Defining a compensation strategy is an important activity for all companies, including startups. Compensation describes the cash rewards paid to employees in exchange for the services they provide. It may include base salary, wages, incentives and/or commission. How you compensate your employees plays a pivotal role in shaping your company culture, driving performance, and ultimately, ensuring the success of your business. Below is a guideline that a business owner, can utilise for mapping out compensation strategy:

Establish budget allocation:

The first step is establishing what your compensation budget is, and how it will be allocated. Identify how much you can feasibly spend on any given employee and stick to it. Make sure you factor in all costs, including taxes, payroll costs, existing benefits, compensation, and bonuses. 

Research compensation strategy market data:

The next step is market research. This means investigating trends in terms of both compensation and benefits. This will help you establish what you should be offering in order to remain competitive so that you can attract top talent to your business. 

Determine your compensation strategy pay grades:

Once you have done your research, you need to determine a framework for compensation. This means defining your pay grades based on job positions and duties. This framework will help you define how much you should be paying each level in line with job requirements and experience (skill or competency-based pay).

Verify compliance requirements:

Although it is generally up to you to define your compensation strategy, there are a number of legal obligations you need to comply with. Make sure you meet all legal requirements when you define your strategic compensation system, and clearly outline all payments and deductions on your payslips.

Your compensation strategy must be structured to best meet your unique business circumstances, it must be affordable, structured, and reasonably competitive. As a startup, you may not be able to compete with large companies on salary. Therefore, you should consider a combination of options to attract and retain key employees.