What Are the Different Types of Remuneration Strategy?

A remuneration strategy can focus on competitive compensation, retention-based approaches, or performance-based pay. Many mix elements of all three to balance different needs within an organization. Companies with a coherent strategy may find it easier to determine how to pay employees, integrate them into an existing system, and reward them for work well done. Some staff members responsible for making decisions about compensation may write up goals and objectives for their company and personnel to clarify their needs. Consultants can also help.

In a purely competitive remuneration strategy, a company offers pay similar to that seen in other companies in the same industry. For example, clerks at a bookstore would make approximately the same as other retail clerks in the region. Offering substantially more might attract more talent, but could also push costs up, which might make it ill-advised. This strategy also considers wages across the organization itself, ensuring that people make similar wages for similar work.

Another way to develop a remuneration strategy is to focus on retention. In such strategies, people make more the longer they work for the company. Benefits may also become available with long-term employment. That same bookstore might offer a base wage that increases by a set amount every year, and could offer benefits after at least a year of employment. This is designed to encourage people to stay, so they can access the benefits made available to long-term employees.

Performance-based remuneration strategies reward people for individual and company performance. Some may base pay entirely on performance, while others offer commissions and bonuses when the company does well. This type of remuneration strategy creates an incentive to help the company succeed and to do well personally to access the most benefits. Employment contracts can discuss the incentives available and the benchmarks for accessing them.

It is common to see a mix of two or more strategies. Employees might, for example, work within a retention-based framework where they earn more and receive more benefits the longer they work. At the same time, the company could offer performance bonuses to encourage people to work more productively as a way to earn more money. A mixed remuneration strategy can allow a company to work the best of all available options, and also allows human resources personnel to tailor compensation to individual employees. Some might respond better to regular raises and benefits, for instance, while others might embrace competitions for seasonal performance-based bonuses offered to them and their teams.