How to develop an effective pay program?

In order to develop effective pay programs, organization should start its process by identifying strategy and culture of the organization. Most of the organizations use traditional approaches such as by examining why people leave their jobs frequently and by gathering pay practices data from their peers and competitors. It is not advisable, because if organization best in its practices in the market then it changes its practices due to its competitors.

Effective pay programs are essential in the success of any organization. Several high performing companies' data shows that it is feasible for the companies if they build effective pay programs at the time of foundation of the company. Moreover, it also contains obstacles such as in initial stages strategy and culture of the organization is not clear as well as how company attain its goals? In addition executives also afraid of loosing secrecy which will later on loosing the competitive advantage of the company. Conflicts among executives are also arises in initial stages of the company and most of the companies take pay as an administrative tool rather than a strategic tool.

First step towards efficient pay program is to identify the core strategy. Organizations may adopt different core strategies which directly affect the compensation programs. 3 core strategies usually used by the organizations:

a) If an Organization adopts retrenchment strategy then in this case compensation professionals should design pay structure for short term by maintaining bonuses and incentives to support a turnaround.

b) If an Organization adopts product development strategy then company should focus on long term objectives by allocating heavy budget for new revenue sources, recruiting the brightest and best professionals in research area and set handsome salary packages for their employees.

c) If an Organization pursuing a market penetration-cost strategy then compensation professionals should set salary packages according to the cost control measures.

It is not an adequate for the organizations to identify the core strategies but also defining the specific short and long term initiatives in order to successfully execute their strategies.

Examples

a) If an organization pursuing a market-penetration differentiation strategy then it is not enough information for compensation professionals in order to design effective pay programs. Organization should mention that differentiate market factors based on product quality. Now compensation professionals clear that they focus on long term incentives, sets handsome salary packages and recruit best professionals in research area.

b) If an organization pursuing cost based strategy then it should mention that its core competency in manufacturing and compensation professionals clear that they sets incentives for labors on their efficiencies as well as focused on short term incentives.

It's a modern era and organizations must aware about this fact that environment is not in status quo and it will change rapidly. Compensation professionals should consider this fact and consistently updated their organization's pay programs in order to maintain their competitiveness.

Effective pay programs heavily depend on organization's culture. Compensation professional should consider culture as a major factor in determining pay programs. Organizations first identify their culture and then by using reward tools they attain their desired culture. If company's business is highly risk oriented then professionals must design compensation program with higher rewards. If company's business is short term oriented then professionals should focus on short term incentives.

So it's concluded that compensation professionals should design pay programs which is equivalent with organization's core strategy, consider pay as a strategic tool as well as using reward tools in order to attain desired culture.

Tags & Keywords : HR, Compensation, Pay Policies, Strategic Compensation, Competitive Advantage