Businesses can use compensation strategically to drive behaviors that support organizational objectives. Leading organizations recognize compensation strategy as important for success. Research shows top performers are more likely to have formal compensation strategies and use team-based incentives, social recognition, and milestone-based bonuses. Strategic compensation aligns with business strategy and requires the right technology to support strategic initiatives across the organization.

1. Strategic Compensation: An Opportunity for Success
Businesses today need to take advantage of every conceivable
angle and opportunity to stack the deck in their favor if they are
to become major players in their industries. One often-
overlooked tactic is to utilize compensation, not as a traditional
reward and recognition system, but as a strategic tool. Leading
organizations recognize that taking a strategic approach to
compensation can play a major role in their ongoing success.
This line of thinking is getting a lot of attention in the world of
compensation leadership. For example, recent Aberdeen
research demonstrates that creating a formalized compensation
strategy is rapidly becoming a best practice among top-
performing organizations. In fact, Best-in-Class companies are
12% more likely than Average organizations and 57% more likely
than Laggard organizations to have a formal compensation
strategy in place.
Compensation Within Best-in-Class Organizations
Looking at top-performing companies reveals some very
interesting insights with regard to compensation.
STRATEGIC COMPENSATION: A CRITICAL
SOLUTION
September 2016
A strategic approach to compensation can have a game-changing effect on workforce ROI, retention, and engagement.
What’s more, strategic compensation can drive behaviors that directly support organizational objectives.
 Howard Adamsky, Senior Analyst,
Human Capital Management
Aberdeen Definition:
Strategic Compensation
Strategic compensation is designed to
reward specific work that is directly
tied to overall business objectives. The
utilization of effective compensation
strategy should increase
organizational success as well as help
attract and retain employees. Strategic
compensation often involves an
organization moving beyond the
typical salary or hourly wage models
and looking for more creative ways to
reward employees for the successful
completion of very specific and highly
targeted actions and / or tasks.

2. www.aberdeen.com
Figure 1: Best-in-Class Compensation Practices
Aberdeen data shows that Best-in-Class organizations are 42%
more likely than All Others (75% vs 53%) to utilize team-based,
non-financial incentives – such as after hour celebrations, trips,
outings, and office parties – as a part of total compensation. This
indicates that leading organizations think beyond monetary
rewards when devising their compensation strategy.
Aberdeen data also shows that Best-in-Class organizations are
88% more likely than All Others (60% vs 32%) to use social
recognition as part of their compensation strategy. Such
initiatives build morale, encourage teamwork, and openly signal
leadership’s appreciation of staff. The fact that leading
organizations are nearly twice as likely to use such tactics
indicates how much they value its impact.
Finally, Aberdeen data demonstrates that top-performing
organizations are 2.5 times more likely to pay out bonuses based
upon the achievement of milestones during the course of a
project, as opposed to simply paying them out at the end. This
offers a perfect example of how compensation can be used to
drive specific behaviors and business outcomes, rather than
merely rewarding them after the fact.
Aberdeen data shows
that top-performing
organizations are
2.5x more likely to
pay out bonuses
based upon the
achievement of
milestones during
the course of a
project, as opposed
to simply paying out
a bonus at the end.

3. www.aberdeen.com
Compensation Strategy Must Align with Business
Strategy
Every business leader wants to have a workforce whose
activities, behaviors, and tasks are aligned with the overall
business strategy. Of course, this means understanding how
different functions influence business outcomes.
Not surprisingly, Best-in-Class companies are 82% more likely
than All Others to have a process in place to identify which job
roles are critical to the organization’s success (i.e., the roles that
have the greatest impact on revenue / profit). Understanding
critical roles is essential when devising a compensation strategy
that supports both recruitment and employee retention efforts.
Technology Matters
A strategic approach to compensation cannot be adequately
conceived or rolled out without the right technology.
For example, a large company in the semi-conductor and
electronics industry relied on a compensation planning process
that was manual and inefficient. Without easy access to the
necessary data or efficient support tools, they found it very
difficult to create and execute a compensation strategy.
Operating in 23 countries, the leaders of this company realized
that, rather than continuing to rely on spreadsheets, they
needed to deploy an online compensation solution. As a result of
doing so, managers across the organization were able to make
compensation decisions that were better aligned with
organizational goals. They were also able to implement a
compensation strategy that leveraged on merit-based
compensation, bonuses, equity, and profit sharing.
Choosing the right technology is one way that companies
support a strategic approach to compensation. They can also

4. www.aberdeen.com
incorporate a host of innovative tactics within their
compensation programs, including:
Performance-based promotions, motivating employees
to excel in order to achieve higher compensation levels.
Corporate wellness programs, supporting a healthy work
environment, which increases productivity.
Flexible and collaborative work options that, when
incorporated in a compensation strategy, can help with
recruitment and improve retention rates.
What Sets the Best-in-Class Apart?
Best-in-Class organizations are distinguished from their peers
because their practices yield better business results. Consider
these three examples:
1) Organizations with compensation strategy tools see
2x year-over-year revenue improvements per full time
employee (FTE). Can you even imagine the impact, on
your company, if you somehow managed to double
revenue per FTE?
2) Organizations that utilize compensation strategy
tools are 28% more likely to say that their employees
are highly engaged. High levels of employee engagement
mean increased productivity and improved retention
rates.
3) Best-in-Class organizations are 38% more likely
than All Others to say that employees join their
organization for a competitive salary. A thoughtful and
strategic approach to compensation has a direct impact
on your employer brand, making an organization an
employer of choice of critical talent.
Best-in-Class
organizations are
42% more likely than
All Others to utilize
team-based, non-
financial incentives
as part of their
comprehensive
compensation
strategy.

5. www.aberdeen.com
Recommendations
There’s More to Compensation Than Administration. Many
organizations think about compensation and compensation
management in terms of administrative efficiency. This is a
mistake. Compensation, when approached strategically, serves
as a critical tool that influences everything from talent
acquisition and workforce productivity to corporate revenue and
overall business performance.
Ensure Alignment Between Compensation Strategy and
Business Strategy. You can’t develop a strategic approach to
compensation in vacuum. Your compensation strategy needs to
be aligned with a clearly articulated business strategy, and it
should highlight the importance of recognizing that talent
acquisition and retention are key business drivers.
Compensation Technology Must Support Compensation
Strategy. Just as an administrative focus is not a strategic focus,
no strategy can be executed without the appropriate tools.
Compensation technology should improve operational
efficiency, to be sure, but it must also support strategic
initiatives across the enterprise. Make this a priority when
considering technology partners.
Conclusion
It’s time to look at compensation as a strategic tool. Yes, aligning
compensation with your business and technology strategies will
yield greater efficiency. More importantly, however, it can turn
compensation into a true competitive advantage.
Best-in-Class
organizations are
38% more likely
than All Others to
say that
employees join
their organization
for a competitive
salary.

6. www.aberdeen.com
About Aberdeen Group
Since 1988, Aberdeen Group has published research that helps businesses worldwide improve their performance. Our
analysts derive fact-based, vendor-agnostic insights from a proprietary analytical framework, which identifies Best-in-Class
organizations from primary research conducted with industry practitioners. The resulting research content is used by
hundreds of thousands of business professionals to drive smarter decision-making and improve business strategy.
Aberdeen Group is headquartered in Boston, MA.
This document is the result of primary research performed by Aberdeen Group and represents the best analysis available at
the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group
and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written
consent by Aberdeen Group.
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