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Having a well-designed compensation plan that ensures equity should be a high priority for all employers. For any person to feel motivated to work, they should get paid fairly according to what they do. Because every employee desires to feel equal, and people instinctively sense unfairness when they experience it. Don’t you think this can affect their efficiency and effectiveness? 

This is one of the main reasons why you should focus on developing a fair compensation strategy for your company apart from the legal obligations of the company. 

Before looking into the how, let us have a look at WHAT is fair compensation. 

Fair Compensation

Compensation is the total cash and non-cash payments that you give to an employee in exchange for the work they do for your business. This is typically one of the biggest expenses for businesses when it comes to the expenses related to the employees. But compensation is more than an employee’s regular base pay. It can include many more packages including their overtime allowances, bonus pay, recognition and rewards and many more. 

This pay can depend on organisational traits such as the industry, turnover, profitability, size as well as any affiliations. As an example, you would have noticed that many local organisations that deal with foreign clients (especially European or American) pay higher salaries and better benefits/allowances when compared to their counterparts. This is because it is mandatory for such firms to practice fair compensation practices in order to be eligible to become a supplier for those foreign clients. Furthermore, for this compensation to be fair, you have to make sure that you compensate them according to what they do, their responsibilities, their designation and the current compensation rate/standards of the country. 

WHEN do you have to do this? 

Having a fair compensation strategy is a must-do in any company as early as possible. Whatever the crisis company may be in, whatever the growth stage the company is going through, or how bad the country’s economy is, the company is legally obliged to pay its employees on time. When the company is going through a crisis, merger or any kind of change that affects the scope of work of employees and the operational model of the company, that would be the best time to revisit the compensation strategy/policy and make necessary amendments.

HOW do you pay your employees? 

There are many ways to determine an employee’s compensation. No matter how you determine employee wages, you should consider internal equity. Internal equity is when you compare the positions in your business to ensure fair pay. At the very early stages of your business, matching the industry standards and offering considerably high compensation can be a little tricky and nearly impossible (unless you have a considerably large capital reserve). If YOU are also paid by your company, best practice would be to pay yourself from your profit and not revenue.

However, apart from the above-mentioned points, you always have to make sure that

  • The compensation has to be impartially and honestly determined in an objective manner based on merit, without any favour or prejudice
  • Every person in the same layer who does the same type of work has to be paid equally, to ensure internal equity
  • Compensation has to be determined by a thorough analysis of specific performance results wherever possible, rather than a subjective evaluation by the supervisor
  • Confidentiality – all employees should be encouraged to keep their compensation private, and no one who is not in charge of compensation should be able to find out the compensation of any other employee
  • Market rates. If you find that your total compensation value deviates too far from market rates, you will have a problem. If you are underpaying, you will not be able to attract or retain the best talent. If you are overpaying, unless you are doing so for a specific strategy, you will be placing yourself at a disadvantage to your competition.

In conclusion, the productivity of the company and the efficiency of the employees will rely on their positive attitude towards the company, and compensation without a doubt plays a major role in shaping their attitude towards the company. Neglect these considerations at your peril.

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