Compensation philosophies are not just for companies with hundreds of employees and a structured corporate environment. Instead, they are a practical addition to organizations of any size, including small to medium businesses. Developing a meaningful compensation philosophy does not have to be complicated or overly time-consuming. However, that does not mean it should be put together without any thought or consideration given to your organization as a whole and more specifically to the needs of your unique business.
A relevant, well-communicated compensation philosophy should support the recruitment and retention of your staff and be consistent with your overall operational culture, goals and objectives. Normally it starts with a thorough understanding of your current and prospective employees ― honing in on what motivates them in terms of compensation, both monetarily and non-monetarily. In doing this, it is important to be mindful that it is not necessarily the goal to be the employer with the highest salaries. You can have a successful compensation philosophy and decide that you are comfortable at the mid-range monetarily. The ultimate goal is to be competitive enough that you will attract and retain quality employees, regardless of where you choose to be on the wage scale.
The development of a compensation philosophy requires setting objectives and determining how your compensation supports your overall business strategy and company values. Adherence to required laws and legislation will support the overall philosophy, but the other components will come from what is of specific important to your organization.
Determining your total compensation package involves looking at all the components involved in compensation. Some of these components should include:
- Non-variable compensation (e.g. salary, wages, benefits)
- Variable compensation (e.g. bonus, gratuities, “perks”)
- Non-financial incentives (e.g. job satisfaction, flex-time, employee recognition)
When coming up with your formula, remember that while it is important to understand what your competitors are offering in this area, it is also crucial to recognize what is important to your employees and your organization. Conduct a short employee survey – find out what defines you in terms of compensation and makes you stand out from the rest. As your organizational values and culture differ from other operations, so might your compensation philosophy – and this is OK. Do not assume your compensation package has to be expensive or flashy to be of value or attractive to employees. Getting the right mix that fits your organization is key to a successful compensation philosophy and subsequent compensation policies and processes.
Furthermore, you will need to decide whether you want to lead, be behind or equal the market rates for positions within your organization; and if you chose not to be the leader, what other compensation components will make your organization attractive to both current and future employees?
Paying the highest wages doesn’t necessarily equate to being the most attractive employer, especially if working conditions and other benefits are poor. Qualified candidates are often attracted by the non-monetary aspects of compensation, like job flexibility, industry perks and career advancement. The tourism industry is unique and as such offers many unique perks and benefits that cannot be offered in other sectors – so ensure that you include these in your compensation philosophy and promote them in your recruitment efforts.
In addition to wages, salaries, benefits and perks, how your organization measures employee performance and the process by which salary increases are dealt with should all form part of a complete compensation philosophy.
Once your compensation philosophy has been developed, make sure it is formally documented, distributed and communicated to all employees – both current and prospective. They all need a complete picture of what your organization offers in terms of compensation. If everyone is aware of the compensation philosophy, and it is consistently applied through your compensation processes and policies, you will help create and support an inherent sense of fairness within your organization. Since compensation is at the heart of every employee relationship, ensuring perceived and practical fairness and consistency in this area cannot be underestimated as it relates to supporting a highly motivated group of employees.
As a manager or small business owner, you need to establish a formal compensation philosophy that is in line with your overall operational strategy, culture and values ― which also forms the foundation of your subsequent compensation processes and procedures. Doing so will result in significant returns not only in recruitment and retention but also in high levels of employee motivation and morale.