The Compensation Plan: Your Not-So-Secret Tool to Attracting and Retaining Great Talent

By James E. Rocco

James E. Rocco

James E. Rocco
Founder and Managing Consultant
JER HR Group

Behind the Curtain: A 3-part series on the important human resource issues affecting associations today.

How can an organization create a compensation plan that will allow it to attract, retain, and motivate the talent necessary to carry out its mission? Employee compensation is a significant portion of any business’s operating expense, but an effectively constructed compensation strategy can do just that. For not-for-profit organizations, the portion of the budget that is allocated to salaries, if not directly program-related, can affect the organization’s standing and ability to attract funding. Public disclosure is required for tax-exempt organizations, resulting in a high degree of scrutiny by donors, watchdog organizations, and the press.

Many associations may not realize the value of a good compensation plan or the impact it can have on organizational performance. It’s not uncommon to think of compensation simply as a line-item expense and not as a strategic opportunity. With unemployment hovering around 4%, associations need to think creatively about developing a compensation strategy that can attract and retain key staff.

What motivates staff? Money is important, but it’s not everything. Many employees leave their job for reasons unconnected to pay. It could be for better benefits, flexible hours, a better career path, or a more conducive work environment. By understanding what drives employees, HR can create a holistic compensation strategy that attracts great talent and encourages retention in a cost-effective manner.

The compensation plan should be defined by a compensation strategy which represents your organization’s values and can communicate to employees what’s important and how compensation is determined.

There are many factors that influence the design of a compensation plan, but the ultimate goal is to:

  • Align your compensation strategy with your organization’s culture and values;
  • Attract and retain staff with the skills and experience necessary to fulfill your mission and maintain effective operations;
  • Maintain internal equity and market competitiveness;
  • Motivate staff to be highly engaged and productive; and
  • Ensure pay practices comply with federal, state and local laws and regulations.

Compensation plans should be formally documented, and not just for legal compliance or liability issues. A well-written and transparent compensation strategy can assist in creating a more equitable culture by helping managers maintain compliance with all regulatory requirements, and demystify decision-making related to employee compensation.

Where do you start?

  • How are your job descriptions? Job descriptions form the bedrock of an effective compensation program. Good job descriptions identify key facets of the job, and the expected outcomes, that establish expectations for job performance.
  • Consider carefully who you compete with. Is the market comprised primarily of organizations in your industry sector, dependent on revenue/operating budget size or geographic location(s), or a combination of all of these?

    For many positions, organizations compete with the larger labor market and it is necessary to look at for-profit market data in addition to non-profit data to capture the appropriate mix of skills. If you compare yourself only to other not-for-profit associations, you may fail to be an attractive employer to a broader base of candidates.
  • Examine your workforce. Are there segments of your workforce that are especially important to the fulfillment of your mission and driving revenues?
  • How’s your market pricing? It’s important to collect market data for a representative sample of jobs across all functional areas and job levels within your association. Many organizations also assess the competitiveness of the total compensation package including benefits, perquisites, incentives, rewards, etc. to see how they compare to market norms. After collecting market data, it’s typical for an organization to establish salary ranges representing the span of pay opportunities available for each job grade

Learn More: Tips, Traps and Trends: How to Attract Talent with an Effective Compensation Plan

James Rocco is founder and Managing Consultant of JER HR Group, a leading full-service human resource firm that helps associations and other organizations recruit, retain and develop one of their most valuable resources—people.