What is the aim of employee compensation? 6 key objectives

Although compensation remains an invaluable way to attract, motivate, reward, and retain satisfied employees for the long haul, compensation has changed over the years to keep up with shifting employee needs and aspirations. Companies that want to stay adaptable in the “new world of work” need to understand how the aims of compensation — and employee expectations around it — are evolving.*

We’ll look at six key compensation objectives to help company and HR leaders understand what role compensation plays in creating a more productive, accountable, and future-oriented workplace. We’ll also discuss how companies can create compensation packages that align with their values.

*Forbes, 2022
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6 compensation objectives

Every organization has different objectives behind its approach to compensation management. But any people ops/HR professional will tell you that, no matter what your compensation policy objectives are, communicate them, explain them clearly, and keep them updated. That way, your people will understand how they relate to the company’s business goals and values.
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1. Retain & reward employees

A comprehensive compensation plan goes beyond offering competitive salaries to keep your people comfortable — although that’s also crucial. Your compensation plan should explain how your direct compensation model (salary, bonuses, equity) connects with your business objectives, as well as clarify the link between your employee development frameworks and your tier-based salary structures. Your people will then understand that their compensation and careers won’t be static and that they’ll be rewarded for good performance. 

When companies shift their focus to retaining employees and avoiding the cost of hiring new ones in times of economic downturn or inflation, improving compensation via pay raises and bonuses becomes a vital resource for creating more job satisfaction and holding on to talent.

But you don’t have to rely on direct compensation alone to motivate and retain your staff. Non-financial rewards like flexible work hours, generous PTO, and personalized learning modules can help you stay within your company budget and maintain employee morale.
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2. Motivate performance

For organizations that want to keep driving their business forward in uncertain times, increasing base pay for everyone isn’t always possible — although companies should always be mindful of inflation and its impact on the cost of living. 

Some companies may utilize monetary compensation (like incentive pay, bonuses, and raises) to encourage employees to maximize their individual or team performance. For instance, 2022 Gartner data reveals that, in response to inflation, 51% of CEOs and CFOs plan to raise wages for top performers, while 28% plan to raise them for all employees. 

The choice some companies make to only raise personnel salaries for high achievers doesn’t mean that pay increases for the entire company won’t be a part of their compensation scheme in the long term. But it does mean they may need to take some time to see where the market goes before making broader, long-lasting changes.
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3. Attract top talent

Growth-focused companies know that setting up a robust total compensation package to attract top talent is a great way to stand out in recruitment. Besides offering good pay packages for in-demand skill sets, holistic benefits like tuition reimbursement and childcare stipends can go a long way in attracting and retaining your best employees.

But what do you do if other companies have a top-notch compensation program like yours?

Based on a recent Morgan Stanley report, equity compensation — or payment in company stocks — is also an effective approach for talent acquisition. It’s becoming increasingly popular because it gives employees “skin in the game” of business advancement. Unlike salary, people don’t ‌necessarily lose equity after leaving a company (as long as they’ve completed the vesting period determined by the organization).
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4. Solidify your commitment to DEI initiatives

A values-driven company with a firm commitment to diversity, equity, and inclusion (DEI) initiatives can’t afford to overlook how compensation management plays a role in creating a psychologically safe and inclusive workplace. Discussions around compensating employees should always involve how your organization will handle pay equity (equal pay for the same job based on experience and performance).

And while it’s true that the salary gap is slowly closing, gaps in compensation are still wide open for women and underrepresented groups. Companies that want to be part of a positive change must decide how they want to participate in this discourse.
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⭐ Top tip: Would you like to know if your DEI initiatives — or any initiatives — have a real impact in your workplace? The Employee Net Promoter Score (eNPS) can give you insights into how team members feel about working for your company and whether they’d recommend it as a workplace to others. 🚀

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5. Analyze & increase ROI

You should consider how you’ll analyze and measure your compensation scheme’s return on investment (ROI). That way, you’ll be able to track its success and determine where you’re getting the best return.

Suppose you offer your people a holistic compensation package. In that case, you need to know how each element — from salary to incentive pay and health care benefits — affects performance and helps you retain employees.

And one of the best ways to measure ROI? Asking staff members in a survey. Your employee survey results can yield detailed compensation insights you might not uncover from metrics like annual recurring revenue (ARR) or staff turnover.
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6. Strengthen your company’s reputation

Employees who receive fair pay tend to say better things about their employers. And in an age of digital networking, where executives and employees can easily research salary information and exchange knowledge, companies should ensure their compensation plans hold up to scrutiny. 
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“Besides attracting, motivating, rewarding, and retaining top talent, one of the overlooked benefits of employee compensation is the boost it gives your brand in the aspect of employee experience.

If you take care of your employees, you don’t just get their gratitude and appreciation — you’ll also solidify your reputation as a people-first organization. [...] Word of mouth travels fast, and companies that are known to take care of their people tend to attract the best talent in the market.”

— Daniel Cook, Head of Business Development and HR Consultant at Mullen & Mullen Law Firm

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Why should HR care about the aims of compensation?

HR and people ops are responsible for creating a people-focused working environment, and understanding the aims of compensation is crucial for that process. 

Without comprehending how compensation influences workplace ethos, it’s tough to build the right culture. Since company performance and growth are within the purview of HR and people ops, it’s also essential to consider how a proper compensation plan facilitates organizational growth.

This doesn’t mean HR departments and leadership will always get everything right with compensation plans. But it’s crucial to always try to improve and consistently strive for transparency around compensation — which is only becoming more critical as Gen Z enters the workforce. 
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How to ensure you achieve your compensation plan aims

So your leadership team, HR department, and perhaps even a certified compensation professional have come together to develop a compensation philosophy and pay system. While you’ve cleared one hurdle, you still need to ensure you meet your compensation aims. Here’s how:
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• Communicate your compensation plan to employees: Inform team members about your compensation philosophy, how you develop compensation plans, how often you plan to review them, and how you intend to gather employee feedback on this topic.

• Gather employee feedback: Just as you send out surveys to measure employee engagement, you can also use them to see how staff members feel about your compensation packages and ask them if there’s anything they’d like the company to review.

• Review your compensation package regularly: Run regular compensation reviews to ensure your compensation packages are still compatible with market and industry benchmarks.

• Undertake competitor analysis once or twice a year: See how your compensation plan stacks up against your competitors, so you can keep pace with your industry.

• Use compensation management software to automate the entire process! Leapsome’s compensation management tool can provide your HR and people ops teams with the data and features they need to build and scale your compensation management process.
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Enhance your compensation management with Leapsome

Compensation can do so much for your company! And helping you attract, retain, reward, and motivate talent is just the start. The right compensation strategy can help you create a sustainable, psychologically safe work environment built on transparency, strengthening your company’s reputation within your industry.

And now, with Leapsome’s compensation management tool, you won’t have to manage everything manually — you’ll be able to streamline the entire compensation planning process from end to end.
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🚀 Automate your compensation planning with Leapsome

‍Leapsome delivers the data and insights you need to plan and implement your compensation strategy. 

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