August 29, 2023

4 Expert-Driven Steps to Design a Successful Compensation Strategy

Cheryl Goh, Product Marketing Manager

4 Expert-Driven Steps to Design a Successful Compensation Strategy


Your compensation strategy is more than just a paycheck – it's the bedrock of your company's success. It's an investment in your people and your culture that drives your business goals and fosters trust with your employees. People join your company for a variety of reasons, but at its core, they seek fair and equitable compensation for their time, skills, and energy.

Your success as a business hinges on your ability to attract, motivate, and retain top talent. Your compensation strategy plays a crucial role in shaping the relationship between your company and your employees. It's not only one of your largest expenses but also a vital investment in your company's future.

However, the data shows there's room for improvement. Only 32% of employees believe their pay is fair, 64% are considering a new job in 2023, and 72% of job-seekers rank compensation as a top three factor. In this guide, we'll help you craft or refine your compensation strategy to ensure you're offering a competitive and transparent total rewards package that resonates with your employees and supports your business goals.

1. Understand Your Objectives

The first step in crafting a successful compensation strategy is to understand the objectives you aim to achieve. The underlying philosophy of your compensation strategy should align with your overall business goals, support your desired corporate culture, and enable you to attract, retain, and motivate high-quality talent. Understanding your objectives involves a deep dive into several critical areas:

Building a Unique Employer Value Proposition (EVP)

Your EVP is the total value your company offers to its employees in exchange for their performance and commitment. It encompasses not only tangible compensation but also intangible benefits such as company culture, career growth opportunities, and work-life balance. It is essential to identify and emphasize what makes your organization unique and attractive to potential and existing employees.

Several companies stand out for their strong EVPs:

Google : Google's EVP focuses on innovation, collaboration, and impactful work. With benefits such as on-site wellness centers, career development programs, and generous parental leave, Google consistently ranks as one of the world's best employers.

SAS Institute : Known for its high-quality work environment, SAS Institute offers a holistic EVP that includes health and wellness programs, on-site childcare, recreational facilities, and opportunities for continuous learning and development.

Netflix : Netflix's culture of freedom and responsibility is a central part of its EVP. The company offers unlimited vacation days, a flexible working environment, and a performance-based compensation model, encouraging employees to be self-driven and results-oriented.

Johnson & Johnson : With a mission to improve health and well-being worldwide, Johnson & Johnson emphasizes corporate social responsibility in its EVP. The company provides comprehensive healthcare benefits, employee resource groups, and opportunities for volunteering and philanthropy.

The Boston Consulting Group (BCG): BCG offers a unique EVP focused on professional growth and impact. The firm provides opportunities for international assignments, mentorship programs, and a commitment to social impact through its partnerships with various non-profit organizations.

Compensation Philosophy

Your compensation philosophy reflects your company's values, goals, and intentions regarding employee pay. It serves as a guide for decision-making and helps create a consistent, equitable approach to compensation. The process of developing a compensation philosophy should involve the following considerations:

  • Equitability : Are pay rates fair and reasonable across all roles and levels within the organization?
  • Defensibility : Can your compensation practices withstand scrutiny and be perceived as fair by employees?
  • Fiscal Sensitivity : Does your compensation philosophy align with your organization's budgetary constraints?
  • Legal Compliance : Are your pay practices consistent with relevant labor laws and regulations?
  • Communication : Can your compensation philosophy be clearly and effectively communicated to employees?
  • Alignment : Are your compensation programs consistent with your organization's overall compensation philosophy?

Your compensation philosophy should be rooted in your organization's business priorities and objectives. Start by setting a meeting with your leadership team to align on your business goals and determine how your compensation strategy can support these objectives. Document your approach to serve as a source of truth for future decisions.

Market Positioning

Your compensation strategy should consider your company's position in the labor market. Understand the competitive landscape and assess the pay rates offered by organizations in your industry, region, or similar in size and growth stage.

