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Compensation’s Role in Human Resource Strategy
Compensation is one of many human resource (HR) tools that organizations use to manage their employees. For an organization to receive its money’s worth and motivate and retain skilled employees, it needs to ensure that its compensation system is not an island by itself. Not only is it important for an organization to link compensation to its overall goals and strategies, it is important that its compensation system aligns with its HR strategy. Too many organizations plan and administer their pay systems by default; or worse, fall back on “the squeaky wheel gets the grease” practices. More than any other area in HR, ignoring pay and performance systems can be devastating. It is a very expensive and laborious process to hire new employees, buy back trust of current employees and renew the organization’s energy and motivation level. By ignoring this issue, it does not go away or get better with time. It will take extra money and valuable resources to fix the system. Smart, successful organizations do regular planning and evaluating of their compensation and performance appraisal systems. Because compensation is visible and important to employees, it is critical to consistently communicate a clear message regarding how pay decisions are made. In short, a solid pay-for-performance strategy requires that employee pay matches the organization’s message.
Engaging Key Stakeholders to Support the Compensation Strategy
There are three levels of compensation strategy that exist within an HR department. The first level is a strategy that is only understood and supported by the HR department. The second is a strategy that is supported by the HR department and translated into practical solutions, policies and decisions
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22 • Solving the Compensation Puzzle
that guide compensation decisions. The third level, which should be an organization’s ultimate goal, is the most difficult to achieve. It is a...