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Home » HR Processes » Compensation and Benefits » Compensation Strategy and Compensation Policies » Compensation Strategy

Compensation Strategy

Compensation Strategy is one of the most important strategies in the HRM Function as it influences the costs of the organization and potential bad decision can lead to very serious damages to the organization.

The compensation and benefits strategy is derived from the overall HRM Strategy and it has to be fully aligned. When the HRM Strategy sets the main objectives for the HRM Function, the compensation and benefits strategy has to follow. When the overall HRM Strategy states the low cost of services and employees, the compensation and benefits strategy cannot target the highest salaries at all levels.

The compensation and benefits strategy sets the general rules for the compensation and benefits area in the organization and the owners and leaders of the area. In some organizations, the compensation and benefits department is just a support department for the line management. In other organizations the compensation and benefits manager is a very powerful employee in the organization with the right “veto”.

The compensation and benefits strategy sets the position of the organization on the job market and defines the items in the total cash in the organization and their role. The role of different components of the compensation is very important as the role of the compensation components can differ. For example, the role of bonuses can be primarily in performance reward or the retention of the employees and the organization has to decide.

The compensation and benefits strategy has to reflect the reality in the industry and the surrounding job market. The compensation strategy can set the wish to pay the lowest possible salaries, but the HRM Function and the organization have to respect the reality on the job market.

The compensation strategy needs a strong support from the top management as it sets strong limits to the daily operation of the line management and they usually do not fully agree with all the aspects included in the compensation and benefits strategy.