Designing a Competitive Employee Compensation Plan

by | Aug 29, 2012 | Blog, Compensation Planning

  • Amy Letke

    Amy Newbanks Letke, SPHR, GPHR, is the Founder of Integrity HR, Inc. Amy provides workplace solutions to improve performance, reduce liability and increase profits. She is passionate about helping other entrepreneurs and business owners achieve success. Contact us for more insights - 502-753-0970 or

While the purpose of any company is ultimately to make as much profit as possible, the employees play a significant role in the possibility of improving income.

Obtaining the best employees and maintaining loyalty sometimes requires making changes to the compensation plan. Designing a competitive compensation plan with the proper outline, accounting software and pay system will provide the foundation to bring in the best employees and start working on gaining the loyalty of workers at all levels of the company.

Factors Involved in Compensation

When employers think of compensation and a plan that will maintain employee loyalty, it is possible to overlook several factors that are involved in employee satisfaction. Richard Caruso, the founder and chairman of Integra LifeSciences Corportation, wrote on that the focus of compensation that most employers look at is the assets and cash value that is offered to the employees. The financial gains are only part of obtaining employee loyalty and providing incentives to work hard.

Caruso suggests that health benefits, growth opportunities and job satisfaction are also important aspects of creating a competitive plan. While it is not the initial focus of an employee, providing other incentives and benefits can help keep the top talent in the company.

According to Paul Downs on the New York Times small business blog, employee loyalty is only partially related to financial compensation. Paul Downs states that factors like employer charisma, the prestige of the company and work that is interesting lead to better loyalty from employees. For example, employees who use accounting software that offers interesting features and enjoyable challenges will find the work more satisfying. If the accounting software used by employees is basic and boring, then the work environment becomes less interesting and the worker is likely to seek employment elsewhere.

Employers should strive to provide compensation that considers assets, cash and non-monetary benefits that help keep employees engaged in their work. Employees who find the job boring will not feel compelled to continue performing the work.

To learn more about designing an effective compensation plan and to download a free compensation analysis toolkit, click here.

Designing an Updated Plan for Compensation

When the goal is maintaining employee loyalty and providing compensation that motivates workers, updating the current plan is often a necessity. Making changes to an outdated plan that only provides basic monetary compensation will improve the satisfaction employees feel when coming to work.

According to Susan Carpenter, founder of MFP Employee Benefits and HR Services, on, the key aspect of any plan for compensation is monetary or asset gains. Depending on the position within the company, employees should be offered competitive pay packages. A reasonably high base pay for the type of work and education will bring in the top talent in an employee’s field.

While Susan Carpenter suggests a relatively high base pay, she notes that employers need to use caution when setting up bonus systems. Long-term and short-term goals should avoid conflicts that might end up motivating top employees to make a large bonus in the short-term while neglecting the long-term goals that have less immediate gains.

Beyond organizing a plan that provides long-term and short-term incentives to accomplish tasks, it is also important to plan for raises and job growth. According to, a competitive plan for compensation should always include pay increases. She suggests that employers create a plan that invites workers to strive for excellence. The pay increases should provide a higher percentage for top performers, a moderate raise for average workers and a small increase for anyone who falls below the average cut-off.

By factoring in increases in pay, employees will work hard to receive a better raise. As a result, productivity will increase and the company will ultimately see higher profits.

Designing a plan for compensation that includes assets, financial income, interesting work, health benefits and increases in pay based on performance, a company is staying competitive. Creating a competitive plan will invite the best talent into the company and encourage employees to remain loyal due to job growth.

To learn more about designing an effective compensation plan and to download a free compensation analysis toolkit, click here.

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