"The cheaper, the better" is the mindset we tend to have when considering alternatives for a product & try to apply the same principle in hiring an employee as well. However, it doesn’t work or rather works well that way. An appropriate compensation structure is a key to the smooth functioning of an organization. A well-designed compensation structure is the one in which the employee has the bread & roses too.
Analyze the key responsibilities and accountability involved in a particular job profile and give a weightage to each task taking the total up to a 100%. Also, analyze if the nature of the work is qualitative or quantitative & thus design a compensation structure that does justice to the work involved.
Under-paying or overpaying can be grossly detrimental to the health of the organization. Underpaying may increase the attrition rate while you end up losing talent to competition; overpaying may cause a huge dent in your pocket for talent that is not worth it. Periodic market research considering factors such as industry, region, qualification, size, and turnover of the organization would help in devising the appropriate compensation.
The compensation structure should be based on the quality and nature of the job than the quantity. Jobs that are administrative in nature should ideally receive a lower compensation as compared to jobs that are strategic in nature and the application of knowledge & experience is far more and the extent of risk involved in decision making is far higher. Besides, strategic tasks time-based are not time based unlike administrative tasks, and may require the attention of the employee way beyond work hours.
Organizations should take into consideration the manpower budget available while formulation the compensation package for an employee. Despite the market trend and quality of the talent, it is not advisable to exceed the available budget. At the same time, it is also essential to take into consideration the last drawn salary and expected compensation of the employee. You might just get lucky and get the ideal candidate for lower than the budgeted amount. This way, you leave room for appraisals and increments without exceeding the annual manpower budget plan.
Benefits or perks as we call them seem to have a psychological impact on the employee. These extras seem to get valued far more than the basic salary package. Keeping this in mind, it is essential to work within the budget and formulate the total compensation package into actual salary and non-monetary benefits with clear nomenclature making the whole picture look bigger than it really is thus increasing the satisfaction quotient of the employee.
Follow the carrot and stick principle. The carrot definitely influences the performance of the employee. Design incentive schemes and bonus plans adding to the entire compensation package. This will act as a motivational factor thereby improving the performance.
Working in a conducive environment is as important if not more as the salary is to an employee. Despite being the best paymasters in the market, organizations may still lose talent if employees are made to work in a hostile environment, in unclean conditions, or under an abusive and non-supportive boss. Paying heed to the grievances of the employees or concerns raised by an employee is essential. Factors such as allowing a smart casual dress code, shorter workweek, flexible working hours add to the hygiene factors.