Deciding how you want to pay relative to the competition – your position in the market – is a key component of your compensation strategy. You can choose to meet, lead, or lag the market, depending on your organization's needs, objectives, and financial resources. Aligning your approach with the specific needs of your business is essential to ensure that your compensation strategy supports your business goals and EVP.

2. Conduct Market Research for Market Positioning

Conducting market research is a critical step in designing a successful compensation strategy. In Singapore's competitive labor market, understanding the industry trends, salary ranges, and benefits offered by other companies is essential to attract, retain, and motivate top talent. Market research helps you determine where your company stands in terms of compensation and enables you to make informed decisions based on market dynamics.

Sources of Market Data Job Board is a job board in Singapore that provides information about job openings, salary ranges, and job requirements. Although it can offer some insights into market trends, this source has limitations. The data is primarily manual and can be quite inaccurate due to the aggregated nature of the listings. It can be challenging to get precise insights into specific job roles, industries, or company sizes from this source.

compensly - Real-Time Compensation Data Platform for APAC

compensly is a real-time compensation data platform that caters specifically to the Asia-Pacific region. Unlike traditional providers, compensly gathers data directly from its customers' HRIS (Human Resource Information System) via API. This method ensures that the data is accurate, up-to-date, and detailed.

By using a platform like compensly, you can access reliable market data for various job roles, industries, and company sizes. The data provided by compensly allows you to make informed compensation decisions, ensuring that your offers are competitive and aligned with market trends.

It is important to highlight that data quality is crucial in the process, as mistakes can be very costly and have a high impact on employee retention. You can find more on this topic here.

Other Sources

Other sources of market data include asking headhunters, candidates, or industry peers about compensation levels. However, these methods can be prone to mistakes and can lead to inflated or inaccurate numbers. People may unintentionally or intentionally provide incorrect information, leading to biased or skewed data. These methods should be used with caution and should not be the sole basis for your market research.

For a deeper dive into gathering compensation data, understanding how to interpret it, and leveraging it for informed hiring decisions, check out this comprehensive guide.

3. Designing Your Total Rewards Package

Crafting a comprehensive total rewards package is a key component of an effective compensation strategy. Total rewards encompass all tangible and intangible benefits that an employee receives for their time and effort, serving as a means to fulfill the promise of your employer value proposition (EVP). It is essential to strike the right balance between various elements to attract, motivate, and retain top talent.

The following elements are included in a total rewards package:

  • Base Pay : This is the fixed salary or hourly wage that an employee receives. It serves as the foundation of an employee's total compensation and should reflect the role's responsibilities, required skills, and the employee's experience level.
  • Variable Pay : This includes performance-based compensation, such as bonuses, commissions, or profit-sharing. It encourages employees to achieve specific targets or outcomes. On-target earnings (OTE) combine base pay and variable pay, providing a balanced approach for motivating employees, particularly in performance-driven roles.
  • Equity : Equity compensation, such as stock options or RSUs, gives employees a stake in the company, fostering a sense of ownership and long-term commitment. It aligns the interests of employees with those of shareholders and incentivizes long-term value creation.
  • Paid Time Off : This category covers different types of paid leave, including vacation days, personal days, holidays, and other special leave types, such as bereavement, voting, or parental leave. Offering generous paid time off promotes work-life balance and employee well-being.
  • Benefits : Benefits include health and dental insurance, retirement plans, disability insurance, relocation assistance, and more. Insurance offerings are a crucial part of this category. Comprehensive health insurance plans, covering medical, dental, and vision care, can help attract and retain employees, as they provide financial security and peace of mind. Retirement plans, such as 401(k) or pension plans, further support employees' long-term financial well-being.
  • Perks : Perks are unique offerings that reflect a company's culture and values. Common perks include catered meals, fitness programs, daycare benefits, and volunteering opportunities. More innovative perks could include flexible work arrangements, wellness programs, tuition reimbursement, or access to professional development opportunities. These perks help create a positive work environment, enhance employee engagement, and reduce friction in employees' lives, enabling them to be more productive.

