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href="/en-us/insights/compensation-101/how-to-pay">Chapter 1: How to Pay</a></li> <li class=""><a href="/en-us/insights/compensation-101/how-much-to-pay-rewards-program-design">Chapter 2: Rewards Program Design</a></li> <li class=""><a href="/en-us/insights/compensation-101/how-much-to-pay-market-benchmarking">Chapter 3: Market Benchmarking</a></li> <li class=""><a href="/en-us/insights/compensation-101/how-to-change-pay">Chapter 4: Managing Rewards Programs</a></li> <li class=""><a href="/en-us/insights/compensation-101/variable-incentives-design-philosophy">Chapter 5: Design Philosophy and Considerations</a></li> <li class=""><a href="/en-us/insights/compensation-101/variable-incentives-cash-awards">Chapter 6: Cash Awards</a></li> </ul> </li> </ul> </div> <div class="col-md-3 col-sm-4"> <div class="cf_widgetLoader cf_w_7c9b1a74e1c848378e2205ca134cad82"> </div> <span class="util-print" onclick="trackEvent('Button','Print Icon')"></span></div> </div> </div> </div> <div id="pers"> <p> </p> <div class="container vspaceT2"> <div class="row"> <div class="col-md-12"> <p class="intro">Before we can get into the question of “how much” we should be paying, we must first understand how pay works within an organization. Beginning with the company’s business strategy, the big picture approach ultimately drives a rewards strategy that guides all pay decisions. In addition, HR and compensation analysts also have a key role to play in delivering essential tools and effective messaging to make it all happen.</p> </div> </div> </div> <div class="container"> <div class="row"> <div class="col-md-12"> <h2 class="border-btm">Linking Rewards and Business Strategy</h2> </div> <div class="col-md-8"> <p><em>"HR just doesn't get it."</em><br /> <em>"HR just tells us what we can't do; they don't really help."</em><br /> <br /> <strong>Do these critiques sound familiar? </strong><br /> Unfortunately, some employees see HR only as a bureaucratic necessity, a group enforcing rules and protecting the company's best interests instead of the employees. This is why it is critical for compensation professionals to position HR's role as a strategic ally who will balance the interests of employees and the firm by building relationships and understanding the goals that employees throughout the business are working towards.</p> <p><strong>But how do you build relationships that allow for strategic alignment? </strong><br /> The answer is simple; you need to talk to people. As an HR professional, you should be taking the first step in reaching out to business leaders and asking them questions to gain insight into their situation. Only when you understand their goals and business problems, will they see you as a valued business partner. For example, knowing whether the business is trying to win customers with low prices or creative solutions will help you understand key metrics to consider when it comes to planning incentives.</p> <p>Linking rewards strategy with business strategy will encourage your program's acceptance across the business. Indeed, a common business strategy ensures overall alignment of all HR programs— from compensation to performance management, benefits to wellness initiatives and so on.</p> </div> <div class="col-md-4"><img alt="Business strategy and rewards strategy alignment" class="img-reponsive" src="/aon.radford/media/images/comp101/fig-chapter1-strategy-alignment.png" /> <p class="bmedium"><strong>Figure A:</strong> Business strategy must be aligned<br class="hidden-sm hidden-xs" /> with rewards strategy for your compensation<br class="hidden-sm hidden-xs" /> plan to be successful.</p> </div> </div> </div> <p class="spacing"> </p> <div class="outer-container vspaceT2"> <div class="container"> <div class="row"> <div class="col-md-12"> <h2 class="border-btm txtGold">Three Primary Principles<br /> Compensation Professionals Need to Focus On</h2> </div> <div class="col-md-8"> <ol class="num-list dDot txtTrueBlack"> <li><strong>Attraction</strong><br /> People will be attracted to your company to fulfill their needs, whether those needs be intrinsic (like having a purpose) or extrinsic (like financial security). Ensuring that pay at your company supports those needs (and isn't a detractor), is a good place to start.</li> <li><strong>Engagement</strong><br /> Once onboarded, engagement becomes the focus. Your employees should feel confident that they are on solid ground with consistent and fair pay, so that they can focus on reaching their full potential within the organization.