Compensation Strategy That Seals The Deal ...
By taking a strategic approach to compensation, you’re not only managing employee pay and benefits for your existing workforce, but you’re also proactively using compensation as a tool for attracting and retaining talent.
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Compensation is one of my 3 C’s of Hiring A-Players: Culture, Compensation, and Career Growth. You could argue that compensation is the number one factor in a candidate’s decision to accept a job offer. That’s because compensation plays the biggest role in helping people achieve their desired quality of life and standard of living. It’s also one of the easiest factors for you to control as a business owner.
In fact, I believe that you can have much greater success with hiring A-players by getting more competitive with compensation. And by hiring more A-players, you will have the opportunity to achieve much greater business success.
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In 2015, Dan Price, CEO of the credit card processing company Gravity Payments, introduced a minimum salary of $70,000 for his 120 employees. To make it possible, he took a significant pay cut himself. The move not only created a buzz in the business world, but it also make a big impact on his own business.
Dan sat down for an interview with Business Insider. In the following years after he raised the minimum wage, revenue soared. Not only that, his staff had many more babies and bought more homes. In other words, they felt pretty, pretty good.
According to Price,
It’s been over six years and we’ve had really fantastic results. We’ve had a 10 times increase in the number of first-time homeowners every year and 70% of our employees were able to pay down debt.
Of course, things took a turn during the pandemic, and the company lost 50% of its revenue. But as Price says, “we were able to recover from that.” The staff took voluntary pay cuts to prevent layoffs and were later reimbursed.
Inflation is outpacing wage growth.
In the April 2022 U.S. Labor Market Update from the Indeed Hiring Lab, economists Nick Bunker and AnnElizabeth Konkel report that wages are growing quickly these days, but so are costs
In March, about 45% of workers saw their wages grow over the past year after adjusting for inflation. But that’s down from the roughly 58% whose wages were growing faster than inflation in March 2021.
The writers believe that this 13 percentage point drop may explain why many Americans are feeling gloomy about the labor market and the broader economy despite rapid growth.
These economists at Indeed remind us to keep things in perspective: It is remarkable that more than 40% of workers are getting inflation-adjusted raises despite consumer prices jumping over 7% on an annual basis. That speaks to how strongly the imbalance between labor supply and demand is driving up wages.
Pay transparency and other compensation trends
A recent Forbes article looks at compensation trends and asks, “What will compensation look like in the new world of work?” The article was written by Tanya Jansen, a Forbes Councils Member and co-founder and CMO of beqom, a cloud-based total compensation management platform.
In the article, Tanya writes, "As conversations around fair and equitable pay for all have escalated and as younger employees have become a larger portion of the workforce, employees have begun to question whether their pay is fair."
Tanya points out that employees often don’t understand the full view of their pay, so they tend to think it’s fair. “Employers have a responsibility to provide transparency as to why employees are paid what they are,” says Tanya. “As well as help employees understand the full scope of their compensation.”
According to the Forbes article, “One of the most critical trends for compensation in 2022 will be the ability to manage change successfully.” As we learned during the pandemic, we can’t predict what lies ahead when it comes to workplaces. That’s why future-oriented compensation is what companies need to think about. Compensation helps employees manage this type of unexpected change.
A compensation strategy can provide lasting value
By thinking about compensation as a strategy rather than an employee perk, you will be in a better position to provide salary increases to your current employees and predict the cost of hiring new team members. In addition to budgeting, a compensation strategy provides value by helping you do the following:
Your top candidates are those that are well-qualified but also value the compensation and benefits that your organization has to offer.
If employees feel that compensation is unfair or not equitable, it can cause some employees to seek employment elsewhere.
It’s important to have established pay policies that are fair and equitable. Pay equity has been in the spotlight lately, for good reasons. Keeping compensation in balance will help you keep your business growing.
The editorial staff at Indeed has defined the 4 Components of an Effective Compensation Strategy:
Employee benefits are not only easier to market externally, but they are also a key part of a total compensation package. To start with, health insurance has real, tangible value. It’s worth a lot of money to employees at every level of your company. On top of that, retirement plans and savings plans help employees envision a path forward and may inspire them to stay and grow with the company.
Here are some things to consider when developing your compensation strategy:
Establish your budget
Of course, you have to start with a budget. You have a handle on your operational budgets. Just make sure you factor in everything, including your cost of benefits, bonuses, and possible pay increases.
Get input from your people
Ask your employees for their input on the total compensation package you offer. Find out what types of employee benefits are valued the most.
Take a look at competitors
To stay competitive in your industry and your market, find out what your competitors are offering in terms of compensation. Having this information will be helpful during the interview process.
Consider performance-based compensation
In addition to salary and benefits, there are ways to compensate employees that aren’t necessarily going to cost you a lot. For example, you could offer additional time off or a retirement savings plan.
Give your people the whole story
When you’re talking with employees or applicants about compensation, make sure you speak in terms of a total compensation package. You want your people to know what to expect and appreciate the true value of their compensation.
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Be strategic about compensation to attract A-players.
Your compensation strategy will help you attract and retain more top performers. The key is to develop a good understanding of what you really have to offer. In this post-Great Resignation era, intangible rewards are more valuable to people than ever. Don’t underestimate the value of your benefits, even a day off.
In Payscale’s 2022 Compensation Best Practices Report, 86% of organizations say they have a compensation strategy or are working in one – a 10% increase from last year and a 16% increase from previous years.
That’s a good trend to see. That means more companies are understanding what it takes to discover, hire, and retain A-players.
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