Six Considerations When Evaluating Your Compensation Strategy

Employees are vital to your organization and a significant investment for most businesses, often averaging 70% of operating expenses. This essential business asset deserves a well-crafted strategy. While compensation is only one factor for recruiting and retaining talent, it is critical to your overall HR strategy. Whether initiating or updating your compensation strategy and philosophy, the following best practices may help guide your process and decisions.


1. Organizational Alignment

Ensure your compensation strategy aligns with your overall business strategy and objectives. Recognize how revenue and financial position impacts your compensation structure, the type of talent, and the levels of experience needed to accomplish your business goals. For example, a high-level tech firm requiring specific expertise needs a different strategy than an event company hiring college students to run promotional events.


2. Analyze Turnover

Analyzing turnover can identify potential compensation misalignment in specific departments, positions, or the whole organization. Turnover rates vary significantly by industry.  According to the Bureau of Labor and Statistics, the average U.S. turnover rate was 44.3% in 2019 and increased to 57.3% in 2020. While various pandemic factors led to the expected increase, it’s still important to track your organization’s turnover rates and conduct exit interviews. Both data points help determine if compensation is a factor in turnover and how you compare to industry averages.


3. Benchmark Jobs to Market

All positions evolve over time. Before market pricing positions, it’s vital to have a clear understanding of current job functions, responsibilities, and qualifications rather than the incumbent’s abilities.  Updating job descriptions through observation, surveys, and interviews based on what is necessary to be successful in the role can provide insight when selecting the correct market data and determining whether your current compensation falls at, above, or below market. Here are some additional tips:

  • When benchmarking to market, compare the position criteria/description versus position title. An Accounting Manager in a small company likely doesn’t have the same essential functions as one in a Fortune 500 company.
  • Market data accuracy — which includes transparency in how it is sourced – is important!  There are many free data resources, but they may not be as accurate or detailed as traditional survey data. Some surveys use crowd-sourced data, some aggregate data, and others conduct their own surveys. While there is no right or wrong way, be aware of the methodology so you can explain and align your data appropriately.  It’s ideal to collect and compare data from multiple sources to make the best decisions.

Lastly, market data is collected at a point in time. Understand the age of the data to calibrate if necessary.  Then refresh data every 1-2 years or more frequently for high-profile jobs.


4. Analyze Benefits

Your benefits strategy is more than which benefits are offered and employer contributions.  To ensure ROI, be sure you know which benefits your workforce values.  Analyze usage and explore highly valued benefits that also help you accomplish business goals.  For example, a Flexible Spending Account allows employees to make pre-tax contributions for qualified expenses with minimal employer expense which is often offset by the organization’s tax savings.  Likewise, an Employee Assistance Program is very affordable and, when utilized, helps maximize employee productivity.


5. Adapt to Environment

According to the PayScale 2021 Compensation Best Practices Report, remote work is on the rise and will likely remain a hot benefit to employees after the pandemic ends. Organizations have not yet decided how remote work is going to impact pay. Only 11.3 percent have a pay strategy specific to remote work. Another 10.6 percent say they are working on one for 2021.

The pandemic revealed remote work is not only possible, in some instances it offers advantages to employees and employers alike. In addition to the cultural impact, there are financial advantages – employer expense reductions allowing reallocation of funds – employee savings from less frequent or no commute. A remote work strategy may also offer the luxury of attracting employees from different regions which may have a lower cost of living or lower salary demands.


6. Total Compensation – The Bigger Picture

Base wage is only one part of a total compensation package. Company benefits are often overlooked as significant attraction and retention tool.  Employer contributions to medical, dental, vision insurance, retirement plan matching, paid time off, employee assistance programs or bonus plans are a significant investment in your employees and should be showcased. If your organization offers tuition reimbursement, pre-tax savings plans, or company-paid cell phones, these are added value benefits.

Market your investment internally by distributing an annual Total Compensation Statement outlining the employer monetary investments of wage, benefits, bonus pay plan, taxes, and non-monetary benefits such as flexible or remote work schedule, career development, employee recognition, etc.  This statement is a useful tool for managers to present and help employees understand how they are valued by the organization. It is also an opportunity to explain how market data determines pay and share the organization’s compensation philosophy.

In addition, consider sending a benefits summary overview with offer letters which can be the competitive advantage for top talent candidates who receive multiple offers.



Organizations have been challenged by workplace safety, managing performance in a tough economy, and keeping employees engaged in challenging circumstances. Your compensation strategy-specific activities, developing or revising comp structures in alignment with the business and employee needs while improving pay communications and transparency should top the list of priorities.


If you do not have an HR PARTNER, Tandem HR is happy to help.
Give us a call today at (630) 928-0510.