Compensation Package Structuring

Most C&B consultants hand you a salary structure and call it done. I don't. Because a compensation structure isn't just numbers in a spreadsheet. It's a tool that either attracts and retains your best people, or quietly pushes them toward your competitors. After years of designing C&B structures across different markets, I've developed a framework that works. One that's rooted in reality. ↳ Phase 1: Discovery (The Foundation) Before I touch a single salary number, I need to understand three things: → What's your business strategy for the next 3–5 years? → What are the critical roles that will get you there? → What's currently broken in your compensation approach? I interview stakeholders. I review turnover data. I analyse exit interview patterns. Because if I don't know where you're going, I can't build a structure that takes you there. ↳ Phase 2: Market Intelligence (The Benchmark) This is where most consultants stop at surface-level data. I go deeper. I don't just pull generic market benchmarks. I analyze: → Your specific industry and geography → Your competitors' compensation strategies (who are you losing people to, or hiring from?) → Emerging talent trends (like equity-based incentives or hybrid work premiums) If your compensation structure isn't competitive and clearly communicated, you're already losing talent. ↳ Phase 3: Structure Design (The Architecture) Now I build. But not in isolation. I collaborate with your HR and finance teams to design: → Job grading and leveling that makes sense for your business → Salary ranges that are competitive but sustainable → Variable pay frameworks (bonuses, incentives, LTIs) that reward performance The goal is to create a structure that's fair internally and competitive externally. One that your CEO can defend and your employees can trust. ↳ Phase 4: Implementation & Communication (The Rollout) This is where most projects fail. You can have the best C&B structure in the world, but if your managers don't know how to communicate it, it falls flat. So I train your leadership team: → How to explain pay decisions transparently → How to handle difficult compensation conversations → How to use the pay structure as a retention tool, not as a cost center Because compensation isn't just about what you pay. It's about how you make people feel valued.

DAY 26 Total Rewards Strategy: Beyond Salary Total Rewards is not just salary. It is the complete value exchange between employer and employee. It includes: • Base Pay • Variable Pay (Bonuses, Incentives) • Benefits (Health, Pension, Insurance) • Recognition • Career Growth • Work Flexibility • Learning Opportunities • Employer Brand When compensation is poorly structured: High performers leave quietly Average performers stay comfortably Pay inequity creates internal tension Business costs increase through turnover When compensation is strategically designed: Performance improves Retention stabilizes Employer brand strengthens Financial planning becomes predictable #HowtoDesignaTotalRewardsStrategy STEP 1: Define Your Pay Philosophy (Write This Down) Answer these 5 questions clearly: Do we want to pay at market average (50th percentile) or above market (75th percentile)? Will we reward performance more than tenure? Are we willing to pay premium for scarce skills? What percentage of compensation should be fixed vs variable? What behaviours are we rewarding? #Output: Create a one page Pay Philosophy Statement. If it’s not documented, it doesn’t exist. STEP 2: Conduct Internal Pay Audit Do this simple exercise: List all roles List current salaries Compare employees in similar roles Identify gaps or inequities Check for: Same role, different pay (without justification) High performer earning less than average performer Pay compression (new hires earning close to long serving staff) #Output: Highlight risk areas in red. These are retention risks. STEP 3: Benchmark Against the Market You can use: Industry reports Professional HR networks Benefits 📌 Decide: Are you leading, matching, or lagging the market? Be intentional. STEP 4: Structure Variable Pay (Make It Measurable) Your bonus structure should answer: What exact target must be achieved? Is it revenue based? Is it productivity based? Is it KPI based? Example structure: • 10% annual bonus tied to company #profitability • 5% individual performance bonus tied to KPI score • Sales commission tied to revenue threshold #Rule: If performance cannot be measured, it should not be incentivized. STEP 5: Define Non Monetary Rewards Not all rewards are financial. Include: Recognition programs (monthly awards) Career progression pathways Learning sponsorship Flexible work options Wellness initiatives Sometimes development retains more than salary. STEP 6: Communicate the Structure Many organizations fail here. Employees should know: How salary increases happen How bonuses are calculated What qualifies for promotion What performance level earns reward Transparency builds trust. Silence builds suspicion. 🎯 Practical Diagnostic Test Ask yourself: Can I explain our #compensationstructure in 10 minutes clearly? Do employees understand how to increase their earnings? Can I defend our pay system at board level? If the answer is no, your #TotalRewardsstrategy is incomplete

