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Keeping Score to Create “Win-Win” Compensation

April 10, 2015

Does your business keep score? No, I’m not talking about earnings reports, balance sheets or stock prices; rather, I’m talking about a compensation scorecard. A well-crafted and comprehensive compensation scorecard not only describes your company’s various compensation program components; it also is a great tool to help management measure and benchmark progress and performance year over year. Let’s take a closer look at why a compensation scorecard can be so valuable…

First, understand that your company’s compensation scorecard can be created at – and directed toward – various levels in the organization. These includethe organization level, division level, department level, or even an employee group level (such as non-exempt, exempt professional, exempt technical, etc.).

The scorecard can include several different types of measurements. For example, one measurement can be percent-to-market if you have a market-based compensation system, or percent-to-midpoint if you have a pay range compensation system. You can report metrics such as thesefor your entire organization and then break them down into the levels mentioned above. Keep in mind that these metrics can be more meaningful and valuable to management when tightly focused toward each group.

Approached this way, the measurementscan help you see how each group is being paid relative to your company-wide compensation philosophy. For example, if your aim is to pay on average at 100% of prevailing market compensation rates, but you have a group being compensated at 85% of market, that group issaid to be “under market”. If another group is paid at 120% of prevailing market rates, then your compensation program for that group is “over market”. Thus, these metrics can help you see which groups, if any, are out of line with the market and/or your company norm.

Another good measurement is average incentive pay per department. This metric can help you see which groups are getting the largest – and the smallest – average incentive pay. Knowing this can help senior management compare how well the organization’s divisions or departments are performing. What’s more, if an area is known to be high-performing but is not getting a high level of incentive compensation as compared to other groups, this could indicate that something is wrong with your incentive compensation program.

Average merit rating per department is another valuable metric. This measurement,in the context of the company’s overall average ratings, can help management recognize the correlation between performance measurement and merit awards.

These and other benchmarks can paint a clear picture for management to help monitor various phases of your company’s compensation system. Simply put, if you have compensation plans in your organization, you need a compensation scorecard. With a well-designed compensation scorecard in place, your business and your employees can come out winners.But if you’re not sure how to design and deliver your compensation scorecard, contact Total Reward Solutions today at 317-589-8529. We can provide the perspective necessary to optimize your company’s compensation programs.

Posted Under: Metrics