In our last post we introduced you to the Seven Step Compensation Diet – to strengthen the internal value of company reward programs while dampening the upward spiral of your labor costs.

Our 1st step focused on the need to identify the organization’s reward challenges (what must be changed) before beginning the effort to establish corrective action plans.  Now that we have taken a look at ourselves in the mirror and acknowledged the current state of flab and flaws we need to move forward to the next stage and start developing practical solutions.  We have to start the diet.

Step #2: Develop a Compensation Strategy

Solutions rarely arrive by whimsy or happenstance, except in popular fiction. In the real world they are the result of planning and forward thinking.  The same applies when the need is to improve your reward programs.  You begin this process by laying out in your mind the general theme of how you plan to reward your employees.  Then you word-smith clear and precise statements that describe your beliefs, and around which you will design, administer and communicate your reward programs.

How important is an effective reward strategy?

• Helps guide and inspire the workforce

• Provides specific, motivating direction for connected actions

• Identifies the focal points for your programs

• Positively brands the company and helps recruit better employees

Whether you choose a formal or informal approach (back of an envelope to a formal document posted on the wall) you should map out in broad terms a vision of how the Company should reward employees.  There is no need to be fancy here, but your series of statements should mark your organization as an advocate of certain Human Resource principles (pay-for-performance, competitive salaries, focus on internal promotions vs. hire, etc.) – to be communicated frequently, be easily understood and viewed by your candidates and employees as credible (trusted).

How does this help?  Like using a Carb counter or a calorie guide, when setting out the guideposts of your reward philosophy you establish critical “do’s and don’ts” and openly communicate your principles.  The organization plants a stick in the ground.  Be careful though, as this is something for both you and your employees to point at – for standardization, consistent treatment and, of course, precedents going forward.

Many companies are reluctant to formalize a transparent strategy (worries over gaining management consensus, strategic effort and required commitment to results).  Others equivocate and muddy the message through generic wording, lack of specific design elements and the look and feel of everyone else.  That result comes across like a vague Mission Statement; broad, aspirational phrases like market leader, shareholder value, supplier of choice, leading edge technology, etc.  Such prose is immediately forgotten by everyone.

Anecdotal examples to illustrate the difference of broad vs. specific:

• We will be market driven; market competitiveness will be given priority over internal equity

• We believe it’s important to share the cost of benefits with employees

• We will provide employees with the opportunity to earn above average compensation for above average performance

• Our compensation and benefit programs will be designed to be competitive within our industry and revenue size

• We reward employees on a pay-for-performance basis; general adjustments are to be avoided

At this early stage of designing reward program transformation you should ensure that senior management is not only supportive of your strategies, but engaged in achieving the vision.  You will need this air cover for the tough decisions and passive resistance to come.  If you cannot count on active and public support, it would be best if you stop your dieting plans here.  You either walk the talk or you sit down.

And yet, you still ask, what if we go without?

• Your largest single company expense would be left without a guiding principle

• Without a governing theme reward costs will rise at a greater rate than planned or desired

• Inconsistent or possible contradictory messages will continue to create difficulties and expense

So, what’s it going to be?