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Your Compensation Strategy is Either Accelerating or Inhibiting Your Company's Growth

May 23, 2024 • By Ken Gibson

In VisionLInk's decades of work with a wide range of businesses, we hear a consistent theme. Company leaders tell us they struggle to determine the return they are getting on the enormous amount of money they're pouring into compensation every year. Most fail to see a correlation between what they're paying their people and the results their people are producing. Consequently, they're frustrated. 

If this trend is to be reversed, we tell company heads they must change their compensation paradigm. They must see their pay offerings differently. Here's what we mean.

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Become More Strategic

Any organization expecting to achieve significant success in today's business environment must adopt a strategic view of compensation. This means they must approach the development of their pay offering the same way they would other initiatives requiring large investments of capital. 

For example, when developing your company's sales and marketing approach, the leaders with that responsibility begin by defining the outcomes they want their efforts to produce. In some cases, it may mean they execute an effective go-to-market plan for a new product. In other instances, the objective is to expand brand awareness. Still others may focus on demand generation for certain service offerings. Leaders then clearly define the audience they're trying to reach, the best channels for reaching that audience, and so on. 

Identifying an effective compensation approach is no different. 

Here too, you must start by defining the outcomes you want your pay offering to produce. For instance, you may need your rewards plan to help you recruit a specific class of talent. Or, you may want your senior leaders and managers to have a more balanced focus in pursuing short and long-term performance targets. Or, perhaps you developed your current compensation offering a piece at a time over several years, and now you need a more coherent pay strategy that is rooted in a well-defined rationale for how you pay your people.

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Make the Right Assessments

When your frame of mind about compensation becomes strategic, you think differently about your pay offering. You approach compensation design by first making certain assessments, such as the following:

  • Where do we want to be vis a vis market pay standards for salaries? And will that differ by employee tier or group?
  • In our organization, what's the right balance between guaranteed pay (salaries) and variable pay (incentives)? Should that balance differ for senior leaders and managers versus the rest of our employee force or should it be the same?
  • What is the right balance between rewards for short versus long-term performance? Do we want our people equally focused on immediate and sustained results, or is one more important than the other?
  • How do we define value creation in our business and how should our compensation philosophy and strategy reflect that definition? Are we concerned about hitting revenue targets or are sales results more important? What about profits? Are we focused on increasing our profit margins or on driving higher profits in general?
  • What do we want our compensation strategy to communicate about the kind of financial relationship we desire to have with our people?
  • What emphasis should compensation be given in our overall employee value proposition? In our business, what importance do people place on financial rewards versus other aspects of their employee experience?
  • What parts of our pay offering have importance to specific groups of employees? For example, a Gen Z employee in her first two years out of college probably cares less about the company's long-term incentive plan than the 40-year-old high impact player you just recruited to help alter the growth trajectory of your business.
  • And so on. 

Hopefully, you see how a strategic approach to compensation naturally leads you to ask questions that will help shape your company's pay offering. The more you treat your rewards approach as you would any other important initiative in your company, the better the return you'll experience on your compensation investment. Once that happens, compensation becomes a growth accelerator instead of a growth inhibitor.

To learn how to develop a more strategic compensation plan, read: The Ultimate Guide: How to Build a Complete & Compelling Employee Value Proposition.

Ready to Get Started?

When it comes to building a compensation strategy, you can trust that VisionLink knows what works and what doesn’t. We are ready to share that knowledge with you.

Ken Gibson

Ken is Senior Vice-President of The VisionLink Advisory Group. He is a frequent speaker and author on rewards strategies and has advised companies for over 30 years regarding executive compensation and benefit issues.