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How to Design a Compensation Strategy to Attract Best Talents?

Hiring and retaining top talents in companies is getting difficult every day, especially as the market shifts to be candidate-centric. You need to find new ways to attract them, such as establishing a suitable compensation strategy. 


It includes bonuses, commissions, paid time off, benefits, and an attractive salary package. This article shares essential steps in planning compensation packages and their benefits. With a clear compensation framework, you will be able to become more competitive when it comes to attracting and retaining top talents. 

What is a Compensation Strategy?

Strategic compensation planning outlines ways to reward employees for contributing to your business goals. According to research, 40% of recruiters believe employees will leave their jobs to find new employment that offers better benefits. 


This number illustrates the importance of establishing a strategic compensation system in every company. The compensation and remuneration can be different according to diverse roles within the company.


You can look into your competitor’s strategy example to identify how they attract and retain talents. For instance, some companies may promise bonuses and commissions, while others may offer paid time off, maternity leave, health insurance, etc. Most importantly, the salary you pay to the employees must be well-researched and fair. 

Types of Compensation Strategy 

Companies use three types of compensation strategies when setting salaries and benefits. 

Leading Strategy 

If implementing a leading compensation strategy, you must aggressively set salary rates above the market rate. For example, the basic salary of an accountant is AED 50,000 a year, but you pay them AED 5,000 more. A leading salary package makes it easy for you to attract and retain top talents.

Lagging Strategy

This is just the opposite of the leading strategy. If you are implementing a lagging strategy, your salary rates are set lower than the market rate. 


For example, a writer’s basic market salary rate is AED 35000 per year, but you pay them AED 3000 less. This is usually followed by smaller organisations with lower financial resources, e.g., charities or non-profit organisations. 


With a lagging strategy, retaining employees becomes difficult, and you may need financial help to pay them fairly. 

Meeting the Market Strategy 

If you want employees to be paid a fair salary and expect them to perform well, meeting the market compensation strategy is your solution. Here, you research the market and set salary ranges per the market rate. Additionally, if your company is financially strong, adding up bonuses, incentives, and other benefits can be a plus point for retaining top talents. 

What is the Importance of Compensation Strategy?

Research says 83% of organisations believe having a benefits package positively impacts workers’ productivity, while 84% say it can help recruit top talents. These numbers illustrate the importance of strategy in your company. 


We have listed a few other advantages for establishing such strategies. 

Effective Talent Acquisition

The chances of acquiring top talents increase with a good salary strategy. Additionally, it encourages your existing employees to continue in their positions and not leave you for some other lucrative benefits from your competitors. 

Fulfill Company Objectives

Compensating your employees moderately can improve their productivity and interest in fulfilling your objectives. When you reward them for their hard work, workers feel valued and engage more with your company. This further improves employee retention rates. 

Proper Budget Management

You cannot pay your employees strategically if you don’t have a plan. It can harm your budget and cause your company to go bankrupt within a few years. Therefore, a compensation strategy is essential for budget management and ensures you pay all employees equally and fairly. 

Boost Employee Morale and Engagement

Everyone loves getting rewarded for the labour they give in improving business sales. At this point, if you pay them lucrative incentives or bonuses, they’re more likely to remain in your organisation for longer. This reduces your time and money on hiring and training new employees to ensure high productivity. 

How to Design a Good Compensation Strategy in HRM?

Are you worried about how to design a good compensation strategy in HRM? Here’s a solution for you. You can follow these steps to create a suitable strategy.

Assess your Company Goals

Before you start designing the company’s compensation structure, you must evaluate your company’s goals and objectives. For example, you might require a strategy to reduce turnover rates or attract top talents.

Identifying Compensation Philosophy and Current Strategy

Now that you are creating a new compensation strategy, you must identify how your existing processes perform and what additions are required. However, if your current plan is not meeting your company goals, you need a new one. But ensure you are assessing your budgets so that paying high salaries doesn’t impact your bottom line.

Choosing a Pay Structure

One of the main reasons why people work is to earn their bread, which means they expect fair pay from your company. Bonuses and other benefits come on the next priority list. 


A salary structure usually includes base pay, frequency of the payment, and scheduled pay raises. You can set a base pay by researching the minimum, median, and maximum market rates to ensure paying fair and transparent salaries to workers. 

Determine the Organisation’s Bonuses and Incentives

Once your salary is set, you must focus on bonuses and incentives that add flexibility to your job offers. You can offer these rewards in two ways, either commission-based or indirect compensation. 


Employees stay engaged and productive when you offer them these lucrative benefits for their services. However, this doesn’t mean you will pay them high above the market rates, but even nominal rewards can make employees valued. 

Set Additional Benefits 

Besides salaries and bonuses, employees prefer working in a company that offers them benefits like healthcare. You can also include life insurance, short and long-term disability, work-related injury expenses, legal and financial services, child care benefits, and more.


However, you must focus on affordability and set up benefits packages within your budget. 

Check the Strategy for Legal Compliance

Once you have developed a strategy for compensation, confirming whether it aligns with all legal requirements is crucial. For example, you’re offering four to six percent of earnings to eligible workers for 2 weeks of vacation. In that case, you must check whether this strategy aligns with the country’s annual vacation and vacation pay laws. You can also collaborate with legal professionals to help you legally implement your plan. 

Seek Management Approval

Finally, the HR team must present their salary package to the company’s management for approval. They then prepare a report to outline competitor strategies, compensation data, and employee feedback. 


The management can further adopt your proposal or request updates.

How can 6 Pence Help?

A company’s solid compensation strategy attracts top prospects and retains top employees. Employees stay longer in your organisation when you pay them fairly and offer rewards and benefits. 


If you want to find qualified talents for your company, consult with 6 Pence today! We are a leading recruitment and staff outsourcing company in Bahrain, Dubai, Oman, and Iraq. We will help you find the right employee and assist with the related paperwork, payroll processing, and more! To know more, connect with us today!


Also Read: 11 Training Programme for Employees That Should Not Be Missed

Frequently Asked Qustions

What are compensation strategies? 

A compensation strategy refers to the guidelines of an organisation’s approach towards paying their employees and additional benefits and perks. It includes setting employee salary ranges, determining bonuses and raises, and identifying benefits to offer your workers. 

What are the four methods of compensation? 

The four compensation methods are hourly pay, salary, commission, and bonuses. 

What is an example of a compensation strategy?

One example of a compensation strategy is offering a retirement savings scheme for employees who have been working with your company for over a year.


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