Creating A Competitive Compensation Strategy

By admin • 02 February 2016 • Uncategorized


There’s always a struggle to determine the best compensation strategy for a business. Should we do cost of living increases or performance-based increases? Should we offer merit increases? How do we offer increases that are fair but still financially responsible for the company? It’s complicated. No question about that.

Before creating a compensation strategy, it’s important to first understand one thing – There is no such thing as the perfect compensation strategy. Let’s repeat that together. There is no such thing as the perfect compensation strategy. Compensation strategies will differ from business to business. Compensation is part of a company’s culture, recruitment strategy and total benefits package. It’s important for the compensation strategy to fit the company and complement the benefit strategy. Take time to gather the information, evaluate the options and then develop the strategy that leads your team to the best long-term compensation strategy. When building a compensation strategy follow these steps.

Evaluate your external market. Collect data from a variety of sources and then combine it to get a clear picture of the external market’s compensation strategy.

  • What salaries are your competitors offering for similar positions?
  • Look at job postings and ads to see what salary ranges are being offered. If you are interviewing, ask people what their salary expectations are or what they have been paid in their prior jobs.
  • Collect a variety of salary guides from staffing agencies and online resources.
  • Check the BLS to see what salary data the government has collected and compiled.
  • Combine all this information to develop salary ranges for your positions.

Evaluate your internal ranges.

  • Group positions together that are similar in education and experience levels. For instance: IT, administrative support, accounting, etc. 
  • Take these groups and break them down into classes of job complexity, i.e., help desk vs programmer, accounting clerk vs CPA, manager vs. employee, etc.
  • Within the job classes, identify the lowest and highest salary range for each person, as well as their education and experience levels.
  • Evaluate these internal ranges. Are there any pay disparities? If similarly qualified and positioned employees have differences in pay is there a justifiable reason? Does there seem to be a logical progression of pay increases with experience, performance or education levels? Remember that you want to have a fair internal pay structure.

Create salary ranges and evaluate competitiveness.

  • Create salary ranges for each position or classes of positions based on internal and external data.
  • Is your internal pay structure reflective of the external market? Remember that you want to be able to attract and retain your talent so you want to be competitive in pay.
  • Identify disparities. Make adjustments where needed or document where there are accurate justifications for differences. Note: It’s wise to add margin to the bottom and top of your defined salary ranges to account for the hire or merit increase of someone with lesser or greater qualifications than your current staff.

Hire within your compensation strategy and provide increases that maintain the strategy’s integrity.

  • When you hire someone new, look at your new pay ranges. Determine how the new hire’s qualifications measure against comparable positions and offer a salary that keeps internal balance.
  • When you give increases determine if those will be COLA increases or merit increases? Do you have a bipartisan way of determining who should get an additional increase? Is there a way to offer bonuses in place of merit increases? Think about your team, your leaders, and your evaluation systems. What methodology for annual increases will be easily maintained and justifiable if challenged?

In the end you want a strategy that is fair internally, competitive externally and easily managed. You are not looking for the strategy that satisfies everyone. If you have built a strategy that is internally fair, market competitive, and easily managed then you have your compensation strategy. Now just operate by it.

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