3 Main Aspects to Consider When Building a Solid Compensation System

During one of the team lunches, when we were talking about experiences, one of my colleagues mentioned: “You should not save money on experiences.” The most obvious translation of this is that experiences are more important/valuable/beneficial/etc. than money. Why is that and how to measure to which extend are experiences more important than money? If you were about to get a reward and were faced with a choice between money and experiences (not limited to a specific type of experience), what would you choose and more importantly, why?

You might also ask me why you have to make a choice on one between these two. Actually, going for both can be the most beneficial option. Money has to do with extrinsic motivation. Monetary rewards are common, usual, taxable (most of the times). Nonetheless, it is needed (also to create more experiences, however not every experience can be “bought”). It triggers a certain part in us. Experiences have something to do with intrinsic motivation. They trigger associations, memories, create emotional value. They have a certain element of surprise in it, which makes it more special and unforgettable. Two of these are important and trigger different reactions, which in their turn, in combination, trigger happiness, satisfaction and well-being.
To which extend the compensation system that your organisation has currently in place contributes to your happiness, satisfaction and well-being? Does this compensation system go in line with and fits the organisational values, beliefs, strategy? Do you perceive it as a strategic/long-term oriented one? Is it fair and stimulating?

In my opinion, a solid compensation system covers both extrinsic and intrinsic elements. There are three main aspects that are crucial in order to build one: 1) There needs to be a dialogue with the ones who this system will be addressing; 2) There needs to be continuous and thorough measurement and evaluation in place; 3) It needs to be strategic and in accordance with organisational values. How do you come up with a decision on the monetary and non-monetary compensation? Do you base them on what the market offers or do your best to beat your competitors? By how many percent will your top achievers be going up every year? By how much will your compensation budget be growing yearly? How is this reflected in yearly targets?

Let’s assume your compensation system does not clearly define or does not really cover any non-monetary elements. After a few years of hard work your top achievers reach the maximum of what you can offer them as monetary compensation. What are you going to do in this case to not only retain them, but also to keep them motivated, efficient, productive and striving for better outcomes? Based on what do you make your decisions in regard to compensation? How do you see it developing and changing within the next few years? Does your compensation system stimulate the right behavior in line with your values and organisational culture?

By this number of questions I would like to point out that a compensation system is a living mechanism within your organisation, which determines your successes. In order to be (more) successful, you might want to review your current system and analyse to which extend it is linked to the rest of the systems and processes you have in place, e.g. recruitment, incentives, retention strategy, etc. It should be interconnected with pretty much everything and be synergetic rather than function as an independent organisational organ. It better be fair, attractive, coherent with the organisation. It should be continuously reviewed, updated, measured. It is meant to create a greater impact by working for people and target/offer their wants and needs. For that it is important to know what your people want and need. This requires continuous dialogue.

By: Liubovi Bosenko