BETTER RECRUIT AND RETAIN EMPLOYEES WITH

EFFECTIVE COMPENSATION STRATEGIES

An effective compensation program is an important aspect of an organization’s strategy to
competitively recruit the best talent. Determining the most appropriate salary system to
compensate employees is also a key consideration in retaining talent. According to APQC’s Open
Standards Benchmarking® measures in reward and retain employees, 71 percent of survey
respondents use performance-based pay systems, followed by 41 percent leveraging salary
scales with fixed increments, and 34 percent utilizing individual arrangements (Figure 1).

Strategic organizations apportion a significant amount of compensation based on performance

results, especially at the senior and middle managerial levels. Studies have shown that both low-
performing and top-performing employees are discouraged when they are compensated
equally. Rewarding top-performing employees sends a message that the organization recognizes
and rewards excellence commensurately.

Percentage of Organizations Using Salary System

Performance-based pay 71.0%

Salary scales with fixed increments 41.0%

Individual arrangements 34.0%

Competency-based pay 30.0%

Open salary scales 28.0%

Broad banding 22.0%

Other 9.0%

0.0% 20.0% 40.0% 60.0% 80.0%

N=561

Figure 1

In terms of the most popular compensation and benefits strategy, approximately 62 percent of
respondents indicate that their business entity matches their competition. An organization that
matches its competition is meeting the market’s median compensation and neither leads nor
lags its counterparts. In comparison, approximately 24 percent of respondents lead their

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 competition on compensation strategy (Figure 2). Depending on market conditions, a matching
strategy may be sufficient if other total rewards factors such as company culture, work-life
balance, work flexibility, and benefits are highlighted. However, in an environment where
qualified employees are scarce and other employers are aggressive with recruitment,
organizations may want to consider leading their competition with their compensation strategy.

Percentage of Organizations Using Compensation and Benefits Strategy

Match competition 62.2%

Lead competition 24.3%

We have not formally determined

8.1%
compensation/benefits strategy

Lag competition 4.1%

Other 1.4%

0.0% 20.0% 40.0% 60.0% 80.0%

N=74

Figure 2

Nearly half of survey respondents review their compensation strategies annually. Approximately
28 percent of organizations only review their strategies as required by market demands (Figure
3). Organizations looking to stay competitive in recruiting and retaining talent for key positions
should assess their compensation strategies as market conditions change throughout the year.

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 How Often Organization Reviews Compensation Strategy

Once per year 49.5%

As required by market
28.2%
demands/conditions/external events

Ad hoc 16.5%

More than once per year 3.2%

Other 2.7%

0.0% 20.0% 40.0% 60.0%

N=188

Figure 3

An effective compensation strategy helps attract, retain, and motivate talent. It can help engage
employees and encourage behaviors that are aligned to an organization’s goals. Organizations
should involve their leadership team to maximize the effectiveness of a compensation strategy.
Leaders can help ensure alignment between organizational objectives and compensation.

ABOUT APQC
APQC helps organizations work smarter, faster, and with greater confidence. It is the world’s
foremost authority in benchmarking, best practices, process and performance improvement,
and knowledge management. APQC’s unique structure as a member-based nonprofit makes it a
differentiator in the marketplace. APQC partners with more than 500 member organizations
worldwide in all industries. With more than 40 years of experience, APQC remains the world’s
leader in transforming organizations. Visit us at www.apqc.org, and learn how you can make
best practices your practices.

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