Want a better culture? Set compensation strategy accordingly

compensation strategy

Organizational culture matters more now than ever. It is the unique and varied personality that is associated with each organization. It is the set of values and rules that unite those in the organization, guiding them toward a similar business goal. With five generations in the workforce, we’re seeing more diverse needs and motivators across employee populations. This has brought to the forefront the need for clear organizational culture that allows employees to opt in to the organization.

HR leaders have long been hip to the value of organizational culture in accomplishing business success. Executives are starting to see the importance of having a defined organizational culture, engaging employees, and communicating with employees. At PayScale, we think the way you pay says a lot about you as an organization. Compensation should be a reflection of and an extension of your culture. In PayScale’s 2017 Compensation Best Practices Report (CBPR), we found that 57 per cent of organizations agree that compensation is becoming more important to their executives. We think this has to do with the increasing value placed on culture and the growing link between compensation and culture.

How are compensation and culture linked?

Often companies put their mission statement or their values in writing on the wall. However, it typically matters more to employees that organizations live their values than that they proudly display them. One of the trickiest problems organizations can run into is when employees feel a disconnect between espoused values and actions. Compensation is one of the first things that fall under employee scrutiny. But how do compensation and values connect?

If you believe employees are your most valuable asset, pay fairly

As we continue down the path into knowledge-based work, employees are becoming more and more impactful to the success or failure of a business. In the 2017 CBPR, 19 per cent of respondents to the survey said that having talented employees sets them apart from their competitors. That said, only 44 per cent of organizations said their employees feel they’re paid fairly, and even fewer employees agreed (20 per cent).

First and foremost, if you’re going to purport to value your employees, pay them, and pay them fairly. That means making sure their pay is market competitive, rewards high performance, is more competitive for mission-critical jobs, and is consistently applied across the organization (i.e. is compliant).

If you have a fast-paced organization, examine pay frequently

A lot of organizations are proud of their fast-paced environments. They create a lot; they sell a lot; they engage customers a lot. When these same organizations turn around and give raises annually, or even give bonuses annually, their compensation is inconsistent with their culture.

In the 2017 CBPR, 54 per cent of companies have done a market study within the past year. 13 per cent reference market data for individual jobs at least weekly. When it comes to bonuses, six per cent offer project-based bonuses, 10 per cent do monthly, and 16 per cent provide quarterly bonuses. With more frequent payouts, it is much easier to align to the speed of business and reward the behaviors that are driving business results.

If you value open communication, prove it

A lot of organizations tout an open-door policy, or say that they value communication. Often they’ll talk about transparency and share organizational goals. Sometimes they talk about clear decision-making practices.

Increasingly, organizations are turning to pay transparency. Some reject it outright, believing that pay transparency is all or nothing. At PayScale, we believe that there is a whole spectrum of pay transparency possibilities, which we have spelled out on a five-point scale from least to most transparent. Pay transparency often means sharing the rationale for pay, not necessarily actual pay amounts. In the 2017 CBPR we learned that nearly half of all organizations aim to be transparent in 2017. As with other ways of fostering open communication, the end goal of pay transparency isn’t transparency, but increased trust, buy-in, and engagement from employees.

If you give your managers autonomy, help them out

In most organizations, managers are given the responsibility for engaging their team. They are expected to help them grow and develop, perform, and deliver results. Often they do this with one hand tied behind their back, as they’re not often given the authority to allocate increases. According to the 2017 CBPR, only 12 per cent of managers approve compensation, and only 42 per cent can even recommend compensation for their employees.  It’s no wonder then that when it comes to communicating compensation, just 19 per cent of CBPR survey respondents trust their managers to have tough pay conversations. And yet, only 30 per cent actually train their managers on compensation. If you give managers responsibility for engaging their team, give them some authority and training as well.

What should you target first?

With so many ways to emphasize organizational culture through compensation, there are a lot of helpful actions to take to begin to connect the dots. Here’s a good place to start.

Set a compensation strategy

I think of the compensation strategy as the brain of the compensation plan. So, get smart about how you allocate your compensation dollars. Figure out what matters most and allocate your dollars that way. Hint, it should fit your culture. If you value teamwork, why not give a bonus to someone who goes out of the way to help a peer? If you value performance, don’t give everyone the same raise or year-end bonus.

Measure employee engagement

Increasingly the link between employee engagement and business results is becoming clear. In an earlier PayScale study, we found that 60 per cent of employees who said they were underpaid, whether they actually were underpaid or not, intend to look for a new job in the next six months.

If you want engaged employees, ask them what works best with an engagement survey. In the 2017 CBPR, just about half of organizations agree that compensation drives engagement in their organization, but only 26 per cent have changed their compensation strategy as a result of engagement survey feedback.

Improve communication around pay

Decide how transparent you want to be and start sharing more information about compensation with your organization. A total compensation statement is a great start. In fact, 53 per cent of top-performing companies share total comp statements with employees (versus 38 per cent of typical companies). The one caution to increasing communication is to develop clear compensation objectives and the plan to accomplish them before communicating too much to employees. Once you start sharing, you’ll get more questions. Pro tip: get all your managers in sync with clear talking points so you can respond consistently across the organization.

Pay for performance

Link performance with pay in some way, if you are legally able to. Only 11 per cent of 2017 CBPR respondents don’t reward performance. Although organizations provide both monetary and non-monetary rewards for performance, monetary rewards topped the list: 54 per cent give bigger base pay increases, 35 per cent give a bonus with no formal plan, and 29 per cent give goal-based incentives.

My first, not-so-subtle hint that compensation is a major driver of culture came after years of work as an HR professional. After getting a master’s degree in organizational development, I thought I was going to change the world one organization at a time. Change was slow-going with an HR title, but as soon as I switched over into compensation, it became much easier to create real, substantive organizational change.

They say when you really care about something, you should put your money where your mouth is – and I totally agree. To be competitive, get the best talent, and really be a great place to work, organizations have to put their compensation where their culture is.


Mykkah Herner, M.A., CCP, is a compensation and human resources professional with ten+ years of HR experience. He has designed compensation strategies for over 400 organizations, poising compensation to drive business results.

See also:
7 compensation resolutions for 2017
Common compensation conversation pitfalls (and how to avoid them)


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