Compensation Planning: Here's How to Get Employee Buy-In
According to a BambooHR survey on compensation trends for 2025, 72% of employees felt positive when describing their current financial compensation, compared to 83% in 2022. While this is great news, it’s still important for HR teams and business owners to carry out careful compensation planning to keep their employees motivated and happy.
Many considerations go into creating a successful compensation philosophy. If you expect employees to consistently give you their best work for the long haul, be sure you’re giving back with a well-rounded compensation package that’ll make them proud to work for your company, not just tolerate it.
Failure to compensate employees fairly for their efforts could leave them looking for the door. In fact, according to McKinsey, inadequate compensation is one of the top reasons employees plan to leave their jobs.
Below, we’ll explore different elements of compensation planning. You’ll find practical ways to invest in employee wellbeing and make an irresistible case for your people to stay.
What is compensation planning?
Compensation planning involves developing, implementing, and managing a compensation strategy that supports business goals and employee needs. The goal of compensation planning is to achieve an optimal mix of competitive base salaries, benefits, perks, and other forms of remuneration to attract and retain top talent.
A well-crafted compensation plan should reassure your employees they are being paid fairly, in line with industry standards. HR and other company leaders need to be transparent about all the elements of the compensation plan to gain employees’ trust and commitment to the organization’s overall success.
Compensation examples
Compensation models can vary across different job levels within a company. Here’s a brief overview of three different scenarios:
Employee compensation
Regular employees receive a straightforward salary with standard benefits and perks. For example, a project coordinator might earn:
- Base pay: $50,000 per year
- Benefits: Health insurance, retirement plan, and 21 days of PTO
- Perks: Catered lunch, flexible workspace, and access to wellness programs.
Sales compensation
Sales representatives are heavily incentivized by commission and bonuses based on revenue-generating performance. This might look like:
- Base pay: $45,000 per year
- Variable pay: 10% commission on total sales
- Bonus: Additional $3,000 for exceeding quarterly sales targets
- Benefits: Similar to regular employees
- Perks: Sales performance recognition events and company-sponsored trips for top performers in addition to the perks offered to regular employees.
Executive compensation
Executive compensation models are crafted for Chief Executive Officers (CEOs), Chief Financial Officers (CFOs), and other C-suite leaders. They’re more complex packages to get executives to be invested in your company’s long-term success and reward them for their leadership and strategic decision-making. For example, a CEO’s compensation package may include:
- Base salary: $200,000 per year
- Performance bonus: Up to 25% of their base salary based on achieving corporate performance goals
- Stock options: Granted annually, vested over three years
- Benefits: Tailored benefits, such as priority access to specialized medical professionals and executive deferred compensation plans
- Perks: Company car, executive education programs, and an executive assistant.
Benefits of compensation planning
A solid compensation philosophy should reflect your company mission, values and strategic objects. Here are just a couple of benefits of compensation planning:
To attract talent
In today’s competitive market environment, attracting top talent can be a challenge. However, compensation planning gives you a chance to benchmark your compensation package against competitors. This can help you gauge better insights into what top talent in your industry expect and tailor your offerings to ensure you stay competitive.
Retain top talent
Creating a competitive compensation package for your employees can help prevent them from feeling underappreciated and looking elsewhere for work. According to BambooHR’s compensation trends for 2025, 77% of employees would consider leaving their current role for a higher salary.
Ensure pay equity
Paying your employees fairly and in line with equal pay legislation is crucial for HR leaders. Compensation planning allows you to analyze your current compensation offerings and address any potential pay equity issues to ensure that your employees receive equal pay for equal work.
Encourage engagement and motivation
Incorporating indirect compensation into your compensation package can help increase employee engagement and motivation at work. This doesn’t just have to be monetary incentives, either. There are plenty of non-monetary incentives you can offer employees to keep them engaged, including flexible working, wellness programs, and free meals at the office.
Compensation planning steps you should follow
Compensation planning can help you create a compensation package that rewards employees fairly, while supporting company goals. To get started, just follow these handy steps below:
Step 1: Outline your compensation philosophy
A compensation philosophy can help guide your business to create fair compensation programs that help you attract and retain talent. Usually, it’s down to board of directors, executive leadership, HR, and compensation teams to develop the compensation philosophy.
Step 2: Conduct market research
Set some benchmarking salaries and compensation in your industry for similar roles. There are plenty of resources you can use to your advantage here, such as the U.S Bureau of Labor Statistics, job posting sites, and third party agencies who have access to large data sets.
Step 3: Analyze your current compensation structure
Gather data on your current compensation structure to check whether your offerings are competitive. It can also be helpful to carry out a pay equity analysis here too to ensure employees are being fairly compensated for equal work.
Step 4: Align compensation planning with your goals
Make sure your compensation plan aligns with your company goals. Think about how you plan to reward employees who live by your company values. Failure to create a compensation system that aligns with your company culture can leave employees feeling disillusioned and dissatisfied.
Step 5: Create a salary structure
Create a salary range for each specific role within your company. Again, it can help to benchmark against competitors here. If you already have salary ranges in place, take the time to review and adjust them to ensure what you’re offering will attract top talent to your business. You’ll also need to define salary grades; in other words, how do you plan to pay employees with more experience?
Need a refresher on salary ranges? Watch this quick video on pay bands.
Step 6: Plan your compensation budget
Managing your compensation budget is a vital part of your company finances. Compensation planning can help you estimate your compensation budget to see where you may be overspending or underspending. Make sense of your compensation with our Compensation Starter Kit spreadsheet.
Step 7: Monitor and adjust
Once you’ve successfully rolled out your compensation strategy, continue to monitor your strategy and conduct competitor analysis accordingly. You may even want to gather feedback from employees, managers and other company stakeholders to see how you can tailor your offer to create a more well-rounded total compensation package.
Compensation planning FAQs
Discover the answers to frequently asked questions on compensation planning.
What is a compensation philosophy?
A compensation philosophy is a written document that describes how and why employees are compensated for their efforts. The compensation should reflect the company's mission, values, and strategic objectives and include information about the company's pay programs and reward strategy in a way that provides a structured framework for consistency and fairness.
Why does your company need a compensation philosophy?
Your compensation philosophy sets benchmarks and fair practices that build a culture of trust and make your business an attractive place to work. An effective and transparent compensation philosophy creates a cycle of successful behavior that continually improves your position in any industry. Consider these benefits of a well-planned compensation policy.
What is compensation management software?
Compensation management software can help your organization streamline employee compensation with confidence. For example, BambooHR’s Compensation Management Software can help you streamline everything from compensation benchmarking and compensation planning to total rewards and approvals. Request a demo to see BambooHR’s Compensation Management Software in action today.
Your compensation plan, your culture
A well-executed compensation plan is so much more than simply paying employees in exchange for their work. An effective compensation and benefits plan has the potential to create a highly attractive workplace where employees feel valued and motivated at work.
With BambooHR® Compensation Management software, you can emphasize that value by setting fair salaries for your employees and offering competitive compensation packages that help your company attract top talent.