What Is a Compensation Strategy?

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A compensation strategy is a plan that dictates how employees are paid and rewarded for their work. These ideas are based on the current market for people with the same skills and the overall available funding a corporation is able to expend on payroll. Compensation strategy is also a means of motivation and incentivization that increases the value of general payroll systems.

Compensation strategy is the method by which organizations attract and retain top talent. This system offers pay packages and annual rewards for ongoing loyalty to a business. It allows a firm to remain competitive with other organizations and helps companies set forth a strong impression of the goals they want to achieve. By generating a compensation strategy, organizations make a show of the skills they value and the type of personnel they want to attract. Creating a diverse pay range encourages employees to work hard and attain higher levels within the business to achieve more accolades and greater compensation.

Incentive compensation strategy refers to commissions, rewards and bonuses awarded to employees who exceed expectations. It is considered part of the overall compensation strategy but is referred to as a talent management and retention policy. This framework is driven by the concept that people work harder to get better compensation.