July 13, 2023

The ABCs of Building an Effective People Strategy Budget

Cheryl Goh, Product Marketing Manager

The ABCs of Building an Effective People Strategy Budget


Crafting an effective People strategy is a key element in steering a company towards growth and success. However, defining an optimal budget for such a strategy often presents a challenge. This guide delves into a comprehensive strategy for setting your budget, creating the right financial model, and securing buy-in from your CFO.

A. Understanding the Fundamentals of Budget Building

The first step towards creating a compelling budget is to grasp the factors that will influence its design and implementation. Here's a closer look at these essentials:

1. Compensation Philosophy

Your compensation philosophy is the bedrock of your People strategy. It should align with the company's mission and values, reflect industry standards, and serve as a guide for determining salaries and benefits. A well-defined compensation philosophy can also help ensure equity and transparency in your compensation strategy, contributing to improved employee retention.

For an in-depth exploration of this topic, refer to our Comprehensive Guide to Compensation Benchmarking.

2. Organizational Goals

The budget for your People strategy should not exist in a vacuum; it needs to be firmly aligned with your company's broader goals and objectives. If your strategy involves attracting top-tier talent, for instance, you might need to consider budgeting for competitive salaries and appealing benefits packages.

3. Fair Compensation

Equitable compensation is a cornerstone of any robust People strategy. Implementing fair pay helps foster a more engaged and motivated workforce, which can, in turn, translate into increased productivity and better business outcomes.

By integrating real-time compensation data into your strategy, as explained in our blog post on Why Real-time Compensation Data is Crucial for Employee Retention, you can ensure transparency and fairness in your pay policies.

B. Crafting an All-Encompassing Financial Model

Armed with a clear understanding of the factors that will influence your budget, the next step is to translate this knowledge into a comprehensive financial model. Here's how:

1. Data-Driven Approach

One of the best ways to ensure the accuracy and relevance of your financial model is to base it on reliable, up-to-date data. By utilizing data from your Human Resources Information System (HRIS), you can make informed budgeting decisions that align with your company's realities.

Our Step-by-Step Guide to Choosing the Right HRIS for Your Organization in APAC can help you understand the benefits of a data-driven approach.

2. Consider Future Projections

A robust financial model must also take into account future considerations such as planned promotions, projected hiring, and standard merit increases for high-performing employees. This is where our insights on Maximizing Your Team's Potential with Compensation Reviews and Promotions come into play.

3. Optimal Compensation Mix

Striking the right balance between salary and other forms of compensation like equity is crucial for both attracting and retaining talent. This delicate balance, explored in our post on Equity vs. Salary: Finding the Right Compensation Mix for Your Team, can be integral to your budgeting process.

C. Securing CFO Buy-In

Now that you have a well-constructed budget, it's time to present your plan to the CFO. This phase is critical as CFOs often have a significant influence over budget approvals.

1. Open and Continuous Dialogue

Communication is key. Engage your CFO early and often in the budget creation process. Present your plan comprehensively, explaining the reasoning behind each decision and how they align with the company's overall objectives.

2. Show Potential Return on Investment (ROI)

Demonstrate how your proposed budget will benefit the company in the long run. This could be in the form of increased employee productivity, better talent attraction and retention, or more efficient operations.

3. Foster Collaborative Decision-Making

Collaboration is key in securing buy-in for your proposed budget. Engage stakeholders from various departments, fostering a sense of collective ownership and shared vision. This approach can be highly effective in gaining CFO support for your plan.

Creating a budget for your People strategy might seem like a complex endeavor, but with careful planning and the right tools, it is an achievable goal. At Compensly, we're here to help, offering a range of resources to guide you in crafting a robust, effective budget. Take a look at our article on Transforming Your Compensation Strategy with compensly to get started