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Compensation Cafe: Chasing Best Practices

By Derek Irvine

Recognize This! – Research on best practices can help a company know what to focus on, but leaders need to consider how those practices play out in their own unique cultures and situations.

Benchmarks and best practices can give company leaders insight into what those around them are doing, how much they are spending, and how well they are performing. These data are especially useful when aligned with the strategic direction a company has set, ensuring that time and resource investments are directed to where there is the most value.

A recent report from PayScale, which I covered in this post on Compensation Cafe, helps to provide some useful data around compensation practices, particularly among top-performing and average companies. Here’s what they found in their research:

It turns out that high performers are more likely to provide pay increases (90% compared to 84%), bonuses (81% compared to 74%), and are also likely to leverage more of a compensation mix. High performers are also more likely to adopt a mindset in which people are valued and engage in more transparent communication around compensation.

The important question for many companies is what to do with this information and what best practices should be adopted as a result. For leaders looking to drive change, it helps to know where to focus attention, as well as what the causal direction of relationships between organizational practices and performance are.

As I write in the full post, if we look across the available research, one conclusion is:

…there appears to be some evidence that a set of compensation practices can relate to increased performance, and it is good for clients to be aware of those as possible benchmarks. But, I think it is also important to think in terms of broad, rather than specific practices. We may be better served by looking at practices that have the ability to enhance motivation instead of just doling out raises, for example. Specific practices may also work a little differently across contexts, with each company developing a unique definition of compensation transparency vis-à-vis the local culture.

Compensation is still just one piece of a complex set of organizational design practices, including how to make work more human, that ultimately contribute to performance. Many of these practices combine to influence employees’ perceptions of their workplace. The key to best practices then is not to do just one thing well, but to do many things well that communicate the value that employees have.

What best practices do you think have the most impact, and how are they best applied?