Compensation and Benefits Strategy

The first definition of compensation reads as follows:



If this is the compensation you’re looking for, you’re better off in the Regulations and Legislation chapter. Most of the time, we’re more interested in the second definition of compensation:


The money received by an employee from an employer as a salary or wages.

In this chapter, we’ll explore the mechanics of compensation and benefits, including pay schedules, salary ranges, benefit categories, and health plans. And after we outline these basics, we’ll explore best principles for promotions and pay raises as your organization and employees grow and develop.

HR’s role in compensation is to ensure decision-makers understand how compensation and benefits affect the employee experience. While a good culture, targeted hiring, and thoughtful performance management all help employees value working for your organization, none of them will succeed without a solid compensation foundation. Compensation and benefits support the most important parts of an employee’s life—ensuring your compensation package and company benefits meet your employees’ needs is essential for long-term employee retention.

Developing a Compensation Plan

The first steps to developing a compensation plan involve analyzing the type of work employees perform. Compensation structures need to help employees understand:

They need to specify what employees can expect now, and the organization’s policy on pay raises in the future.