Finding the right mix for compensation

As you design your total rewards package, it is crucial to achieve a harmonious balance between different compensation components such as salary, equity, and additional benefits. This balance is essential to offer competitive and attractive packages that resonate with your employees' needs and motivations. Our detailed article provides insights and expert recommendations to help you determine the optimal mix between salary and equity, along with tips on how to enhance the overall value of your compensation packages.

Establish Fair and Transparent Compensation Policies

Incorporate fairness and transparency into your total rewards package design. Transparent compensation policies involve openly sharing information about how compensation decisions are made, the factors that influence pay, and the ways employees can impact their earnings. Such transparency can help eliminate pay disparities, enhance employee engagement, attract and retain talent, and boost productivity.

4. Continuously Evaluate, Adjust, and Communicate Your Compensation Strategy

Ensuring that your compensation strategy stays relevant and effective requires continuous evaluation, adjustment, and communication. Regularly reviewing and adapting your strategy is essential, given the dynamic nature of the labor market, industry trends, and organizational goals. Here's a comprehensive approach to keeping your compensation strategy up-to-date and well-communicated:

Regularly Evaluate Your Compensation Strategy

  • Market Trends : Monitor the labor market, industry developments, and compensation trends regularly. Stay informed about shifts in salary ranges, benefits packages, and employee expectations in your industry. The most efficient way to do this is to use a real-time compensation platform like compensly. Employee Feedback : Collect feedback from employees through surveys or one-on-one conversations. Understand their perspectives on the total rewards package, what they value, and areas for improvement.
  • Performance Metrics : Analyze your organization's key performance metrics, such as employee retention rates, recruitment effectiveness, and employee engagement scores. Assess whether your compensation strategy supports or hinders the achievement of these metrics.

Adjust Your Compensation Strategy

  • Alignment with Organizational Goals : Ensure that your compensation strategy aligns with your organization's evolving goals and objectives. Adjust pay structures, benefits, and perks to support strategic priorities and drive desired behaviors.
  • Competitiveness : Based on your market research and evaluation, adjust your compensation strategy to remain competitive. Update base pay, variable pay, and other elements to attract and retain top talent.
  • Fairness and Equity : Regularly review and adjust your compensation strategy to eliminate pay disparities and ensure fairness and equity. Implement data-driven methodologies to identify and rectify pay gaps.

Communicate Changes Effectively

  • Transparency : Be open and transparent about the changes in your compensation strategy, the reasons behind the changes, and how they benefit the employees and the organization.
  • Use Multiple Channels : Use various communication channels such as team meetings, emails, intranet announcements, or one-on-one discussions to communicate the changes. Tailor your communication approach based on the significance of the changes and the needs of your audience.
  • Educate Managers : Train your managers on the updated compensation strategy and its implications. Equip them with the necessary information and tools to communicate the changes effectively to their teams and address any concerns.
  • Feedback Loop : Encourage employees to ask questions and share feedback on the changes. Establish a feedback loop to ensure ongoing two-way communication and address any issues that arise. Remember, the right compensation can eventually maximize your team's potential.


In conclusion, creating a successful compensation strategy requires a balanced approach that blends your business goals with the needs and expectations of your employees. By understanding your objectives, conducting thorough market research for market positioning, and designing an attractive total rewards package, you can craft a compensation strategy that not only attracts top talent but also fosters loyalty and motivates your employees to do their best work.

However, your compensation strategy shouldn't be static. Regularly evaluating, adjusting, and communicating your strategy ensures that it remains competitive and aligned with your business goals and objectives. It also reaffirms your commitment to transparency and fairness in compensation practices, ultimately fostering a culture of trust and engagement.

A well-designed and implemented compensation strategy is an invaluable asset for any business, serving as a strong foundation for long-term success. Remember, it's not just about the numbers – it's about creating a mutually beneficial relationship between your company and your employees, empowering them to thrive and contribute to your shared success.