compensation management

The Ultimate Guide to Building Compensation Models That Work

Designing an effective compensation model is no easy feat. It’s one of the most complex series of decisions any company, especially the ones that are starting out, will face. 

It involves carefully selecting right components–like base pay, variable pay, incentives, and pay levels–that create a win-win situation for both employees and the organization. The employees need to be remunerated fairly and appropriately for their contribution without affecting the company’s bottom-line greatly. 

A good compensation model starts with the organizational objectives. Answering questions like:

  • How do I attract the best talent?
  • How can I scale operations?
  • What kind of talent do we need?

will help you zero in on a compensation model that can be fruitful.

The different elements of compensation

Good compensation management is important for any business as it keeps employees happy and the business thriving. Adjusting the different components to varying levels to create an effective model is paramount to success. The different types of compensation include:

  • Salary 
  • Overtime pay
  • Commission
  • Bonuses
  • Long-term incentives, equity awards
  • Several allowances
  • Health and life insurance
  • Vacation time
  • Retirement savings

Benefits are pretty much going to be determined by government laws and compliance regulations but you can modify your perks to create an attractive compensation package. Some place emphasis on the base pay while others focus more on the performance-based components. 

How to create a solid compensation model

Before you build a compensation model, you need a thorough understanding of your business and its objectives. Think about the expanse of your business, how many people you’d need to run operations, and which ones are essential to your future goals. 

Gather the background information

The first step to a successful compensation model is to understand why it is being built in the first place, what needs to be executed, and what the desired end result is. You need buy-in from the management and other key decision-makers. That way, your compensation model is aligned with business objectives and company culture.

Building a pay structure from scratch means you need to develop a compensation philosophy, do the market research, clarify concepts that define your organization’s fundamental beliefs, and then develop it. 

You need the following basic information to get started:

  • Jobs roles and designations
  • Pros and cons of current models
  • Internal and external surveys
  • Geographical locations
  • Industry standards

Write job descriptions

Once you have the titles for each role, come up with unique job descriptions for each of those positions. Research your competitors but more importantly, make it unique to your company. Think along the lines of what responsibilities you want each of those individuals to hold and make sure they are reflected in the job descriptions.

You also need to develop job grades to enable flexibility and fair compensation. You’ll have a reference framework which ensures equivalent jobs have pay equity. 

Determine an appropriate amount

You’d have already researched your competitors by now. Make sure you note down how much they are paying on average for a specific role and what the industry average is.This should give you a rough idea about what you need to spend to attract the best talent in town.

Identify benefits and incentives

When doing your compensation research, keep tabs on what benefits they offer and what incentives are common in your market. Benefits like dental insurance, vacation days, child care facilities, and gym memberships are increasingly common. Understand what you’ll be able to offer and what’s the best form that can be lucrative. It’s important to remember the best benefits are not always the most expensive ones. Understand what your potential employees care about and offer them that.

When it comes to incentives, you need to know what motivates them to go above and beyond. We wrote an entire article about designing sales compensation plans and incentives. Check it out here.

Benchmark positions against market data

Salary benchmarking is a technique to identify the market rate for each role by matching internal job descriptions to external jobs with similar responsibilities. 

You need to perform market assessments and salary comparisons before you create a new position complete with job responsibilities and a corresponding salary. Things like location, company size, and education level factor into the final salary, and all must be considered before filling the position.

Using all these data points, you should now be able to arrive at a pay range for each of your job roles. These ranges allow hiring managers to be flexible in factoring experience and additional qualifications.

Evaluate and implement the model

Review your model and build rules to make sure your pay structure stays current and up to date.

  • How often will you update the model?
  • When will the new model be effective from?
  • What are the procedures for updating the model?
  • Who has access to the model and who can make changes?

Now your compensation model is ready to be deployed after getting approval from key stakeholders. Send out organization-wide communication so everyone understands the pay structure clearly.

What makes a good compensation model?

Though there’s no one-size-fits-all model, you need to ensure that your pay structure passes the following checks:

  • Is the compensation equitable across gender, race, religion, age, and more?
  • Do employees perceive the model as fair? 
  • Is it financially sensitive to the organization’s strategy? 
  • Does it adhere to your organizational philosophy? 
  • Are the policies legally compliant?
  • Is it current and in line with what is offered in the broader market?

