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Compensation Planning Checklist Template

Compensation planning is a set of strategies to attract, motivate, and retain talent through compensation and reward systems. It includes salaries, bonuses, employee benefits, commissions, and other forms of compensation. Compensation planning falls under the responsibility of the Human Resources department or a dedicated Compensation and Benefits manager.  

What is Compensation Planning?

Compensation planning is a strategic process undertaken by organizations to design and manage their employee compensation programs. It involves developing a structured framework that determines the salary, benefits, and rewards offered to employees based on factors such as job responsibilities, performance, market trends, and organizational objectives.

Compensation planning in HRM (Human Resources Management) refers to the strategic approach taken by HR managers to fairly compensate employees while also acquiring talent through attractive compensation and benefits packages. The process of managing and determining the compensation system for employees is referred to as compensation management. The main objective of compensation management is to increase the company’s level of competitiveness and drive business profits.  

Purpose of Compensation Planning

Compensation planning is a critical aspect of human resource management, enabling organizations to attract top talent, retain valuable employees, motivate performance, and ensure internal equity. By prioritizing fair and competitive compensation practices, businesses can create a positive work environment, enhance employee satisfaction, and drive overall organizational success.

According to a Glassdoor survey, 61% of job seekers prioritize salary and compensation when considering job opportunities. Furthermore, a study by Mercer revealed that organizations with robust compensation plans attract 20% more high-performing employees.

Components of Compensation  

A compensation system refers to an employee’s monetary and non-monetary compensation in exchange for work. A compensation system has various components like salary, commission, bonuses, perks, and many more. It also includes the compensation-related elements undertaken by the organization to attract and maintain talent. The components of compensation are: 


Salary includes both the base salary and any bonuses. Employers must ensure fair and competitive salaries to attract and retain the best talent. A competitive wage includes the value an employee receives in exchange for work and includes commissions, allowances, bonuses, etc. In compensation planning, salary is determined by understanding the company’s financial position and what the market is paying. 

Benefits and perks

Employee benefits include health and insurance plans, paid vacations, sick leave, and many other benefits. Perks expand beyond compensation-related benefits and include discounts and rewards, dental care, health care, etc. Benefits and perks are an important component of the compensation system as the more appealing and diverse the benefits package is, the more attractive it is to potential candidates. Most organizations also design it in a way that the best talent is retained. 

Career development and growth

Career development and growth refer to evolving to a higher or better occupational status by learning new skills and refining talent. Organizations that do not provide sufficient development and growth opportunities will lose their talent and will not be a desirable option for future talent or new hires. Employees seek to be challenged and engaged, and employers accommodating such interests will give these employers a reason to stay longer. 

Recognition and rewards 

Employee recognition is when an individual is acknowledged publicly for their outstanding work in an organization. Lack of recognition in businesses is one of the primary reasons for employee turnover. Having a proper recognition and rewards strategy is essential for employee retention. Employees are engaged and motivated when they know that their work is creating a positive impact on the success of the organization. Recognition is usually tied to rewards in compensation planning – meaning that organizations with good recognition and rewards systems not only publicly praise their employees but also reward them. 

Wellness programs 

Employee wellness is an initiative undertaken by organizations to improve the mental and physical health of employees. It covers the work environment in which the employee works by promoting healthy workplace relationships and investing in mental health plans, stress management sessions, counseling, yoga, and many more. Wellness programs are a part of compensation planning which aims to improve retention.

Steps for Compensation Planning Checklist 

One of the main objectives of compensation management is to design a compensation plan template that not only provides sufficient growth opportunities for employees but increases the level of competitiveness of the organization in the market. A compensation planning checklist ensures that employers miss nothing when designing their compensation plans. The steps for a compensation planning checklist are: 

  • Assess the financial position of the company 
  • Review the current compensation plan 
  • Check the competitive level in the market 
  • Outline a rough compensation plan  
  • Plan a communication system 

Assess the financial position of the company 

To create a compensation planning checklist, organizations must have a solid understanding of the current financial position. This knowledge helps answer questions related to the budget, fiscal policies, affordability, constraints, and stability. Some of the questions that need to be considered are: 

  • What is the range of salaries that can be offered to different positions? 
  • How much can the company afford to spend on the compensation? 
  • Are there any financial constraints that must be taken into account when planning compensation? 
  • What is the allocated budget for compensation and benefits? Does it need to be reviewed? 

Review the current compensation plan 

After getting a good view of the company’s financial position, review the current salary structures of the positions. Consider factors like rising employee numbers, new office locations, etc., that influence the compensation plan. For example, if a company has opened its office in a new location, it may have to design a different compensation plan for the new employees. Taking into consideration the cost of living and the local market conditions, the company may have to offer higher salaries and incentives. 

When preparing a compensation planning checklist, this step helps add items that ensure the competitiveness of the company to attract talent. 

Check the competitive level in the market 

A compensation planning checklist may include analyzing the current compensation system against the competitors’ plan. Check for any new competitors in the market and if the current compensation plan can attract and retain talent. While there could be several reasons for the changing competitive level in the market, it is important to understand the role compensation plays in terms of attracting talent.  

Outline a rough compensation plan 

A rough compensation plan outlines how competitive an organization wants to be and the defined salary ranges for required positions. Also includes a rough structure of salaries after getting them approved by upper management. 

Plan a communication system 

When a rough compensation plan is developed, plan a communication system to let the employees know about the changes. This helps them prepare in advance and avoids any miscommunication on the employer’s side. Communicate why the changes are being made, why the employees are/are not a part of the change, the benefits, implementation, and what they can expect in the future. 


1. How can I develop a compensation planning checklist for my organization?

To develop a compensation planning checklist, get a good understanding of the company’s financial interests and review its current compensation plan and market position. Outline the objectives, draft a rough compensation plan, and add actionable items. 

2. What are some common mistakes to avoid when creating a compensation planning checklist?

Some common mistakes to avoid when creating a compensation planning checklist – not communicating with the concerned employees before adding any items, ignoring the company’s current financial position, and not tying the compensation plan with attracting/retaining talent. 

3. How frequently should I review and update my compensation planning checklist?

Most organizations review and update their compensation planning checklist once a year. This helps them stay relevant in terms of competition, acquiring and maintaining talent, and being strategically aligned. 

4. What are some best practices for implementing a compensation planning checklist?

Some of the best practices to consider when implementing a compensation planning checklist include involving the stakeholders, testing the checklist by sample testing with a small team, and continuously reviewing and updating the checklist. 

5. How can I ensure that my compensation planning checklist aligns with the organization’s strategic goals?

A compensation planning checklist can be aligned with the organization’s strategic goals by conducting a job analysis to ensure that the checklist is in line with the job requirements. Benchmark compensation against other competitors to attract and retain the best. 

6. What is the role of HR in creating and implementing a compensation planning checklist?

HR conducts market research to determine the best practices and evaluates job roles to design an attractive compensation system. They also help in the implementation of the compensation planning checklist by enabling communication within the organization. 

7. How can I measure the effectiveness of my compensation planning checklist?

Measure the effectiveness of a compensation planning checklist by determining employee satisfaction, retention rates, recruiting top talent, and achievement of strategic goals within the allocated budget.

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