Well-designed compensation plan can create a focused, motivated work force

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"A well-designed compensation program is more than just market alignment. It really can create the corporate culture you want. It can give people the sense of being rewarded for their efforts. It can improve teamwork and it can help put focus on organizational goals," said Schell, who helps clients in the Madison area with all types of compensation plan designs.

Schell said the key to designing a better compensation plan is to start asking honest questions about your company. Find out about your organizational strategy, your organizational philosophy and your employees. Ask yourself who you're trying to motivate and what behaviors you want to see in your employees. Managers should also discuss what kind of corporate culture they want to encourage.

"I've worked with a lot of clients who had compensation programs that were doing just the opposite of what they wanted them to do," Schell said.

For instance, he said an organization that has "rich" retirement benefits and little in the way of incentives for good job performance can create "golden handcuffs," or a situation where people stay in the company for the lucrative retirement benefits but feel trapped in a job they're unhappy doing.

"It's worse to overpay people with a poorly designed compensation system than it is to underpay people in a system that's well-designed," he said. "I've seen organizations where if you look at the market data, they're underpaying miserably. Yet, everyone is happy, motivated and successful."

Schell said companies should think in terms of "rewards" for their employees. Rewards, he said, mean everything an employee values in exchange for the work he or she does. Schell said companies should look at all aspects of a compensation package - from base compensation down to work enjoyment and opportunities for advancement - and how they may accentuate those.

Getting employees to appreciate a compensation program is rather straightforward, Schell said. Many employees underestimate the impact of compensation, so Schell suggested giving employees an annual, individualized statement that directly explains their benefits. Each year, he said, managers should give their employees a full account of how they're using and contributing to the company's compensation plan: base salary, FICA payments, retirement contribution, life insurance, dental insurance and medical insurance.

Even more significant, though, Schell said, is to make sure your employees know you recognize the hard work they do. "More important than compensation is whether employees feel they're valued, heard and that you're really managing their performance."