Closing thoughts

To be successful in attracting and retaining talent in today’s competitive marketplace, you need to develop a model that suits your objectives and unique requirements. A well-designed compensation model bolsters the organization’s strategic plan, business goals, and competitiveness.

compensation management

3 Ways to Keep Employee Engagement High with Unique Benefits in the “New Normal”

The employee engagement levels have hit an all-time low in the new normal. As employees and employers adapt to the work from home environment, the dropping engagement levels may not be the best news for any business.

With an unprecedented hike in remote jobs, employees have so many options. So, failing to keep them engaged will lead to employees moving on to the next glittery opportunity in the horizon resulting in high churn and its own Pandora’s box of problems.

How can organizations keep employee engagement high during this age of remote work (and beyond?) While people may believe that compensation can not make much of a difference, listed below are three unique ways that the right set of benefits can make a real impact on your employee engagement levels. 

1. Deliver on your promises

With so much chaos happening around us, it’s no wonder that some organizations have trouble paying their employees on time. Although employees understand and empathize with the hurdles their employers face, employees will neither wait around forever nor will they stay staunchly loyal if they receive a tempting offer. 

That doesn’t mean you have to up your ante and overpay your employees to retain them. When everything around us diverts into chaos and madness, just deliver on your promises. If you intend to cut a percentage of your employee’s salaries to keep the cash flow strong, make sure that it doesn’t affect those employees who are living from one paycheck to another. 

A recent Towers Watson research shows that employees who believe they are paid fairly will be 4.5x times highly engaged as compared to those employees who aren’t paid fairly.

2. Move towards pay transparency

Payroll and compensation have always been shrouded in secrecy. What’s worse, a few leaders believe that compensation and benefits of employees must be treated sacred and it should remain confidential until eternity. But what they don’t realize is secrecy only breeds mistrust.  

On the other hand, organizations like Buffer who have an open pay system show that it not only ensures high trust among employees but also enables them to treat their employees fairly without any bias or favoritism. 

Being transparent about employee pay can pave the way to reduced pay gaps, improved employee engagement, and enhanced organizational trust. What’s more, it can help functional managers and department heads take data-driven compensation decisions. This will also put a stop to all concerns of employees about substandard or unfair compensation. 

3. Reassure your employees

These uncertain times have left employees in a state of panic filled concern. They are worried about everything from their job security to business continuity. Transitions are always hard, particularly if the way they work is changing. What is the best way to help employees and ease their concerns during these uncertain times?

Here’s what we at Compport did to reassure our employees and assuage their fears. As we moved swiftly to remote work, we put in all our efforts to get our virtual remote network up and running. Once that was ready, we offered all our employees with high speed unlimited broadband connection and even went so far as to pay extra to establish a new connection.

We did not cut any corners when we helped our employees set up a home office. We ensured that they had ergonomic chairs and sturdy tables to work from. To out win power outages, we provided our employees with inverters that ensure backup support. In addition to that, we went ahead and extended timelines of project deliveries to reduce their stress levels and help them get used to the new normal. 

While daily sync calls helped keep each other up-to-date, we kept a close watch on the health, motivation, and sentiments of our employees. Our leaders reassured all employees frequently to assuage their fears associated with job security. All our employee reassurance activities from sending safety equipment for family members to extending mediclaim and life insurance policy covers were welcomed by all our employees unanimously.


Unique benefits and compensation not only play a huge role in attracting the right employees, they also have an equally strong say in retaining those employees. By providing your employees with the best benefits you can offer, you can encourage them to go the extra mile and invest their heart and soul to meet your business goals. 


5 Compensation Management Challenges You’re Likely to Face as an HR

Managing compensation is one of the most difficult aspects of being an HR professional, irrespective of the size of the company. Compensation professionals in the HR department face issues in determining the right pay and relevant perks that recognize and reward employees for the contributions they make to the company.

The operations and processing can take a huge chunk of your time. It is more pronounced in companies with a workforce that spans across different geographies. In smaller companies, the challenges are of a different kind; most small businesses are limited by budget and so the extent to which these companies can go to attract new talent in a competitive landscape while being fiscally responsible to themselves is small.

Let’s take a look at the most common challenges when it comes to compensation management and how you can overcome them.

External competition

We live in an incredibly competitive world where businesses are willing to pay top dollar to get the cream of the crop talent. In order to attract and retain talent, your company must establish a compensation package that’s on par with other companies in the same industry and location. 

