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How to Build a Competitive Compensation and Benefits Plan

August 17, 2020

compensation-and-benefits

When it comes to attracting top talent and recruiting the best possible candidates to work at your company, how do you make coming to work for you stand out from the rest?

While the draw could lie within enticing job descriptions or a well-known and highly sought after company name, chances are you’ll need more than that.

One of the best tools you can use to both entice future candidates into joining your team and keep current employees on-staff is to offer a fully built-out employee compensation and benefits plan.

What are employee compensation and benefits?

Chances are when a potential candidate looks at an open job at your company, one of the first things they’re going to look at is salary.

Whether the job is listed at an hourly wage, minimum wage, or given a salary range, candidates and future employees are going to look at pay structure first. Then, as they scroll through the job listing, they’ll notice if the job is listed as full time or part time, while taking a peek at the benefits that could set your company apart from the rest.

Employee compensation and benefits refer to how your employees are paid for their work and the perks your company offers along with employment. Compensation refers to an employee’s monetary compensation for doing their job, while benefits are the non-monetary offerings your company provides to employees.

Employee compensation can take many forms: 

  • Base pay
  • Overtime pay
  • Commission
  • Hourly wages
  • Tips 
  • Bonuses

Employers administer employee compensation by running payroll. Companies often run payroll on either a weekly, semi-monthly, or monthly basis.

There are different types of employee benefits that can include everything from health insurance, 401k matches, stock options, paid time off, in-office perks, and weekly catered lunches. In addition to health and wellness packages, some of the most-wanted benefits also include remote work opportunities, gym memberships, and a casual dress code. 

Anything offered to your employees as part of their job offer outside of their salary is considered an employee benefit.

Why are compensation and benefits important?

It’s obvious that people won’t work for your company free of charge -- they expect to be paid for the services and expertise. It’s also illegal to ask them to work for free (unless you’re a non-profit organization).

That being said, compensation and benefits are an important part of the contract between an employer and an employee, as most employees won’t work simply for the love of their job.

Together, compensation practices and benefits are critical to any job you may offer a candidate. If someone is between similar roles at your company, and your competition with the exact same salary, the benefits your company offers may make your proposition just a little sweeter.

63%

of candidates cite benefits as the reason for accepting a job.

Source: Glassdoor

How compensation and benefits can motivate employees

A competitive salary is only part of how you motivate a candidate to apply for a job at your company or to retain a current employee. It goes hand in hand with a built-out benefit strategy with pension plans, a 401k, stock options and profit-sharing, and more. When done right, the two can do a lot for your business.

Attract top talent

Whether you go the route of talent acquisition or recruitment, people always look to put themselves in the best possible position financially. When someone is looking for a job, chances are they’ll know what they’re worth, the salary or pay levels they’re looking for, and which benefits are the most useful to their lifestyle.

When your company offers an enticing combination of a competitive salary and benefits that are actually worthwhile, it’ll attract potential candidates to your company, making it easier for you to find top talent within the industry.

Boost employee loyalty

Nothing makes an employee happier than being paid well, appreciated for their hard work, and having benefits to enjoy. When all three come together, they’re likely to stay at your company.

In fact, without proper compensation and an enticing benefits package, it’s likely that you’ll see even your most-valued employee hand in their two weeks’ notice. When you have employee loyalty, your human resources department can spend less time recruiting new candidates and more time cultivating a strong company culture for everyone involved. 

We asked Human Resources Coordinator, Alyssa Kowalczyk, about the importance of compensation and benefits. Here's what she had to say:

It’s important to have a comprehensive benefits strategy because it helps an employee know you're invested in their health and their future at the company."

Alyssa Kowalczyk
Human Resources Coordinator at Control Solutions LLC.

She continued, "Plus, it helps to increase employee retention by attracting employees for the long haul!” 

Increased productivity and profitability

Happy employees are productive employees, plain and simple. When they feel valued not only as workers but as human beings, they feel better about coming into work and getting their job done right.

Additionally, when there is commission or employee bonuses on the table, they’re increasingly motivated to deliver better results and achieve success, while also boosting company performance for the long-term.

How to determine compensation and benefits for your company

As a hiring manager or HR professional, there are specific best practices you can follow when creating a compensation and benefits plan for your company.

First things first, get your budget in check. You’ll need to know how the company budget is structured, which will give you a better understanding of how the money can be spent.

Once you have budget squared away, consistently review employee compensation plans. While it’s customary to look at the compensation of employees at the end of the year, and during the review period, doing so quarterly allows you to make adjustments as needed.

When looking at employee compensation, this also gives you the time to create salary ranges, which ensures your organization is competitive within its industry.

Similarly, conduct compensation audits on a regular basis, as there are several changes that can impact salaries that will need to be adjusted for your employees, like the overall size of your company. A compensation audit will review employee salaries, bonuses, incentives, and equity programs based on their effectiveness and competitiveness. 