"The main area where I’m getting stuck is how to structure pay bands or tiers: what benchmarks to use, how to ensure consistency and fairness across roles, where bands should or shouldn’t overlap by level, how bands factor into promotion decisions, and how to communicate the process transparently to the broader team." This is one of the challenges raised in a recent Lattice pay for performance webinar. (🔗 to download the full recording in the Comments.) Since I wrote out the answer for the person who posted in the Q&A, I figured I'd go ahead and share it for anyone else facing similar challenges: _____ Here are a few thoughts that might help as you evolve your approach to compensation: Compensation Philosophy: Start by drafting a compensation philosophy with 5-8 compensation design principles that explain how you translate your business strategy to your talent strategy and your talent strategy to your compensation strategy. (🔗 to a template in the Comments.) Benchmarks: For benchmarks, some of the market leaders are Pave, Aon Radford, Carta Total Comp, and Ravio. I generally recommend Pave for US-based tech companies, Radford for all other US-based industries, and Ravio for European-based companies. Pick a compensation data provider and pay the $8-12k per year to access the data — beyond 50 employees, it's 100% worth it. Band structure: If you don't have consistent bands right now and aren't moving from tiers, I'd recommend overlapping bands. These will be more forgiving in the first few years as you work to get people in band who are over/under the target band. Then, have the midpoint of the bands spread by 10-15%. A comp tool like Pave will ask you what % spread you want and suggest a default, then auto-recalculate bands based on that. Consistency: Define a clear rubric for how people move within and across bands (e.g., merit increases, placement in range, market adjustments, or step increases on promotion). Make sure managers have guardrails so that people in the same role/level aren’t paid differently without justification. When you initially implement bands, you'll see some people under/over band and will need to decide how to address that. A common approach in the US is to apply multiples so if someone is over band they and would have gotten 3%, they get 3% x 50% or 1.5%. But there are different approaches you can take here — this is one of the most useful areas to work with a comp expert, even for a single 1:1 as it has compliance implications.   Promotions: Tie promotions to both performance and readiness - not just hitting a band max but demonstrating the skills or impact expected. Document the criteria and communicate them clearly to avoid surprises. Communication: Transparency helps build trust. Share the why behind your structure, the process for how bands are set, and what employees can expect in terms of timing and feedback. Employees should understand the overall approach and what they can do to progress.

A total compensation approach should reinforce the right behaviors, engagement, and business outcomes. It’s not just talent attraction or even retention. Because compensation influences how people focus, how managers make decisions, and how the organization indicates where the priorities are. But friction shows up everywhere in performance conversations, hiring decisions, equity concerns, and budget debates. HR teams know this, yet they sometimes lack the tools to build a compensation foundation that scales with the business. These resources give teams the structure to make compensation decisions more consistent, transparent, and aligned with strategy: 1. RACIS Matrix: Clarifies decision rights so compensation actions move with speed and accountability. https://lnkd.in/g_T92wf9 2. Job Description Template: Creates consistency in role expectations, leveling, and market comparisons. https://lnkd.in/gEkEY36j 3. Total Compensation Statement: Shows employees the full value of their compensation package to strengthen trust and engagement. https://lnkd.in/gK8YeWXr 4. Merit Matrix: Guides salary adjustments based on performance and equity principles. https://lnkd.in/gEqRbKQN 5. Sales Compensation Pay Mix Assessment: Aligns incentives with revenue priorities and role requirements. https://lnkd.in/g4fAJE5S 6. Interpolation Calculator: Supports salary decisions with scalable, data-driven ranges. https://lnkd.in/g_VTDiXT These tools help HR and business leaders operate with more discipline and reduce the ambiguity that makes compensation one of the most sensitive parts of the employee experience. 👉🏽 Explore these tools and the full Total Compensation program at Wowledge. ~~~ Click Carlos Larracilla and follow me [+🔔] for daily resources from Wowledge. ⤷ We’re ending the cycle of reinventing the wheel in HR by providing a shortcut to amplifying HR impact with: ✔ A scalable system of best practices » wowledge.com/catalog ✔ An intelligent HR roadmapping tool » wowledge.com/roadmap ✔ A seasoned community of experts » wowledge.com/about

Many companies are designing their incentive/bonus plans as they start preparing for 2025. Here are some principles for designing an effective compensation incentive plan: 1.    Aligned: align the incentives of each individual with the thing that matters most for the company. Avoid a situation where someone’s earning a bonus (e.g. on volume) but cashflow or margin is actually what matters most to you. 2.    Consistent: as much as possible, try to align the incentive goals across everyone in the company. The more consistent the incentive goals, the more everyone will work together as a team to meet the goal. Ideally, make everyone’s bonus based on the same drivers. 3.    Simple: limit the incentive drivers to a maximum of 1 to 3 factors. 4.    Measurable: the incentive calculation should be objective, black-and-white, and easily measurable (by the person earning the bonus, and the person doing the calculation/payout). Try to avoid vague discretionary bonuses. 5.    Controllable: the person earning the incentive should have direct (or at least partially direct) impact on the thing(s) being measured. 6.    Transparent: the person earning the incentive should have full visibility to the numbers they’re being measured against. 7.    Realistic: set ambitious goals but make sure they’re achievable. I like to have a Tier 1 and Tier 2 goal built into the plan. 8.    Enticing: the payout number should be large enough that people are motivated to hit it (but not so high that you will resent the payout). If the incentive amount is too small, it won’t change behavior and you’ll just land up paying more for no change in results. 9.    Frequent: monthly or quarterly incentives are way more motivating than annual goals/payouts. The further away the incentive is from the action, the less likely people will believe the incentive is real. It’s extremely motivating to get an incentive bonus each month. After designing the incentive plan, take a step back and ask yourself the following questions: -      Will this plan motivate each person to drive the metrics that matter most to the business? -      Will each person be able to track the metrics and know what the company still needs to achieve to hit the goal? -      Will everyone on the team feel rewarded when the goal is met? -      Will you be happy with the payouts when the goal is met? Incentive plans are hard to design well. Ideally the plan should stay in place for many years; so be really thoughtful about the plan and how it will scale with the business. Roll it out with care; you should always take people’s compensation very seriously, and treat it with respect.