There are several market surveys to gauge the right pay for different roles. If you’re constrained by budget, you can innovate by offering attractive vacation time offs, child care facilities, and other benefits that don’t cause a dent on your budget.

Executive compensation

The many nuances of compensation management come into play when deciding the salaries of senior executives. This is particularly important for public companies that need to reveal the salaries of their top 5 employees which might not go well with shareholders and the general public. Even if that’s not the case, the pay packages need to strike a balance between attracting good talent while being acceptable.

Internal equity

Take a pay review and we’re sure you’ll be surprised by the results. Even though the government and businesses strive to achieve pay equity, the wage gap persists. In fact, the World Economic Forum estimates that it will take at least 202 years to close the wage gap.

You should continuously assess your pay gap efforts and create awareness in the senior management to fix this issue. Managing gender wage gaps is something that’s so close to our hearts so much so that we wrote a whole blog about it. You’ll find it here

Gaps in employee expectations

There’s always a conflicting disparity between what the employee expects to be paid and what the organization wants to pay. And, the HR is stuck in between. Also, employees usually don’t take into account the entirety of their compensation package. They only consider the net pay. 

You can bridge this gap by providing total compensation statements to clearly communicate the value of their compensation in its entirety.

Lack of digitization 

Managing compensation and communicating the outcomes is a very effort-driven task. When not done digitally, it can take up to several months from design to implementation and finally to communication and requires a lot of data crunching/ formulas/ sheets on Excel. Obviously, it’s not the best use of your time nor skills. 

Spreadsheets and legacy software force you to focus on administrative details, most of which can be automated by using online compensation management software like Compport. It can simplify your processes, save your time and resources, and enable you to design smarter, engaging compensation plans for your workforce. According to real-life examples with different Compport clients, it has been proven that Compport can bring in 95 percent more efficiency.

Closing thoughts

Your compensation strategy should be connected to business goals and financial data so you can get a complete picture of its effectiveness. When wrongly handled, it can cause a rift between employees and management. Though these challenges may seem daunting, proper planning and diligent efforts can help you overcome them. The right tools will help you move beyond manual work and transactions and focus on what’s important–motivating your employees and building a great culture.


The Beginner’s Guide to Compensation Management

The payday keeps us all looking forward to it, but it can be intense and distressing for the people processing your salary. If there’s something even more complicated than that, it’s planning and administering the equivalent financial value (called compensation) you provide in exchange for your employees’ work. 

Growing and large businesses need to come up with a process to ensure they offer fair compensation to all employees. They also need to analyze market trends, come up with creative perks and policies. That’s where compensation management comes into the picture.

What is compensation management?

Compensation management is the HR discipline that ensures that the company’s compensation, both monetary and non-monetary, are competitive, fair, and appropriate. It includes designing, implementing, and managing the compensation components that play an important factor in a prospective employee’s decision to join an organization.

The different types of compensation include:

  • Salary 
  • Overtime pay
  • Commission
  • Bonuses
  • Long-term incentives, equity awards
  • Several allowances
  • Health and life insurance
  • Vacation time
  • Retirement savings

Simply put, it’s how a company strategically manages employee compensation and its components so as to attract and retain good talent while staying within the budget.

Why is it important?

According to a study, 38 percent of the employees surveyed say inadequate salary and benefits are the main reason for them to hand over their resignation letters. And 57 percent report benefits and perk are at the top of their consideration factors before accepting a job offer.

Good compensation management is important for any business as it keeps employees happy and the business thriving. It gives candidates a good reason to join the company and existing employees a reason to stay. The organization benefits in several ways by compensation management:

  • It keeps the employees motivated and incentivized to offer their best work
  • Recognition and rewards have a positive impact on employee productivity and help reduce turnover rates
  • A competitive compensation package taking market trends into consideration attracts and retains top talent
  • It helps in creating a realistic budget
  • It reduces conflicts and disputes and creates organizational harmony
  • The 4 main objectives of compensation management

The main objectives of compensation management are to ensure pay equity, reward productive employees, retain employees, and comply with legal requirements.


A transparent, well-structured compensation management plan ensures pay equity and there are no wage gaps based on gender, ethnicity, or race.

Rewards and recognition

Employees need to be motivated and incentivized to take on challenges and perform better. They also need to feel valued and their contributions acknowledged to address their psychological and social needs.

Attraction and Retention

Employees are the most valuable resources for any company. Effective compensation, based on the performance, potential, and qualifications, should be administered so employees don’t feel compelled to leave the organization based on monetary factors alone. Also, it needs to be competitive enough to attract top talent.


