Reasons to rethink your compensation strategy
Is now the time for your company to revisit its compensation strategy? When profits are up—thanks in part to labor market conditions that allow for relatively low pay increases—many companies don’t feel the need to make any changes. So why should employers start worrying about whether their employees feel fairly compensated?
The manner in which you structure employee compensation has many ramifications. It affects employee retention, productivity, and internal pay equity, to name a few key areas. Here are some top considerations on why you should regularly revisit your employee compensation structure.
Pay for performance
Companies should recognize that employee motivation is something that money often can buy. “The performance the employer wants isn’t going to be sufficiently motivated by a modest pay increase,” says E. James Brennan, a compensation consultant in Bellingham, Washington.
Workers appreciate the economic value of a more-than-minimal raise and what it says about the employer’s bottom-line recognition of job performance. Conversely, year after year of meager increases can cause employees to emotionally check out. Think of the cost of a substantial raise as an investment in productivity and employee satisfaction.
Reward them or lose them
While many employers will keep average salary increases in the 3 percent range or less, they should recognize that talent is considerably more mobile than it used to be. Workers often vote with their feet, and employee turnover is costly for any business.
One way to adjust your compensation strategy is to demonstrate to your employees that you value them with all kinds of rewards, from cash to intangibles. Financial incentives, positive reinforcements, company recognition, and employee engagement strategies can all go a long way to increasing employee satisfaction and retention.
Reconcile compensation discrepancies between new hires and incumbents
Beware of bringing in talent comparable to your incumbent employees at significantly higher pay. “Once you find out what the market entry pay rate is for your hiring pool, you have to think about what the impact will be when you put this new hire in the pool where incumbents are making less,” says Brennan. You may need to either adjust that offer for a new hire or consider internal pay raises or incentives.
Educate employees about salary and incentive policies
If you believe in the integrity of your compensation strategy, you should be able to discuss it with your workers in some detail. Employees who understand how decisions are made regarding raises, bonuses, incentives, and the like are less likely to feel that differences in pay are inherently unfair.
This is even more important when it comes to younger employees. Millennials are more likely than previous generations to share their salary information with others, including co-workers. So, it’s especially beneficial to have an open conversation about what aspects of employee performance earn financial rewards.
Close the deal with a signing bonus? Think twice
Signing bonuses can alienate incumbent employees who have stayed with the company through recent years of scant pay increases. If your best candidate or their headhunter asks for a signing bonus, consider counteroffering with a performance-based bonus payable a few months out if goals are met. And offer the same incentive to everyone in the new hire’s cohort.
Mind any race or gender pay gaps
The diverse workplace of the 21st century is no place for demographic biases in pay, which often are illegal. However, they do persist and laws are constantly changing to address the discrepancies. A proactive employer needs to know the current laws regarding employee compensation and should take steps to rectify internal pay gaps rooted in bias.
Make smart compensation decisions when hiring new talent
Your compensation strategy isn’t just a line in your budget. It affects employee satisfaction and retention, workplace drama, productivity, and the law. So, it helps to get it right from the get-go. Get expert advice and hiring tips from Monster Hiring Solutions to start off on the right foot.