A good place to start when conducting an audit is to ask the following questions:

  • Has our company recently changed its business or sales strategy? If yes, is the compensation plan still in support of this strategy?
  • Has our company experienced growth since our last audit?
  • Has there been issues regarding recruitment or retention of employees since the last audit?
  • Do the salaries and bonuses of our employees accurately reflect the changes in job duties as they evolve?

The answers to these questions will help you determine if your current compensation and benefits need to be reevaluated. 

As a way to increase retention and decrease employee turnover, make sure to pay special attention to the high performing employees on your team. High performance should (usually) equal higher pay, which will be an important part of your compensation and benefits package.

When an employee doesn’t feel they’re being paid what they’re worth, they’re likely to leave for a company that is better aligned with this belief.

85%

of organizations intend to give base pay increases in 2020.

Source: PayScale

It isn’t easy to determine a salary range, which is why a compensation manager will take many factors into consideration, like:

  • Years of experience
  • Current salary
  • Tenure with the company
  • Employee location (if your business has more than one office location)
  • Job performance ratings

At the end of the day, the compensation and benefits package you come up with is going to be different from what other company’s offer. Consider sending out a survey to your current employees to find out what they feel like your company’s package is lacking. The feedback you receive may mean that you consider adding additional vacation time, relocation bonuses, school reimbursement, or additional healthcare benefits like dental or vision.

How to utilize compensation management software

It’s clear that a lot goes into creating the perfect package of compensation and benefits. To stay organized, it’s in your best interest to make the most of compensation management software.

When you do, your HR department can easily plan and administer employee compensation packages. You can also use these tools to view and adjust compensation policies, plan employee bonuses, and recommend pay adjustments, while also developing streamlined compensation strategies for their teams and optimizing salary budgets.

One of the main reasons to use a compensation management tool is to facilitate an easier, more manageable system for strategizing competitive employee wages and compensation. The software helps both HR and payroll departments move from an overwhelming, paper-driven management method to a streamlined, electronic one.

Best compensation management software

When you’re unsure which compensation management software is right for your business, G2 has you covered.

All of the software within this category can help HR professionals management salaries, develop merit matrices, and report on company compensation data. The main objective of these tools is often to to view and adjust compensation policies, plan employee bonuses, and recommend pay adjustments.

Below are the top five leading compensation management software solutions from G2’s Summer 2020 Grid® Report. Some reviews may be edited for clarity.

1. Workday HCM

Workday Human Capital Management is built as a single system with a single source of data, single security model, and single user experience. This compensation management solution offers organizations a cloud-based system that evolves to meet changing business needs today and into the future.

What users like:

“The tool is very easy to navigate and automates even the most trivial functions, like applying for leaves, approvals, keeping track of holidays, general employee information, and more all in one place, making it very easy to keep track of such details. I personally also like the organization chart available in Workday, making it easy to understand the organization structure, especially for a new user.”

- Workday HCM Review, Anoushka S.

What users didn’t like:

“There have been some issues loading occasionally when I was working regularly at work with it. Also these days due to the COVID-19, there seems to be issues logging in. But this may be due to a large number of other Users logging in causing freezing or lagging. If this would be remedied, it would be much better to get through!”

- Workday HCM Review, Jessica B.

2. Paycom

Paycom offers a full HR solution contained in one database. When you use Paycom, the technology you use to hire new employees is the same technology you use to pay your workforce, comply with regulations, train your people, and much more. It is all there – all of your workforce data – in one system. It can streamline employment processes from recruiting to retirement and everything in between.

What users like:

“The overall integration, of what otherwise would be multiple platforms, ensures that I can spend my time focusing on the big picture of our business and processes rather than spend time aimlessly on the small things. Paycom solves most of my problems before they even arise.”

- Paycom Review, Yasmine G.

What users didn’t like:

“As someone who onboards and trains new hires, it’s always a challenge to log in initially, reset a password, and update the username. We always face challenges with this, including being quickly locked out of the account.”

- Paycom Review, Emily O.

3. UltiPro

UltiPro® cloud HR, payroll, and talent solutions help organizations improve the employee experience. It covers everything from personalized recruiting and onboarding that foster long-term relationships to convenient, role-based access to pay, benefits, and career development information. 

Users of UltiPro® can rapidly process payroll, manage employee requests with HR service delivery, leverage flexible time solutions, and facilitate productive performance, succession, and compensation management.

What users like:

“One of the best parts of Ultipro is the Business Intelligence aspect. You can create and configure reports in so many ways. Being able to analyze data is critical to a successful business and UltiPro has it all. I've used multiple HRIS packages and this one is by far the best.”

- UtiliPro Review, Linda A.

