Strategic Compensation Plan Paper

Creating the right Strategic Compensation plan to meet the company’s objectives is critical to the overall health of an organization. The most important objective when developing the plan is the ability to attract and retain, and motivate top performers. This is especially critical when the company wants to control the first mover advantage in their market place. The company that holds this position in the market tends to earn more money, but it also costs more money in terms of total workforce compensation. The company will need to set their pay grades at higher midpoint than their competitors, or offer other compensations on top of base pay, such as bonuses or benefits. If the strategic goal of the company, is to take advantage of the second-mover

This is accomplished by setting the midpoint along the market pay line to align with the company’s objectives. They are then able to determine the entry level pay (lowest) for the grade up to the cap (highest) level of pay within the grade. This is accomplished through conducting a strategic analysis that looks at both internal and external markets. They often will use surveys which have information about the competitors pay structure to assist with this task. The task of integrating the internal job structure with the external market is usually accomplished through the use of a regression analysis. Determining the compensation policy with the right balance between positions is critical to the organizational success. The employees want to know their position holds value, and need to believe they are being rewarded fairly. Internal inequities will create strife in the workplace, and negatively impact productivity and retention efforts. “A pay philosophy applied inconsistently can devalue employees and could potentially lead to trouble with lawsuits”

There are a number of ways to develop incentive pay plans. A seniority based system tends to be preferred by unions and most government offices. These types of seniority-based pay systems motivate people to stay with the company, but do not take into account any individual job performance standards. Tenure is the deciding factor for pay increases, providing the basis for the assumption that when a worker has been doing the job for a longer time, they are become more valuable. A study in Personnel Psychology highlighted the benefits of loyalty, retention, and stability, regardless of performance levels (Shaw and Gupta). The companies using this type of incentive pay structure tend to retain more staff, and have a lower turnover of marginal workers. What the seniority bonus plan is lacking however, is accountability and incentive for top performers. Most private companies in the United States prefer a pay for performance bonus system. From the company perspective it encourages accountability and provides an incentive for hard work and top performers. Looking at it from the employee perspective, the motivation is to work hard and obtain a larger monetary package. In theory the harder they work, the larger the bonus. The risks with this theory are when the bonuses are not commensurable with the amount of work, it will demotivate the individual. There needs to be a large enough financial span between