Organizations are getting more creative as they look for ways to reward employees. From offering flexible hours, creating a hybrid work environment, PTO carryover, even bring your pet to work days. These perks and others provide expansive opportunities for employers to improve their total rewards package. However, in a competitive labor market it can be easy to forget foundational aspects of why employees work for your company-salary and compensation.
To say there are economic uncertainties is an understatement. Inflation has started to level off. We’ve seen mass layoffs in the tech sector. There is talk of micro-recessions in various industries. For instance, hospitality might thrive if you own high-end coastal resorts, but you might suffer if you own multiple hotels off the interstate in the Midwest because more business travelers are opting for virtual meetings. At the same time, we still have low unemployment numbers, which makes finding talent at every level of the organization challenging.
With these conflicting trends, here are 5 ways to evaluate your current compensation strategy:
1. Have a Compensation Philosophy and Strategy: Is your company relying on how you’ve always done things? If so, make a shift to create a compensation strategy or philosophy that aligned with your overarching company strategy. Start by synthesizing your company culture, salary benchmarks and trends for industry and geography, employee survey results and current compensation ranges by role, level and function. Having a clear philosophy will make future compensation decisions much easier.
2. Find Creative Ways to Compensate: Obviously, hourly wage and salary are important, but employees may also value other compensation outside of base pay. These can include: profit sharing, quarterly and/or annual bonuses, stock awards, smaller periodic base wage increases, 401k contributions, and deferred compensation. A mix of expected rewards (401k match) and unexpected rewards (cash bonus)can help keep employees engaged with a favorable view of their employers.
3. Own the Exit Interview: What are the main reasons employees leave your organization? Are they leaving for more pay? Owning the exit interview allows organizations to get real-time feedback. Some employees may not be forthright or may be leaving for other reasons (shorter commute, poor view of management, etc.), but if compensation is an issue, now is the time to find out where they are going and how much of an increase they’ll receive. If changes need to be made, this information may prevent the next employee from leaving.
4. Elicit Employee Feedback: Survey your employees and find out what they value. This information will help guide compensation decisions regarding base pay and beyond. Segment data by employee class to better understand what is important to management as well as front-line workers. You might find out employees view compensation as fair, but your benefits package leaves much to be desired. Also, identify mission and culture critical employees and create an internal focus group. This will result in key employees feeling more bought in to a company’s compensation philosophy.
5. Don’t Financially Overreach: Economic uncertainty can breed fear. This can lead to compensation decisionsto solve problems that may not exist. If you have a top notch culture, and your retention rate has held steady then there is no need to financially stretch yourself even further for fear of being understaffed. Every business has a finite level of resources, so continue to be a good steward and resist the urge to increase pay beyond your financial reality.
The importance of compensation planning cannot be understated. Wages are typically the most expensive line item on a P&L. An employee’s income is what allows him or her to pay their bills, invest for their future and take their family on a vacation. Answering the compensation question allows businesses to keep quality employees while simultaneously attracting desired new hires. The future of your organization may rest on your ability to understand what your employee’s value, what pay trends are impacting your industry and then executing a compensation strategy that is financially sound.