Compensation 101 by Susan Palé Welcome to Compensation 101, where we define and give examples for those boring compensation terms we throw around all the time. You’ve heard a lot of them recently and probably experienced some of them, too, as we navigate through a volatile, often unexplainable, labor market. Let’s begin with the basics. Compensation Strategy Developing and implementing a compensation strategy means making decisions regarding how your organization will pay employees compared to the external market. Most large organizations have developed comprehensive compensation strategies; many small organizations have not. A key component of any compensation strategy is determining how you want to set compensation levels relative to the external market. LEAD An organization may determine that it wants to lead the market. This means that the organization decides to pay more than competitors. That might be 10% more, 20% more, etc. The idea is that you will be known as the “best payer” in your competitive markets. This strategy works well when an organization is growing rapidly and successfully, has dough to spend on recruitment and retention, or faces particularly stiff competition for talent. MATCH Most organizations decide they want to match the market. To do this effectively, it’s necessary to gather compensation information about pay levels for specific jobs and geographic locations. This strategy works well for most organizations so long as salary information is regularly reviewed and updated as the market changes. LAG Some organizations determine that their pay will lag behind the external market. Sometimes this happens by accident. But it can be a successful compensation strategy. Pay is important to employees, but often perks such as flexible scheduling, remote work, and generous PTO can be equally important. Any of these approaches can work for you if they’re well developed and maintained. More Terms Defined Successful compensation programs are both externally competitive and internally equitable. EXTERNALLY COMPETITIVE This means that an organization’s jobs are valued appropriately compared to jobs in the external market. Think of it as a deeper dive into the idea of matching the market. To be externally 80 | SEPTEMBER 2022 | THINK
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