When unemployment is low and skilled professionals are in high demand, you don’t want to lose your top performers to the competition. One key way to improve retention of mission-critical talent is to reevaluate what you’re paying them. Revamp your employee retention compensation strategy with help from a range of experts below.
Simplicity and clarity are key to pay satisfaction
Your compensation strategy should be pithy enough to serve as an elevator pitch to retain top performers. Mark Stocker, president of recruiter SAN Inc., says there are two keys to making this happen.
First, create a simple compensation plan that doesn’t change. Second, allocate a much greater proportion of your compensation budget to people who have great success and long tenure. Sales commissions at SAN start at 25 percent and reach up to 50 percent, with equity kicking in along the way. “It’s key to be clear about compensation from the start of an employee’s relationship with the company,” says Stocker.
Speak to values millennials respect
Millennials now dominate the workplace, and they have expectations that your company would be wise to meet. “Millennials expect fairness, communication, and advancement,” says Mykkah Herner, a compensation analyst at PayScale. “That’s why companies are showing employees market pay data. Otherwise, if they don’t, higher performers especially are a flight risk.”
Try more frequent, smaller rewards
In our ever-changing economy, some workers respond to financial rewards that come early and often. As annual performance appraisals give way to more frequent evaluations, employee retention compensation may need to take a parallel track.
“A lot of companies are not good at giving people good raises at the beginning of their careers,” says J.D. Conway, a recruiter at software vendor BambooHR. “We give employees money in small pieces as part of employee recognition, which they interpret as better growth and progression.”
Consider alternatives to ranking performance
One idea to limit attrition in a tight labor economy is to reward employee performance that’s in the top 50 percent, not just the top 5 percent. Many employers are using this approach to deemphasize forced rankings and come up with new ways for employees to distinguish themselves.
Some companies are asking employees to show that they deserve a raise or bonus, says Herner. “They’re adjusting compensation plans generationally.” Other companies are rewarding groups of employees for their success as a project team.
Know that competitors may raise their offers
If you believe a key employee has unrealistic expectations about how big an offer they might get from a rival company, think again. Your employee retention compensation shouldn’t be taken lightly.
“A couple of years ago, we would say, ‘Hey, this candidate has to be offered more money,’ and companies would balk,” says Joe Giacomin, a recruiter with the automotive practice of Angott Search Group. “Now companies don’t even question it,” if they’re determined to attract top talent.
Revise your thinking about counteroffers
If you’ve written off an employee’s presentation of an outside offer as a poison pill to your relationship, you may need to adjust your thinking in order to retain top performers. “We’re seeing a big increase in counteroffers,” says Giacomin.
“In the past, it was a real stigma to accept a counteroffer, and companies would say, ‘Pack up your gear and have a nice life.’ But these days, the employer doesn’t seem to be holding it against the person.”
Consider giving big rewards to big achievers
Giving your top performers a big chunk of the revenue they bring in may be painful, but it’s less painful than losing them and their networks. Giacomin says that in the OEM automotive parts industry, most bonuses are in the 10 to 20 percent range, but occasionally they’re 30, 40, even 50 percent.
But beware the perils of super rewards for superstars
“Some organizations pull aside large resources for their top one to five percent of performers, and give them more pay, bigger bonuses, and better mentoring and professional development opportunities,” says Dow Scott, professor of human resources at Loyola University Chicago’s Quinlan School of Business. “But the other 95 or 99 percent can figure out who’s getting the lavish attention, and they don’t like being left out.” Consider multiple types of employee retention compensation programs to keep all your employees motivated.
Restricted stock is getting more respect than stock options
Equity is always attractive, and your top people may bolt without it. But some employees won’t accept equity in your company in just any form.
“The attraction of stock options fell off in the 2007-2009 recessions,” says Scott. “Companies have had to move more toward giving restricted stock, so now employees have something even if it loses values.”
Improve retention with better recruitment
A crucial part of retaining top talent is honing your recruitment and hiring strategies. Whether you need to improve your employee retention compensation sales pitch or find better ways to source candidates who match your company, Monster can help. Sign up for Monster Hiring Solutions to receive expert recruiting advice and the latest hiring trends.