By Jean Roque, Trupp HR. Updated for 2019.

While most organizations take steps to determine salary ranges for jobs and budget salary increases, many overlook an important step of establishing an agreed-upon framework for the role of pay in attracting and retaining talent and how pay decisions are made. For example, do you know:

  • How to determine where an employee is placed within their salary range?
  • How does your organization pay in comparison to other employers in the market?
  • How are jobs valued and paid within your organization in comparison to one another?
  • The role base pay plays in attracting and retaining talent in comparison to total reward components such as healthcare benefits, paid time off, and other perks of the job?
  • When are employees eligible for pay increases and how those pay increases will be determined?

How can a compensation strategy provide value?

Forecasting and budgeting

Having an established compensation strategy contributes to your ability to predict costs for increasing headcount and providing salary increases. It also helps to avoid situations where pay decisions may be inconsistently applied. While it may be tempting to pay a candidate beyond an established salary range, it can easily lead to a ripple effect of having to make pay adjustments to address employee dissatisfaction and internal pay equity.

Attracting new talent

Strong applicants are discerning, but not all are looking for the same things. So, it is worthwhile to define your company’s unique Employer Value Proposition. In other words, take time to consider and determine why applicants choose to work for your company and why employees choose to stay with your organization. Ultimately, your best candidates are those that are both qualified and value the compensation and ‘soft benefits’ that your organization extends to its employees.

Retaining top talent

When employees believe they are underpaid in comparison to their peers, it can cause them to disengage and seek employment elsewhere. While paying fairly in comparison, the local job market is a consideration for the recruiting process, and internal equity is crucial to retaining employees. Salary increases, job transfers, minimum wage adjustments, and new hires are good times to verify internal equity has been maintained—ensuring your top talent isn’t abandoning ship due to poorly executed pay practices.

Fair pay practices

While it may occur unintentionally, it is easy for salaries to become imbalanced. Adhering to established salary ranges and pay increase policies avoids situations where employees in the same or similar roles are unfairly paid differently. Conducting an equal pay analysis and using pay practices that contribute to ongoing pay equity will help to avoid the costly consequences of disengaged employees, discrimination claims, and legal action.

Creating clarity around your compensation strategy provides a decision framework for setting employee salaries and determining salary changes. It also removes the ambiguity and frustration associated with subjective and unsupported compensation decisions.