The global labor market is pretty volatile right now, with organizations across virtually all industries suffering from resignations that are taking place on an unprecedented scale as employees seek out alternative employment prospects.
If you’re looking for ways to attract and retain employees into 2023 and beyond, look no further than compensation. Understanding it is vital to staying competitive, and there’s a big opportunity for organizations to stand out if they design and implement robust compensation strategies.
If recent statistics are to be believed, it’s this recent uptick in resignations, along with the current difficulties being experienced in securing talent, that’s driving employers to bolster their compensation packages. According to a recent study by Mercer, 70 percent of employers plan on enhancing their benefits and compensation strategies this year.
What is a Compensation Strategy?
A compensation strategy is the approach that an organization takes to the pay and benefits that it offers. This includes setting salaries, identifying and putting in place staff benefits, and determining how bonuses, raises, and other monetary incentives are calculated.
A robust and effective compensation strategy will sufficiently reflect an organization’s needs, the type of culture that it wants to create and, perhaps most importantly right now, ongoing trends in the labor market.
Examples of common compensation strategies include:
- Salary—Employees are paid a base salary that corresponds to their role, responsibilities, and experience.
- Salary and Commission—Employees are paid a base salary with the potential for commission to be added on top depending on performance.
- Team Commission—Similar to commission, this type of compensation strategy looks at how well a team performed as a whole. This can encourage collaboration and teamwork.
- Profit and Revenue—Employees are paid a base salary plus bonuses, commission, or other remuneration based on profit and revenue figures. Sometimes, an employee’s entire salary might be based on these figures.
- Residual Commission—Employees are paid commission based on sales and the amount of value they generate even after they’ve left the organization.]
It’s About More than Money
It goes without saying then that in the current unpredictable labor market, where organizations are struggling to secure the talent that they need to get by and grow, it’s something that needs to be given some serious consideration.
Putting together a strong compensation strategy is about more than offering high salaries and other monetary incentives, though. The very best compensation strategy includes many components and is something that requires a lot of thought to make sure that it’s not only competitive but that it also makes it clear that your company truly cares about its people.
5 Compensation Strategy Tips for 2023
When done right, a compensation strategy can be the deciding factor for an employee who’s weighing up accepting your job offer against accepting an offer with another company.
Again, though, it’s about more than just throwing money at people. Your compensation strategy needs to be a comprehensive and well-thought-out plan that defines all the ways your organization compensates employees and how it can be accessed.
So, how should organizations approach this?
1. Take Care of Salary First
Yes, we just said that a solid compensation strategy is about more than just money. And it is… but taking care of salary and other monetary components is still an important first step. It makes up the bulk of any employee’s compensation package, after all.
An employee’s salary includes base pay, pay frequency, and pay increases.
This is the cash amount that an employee receives annually before any deductions or the addition of any commission, bonuses, or other financial components is their base pay.
Setting this can be tricky, particularly in the current climate, because you want to ensure you’re offering fair, competitive remuneration in order to attract the right talent for you.
We recommend looking at current market data to identify low-end, median, and high-end salaries for comparable roles. This will help you to set a pay range for each role in your organization that’s fair and competitive. Having data-backed base salary ranges also helps you to make adjustments in response to market pressures such as inflation.
One of the simplest ways to improve your compensation strategy and give employees a better experience is to change the frequency of when salary is paid and/or giving employees the option to choose how often they would like to be paid.
For example, you might choose to pay employees weekly or bi-weekly instead of monthly. This is more common in industries with high turnover rates such as hospitality, but there’s no reason why organizations in other industries can’t also follow suit.
One of the biggest complaints among employees is pay increases… or, rather, a lack of them.
Although pay in the United States increased 6.17 percent in November 2022 when compared to November 2021, there’s no shortage of employees complaining that they haven’t seen a pay increase for several years.
As such, more and more candidates are expecting organizations to be up-front and transparent about their pay increase policy. You should use your compensation strategy to clearly communicate not only what a candidate’s base pay is but also how and when they can earn or receive a pay increase.
2. Make Use of Financial Incentives and Indirect Compensation
Another critical component of any compensation strategy is financial incentives and indirect compensation. When these are implemented right, they can easily pad out an employee’s compensation package without weighing down too much on an organization’s bottom line.
Examples of financial incentives and indirect compensation might include:
- Overtime payments
- Stock options
- Referral bonuses
- Performance bonuses
These are extremely common in the tech space (especially stock options) and they can easily double an employee’s compensation package.
Adding some or all of them to your compensation strategy is a great way to show employees that they’re valued and fairly compensated for their work, and they give organizations a way to up compensation with more flexibility than straight salary increases. They can also incentivize good work, particularly when stock options are on offer because when the organization succeeds, the stock value increases.
3. Offer Valuable Benefits
75 percent of employees have reported that they’re more likely to stay with an employer because of their benefits program. Similarly, more than three-quarters of American workers say that benefits are necessary for companies to offer employees.
In the current market, offering benefits that employees will value is an important way you can help your organization to stand out. Examples of common benefits include:
- Medical care, including mental health
- Dental and vision
- Life insurance
- Contributions to retirement and pensions
- Cover for short- and long-term disability
- Legal and financial services
- Family-focused benefits
- Tax-deferred investments
- Student loan repayments
- Commuter and parking programs
All you need to do is decide which of these you wish to offer, search around for the best providers, and decide how much the organization will contribute.
4. Allow Flexible Working
It was unusual for businesses to offer flexible and remote working before the pandemic. Fast forward three years (how time flies!) and it has become the norm, however, as organizations were forced to work in a more flexible, agile way—both in terms of where employees work from and how they work, too.
With the world pretty much back to ‘normal’ now, employees expect that their employers will continue to offer remote and flexible working to an extent. According to the U.S. Remote Work Survey by PricewaterhouseCoopers (PwC), over half of all employees want to work remotely three days a week or more, with 29 percent of participants indicating that they want to work remotely five days per week.
In other words: You should be offering remote or flexible working, or a hybrid approach, to your employees.
5. Keep Everything Simple
Make sure that your compensation strategy is clear, defined, easy to understand, and, most importantly, executable. There’s no shortage of potential approaches that you can take when designing your compensation strategy, but it must focus on the attraction, retention, and productivity of your people.
Your compensation strategy should also seek to inspire and reinforce the culture that your organization needs to be successful. If it is too complicated or difficult to execute, it will not have its intended impact
Also, keep in mind that your compensation strategy needs to be tied to corporate strategy. It also needs to be realistic. Compensation changes that aren’t budged for or distributed as planned will fail to have their intended impact and could harm the employee experience—the very opposite thing you’re trying to achieve.
Using Organimi’s Custom Fields to Track Employee Compensation
One of Organimi’s many great features is the custom fields option. More recently, our custom fields menu has been redesigned to provide you with an even greater user experience. We’ve introduced a brand new field type, Computed, which allows you to build new fields by combining different data points! (i.e. Total Comp = Salary + Bonus).
Organimi’s software does all the calculations for you. Simply build your formula by selecting which fields you would like computed and voila! Your comp information is stored within the employee profile. And no worries, Organimi’s custom fields have been built with the option to appear private or public, all chosen by you.
Learn more about custom fields here.