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Considerations When Drafting Compensation Plans

By September 2, 2021September 14th, 2021No Comments

When you mention compensation, most people immediately think about money. And yes, compensation has a lot to do with money. However, a compensation plan that does not incorporate an organization’s values will not, in the end, retain the talent one needs to meet the mission of the organization. With the right knowledge and tools, a successful plan can be created resulting in positive effects in the workplace.  

What is compensation? 

In the strictest terms, compensation is total cash or non-cash payments that you give to an employee in exchange for work performed. These reward systems include not only the pay received in their paycheck but other indirect aspects such as a robust benefits plan, work-life balance, recognition, and career development. 

Compensation plans will vary among organizations since different types of organizations operate in different markets. It is important to have a compensation plan that is aligned with other nonprofit salaries in your market. Therefore, a market analysis of similar local nonprofit pay is a crucial step in the process. 

Other various tools may be implemented to retain talented employees, such as:  

  • Competitive pay structures 
  • Merit-based pay 
  • Referral incentives 
  • Longevity bonuses 
  • Salary differentials (such as bilingual/biliterate pay)   
  • Attendance bonuses 
  • Gift cards 
  • Education and skill building opportunities 
  • 401k Plans 

Why “attract, retain, and motivate” are important aspects to remember when designing a rewards system. 

At the end of the day, the goal of compensation is to attract, retain, and motivate employees. With turnover costs being extremely high, it is important to secure a reliable plan that is favorable to employees. A rich compensation and benefits package along with a healthy workplace culture can make for happier, more productive employees. These all tie back to the importance of attracting, retaining, and motivating.   

Various nonprofit organizations operate in a related market as they are providing similar helping hands, whether it be relativity in service, organizational size, or charitable objectives. Base pay, as well as a benefits package needs to be at least equal, if not better, than the competition to attract and retain talented employees. Enticing workers in the job market can be accomplished by offering a well-designed pay package along with other valuable benefits. 

For example, employees with children may look for an organization that offers a family-friendly workplace. By offering a flexible work schedule, an employer may attract this type of employee. Retaining an employee can be even more challenging since lifelong employment relationships between workers and employers are quickly disappearing. Therefore, focusing on retaining the employee should consist of keeping the workplace attractive to them. Employers can do so by offering supportive leadership, promoting employee empowerment and recognition, supporting childcare or elder care, and providing family-friendly events such as a company picnic. Lastly, keeping the employee motivated may include things like offering them a hybrid schedule so they can work remotely some of the days to allow them more time at home with their family.  

Why direct compensation is not enough on its own. 

If an employer only looks at cash compensation when determining what makes employees happy, they will fall short. Total reward packages should look at how all aspects of an employee’s work-life impacts their satisfaction. A helpful model consisting of direct and indirect compensation emphasizes all the aspects of a compensation plan. Direct compensation is the salary and rewards, but we cannot forget the indirect aspects. This is when work-life balance, recognition, and development opportunities come into play. These elements should connect to the organization’s mission, vision, and value statements, which is why establishing these factors in the beginning is so beneficial. The goal is to secure more engaged employees, which is what every organization should strive for. 


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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.

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