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EMPLOYEE COMPENSATION, Three Simple Rules for Establishing Effective and Rational Compensation Plans

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No problem in the workplace is more important and more polarizing than . whether done right, a plan can be motivating, energizing and a driving force in the success of the organization. On the other hand, whether done badly, it can be deflated, demotivating and have a paralyzing effect on every aspect of the organization.

Companies spend tens of thousands of dollars on consultants and draw up compensation, bonus and commission structuring , and end up with disgruntled employees, sub-par performers, loyalty problems and difficulties in recruiting competitive talent.

whether you don't have thousands of dollars to burn on someone else's "take" on how you should compensate people in your organization, you may want to use these three :

1. Your compensation must be FAIR; fair for all interested parties.

2. Your compensation must be ONLY. It must do justice to the organization, its vision and its objectives, and must be justified by the services rendered by the employees.

3. Your compensation must be EQUAL. It must supply equal pay for the same responsibilities and equal pay for equal services.

1. Your compensation must be FAIR; fair for all interested parties. This means that it must be fair to the organization, its stakeholders and the . So, that's it, right? It is easier to degree equitably than one might initially believe.

What is right for the stakeholders? Try this test:

Will the compensation plan, once installed, give the organization a strong opportunity to be profitable?

Compensation plans that supply automatic bonuses to employees, even in years when the organization is not profitable, are NOT fair for the organization or its stakeholders.

What is right for the employee? Try this test:

Will the compensation plan give the worker a strong opportunity to make a salary competitive in your commerce for the tasks and responsibilities required?

Compensation packages that do not meet the test standards do not attract, motivate or retain good people.

What is right for the organization, its mission and its fundamental values? Try this test:

Will the compensation plan overcompensate the few insiders at the expense of a living salary for the many?

An unjustified heavy compensation plan creates animosity, disloyalty and results in a dysfunctional and unsustainable organization.

FAIR is right, it is not difficult to discern, it is simple.

2. Your compensation must be ONLY. It must do justice to the organization, its vision and its objectives, and must be justified by the services rendered by the employees.

Does the compensation plan do justice to the organization? Try this test:

Will this compensation plan allow the organization to meet its short-term financial requirements, achieve its long-term financial goals and eventually grow in the vision of its leaders?

A compensation plan that consumes a disproportionate amount of revenue or quickly depletes the stakeholder fairness value, can destroy the fundamental motivations of the leaders and hinder the ability of the organization to reach its potential.

Some shareholdings, instead of cash compensation, can encourage loyalty and a "general framework" mentality in key employees. This, in turn, will produce a sustainable commerce model for the organization.

Does the employee's performance justify the level of compensation paid? Try this test:

Will the organization get a fair return on its investment ("ROI") in each employee?

To ensure that there is a fair ROI, part of the compensation should be incentivized when possible and the employee's performance should be assessed and measured based on objective quarterly criteria.

3. Your compensation must be EQUAL. It must supply equal pay for the same responsibilities and equal pay for equal services. Nothing is more demoralizing than allowing inequalities in the compensation plan and whether such inequalities happen to reflect gender, age, race or devout preferences, this could lead to serious legal problems for the organization.

Do you have reasonably detailed job descriptions and categories to distinguish compensation levels? In that case, make certain that the amount of the compensation is the same for everyone in the job description or category or that any differentiation is clearly justified by different tasks or minor or additional documented services.

Formally re-assess the relationship between the employee's responsibilities and performance at least every six months and adjust increases and decreases at least once a year. When someone is underperforming, but you want to keep them, it is better to redefine their role, and / or reduce their compensation to match their performance, rather than allowing an obvious inequality to continue. It is not possible to notice the disparities, but the other employees will do it.

The key to a fair compensation plan is the frequent and objective measurement of the employee's contribution to the organization based on objectively measurable standards and equal pay for all those who meet these standards.

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By Richard Hoag
fairness Compensation


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