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Strategic compensation is an organizational tool used to attract, motivate and retain key employees in an organization. It is an approach used to structure and manage employee compensation in order to align employee motivation and performance with organizational objectives. The goal of strategic compensation is to provide an attractive total compensation package to an organizations employees by offering a combination of salary, incentives, benefits, rewards and recognition programs that are targeted to specific job segments.
There are certain components of a strategic compensation package. The first component is base salary. This is the starting point for any employee compensation and can be offset with other levels of pay performance based pay and bonuses. Another component is short-term incentives. These are performance based rewards directed at motivating employees in the short-term. Examples of such incentives include spot bonuses, quarterly performance bonuses and profit sharing.
The third component is long-term incentives. This is a more comprehensive approach in order to reward and motivate employees in the long-term. They are usually based on a percentage of an individuals salary and can reward employees in the form of stock options, restricted stock awards, performance units and other. These types of incentives are useful in order to maintain the loyalty of key employees in an organization.
A fourth component of a strategic compensation package is benefits. Benefits can vary in terms of the provision of health insurance, dental insurance and other forms of insurance, such as disability insurance, life insurance and accidental death & dismemberment insurance. In addition, organizations can also provide other forms of non-cash benefits such as vacation days, sick time and education assistance.
The fifth component is recognition programs, which are provided in order to recognize and reward employees for various accomplishments. This can be done by providing employees with awards, certificates, medals and other forms of recognition. This is often used to reward employees for specific goals achieved or to recognize those outstanding employees who exemplify the companys core values.
Strategic compensation can be a very effective tool in helping to retain and motivate key employees. Organizations are able to take advantage of incentive and reward programs and benefit programs in order to create a more attractive total compensation package to be offered to employees. The combination of these components will help to attract and retain talented and motivated employees in an organization while also providing the organization with a competitive advantage in the marketplace.F
