You know how challenging it can be to develop a compensation strategy that continuously attracts and retains the talent you need. By learning from the approaches used by top-performing organizations, you’ll find some practical ways to design your pay practices.
In this post, we’ll cover the best of the best, including building a clear compensation philosophy, exploring total rewards beyond salary, leveraging accurate market data, and recognizing the signals that it’s time to recalibrate.
So, how do the best organizations approach compensation?
They Establish a Compensation Philosophy
A compensation philosophy is a framework that defines your organization’s position regarding compensation and sets the future stage for all pay practices and programs. It spells out what you value and how these values shape your compensation decisions.
In another post, we talk about how establishing a compensation philosophy helps guide consistent, transparent, and equitable compensation practices.
The most effective organizations consider how compensation can serve as a lever to attract, retain, and motivate talent. They look beyond salary and consider factors like work-life flexibility, professional development, and long-term career growth opportunities.
Establishing Your Own Compensation Philosophy
To establish your own compensation philosophy, consider the following:
- Your Organizational Goals: What outcomes do you want to achieve through your pay strategy? (consider outcomes like increased retention or engagement)
- Market Positioning: How will you compare to the market—above, at, or below—based on your industry and talent needs?
- Total Rewards Mix: Which non-monetary elements (like professional development or flexible schedules) support your ability to attract and keep talent?
Once you’ve identified these elements, make sure everyone understands them. Communicate your philosophy openly with employees to build trust and clarity around pay practices. Give managers and supervisors the training and resources they need to discuss pay structures, raises, and career growth paths confidently.
They Consider the Full Spectrum of Total Rewards
The best organizations understand that total rewards go beyond just a paycheck. As we discuss in this post about compensation beyond salary, top performers are often willing to accept slightly lower pay if they gain the flexibility, development opportunities, and work-life balance they crave.
Beyond salary and wage, you can consider some of the following benefits:
- Flexible Scheduling: Offer remote or hybrid options to accommodate personal needs.
- Professional Growth: Provide funded training, certifications, and leadership development.
- Work-Life Enhancements: Give paid time off and wellness benefits that boost overall satisfaction.
By thinking more holistically about your rewards package, you can become more attractive to top talent and keep current employees engaged, even if you’re not at the top of the pay scale.
They Use Accurate Market Data
The best organizations use reliable, validated compensation data to build a competitive pay strategy. Conducting a thorough market data study helps you benchmark salaries accurately and understand where you stand relative to your industry peers.
Avoid relying on anecdotal or employee-reported data. Relying on questionable compensation data can cause you to overpay or underpay employees, resulting in extended job vacancies, increased turnover, and a reputation for being out of touch with market compensation rates.
To ensure accuracy, focus on:
- Reputable Sources: Use professionally managed databases that adhere to the collection and valid reporting of compensation data.
- Relevant Comparisons: Match job responsibilities to ensure apples-to-apples comparisons.
- Regional & Industry Fit: Filter data by geography and sector for the most relevant insights.
Don’t forget to revisit your compensation benchmarks regularly. Reviewing pay data at least once a year—or more often if your industry is experiencing rapid changes—helps you stay aligned with evolving market conditions.
The “Unseen” Costs of Underpaying Employees
Underpaying employees—especially without realizing it—can create hidden and costly ripple effects. Positions stay open longer, productivity declines, and recruitment efforts become a frantic scramble.
Without a clear understanding of where you stand relative to the market, you risk missing out on top talent and spending more time and money correcting the problem later.
How can you tell if this is happening at your organization?
- Extended Hiring Times: Key roles remain unfilled or candidate pools seem consistently weak.
- Higher Turnover: Employees quietly slip away to competitors offering better compensation and perks.
- Frequent Counteroffers: You find yourself making last-minute pay adjustments to secure a strong candidate or prevent a valued employee’s departure.
To correct this issue, start by benchmarking your pay practices against accurate reported market data. Conduct a market study, refine your compensation philosophy, and consider the total rewards package you offer.
By proactively aligning with market rates, you’ll fill positions faster, protect productivity, and ensure your team feels valued—without relying on costly, last-minute fixes.
Is Your Compensation Strategy Working?
Even the best compensation strategies require periodic check-ins. Organizations that keep a close eye on market conditions, internal metrics, and employee feedback can adjust early and avoid costly surprises.
Look for signals that it’s time to revisit your approach:
- Major Market Shifts: New competitors entering your market or sudden changes in industry pay trends.
- Talent Challenges: A surge in turnover, weaker candidate pools, or roles that remain open too long.
- Evolving Goals: Business expansion, changes in company objectives, or the need for new skill sets.
Track key metrics to know if your strategy is performing as intended:
- Time-to-Fill Positions: Shorter hiring cycles often mean your pay is on target.
- Turnover Rate: A drop in turnover suggests you’re retaining valued employees.
- Offer Acceptance Rate: More candidates saying “yes” means your total rewards package is hitting the mark.
By reviewing these metrics regularly, you’ll know when to recalibrate so your compensation approach stays aligned with both market realities and your organization’s goals.
