By the
Mind Tools
Editorial Team

Understanding Strategic Compensation

Creating the Right Pay Structure

© Veer

How much should you pay your people?

How is your pay structured? Do you get paid an hourly rate or an annual salary? Do you get performance-related pay, such as sales commissions?

Do you get a bonus? If you do, is this tied to individual performance, team performance, organizational performance, or a mixture of all three? And do you get paid more than a colleague because, essentially, you've been with the organization for longer?

There are clearly lots of ways of structuring compensation. And, given that payroll is often one of the largest operating expenditures that an organization has, it's important to ensure that this money is spent wisely. That's what strategic compensation is all about.

With it, you can start to think of how payroll can help your organization achieve its objectives, rather than simply seeing it as a cost to be minimized.

Consider the following organizational issues:

  • Staff turnover.
  • Poor performance.
  • Dishonesty.
  • Low motivation.
  • Poor customer service.

These – and many other organizational problems – can often be traced to the way that people are compensated for their work. The fact is, we do what is needed by the organization because the organization rewards us, in some way, for doing so.

What is Compensation?

It's important to recognize that compensation is just one part of the full reward system – it's the monetary element, and it has three parts:...

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