</li> <li class="last"><strong>Retention</strong><br /> Over time, rewards should support a sense of commitment and investment in the well-being of the organization. As the company evolves, so should the employee's experience, including the opportunity for meaningful rewards that reflect both parties' best interests.</li> </ol> </div> <div class="col-md-3"> <div class="postIt green vspaceT2 aos-init" data-aos="fade-down"><img class="img-responsive icon-05" src="/aon.radford/media/images/comp101/icon-chapter1-principles.png" /> <p class="border-btm">3 Primary Principles</p> <ol> <li>Attraction</li> <li>Engagement</li> <li>Retention</li> </ol> </div> </div> </div> </div> </div> <div class="outer-container bgWhite"> <div class="container"> <div class="row"> <div class="col-md-12"> <h2 class="border-btm">The Role of a Compensation Professional</h2> <p>Compensation professionals need to be very versatile and have the ability to balance a variety of priorities. For most companies, compensation is a major investment in talent and a significant operating cost in both the short and long term. The fixed and variable nature of compensation creates both opportunity as well as risk. <strong>Here are five common roles that a compensation professional might see themselves playing</strong>:</p> </div> <div class="col-sm-6 vspaceT"> <div class="vcenter"> <div class="row"> <div class="col-md-2 col-sm-4"><img alt="" class="img-responsive icon-02" src="/aon.radford/media/images/comp101/icon-hex-chapter1-fudiciary.png" /></div> <div class="col-md-10 col-sm-8"> <p class="border-btm"><strong>The Fiduciary:</strong> Steward of payroll dollars and shares, ensure money in programs is effectively managed and used<br />  </p> </div> </div> </div> <div class="vcenter"> <div class="row"> <div class="col-md-2 col-sm-4"><img alt="" class="img-responsive icon-02" src="/aon.radford/media/images/comp101/icon-hex-chapter1-enforcer.png" /></div> <div class="col-md-10 col-sm-8"> <p class="border-btm"><strong>The Enforcer:</strong> Ensures money is distributed in compliance with laws and regulations<br />  </p> </div> </div> </div> <div class="vcenter"> <div class="row"> <div class="col-md-2 col-sm-4"><img alt="" class="img-responsive icon-02" src="/aon.radford/media/images/comp101/icon-hex-chapter1-partner.png" /></div> <div class="col-md-10 col-sm-8"> <p class="border-btm"><strong>The Partner:</strong> Refines programs for business needs and keeps management aware of challenges that can distract from regular operations</p> </div> </div> </div> </div> <div class="col-sm-6 vspaceT"> <div class="vcenter"> <div class="row"> <div class="col-md-2 col-sm-4"><img alt="" class="img-responsive icon-02" src="/aon.radford/media/images/comp101/icon-hex-chapter1-advocate.png" /></div> <div class="col-md-10 col-sm-8"> <p class="border-btm"><strong>The Advocate:</strong> Supports employees with fairness and recognize that every person regardless of amount paid plays a vital role in the company's success</p> </div> </div> </div> <div class="vcenter"> <div class="row"> <div class="col-md-2 col-sm-4"><img alt="" class="img-responsive icon-02" src="/aon.radford/media/images/comp101/icon-hex-chapter1-trainer.png" /></div> <div class="col-md-10 col-sm-8"> <p class="border-btm"><strong>The Trainer:</strong> Helps to act, train and equip managers with the knowledge to explain pay programs<br />  </p> </div> </div> </div> </div> </div> </div> </div> <div class="container"> <div class="row"> <div class="col-md-12"> <h2 class="border-btm">Compensation Philosophy Basics: Fairness & Competitiveness</h2> <p class="text-flow-2">For the majority of the workforce, <strong>two basic principles apply to attracting, engaging and retaining talent:</strong> pay must be perceived as fair, and it should be competitive with the market. Fair pay implies equity across the employee population (which really means fairness in pay differences), and competitiveness with the market simply recognizes an employee's external value to alternative employers. Both of these principles are worthy of in-depth study, but let's assume some basics:<br /> <br /> Rewards are structured according to the value of the job to the organization, including key accountabilities, competencies and skills, and the relationships between jobs. The market is comprised of peer companies or competitors for talent within certain industries, locations or stages of business.<br /> <br /> Companies typically create a pay philosophy that outlines a set of guiding principles and reward vehicles that create both internal and external alignment. For example, a mature company may focus heavily on internal job worth and highly competitive base salaries, while a start-up may emphasize at-risk pay (i.e., short- and long-term incentives) to drive revenue growth. Each company will design a pay philosophy that meets the needs of their own unique business profile; what is appropriate and competitive for one company will often differ from the needs of another company.