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Compensation Strategies: Attracting and Retaining Talent

Opinion Pieces person Written by Ciaran Sheehan

An effective compensation strategy is integral in attracting new talent and retaining and motivating the best performers; in short, it’s a critical part of overall HR strategy to keep organisations competitive and successful with a strong pipeline of emerging talent. But, particularly for SMEs, it can be hard to get right…. Below, Ciaran Sheehan, Managing Partner of Clarendon Executive, examines the components required to ensure you have the best compensation plan in place for your people and your business.

One of the most daunting challenges for businesses we deal with, no matter their size, is that of attracting and retaining outstanding talent, particularly at executive level. As economic conditions improve, hiring the right talent becomes all the more challenging.

Savvy companies know a solid, well-structured compensation plan can help attract and retain elite talent, positioning themselves as employers of choice. But in reality too few companies take a strategic view of compensation.

Truly effective compensation strategies – as with most other business strategies – must differentiate, be tailored to market demand, be closely aligned with organisational needs and goals, and designed with the lifecycle of the employee in mind.

An off-the-shelf approach will just not cut it. At the outset, I would recommend having a clear picture of the attributes of the employee you want to attract, and the nature of the business before deciding on a suitable compensation positioning.

Getting the mix right

Comprehensive compensation strategies will include base salary, variable salary (bonuses), reimbursements, flexible benefits that allow employees to choose (from a budget) a level of pension contribution, car allowance, healthcare, private medical support as well as support for personal development and other options such the opportunity to purchase additional holidays. The best packages include long-term incentives to recognise value created such as share options and these can vary greatly from organisation to organisation.

Smaller businesses and start-ups need not feel at a disadvantage here – whilst they might not be able to compete with their larger counterparts on the monetary side, they can sometimes have the edge by offering other softer, but very much appreciated benefits such as flexible working, more focused training opportunities, dress codes, free food, wellness programmes as well as the hugely attractive potential for equity in the business. Considering the company culture and the type of employee you are trying to attract/retain will help inform business leaders of the types of benefits they should offer within any compensation package.   Being part of a smaller company and having a role where you can have real influence on its growth and development is a hugely appealing proposition and the value of this should not be underestimated.

Again, depending on the nature of the business, a ‘pay for performance’ program may also be instrumental to a company’s talent strategy; when employees are recognised for their work through increased compensation, they will be more likely to be engaged and continue working at their best.

Critical to any good compensation plan is an understanding of the demographic profile of your employees – age, skill level, and gender mix. Compensation strategies will clearly differ depending on where the employee is in their career and their motivations. For example, what appeals to a millennial may not hold the same value for an older executive. Any effective compensation strategy should be flexible enough to address the financial needs of the life cycle that particular employee is in.

Regardless of what you decide to offer, compensation should never be a guessing game, but rather based on a solid foundation of actual data. Data that needs to be assessed include items such as the company’s position against the market as it relates to wage rates, the company’s desired market position on wages, the company’s overall compensation philosophy, and available resources that the organisation has to reward employees.


Money talks….sometimes

Compensation and benefits are to a large extent, hygiene factors. So, if the level of pay falls below a certain threshold, it would have an adverse impact on both talent attraction and retention.

However, a very high compensation level is not necessarily beneficial in either talent attraction or retention. Often companies that pay “top rates” have to do so to compensate for factors such as a poor company reputation, poor organisational culture, or the limited growth potential of the sector. And in those cases, paying high salaries may not be sustainable in the long run as it is the culture and opportunity that retains great people.

To decide the right level of compensation (with respect to the market for comparable jobs) it’s crucial to look at the kind of talent the business needs. Where the skills and ability of the employees have a direct and disproportionate impact on the revenue and the success of the business, a high compensation level makes sense.

For businesses focused on customer service or operational excellence, a high compensation level may neither be affordable nor required. In these instances, investment in leadership and skills development might have a better return. Here also employees are critical, but the impact they make is typically through process excellence and teamwork rather than individual innovation.

In the long-term, no business can reward its employees more than the value added to the business.


Consistency is key

There is no doubt that having a formal, structured compensation plan in place can help align pay and compensation with your organisation’s business goals and strategy and help create transparency and fairness, as well as boost results, engagement, morale and retention.  Linking compensation and reward to delivery and contribution and applying this fairly is critical.

No matter what size of business you have, in order to maintain competitiveness it is important to think carefully about what you stand for as an employer, the culture and values that your organisation will uphold and ensure that all of this is reflected in a well positioned and clearly articulated compensation strategy, that is both flexible enough to adapt to an ever-changing marketplace and the growth of the business.