What users didn’t like:

“Tax Payment services can be very slow at processing cases. In more than one instance we’ve gotten a letter saying that we are late and getting penalized. The only other issue that I have had is regarding Open Enrollment reporting. It’s nice to have passive enrollment, but we had to send our carrier changes, which was very tedious and time consuming because employees re-elected benefits.”

- UtiliPro Review, Megan M.

4. Payfactors

Payfactors are compensation data and technology that can answer all of your compensation questions. It can help users streamline, centralize, and automate the entire compensation process: from job descriptions to data visualizations.

What users like:

“Overall I think the best feature of Payfactors is its simplicity and speed. My company originally used a different solution and it was slow and complex to price jobs. Payfactors really opened that up with the ability to have a wide range of jobs, which are priced over multiple markets easily within the system. When I do have an issue, Payfactors’ customer service is always quick to help. Most of the time they respond back within an hour if I am having an issue. The service center is a real strength of the platform.”

- Payfactors Review, John K.

What users didn’t like:

“If I had a wish that could be granted, I'd request that the tool could include a comprehensive cost of living calculator that could show cost of living differences between cities based on title and compensation.”

- Payfactors Review, Lindsay S.

5. PayScale

PayScale offers a smart, easy to use compensation management software with transparent datasets, intuitive structure modeling, and best-in-class service and support to ensure users are quickly set-up to attract and retain top talent. With built-in datasets, compensation strategy, and so much more, it’s all all-in-one tool for HR professionals.

What users like:

“The customer service is awesome. They are incredibly responsive and always willing to find an answer, not just pieces of one. I've had two account managers since the launch of Payscale and each of them have been great. Responses are usually within the same day I send an email and both of them were more than willing to get on a call to discuss any more complex issues I might have had. The reporting tool is also wonderful. While we don't use it nearly enough, it is extremely powerful and easy to use. Our hope is to use this in our next round of compensation pay structure clean up.”

- Payscale Review, James K.

What users didn’t like:

“Sometimes the site can be slow and it took me a little while to learn how to navigate the site but once I got the hang of it, it's actually very user friendly. Also, because we are a smaller biotechnology company we have a lot of unique jobs/hybrid jobs, so it isn't always easy to match a job. A huge dislike of mine is that it does not integrate with our HRIS.”

- Payscale Review, Kendra F.

How to take advantage of benefits administration 

Benefits administration consists of the process of creating, managing, and updating those employee compensation and benefits packages.

HR professionals who are responsible for creating policies around compensation and benefits may include:

  • Salaries
  • Commission or variable pay
  • Bonuses
  • Company cars
  • Dental plans
  • Medical insurance
  • Pensions and retirement plans

Essentially, it’s up to you to ensure the hard-working employees at your company get the right amount of money at the right time.

HR managers can also use benefits administration to track current employee usage and engagement, as well as find the best way to cut costs. The process of benefits administration can be time-consuming for HR departments to manage on their own. That’s why many companies prefer to use benefits administration platforms to manage their employee compensation and benefits programs.

51%

of employers say using health and wellness benefits to maintain employee loyalty and retain talent will become even more important in the next three to five years.

Source: MetLife

What is a benefits administration platform?

Benefits administration platforms are used by HR managers to monitor and maintain their employee compensation package and benefits program. As technology becomes more common in the workplace, HR managers are seeing value in investing in these types of programs.

The time and effort it takes to manually manage employee compensation and benefits are often seen as too great. Many HR managers would rather pay for software to do the more tedious tasks for them.

Some advantages of using a platform like this include:

  • Works alongside your existing payroll software to provide your HR team with a more streamlined, comprehensive administration experience
  • Identifies the benefits that provide the most value to employees and reduce overall costs
  • Helps with the employee onboarding process by giving employees information on their benefits options (401k, medical insurance, healthcare options, etc.)
  • Gives employees a chance to take a proactive approach to managing their own benefits
  • Manages invoices and other financial aspects, or passes them onto the finance department, when employees take advantage of relevant benefits
  • Allows you to easily switch between different employee benefits options e.g. switching between paid time off and unlimited PTO
  • Offers a benefits portal through which employers and employees can access benefits plans, update information, and enroll in benefits during and outside of the annual open enrollment period
  • Ensures compliance with government regulations and state and federal laws, including the Affordable Care Act (ACA) and the Health Insurance Portability and Accountability Act (HIPAA)

These are just a handful of the perks tracking your compensation and benefits program with software can provide. 

Show me the money

When you want your employees to not only look forward to payday, but also get excited about your remote work policy and free lunches on Wednesdays, it’s in your best interest to have a comprehensive compensation and benefits package.

While the right software will help you get organized, it’s up to you to think about what your employees want most. 

Go one step further and learn more about how to develop and implement employee wellness programs at your company with the goal of improving the physical, emotional, and financial health of your employees.

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