The Compensation Dilemma

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In today's economy companies are facing more difficult decisions as they head into their annual compensation planning cycle. Small businesses with limited resources are being particularly stretched to the limit.

How can you stretch your compensation dollars to get the biggest impact? There are two key things to keep in mind. First, make sure that you are offering more than compensation to attract and retain employees. Second, when it comes to compensation, make sure you are focusing on the end result: attracting and retaining the best and most talented employees. You want to ensure that these key performers will be around to help build your business for long-term growth.

I have found--in my own business and in the work we do with our clients--that having and keeping happy employees is all about creating a workplace of choice. Make sure your workplace is a family-friendly, flexible environment that supports work/life balance and professional development. Create an open, supportive environment that encourages cooperation and sharing. In short, create an outstanding workplace where people want to work. Without this, compensation alone will not be enough to attract the type of employees you want.

When it comes to compensation, have a strategic plan in place to get the most out of your budget. Reward your top performers by compensating them well--it will send a strong message that you value them and want to retain and motivate them for the long term. Also, focus your compensation dollars on employees who have hot skills that are difficult to find in this marketplace. Consider giving recent college graduates or employees at the low end of the pay scale small incremental raises a few times a year. While this will not take a big bite out of your budget, it tells them that you want to continue investing in them. Evaluate which employees are ready for promotion and consider their raises in the context of the overall compensation planning process. Current trends for merit increase budgets are 3.5% — 4%, with the overall market average of 3.8%.

By approaching compensation strategically, you can make it go further in lean times. Always invest in your employees so you can weather the difficult cycles and be in a good position to take advantage of opportunities as business improves. The end result: creating an environment where employees feel valued, engaged, and motivated to do their best work.

Nancy Mobley is founder and CEO of Insight Performance, a human resource consulting firm focused on emerging and mid-market companies. Clients include biotech, medical device, manufacturing, banks and technology companies. @InsightPerf