Target compensation is what an organization believes a reasonably good performer will earn in a given role.

The target compensation includes base pay and variable compensation.

• Base pay is either the hourly or salaried income an employee receives.
• A full-time employee will typically have a greater range of benefits and would thus have a higher Target Compensation.
• Variable compensation is the expectation of what a reasonably good performer would earn. This is not a measure of a bad performer or a top performer.
• Often this is seen in sales as a commission, bonus, or even cash compensation.
• This includes term incentives that offer employees the opportunity to reap rewards directly tied to performance. 

Total target compensation, or ttc,  is the total compensation at 100% performance level.

For non-sales roles, most organizations might think of overtime. That’s an obvious one. But many of the highest performing organizations have variable compensation tied to KPIs relevant to the team functions. 

• For marketing, it might be tied to lead generation or web traffic.
• For account managers, it might be tied to retaining existing clients or expanding contracts. 
• For customer service, it may be tied to cross selling or upselling existing clients. Or ticket resolution. 

Overtime, seasonal workload considerations

Take these three things into account when identifying what target compensation is for a given role on your team

• Makes recruiting and hiring better
• Retention
• More natural ebb and flow to payroll expenses 
• Much more natural, clear conversation about compensation during the interview process (versus NO conversation until the very end) 
• Good faith estimate for what people are going to make

If you do not already have a target compensation plan, then we can help you get started right away. 

• Calculate target compensation for each role – look at last year. What was everyone in that role paid? If you have a high turnover team, focus on people who were on the job for 12 months or more. 
• Meet with managers / leadership to get their buy-in. And coach them on how to talk about pay. It’s up to the manager to explain how compensation works to employees/candidates. 
  • Address some pushback people may get, such as employees feeling like managers aren’t being straight with them regarding compensation.
  • Support your points by pointing to the data used to come up with target compensation. Be transparent! Lay out what the assumptions are for someone who is a reasonably good performer, by being able to articulate what success looks like in that role. It is not a big change in posture but an important change in posture. It’s the cornerstone of how you talk about pay.

Related Terms: Competency-Based Pay