Develop a Compensation Strategy

To succeed in today’s competitive environment an organization must have a well-designed compensation plan that motivates employees, attract new talent, controls compensation costs, and also ensure job equity. The best compensation plans should reflect the culture of the employer.


It is a written statement and a commitment by the organization in terms of the compensation offered by the company to its employees.

  • Company Vision
  • Company’s Financial Position
  • Compensation Budget
  • Demography of Workforce
  • Competitor Analysis
  • Company industry Sector
  • Current competency of employees

The compensation philosophy should aim to achieve a TOTAL REWARD SYSTEM

The compensation philosophy should be equitable,legally compliant,


There are a plethora of options which an employer can use to develop their compensation plan.

Your compensation plan should be perfectly aligned with your company strategic plan. The company’s compensation plan should reflect the short term and long term plans of your company.

What are the sales targets for your organization? What are the plans for long term employee retention?

Do you intend to be the best paymaster or a middle paymaster? Are fine being a low pay master.


One needs to perform Job Analysis. This will help in finding out all information related to the job. This will help to create job description and job specification. The job analysis is useful in providing an overview of the fundamental requirements of any position.

Job Description: It includes information such as job title, job location, reporting to and of employees, job summary, nature and objectives of a job, tasks and duties to be performed, working conditions, machines, tools and equipments to be used by a employee and hazards involved in it.

Job specification: It includes information such educational qualifications, specific qualities, level of experience, physical, emotional, technical and communication skills required to perform a job, responsibilities involved in a job and other unusual sensory demands.

Job evaluation is a systematic and objective process used by organizations to compare the jobs within the organization to determine the relative value or worth of each job.


As per your company’s budget, the compensation plan needs to be accordingly developed. If you are a startup or if you company is under a financial crisis, then you may not be able to create a lavish compensation plan.


One needs to find out what are the compensation and benefits offered by company in similar industry as your. What are the compensation offered for roles in other company? What is the comparison to your compensation structure? Research in your industry sector and find out the market pay rate for each position. A lot of company information can be found at Glasdoor.

Market pricing is a process used by organizations to compare the jobs within the organization using external sources. It determines the value of a job based on what other companies pay employees with a similar job.  Salary Surveys are used to arrive at this data.


Gross Compensation Components

The gross components should include all components as stipulated by law. The amount should be compliant with State and Centre laws. The laws will always prevail over company policy.

Variable Pay & Incentive Program

What are the variable pay/ incentive parameters for your sales staff, support staff? It could be Profit / Margin, Customer attraction, Customer Retention, Audits, Payability to vendors, statutory payments on time, HR Operations, Attrition, Recruitment TAT.

What is payability period of the variable pay/incentives? Is it monthly, quarterly or half yearly?


There are many benefits which the company can provide the employee. Insurances (Medical, Life, Accident), Subsidized Meal Vouchers, Company Accommodation, Credit Cards, Club Membership,. The leave policy of your organization can also be competitive. Apart from the statutory requirement of leaves, the company can provide leaves like sabbatical leave, paternity leave, child care leave etc.


Your compensation plan should have a mix of both long term and short term benefits. Keep in mind your compensation budget while deciding this. If are a financially rich company, you can afford to have more benefits. However if you are startup or if your company is not financially stable then you not be able to have more benefits.

What will be the quantum of monetary and non-monetary benefits. Will the compensation plan differ as per various employee grades?


Employers need to communicate the compensation philosophy, policy and programs to their employees. The employees should be aware of all the benefits, perks the company offers them. These should be reinforced to the employees time and again.