</p> </div> <div class="col-md-12 vspaceT2"> <div class="box2 padding-tb2"> <div class="row"> <div class="col-md-3 col-sm-5"><img alt="" class="img-responsive icon-03" src="/aon.radford/media/images/comp101/icon-chapter1-QA.png" /></div> <div class="col-md-9 col-sm-7"> <h5 class="h5 border-btm txtGreen">Question: Should all companies "lead the market" in pay?</h5> <p><strong>Answer:</strong> Not necessarily. Pay is one component of the employee value proposition (EVP) within the overall rewards strategy. Pay positioning is dependent on the stage of the business, types of rewards available (e.g., base salary, bonus, equity, etc.), program affordability, internal job worth and alignment with a well-defined market for talent.</p> </div> </div> </div> </div> </div> </div> <div class="outer-container bgWhite"> <div class="container"> <div class="row"> <div class="col-md-12"> <h2 class="border-btm">A Global and Dynamically Changing World</h2> </div> <div class="col-md-5 col-md-push-7"> <div class="padding-all1"><img alt="" class="img-responsive" src="/aon.radford/media/images/comp101/fig-chapter1-global.png" /> <p class="medium"><strong>Figure B:</strong> Converting US dollars into another currency without factoring in the external environment is not an appropriate practice for determining pay in other countries!</p> </div> </div> <div class="col-md-7 col-md-pull-5"> <p>In today's dynamic and constantly changing world, the need to have a global perspective is now the norm. Rewards strategies, compensation philosophies and related programs must take into account the macro economy and external environment.</p> <p>Awareness of cultural norms and insights into what is happening around your company is incredibly important. Because pay is determined locally, simply mirroring the practices used in a company's home country is not appropriate practice for determining pay in other countries.</p> <p>Legal and regulatory policies also come into play as part of the external environment. Changes in employment and tax laws can impact the cost of and employee preference for certain types of rewards. For example:</p> </div> </div> <div class="row"> <div class="col-md-12 vspaceT"> <ul class="arrow-list yellow"> <li>This is why there are practices such as car or housing allowances in some countries.</li> <li>Alternatives to stock options exist in countries where tax burdens can actually accrue when an employee accepts an option grant.</li> </ul> <p>These external environmental factors all need to be taken into consideration when developing a compensation plan.</p> </div> </div> </div> </div> <div class="outer-container vspaceT2"> <div class="container"> <div class="row"> <div class="col-md-3 col-sm-4"><br /> <img alt="" class="img-responsive icon-03" src="/aon.radford/media/images/comp101/icon-hex-chapter1-scenario.png" /></div> <div class="col-md-9 col-sm-8"> <h2 class="border-btm txtGreen">Survey Scenario</h2> <p>A company ordered two geographic data cuts for the US, and then asked how to convert the survey totals from US Dollars to Indian Rupees. Is this appropriate for determining geographic differentials and pay rates in India? The answer is no, with two incorrect assumptions:</p> <ol> <li>The labor market in India is the same throughout the country.</li> <li>Certain rates of pay in the US can be converted with a currency exchange rate to represent the local market in India.</li> </ol> <p class="vspaceT">Neither assumption is accurate. The labor market is unique to each location based on local practices and laws, and it is always changing.</p> <p><a href="/surveys" target="_blank">Radford surveys</a> provide you with a lot of ways to look at the market data for your analysis and individual assessment. Reports include detailed salary, allowance, fixed compensation, incentives, total cash, long-term incentives and total direct compensation so you can consider the total amount of compensation an employee receives, not just their salary. But because pay is changing constantly, you don't need to use the results to the exact decimal point.