Strategic HR Planning: Using Compensation as your Competitive Advantage

The new year is right around the corner, and planning season is officially upon us. It’s time to think about how we can improve next year, what tools we may need to help us, and what budget we’ll need to accomplish our goals.

This is also a crucial time to look at your organization’s biggest operating expense: compensation. Weave it into your strategic HR planning to ensure you’re using it wisely and allowing it to become your strategic advantage.

Update your salary bands

High job openings and low unemployment made for a very competitive talent landscape in 2019. The economics of supply and demand have driven salaries up, likely rendering your salary bands out-of-date. If they haven’t been updated recently, this is a good time to revisit them.

A surefire sign you’re overdue for an update? Your new hires are earning more than their tenured peers for the same roles, because they could demand higher starting salaries. This could lead to turnover as your most loyal employees learn they’re being paid below-market rates—and less than their peers. A lower offer acceptance rate could also be a strong indication that your salary bands need to be adjusted to reflect market rates. Work with your talent acquisition team to learn just how pervasive this issue might be.

Revisit your salary bands to ensure your organization can continue to attract and retain talent in 2020. Make a plan to adjust compensation for employees who have fallen below band, and ensure you have budget earmarked specifically for this purpose. Finally—and this is an important step—make a plan to communicate changes with your team so they know what’s coming, and why. 

Plan for reviews and compensation cycles

Strategic adjustments help your organization align with market rates, but they may not be enough to retain your top performers. Earmark some additional budget for each manager to allocate merit-based increases. Payscale reports that 61 percent of organizations utilize a merit-based pay blan, while 34 percent utilize a discretionary bonus.

Give each manager insight into their employees’ compensation history, so they gain a better understanding of each employee’s journey. For instance, a high performing employee with multiple manager changes may have been left behind during previous compensation cycles. Their new manager could make up for that with a larger increase next year. This may also be a good time to surface those cases to Finance, in preparation for the next raise cycle. Then, there are no surprises when that employee is on the list for a raise that is higher than is traditional for high performers.

Even if your managers aren’t directly involved with providing employee stock grants, they should also have some insight into equity vesting schedules. This way they are positioned to advocate for additional grants to supplement salary where appropriate. A total compensation statement can be useful to help your managers communicate how equity, salary, and bonuses come together in your employees’ compensation packages.

Build career ladders

Career development is often cited as a top reason employees leave. Build or update career ladders in 2020, so your employees can see their futures at your organization. 

Each level should have a clearly defined job title, job description, and qualifications so employees and managers alike know when a promotion has been earned. Even if it’s not openly shared, each level should also have a compensation range that’s appropriate for the role’s impact and value to the organization. These details provide consistency so promotions are raises are fair across your organization.

Managers should communicate these career ladders with employees, and provide development opportunities to help them move up. When employees understand how they can progress to higher levels of impact, responsibility, and pay, they will be more motivated to stay long-term.

Ensure pay equity

The lingering gender and ethnic pay gap are no secret. Equal Pay Today reports that women earn 80 cents to every dollar a man earns. Pew Research Center reports that Black men earn 73 cents for every dollar a White man earns, while Hispanic men earn 69 cents. Despite this data, fewer than one-third of organizations planned to conduct a racial or gender pay equity analysis this year. 

Stand up to these inequalities in 2020 by identifying your own internal wage gaps, and creating a plan and budget to close them. Your employees will appreciate the effort and transparency around this pervasive issue, and will be more inclined to stay when they know everyone is being paid fairly.

Making pay equity a core focus for next year may also help you diversify your workforce. When your competitors are making unfair offers to people from underrepresented groups, your offers will stand out and help you close top-tier talent.

Final thoughts on strategic HR planning

Compensation is a strong signal to employees about how your organization values them. As we move toward 2020, it’s important to consider how to make compensation a strategic advantage to attract and retain the talent needed to meet organizational goals. 

Updated salary bands help you pay people consistently and competitively, while leaving room to provide merit increases to your top performers. Career ladders give employees an idea of where they can go within the company, including their future earning potential. Pay equity analyses help you spot and address potential problems with the way your pay is distributed. Build these things in to your strategic HR planning to ensure you’re able to retain talent—and build a strong talent brand to attract talent—in 2020 and beyond.