Benefits and Compensation

Understanding the FARM Components of Compensation

Have you heard of the acronym FARM as it relates to compensation? I first heard this term from a BLR® webinar run by Paul Dorf, the Managing Director of Compensation Resources, Inc. (CRI). In that webinar, Dorf noted that a compensation strategy has to incorporate all of the objectives of compensation: to direct what you’d like employees to focus on (through incentives and variable pay), to be able to attract new talent to the organization, to be able to retain existing employees, and to motivate employees to perform well. He referred to these objectives as FARM: focus, attract, retain, and motivate.

Source: Andrii Yalanskyi / shutterstock

Let’s take a closer look at each component.

Focus

The point here is that compensation can be used to incentivize employees to focus on specific things. This is done via incentive structures, bonus programs, and other forms of variable pay that persuade employees to try to achieve goals set out by the organization. These might include sales objectives, profitability improvement, safety improvements, etc. The compensation levers can be used to create focus in specific areas.

Of course, like all of these components, compensation isn’t the only factor at play here. Employee development can grow skills to give employees the abilities they need to focus and be more efficient in their roles. That said, compensation could be used to ensure employees are focused on the areas the organization needs most.

Attract

Compensation is a major component of attracting top talent. The HR team can help by conducting market surveys (or finding or purchasing them) that show the market wages for the positions in the company and then ensuring the wages on offer are appropriate in comparison. The same can be done for benefit packages.

If your organization doesn’t already conduct market wage comparisons, consider doing so, especially if you’re finding it tough to get top talent to join the company.

Retain

Retention is also influenced by the organization’s compensation strategy. If the organization doesn’t keep up with market pay levels, employees will be more likely to jump ship in search of higher wages. The HR team should not only keep abreast of current market pay but also work with the rest of the organization to ensure that employee raises and such are kept in alignment to keep pay rates appropriate over time. This can help remove at least one incentive for employees to look for other options.

It may take a bigger payroll budget than anticipated to retain employees, but it saves the cost of turnover.

Of course, compensation isn’t the only factor in retention. Good organizational culture, fair decisions, good communication, a positive working environment, respect for employees, trust toward employees, and more are all factors. That said, fair and appropriate compensation is a major factor.

Motivate

If you’ve attracted and retained employees, you still need them to perform effectively. If someone feels undervalued, that person is unlikely to perform at his or her best. The compensation strategy can be used strategically to motivate employees. Not only can incentives be used (as noted in the focus component above), but overall employee motivation levels can also be influenced by showing that the organization cares about employees through appropriate compensation and benefit packages. Recognition programs can help play a role, but compensation cannot be ignored when it comes to employee satisfaction and motivation levels.

Has your organization considered the FARM components of its compensation strategy? Is your compensation strategy working to focus, attract, retain, and motivate employees?