</p> <p class="spacing"> </p> </div> </div> </div> </div> <div class="outer-container bgLBlue"> <div class="container"> <div class="row"> <div class="col-md-3 col-sm-4"><br /> <img alt="" class="img-responsive icon-03" src="/aon.radford/media/images/comp101/icon-hex-chapter-summary.png" /></div> <div class="col-md-9 col-sm-8"> <h2 class="border-btm txtWhite">Chapter 1: How to Pay Summary</h2> <ul class="check-list-s txtWhite"> <li>Know how your company makes money and positions itself so you can design a suitable pay program</li> <li>Build relationships with line managers so that rewards strategy and business strategy can be aligned</li> <li>Understand your role and responsibilities as a compensation professional</li> <li>Economic and legal environments influence compensation decisions</li> <li>Transplanted US practices will not work in other countries</li> <li>Allowances are an example of country or culture-based pay</li> </ul> <p class="spacing"> </p> <a class="btn-hero white" href="/insights/compensation-101/how-much-to-pay-rewards-program-design">Go to Chapter 2<span class="hidden-sm hidden-xs">: Rewards Program Design</span></a> <p class="spacing"> </p> </div> </div> </div> </div> <div class="outer-container"> <div class="container"> <div class="row"> <div class="col-md-12"> <p class="medium"><strong>General Disclaimer</strong><br /> The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. </p> <p class="medium"><strong>Terms of Use</strong><br /> The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please <a href="mailto:humancapital@aon.com?subject=Website%20Inquiry" class="underline">write to our team</a>. </p> </div> </div> </div> </div> <div class="outer-container bgDBlue noprint"> <div class="container"> <div class="row"> <div class="col-md-3 col-sm-3 col-xs-12"><br /> <br /> <img alt="" class="img-responsive icon-06" src="/aon.rewards/media/images/icons/hex/icon-hex-email.png" /> </div><div class="col-md-9 col-sm-9 col-xs-12"> <h2 class="border-btm txtWhite">Ready to Learn More?</h2> <p class="intro-sec txtWhite">We're ready to tackle your biggest talent & rewards challenges. Let us know how best to reach you and a member of our team will be in touch shortly. </p> <br /> <div class="row"> <div class="col-md-12 col-xs-12 pers-form"> <div id="p_lt_ctl02_pageplaceholder_p_lt_ctl03_On_lineForm_viewBiz"> <div id="p_lt_ctl02_pageplaceholder_p_lt_ctl03_On_lineForm_viewBiz_pM_pMP"> </div><div id="p_lt_ctl02_pageplaceholder_p_lt_ctl03_On_lineForm_viewBiz_pnlForm" class="FormPanel" onkeypress="javascript:return WebForm_FireDefaultButton(event, 'p_lt_ctl02_pageplaceholder_p_lt_ctl03_On_lineForm_viewBiz_btnOK')"> <div class="row mkto" id="ft_form"> <div class="col-md-6"> <ul class="no-indent form-box no-label"> <li><input class="form-input" id="FirstName" maxlength="50" name="FirstName" placeholder="First Name" size="20" type="text" /></li> <li><input class="form-input" id="LastName" maxlength="50" name="LastName" placeholder="Last Name" size="20" type="text" /></li> <li><input class="form-input" id="Title" maxlength="50" name="Title" placeholder="Job Title" size="20" 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<option value="Cameroon">Cameroon</option> <option value="Canada">Canada</option> <option value="Cabo Verde">Cabo Verde</option> <option value="Central African Republic">Central African Republic</option> <option value="Chad">Chad</option> <option value="Chile">Chile</option> <option value="China">China</option> <option value="Colombia">Colombia</option> <option value="Comoros">Comoros</option> <option value="Congo, Democratic Republic of the">Congo, Democratic Republic of the</option> <option value="Congo, Republic of the">Congo, Republic of the</option> <option value="Costa Rica">Costa Rica</option> <option value="Cote d'Ivoire">Cote d'Ivoire</option> <option value="Croatia">Croatia</option> <option value="Cuba">Cuba</option> <option value="Curacao">Curacao</option> <option value="Cyprus">Cyprus</option> <option value="Czechia">Czechia</option> <option value="Denmark">Denmark</option> <option value="Djibouti">Djibouti</option> <option value="Dominica">Dominica</option> <option 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value="Laos">Laos</option> <option value="Latvia">Latvia</option> <option value="Lebanon">Lebanon</option> <option value="Lesotho">Lesotho</option> <option value="Liberia">Liberia</option> <option value="Libya">Libya</option> <option value="Liechtenstein">Liechtenstein</option> <option value="Lithuania">Lithuania</option> <option value="Luxembourg">Luxembourg</option> <option value="Macau">Macau</option> <option value="Macedonia">Macedonia</option> <option value="Madagascar">Madagascar</option> <option value="Malawi">Malawi</option> <option value="Malaysia">Malaysia</option> <option value="Maldives">Maldives</option> <option value="Mali">Mali</option> <option value="Malta">Malta</option> <option value="Marshall Islands">Marshall Islands</option> <option value="Mauritania">Mauritania</option> <option value="Mauritius">Mauritius</option> <option