A good compensation management system considers legal challenges and governmental regulations and ensures that proper compliance requirements are met.

Challenges in compensation management

Designing a fair compensation plan that accurately reflects an employee’s worth is a challenge by itself. Apart from that, HR professionals are faced with several other challenges:

Disparity with employee expectations

The biggest challenge in compensating employees is achieving fairness. Organizations seek to optimize their costs as they can. But, employees want the best compensation possible, either adequate or higher than some comparable standard. 

Fairness is a subjective term. What the organization deems appropriate and fair might not seem like equivalent remuneration to employees for their time and work. Because of this perceived imbalance, both parties will act to correct this disparity.

Keeping up with market trends

Another challenge of compensation management is keeping up with market trends and coming up with a competitive pay structure for the multitude of roles in the organization. You need to make informed decisions based on the salary market data, location, industry, and company size.

Growing employee needs 

It may be surprising to someone from a previous generation that the current workforce seldom gets any pension. 90 percent of millennial employees reported in a survey that they prefer additional benefits and perks over a pay raise.

The needs of employees have evolved over the years and HR professionals need to come up with creative policies and perks, sometimes offering tailor-made packages to meet employee needs. Some of the most common benefits these days are unlimited vacation days, child daycare, flexible work hours, and well-being benefits.

The components of a solid compensation management plan

Your strategy should serve as a guide toward fair and transparent compensation payments. A proper plan should Some of the elements used to decide how much compensation every employee receives are:

Pay structure 

HR professionals use specific approaches when coming up with compensation for a particular role. Sometimes it involves creating pay grades, based on complexity and scope of the job, qualifications and experiences required. It’s also a common practice to enforce step increments that act as markers for salary increments. They decide on the base salary, bonuses and commissions, if applicable, equity in the company stocks, and other non-monetary perks.

Salary statistics

Once the pay structure is complete, you need to gather data to see competitors in the same industry are paying their employees. You need to consider the average salary, cost of living in the location, inflation statistics, and more. This justifies to the management and the employees why they’re paying the compensation they get.

Job evaluation 

You’ve got the foundation of your compensation management plan ready now. You need to analyze the roles and responsibilities of the different job roles in your organization to narrow down suitable compensation for each role.

Job description

The job description not only shows the tasks that are expected of an employee, but also denotes the level of difficulty and the uniqueness of a specific role. This forms the why behind your employees getting a certain compensation for the work they do.

Best practices to manage an effective compensation strategy

Compensation management should follow a scientific, structured approach for it to achieve its objectives. It should be fair and transparent. 

Allocate proper budget

Your compensation budget needs to be in line with the organizational strategy and vision. The budget determines how much of the total compensation budget will be spent on salary and what percentage will be spent on benefits and other incentives.

Develop salary ranges

With the compensation plan in place, you need to come up with upper and lower limits for salaries to get a competitive edge.

Ensure legal compliance

Some countries have minimum wage laws and you need to make sure that your pay structure meets such governmental requirements.

Use the necessary tools

If your business is small and you have less than 10 employees, it doesn’t pose a huge challenge. You could use spreadsheets to track the different aspects of compensation. As your workforce grows, it becomes less efficient. You’ll have to use total compensation management software like Compport to help you with budgeting and compliance.

Document your compensation strategy

The strategy serves as a guide and should be outlined in a written document that clearly articulates the organization’s approach to managing employee compensation.

Review the plan regularly

A compensation plan is not set in stone. You need to go back to it once in a while to make sure it reflects the current market trends. The goal of the audit is to pay attention to market changes, how competitive some jobs are, and what external markets are demanding.

How can Compport help you?

The abstract concept of compensation management is not a challenging one; its successful implementation, on the other hand, is a different hurdle. 

Designing, managing, and monitoring compensation plans can be a complex and time-consuming HR activity. You need to analyze pay scale data, keep up with workforce trends, optimize your budget, understand the expectations of your workforce and come up with unique selling points for your organization. Managing each aspect manually is practically impossible. That’s why you need compensation management tools like Compport.It can help with automating salary review, bonus, sales incentive and long-term incentive processes aligned with your compensation policy and budget. The software is designed to give HR professionals a 360-degree view of employee data needed to make smarter and data-driven decisions. It can help you to reduce your overall time-to-process by 95 percent. Get your free demo today and see the difference it can bring to your organization.