Strategic Compensation Guide – Get the Best

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Strategic Compensation Guide - Get the Best

Generally, Strategic compensation is a human resource management technique used by companies to bring growth in employee performance.

This process helps in the orientation of employees’ behaviour and performance to the company’s objectives and goals..

The main goals are to:

Attract employees,

Retain employees,

Motivate employees, 

And to maximize the return on investment.

The head of Strategic compensation is the person of top management as it hugely impacts the cost of the company.



Compensation refers to all cash and non-cash payments given to an employee in exchange for the work they had done. 

Earlier compensation only meant paychecks, but in today’s world, it means much more.

Employees now want not only reasonable wages but also other benefits and policies which help them financially, such as retirement and healthcare plans.

Employers have to address these demands to hire and retain the best employees.

All companies use specific compensation strategies to manage their employees.


There are two types of compensation: Financial compensation and nonfinancial compensation 

1. Financial compensation

It is also called monetary compensation. This type of payment contains Money as its value. There can be two types of financial compensation:

 Direct Compensation

These include the Money paid to the employees in the form of salaries, wages, bonuses, and commissions. Wages and salaries are fixed, whereas bonuses and commissions are variable. Wages are usually paid in hours to unskilled or semi-skilled labor.

Salary is paid to skilled and educated employees.

Wages can be paid to part-time workers and contract workers. Salary is paid to people who are joined to the company for a long time.

These conditions are not universally true.

Commission-based compensation is typical in a sales job where it is paid out according to the percentage of target met. Commissions are also based on timings and gross profits, where higher and earlier you sell a product, the more you get.

Bonuses are also variable, but they can be paid to anyone either to a salesperson or a salaried person. These are usually paid based on business’ performance or an individual’s performance.

Indirect Compensation

These are not direct payments but have monetary values. This includes health insurance, stock options, retirement plans, etc. These things have a monetary value.

Strategic compensation

2.Nonfinancial compensation

It is also known as non-monetary compensation. It includes paid holidays, free training, awards, flexible work hours, and many other perks such as free commuting by the company’s car.


 It is crucial to have a compensation strategy because employee costs are the significant expense of any business. While making your strategy, you need to consider the following things:

1. Ask from your employee

It is essential to get their input and find out what benefits them most. Every type of employee has different demands, depending on their age, gender, culture, etc. Next, after getting inputs to align them with the compensation, you can offer. This will make all your employees happy.

2. Give better than your competitor

As mentioned earlier, you need to give the best compensation to retain best-talented employees. To remain competitive in your industry and your location, do proper research what your competitor offers to his employees. Although you cannot beat the competition in every aspect, this research will help you to get more creative in the strategies you make for compensation. 

3. Do the Budget

This budget allocation will decide how much to pay in salaries and how much in other bonuses and rewards. You need to take a realistic view of your company’s operational and human resource budget. Calculate the amount you can spend on one employee.

Next, include all the factors, including taxes, benefits, paychecks, bonuses, and compensation. Include performance-based compensation. For example, for a budget of $10000 for payment, if 90% is salary earning and 10% is benefits, you need to find how that 10% is spent – one case might be – 7% on healthcare benefits, 2% on retirement savings and 1% on tuition.

4 Give rewards

While making a budget, keep in mind how compensation can help in increasing employee performance and motivate them to grow while being in your company. For example, you can offer a better retirement plan for employees who spend a long time with the company. If they are joined with you with a particular number of months, you might offer stock options as bonuses. You might offer them extra holidays for completing targets before the deadline.

5. Categorize by pay Grades

Firstly, Paygrade is a method of categorizing different types of jobs into groups that have the same salaries and worth. Establish compensation which determines pay grade based on job positions and responsibilities. Having this framework allows the company to determine the number of wages available based on job level. This gives employees the idea of what he can expect for a given role.

6. Remain legal

Strategic compliance gives the idea for an organization to pay. However, the way you offer compensation and implement them should meet the legal requirements of the country or region. 

Check requirements for overtime, minimum wage, child labour, and equal pay according to gender. The company should seek legal counselling before finalizing and implementing strategic compliances.

Strategic compensation

7. Be open about Total compensation

When you talk with employees about total compensation, make sure they get every information they need. Provide accurate information without any hidden intent. This is the biggest problem today, which causes discomfort between employees. There is a large gap between what employees expect and what he gets in reality. 

Make sure that while talking about compensation to employees, use it an opportunity to acknowledge everything that is included in the package. This will also build trust and healthy relation between employees and the company.


Strategic compensation is significant as the right compensation strategy helps to build a reasonable and competitive advantage for the company. The wrong implementation of strategic compensation may destroy the company and will not utilize the full potential of employees.

1.Talent Retirement

One of the most challenging hurdles for the company is retention. When a large number of skilled professionals who get old they, retires. They have played an important role in building the company, with them their expertise and talent also retirement.

2.slowdown and pandemic impact

Due to recent slowdowns of the world economy and worldwide lockdown due to COVID-19, companies have to make cut-outs. After all, everyone needs highly skilled people at a reasonably low cost.

3.Industry competition

This is because there is a shortage of quality labour in the market. More employees are needed, as the business grows. But it is not possible to get experienced and talented people that easily.


In short, whatever a company gives to an employee in return for his work comes under-compensation. Companies have to decide these compensations based on multiple factors strategically.

Many companies offer the best compensation packages to get talent, but in doing so sometimes, they really can’t afford it. In such situations, strategic compensation becomes essential. Companies should be transparent to the employees and realistic in giving rewards.

Hence, such a realistic approach will give you the best and loyal employees. And it will provide higher Job satisfaction rates from your company.

Also you can read our Blog on Team Management Skills building in 22 ways


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