value="Mexico">Mexico</option> <option value="Micronesia">Micronesia</option> <option value="Moldova">Moldova</option> <option 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<option value="Philippines">Philippines</option> <option value="Poland">Poland</option> <option value="Portugal">Portugal</option> <option value="Qatar">Qatar</option> <option value="Romania">Romania</option> <option value="Russia">Russia</option> <option value="Rwanda">Rwanda</option> <option value="Saint Kitts and Nevis">Saint Kitts and Nevis</option> <option value="Saint Lucia">Saint Lucia</option> <option value="Saint Vincent and the Grenadines">Saint Vincent and the Grenadines</option> <option value="Samoa">Samoa</option> <option value="San Marino">San Marino</option> <option value="Sao Tome and Principe">Sao Tome and Principe</option> <option value="Saudi Arabia">Saudi Arabia</option> <option value="Senegal">Senegal</option> <option value="Serbia">Serbia</option> <option value="Seychelles">Seychelles</option> <option value="Sierra Leone">Sierra Leone</option> <option value="Singapore">Singapore</option> <option value="Sint Maarten">Sint Maarten</option> <option 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Tobago</option> <option value="Tunisia">Tunisia</option> <option value="Turkey">Turkey</option> <option value="Turkmenistan">Turkmenistan</option> <option value="Tuvalu">Tuvalu</option> <option value="Uganda">Uganda</option> <option value="Ukraine">Ukraine</option> <option value="United Arab Emirates">United Arab Emirates</option> <option value="United Kingdom">United Kingdom</option> <option value="United States">United States</option> <option value="Uruguay">Uruguay</option> <option value="Uzbekistan">Uzbekistan</option> <option value="Vanuatu">Vanuatu</option> <option value="Venezuela">Venezuela</option> <option value="Vietnam">Vietnam</option> <option value="Yemen">Yemen</option> <option value="Zambia">Zambia</option> <option value="Zimbabwe">Zimbabwe</option></select></li> <li><select class="form-select" id="Human_Capital_Contact_Industry_Selection__c" name="Human_Capital_Contact_Industry_Selection__c"><option selected="selected" value="">Industry</option><option 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$('#returnURL').val($('#returnURL2').val()); } if($('#pageofOrigin2').length){ $('#pageofOrigin').val($('#pageofOrigin2').val()); } if($('#Lead_Source_Details2').length){ $('#Lead_Source_Details').val($('#Lead_Source_Details2').val()); } if($('#formid2').length){ $('#formid').val($('#formid2').val()); } MktoForms2.loadForm("https://explorehumancapital.aon.com", "851-LXZ-252", 1168); MktoForms2.whenReady(function(form){ $('form').removeAttr('class'); $('form').removeAttr('style'); $(".FormButton").click(function() { $('form').submit(function(event) { event.preventDefault(); }); var emailfilter=/^([a-zA-Z0-9_.+-])+\@(([a-zA-Z0-9-])+\.)+([a-zA-Z0-9]{2,6})+$/; var email = $('#Email'); required = ["FirstName", "LastName", "Title", "Company", "Email", "Phone", "Country", "Human_Capital_Contact_Industry_Selection__c"]; for (i=0;i<required.length;i++) { var input = $('#'+required[i]); if ($.trim(input.val()) == "" || $.trim(input.val()) == input.attr("title")) { input.addClass('bgError'); } else {input.removeClass('bgError'); } } if (!emailfilter.test(email.val())) { email.addClass('bgError'); } else { email.removeClass('bgError');} if (input.hasClass('bgError')|| email.hasClass('bgError')) { scrollToID('ft_form'); return false; } if($('#GI_Consent_to_Processing__c').is(':not(:checked)')){ $('#GI_Consent_to_Processing__c').val('1'); } form.addHiddenFields({ "FirstName": $('#FirstName').val(), "LastName": $('#LastName').val(), "Title": $('#Title').val(), "Company": $('#Company').val(), "Email": $('#Email').val(), "Phone": $('#Phone').val(), "Country":$('#Country').val(), "Human_Capital_Contact_Industry_Selection__c":$('#Human_Capital_Contact_Industry_Selection__c').val(), "FormCommentsMkto":$('#FormCommentsMkto').val(), "returnURL":$('#returnURL').val(), "retURL":$('#retURL').val(), "pageofOrigin":$('#pageofOrigin').val(), "LeadSource":$('#LeadSource').val(), "Lead_Source_Details__c":$('#Lead_Source_Details__c').val(), "utm_source__c":$('#utm_source__c').val(), "utm_medium__c":$('#utm_medium__c').val(), "utm_campaign__c":$('#utm_campaign__c').val(), "utm_term__c":$('#utm_term__c').val(), "utm_content__c":$('#utm_content__c').val(), "GI_Consent_Notes__c":$('#GI_Consent_Notes__c').val(), "GI_Consent_Last_Updated__c":$('#GI_Consent_Last_Updated__c').val(), "User_Input":$('#User_Input').val(), "GI_Consent_to_Processing__c":$('#GI_Consent_to_Processing__c').val() }); 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