Compensation planning in service-based businesses – why the way you pay matters

Compensation planning is important to every business. But for firms selling services, where your workforce is an investment that represents your ability to win business, bill hours, and satisfy customers, it’s critical. The difference between providing your people with the right compensation and the wrong compensation is the difference between attracting and retaining the talent you need to succeed and the inability to make the margins you need to grow.

This is particularly true in a period where talent is thinner on the ground than it has been in decades, and the shortage is only set to increase. Say industry analysts Mint Jutras, “Compensation has always been critical to professional services, but with today's current and predicted talent shortages, it becomes even more crucial.”

Let’s take a look at how the right compensation plan can affect your bottom line.

Capturing time spent and accurate billing

It’s no secret that the most successful firms are those that not only utilize their people best, but capture their time as accurately as possible and bill it out reflective of their value.

Effective compensation strategies as part of a complete HCM approach aid in the calculation of billable time by ensuring that the skills, experience, and knowledge of your workforce are properly documented, compensated, and ultimately reflected in daily and hourly rates.

This in turn ensures that everyone in your company is using their time both profitably, and in line with their skills and interests – keeping morale high and helping to reduce turnover.

Reducing turnover, rewarding performance, and driving development

Your employees are an investment. When your turnover is high, your recruitment and training costs will be high too. This leads to a vicious cycle of under investment in talent and even higher turnover. It’s no secret that it pays to hang on to good people, but in many service-based industries the average annual turnover rate is frequently above 10% year on year.

Keeping turnover low is an art, not a science – there are multiple variables at play and not all of them are always within your control.

Compensation planning provides you with a framework for benchmarking your peoples’ pay against both the industry at large, your competition in particular, and your own internal baseline for performance. Compensation tools can shine a light on the framework, and the resulting transparency helps you reduce turnover by ensuring everyone is appropriately rewarded as they learn and grow and as their performance merits. This also ensures that base pay is always aligned to not just your pay strategy, but also to your total reward strategy and organizational goals.

Attracting the talent you need

Today’s talent market is a seller’s market – your people have more power than ever to vote with their feet if you can’t provide the pay, environment, and benefits they feel they deserve. This means you’ll need to be able to determine the right kind of package to attract the talent you want.

Compensation planning tools help you manage not just the pay, but also associated benefits such as bonuses and one-off payments. Most importantly they allow you to ensure your pay strategies are performance-based and equitable. Fair pay is one of the fundamental pillars you need to entice the talent essential for growth to choose your organization rather than your competition. The right tools can help you shape your compensation strategy according to overall firm needs and goals, assess your current position against the market, and develop a working approach that balances these needs.

Creating a culture of transparency and equity

For mature firms, compensation isn’t just about ensuring individual employees get paid “what they deserve”, but that everyone in the organization is compensated according to a single strategy that helps to promote diversity, inclusion, and equity goals.

Compensation planning tools allow you to create a single source of truth for the whole business – whatever its size. Ensuring that over- or under-compensation for individual employees can be avoided. And helping create an environment where salary and benefit arrangements are clearly available and legible to all interested parties. Ensuring complete transparency not just between the company and its people, but also the company and regulatory bodies, tax agencies, and within the workforce itself.

This is a particularly important concern for the increasingly large number of service-based businesses which now work on global projects. Compensation planning will increasingly become an essential factor in ensuring everyone your firm works with across the world are dealt with in the same way, and in a fashion that satisfies all regulatory requirements.

How can Unit4 help you?

Unit4 Compensation Planning provides your business with a unified front for compensation through which you can plan, make and communicate pay decisions according to multiple compensation plans, deliver clear, accessible information around pay decisions and opportunities, and create a single source of truth for all compensation planning data management.

To learn about what our solution can bring to your firm, click here.