers to conduct yearly performance reviews and base raises on performance. My wife works for a start-up accounting firm that is trying to find it’s footing. It may be beneficial for them to hire a compensation consultant to properly determine how to pay their employees and incentivize them.

  2. Rick

    Yes. Having the company develop a compensation plan. Is one of the things start ups need to have. Employees want to know they are being paid fairly. When they question they quit.


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