Blog Post
January 25, 2023

Building a compensation strategy: Your roadmap to fair pay culture

A clear strategy can help your managers have more open conversations about pay and foster a culture of transparency.

Table of Contents

In light of new pay transparency legislation, more people than ever are talking about compensation. Seventy percent of employers plan on making enhancements to their benefits and compensation strategies for 2023, according to a recent report by Mercer.

Now’s the right time for you to communicate your organisation’s compensation management strategy and prepare your leaders with the necessary information to have open and honest conversations about pay.

Employee compensation and benefits are a powerful tool for attracting and retaining your talent, especially in a challenging recruitment landscape. Pay transparency can also be an actionable strategy to help close pay gaps and provide more equitable compensation across your workforce.

Pay transparency: Your competitive advantage

According to an Indeed survey, more than 70% of employee respondents conduct their own research about what constitutes fair pay, and 81% said they were more productive when paid fairly. Moreover, 68% of respondents said they were more likely to apply for a position if the pay level is clearly listed.

In short, pay transparency is the degree to which an employer is open about salary and pay information and how accessible the compensation of other employees is in their workplace. And it’s not just a policy for company culture.  U.S. states are pushing companies to disclose wage data, with regions around the world likely to follow. This type of legislation mandates that companies disclose pay ranges to existing employees and job applicants.

Ultimately, pay transparency is only one key part of a well-defined compensation management strategy, but this new movement can help to create accountability and combat any pay inequities in your workplace. Clear salary communications and a fair and equitable compensation strategy are now essential for attracting and retaining top talent.

What goes into a good compensation strategy?

Your compensation management strategy should outline how much and when to adjust pay for each of your employees.

Your compensation strategy should aim to:

  • Ensure fair and equitable salary levels across your workforce
  • Boost morale, reduce attrition, and strengthen your workplace culture
  • Establish and reinforce your reputation and employment brand

Here are four important components of a comprehensive strategy:

1. Base pay

Your compensation strategy should not only establish your employees’ base pay levels but explain clearly how they are calculated. You may opt to set pay bands according to job type or set a fixed base pay rate for individual positions that increases with years of service. 

2. Incentive pay

Do you plan on offering additional, performance-based compensation? Set rules for bonuses or commissions, such as how they are structured and who will be entitled to them.

3. Benefits

Consider traditional elements such as health and dental insurance and retirement contributions in addition to newer perks, such as on-demand pay, gym memberships, travel perks, and flexible work hours.

4. Paid time off

Today’s jobseekers want more personal leave and paid time off. Be sure to define these policies, how they differ, and how they are meant to help support the employee and their unique situation.

Seven steps to building an effective compensation strategy

Step 1. Appoint a compensation strategy manager

Whether you outsource or appoint someone internally, a trained compensation expert should keep everything on track and take the weight off your shoulders. They should be responsible for:

  • Gathering/researching compensation data
  • Managing program implementation and administration
  • Ensuring fairness and salary alignment with DEI best practices

Step 2: Collect current compensation data for your industry

Your compensation manager should lead this data-gathering initiative to determine such things as:

  • Average annual salary for roles in your industry
  • Current market rates for positions within your organisation
  • Numbers of available qualified employees on the market

Step 3:  Rank jobs to determine pay levels

Define what tiers of pay should exist in pay structures for all levels of employees. By creating levels of jobs and setting pay grades, you’ll be able to provide fair and equitable career advancement opportunities within your organisation.

Step 4: Determine your compensation philosophy

Be sure to lay out a compensation philosophy that best reflects the values of your organisation. Start by determining your primary goal: Is it achieving better business results, reducing costs, or increasing performance levels?

Here are three strategies for your compensation philosophy.

  1. Market leading: Setting rates aggressively above the market to stand out amongst competitors and brand yourself as an “employer of choice.”
  2. Lagging: Setting rates below the market rate, usually due to a lack of financial resources, but emphasising many other non-monetary benefits.
  3. Meeting the market: Paying close to the market rate to ensure employees are paid fairly and perform well.

Step 5: Establish a pay structure

Clearly lay out the minimum and maximum rates you will pay for every position within your company. Be sure to create clear rules around how you will award raises and promotions, and by how much.

Step 6: Communicate

Develop a communication plan to spread the word. Share your compensation strategy with both your existing employees and anyone applying for a job within your organisation.

Step 7: Review regularly

The workplace continues to evolve and change. For this reason, you will want to regularly review this compensation strategy to ensure it remains equitable, attractive, and compliant.

Strategic compensation is a powerful way to ensure fair remuneration for all your employees. Not only can it help you attract and retain top talent, but it can serve as a powerful way to ramp up performance, reinforce your brand, and ensure pay equity across your workforce.

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