- Compensation plan. What is the Compensation Plan?
- Importance of the compensation plan.
- Elements of a compensation plan. A compensation plan must include the following essential elements:
- Steps to develop a compensation plan. There are certain steps that can help you develop an effective compensation plan. The steps are the following:
What is the Compensation Plan?
The compensation plan is the complete plan to reward individuals for their efforts and to ensure that your employees stay with you and are satisfied for a longer period of time. The compensation plan completes the entire process of deciding the employee compensation package, giving and reviewing wages, salaries, and incentives over time. It is important as it is a systematic way of planning compensation for employees.
Importance of the compensation plan.
Determining the right balance between base salary and commission is the main challenge, as a well-designed compensation plan helps create a high-performance work culture that ensures overall personal and organizational growth. Recognition and reward of individuals’ performance based on compensation and benefits creates an attractive environment to attract and retain the best talent in the industry. For example, a sales compensation plan aims to compensate sellers effectively. Typically, it is an incentive compensation plan that encourages the sales force to pursue new business and increase sales to existing customers.
“Going to the market is really a fundamental part of your business planning. The compensation plan is the way to put the sales force into operation, align it with the objectives of the company and motivate and encourage it to put it into practice their go-to-market strategy, “quoting Jin Stoeckmann, leader of WorldatWork’s senior sales compensation practice.
Companies generally have a written and documented compensation plan that adapts and evolves according to market conditions and competitive pressures. The compensation plan must be clear and distributed to the workforce to keep it motivated and goal oriented. Proper use of the plan is in the hands of line managers and organizational hierarchies to get the best from the sales force.
Elements of a compensation plan.
A compensation plan must include the following essential elements:
a) Strategy: The strategy of the company and the commercial objective to establish objectives.
b) Performance measures: Establish benchmarks, performance measures and metrics to help the sales force and determine areas of focus.
c) Payment formula: Determine the fixed component and the variable component to detail the earnings for the employees.
d) Government: Procedure to resolve issues and conflicts not contemplated in the plan and that could arise at some later time.
Steps to develop a compensation plan.
There are certain steps that can help you develop an effective compensation plan. The steps are the following:
1. Based on the company’s objective, you must decide what the company wants to pay as compensation.
2. Incentives must be aligned with the company’s objectives.
3. Determine the mode of payment, that is, bank transfers, cash, checks, etc., or shares, participations, etc.
4. 4. Ensure that compensation is in accordance with the law of that country.
5. 5. Assign compensation and wages according to the company’s budget, market rates, quality of people, etc.
6. 6. Have provisions for constant review of compensation and benefits.
7. 7. Inclusion of other benefits such as health, policies, company shares, etc.
This article has been researched and written by the Business Concepts team. It has been reviewed and published by the Skool MBA team. The Skool MBA content has been created for educational and academic purposes only.
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