Aside from COVID-19, the Great Resignation was the next trending item that made the headlines in 2021. According to research by Gartner, 65% of employees said the pandemic has made them rethink the place that work should have in their lives. While it may seem that the pandemic has fueled the significantly higher attrition rates globally, turnover risks tend to vary across industries, functions, compensation packages and employee level.
Whether the organisation is experiencing the Great Resignation firsthand or not, it is important to understand what are the potential push and pull factors on today’s talent pool. The key question to ask is: why are employees quitting? The paradigm shift in what employees expect from their employers and work has gone beyond compensation. Higher pay does not make up for a bad work experience. In fact, in a LinkedIn survey of over 5,000 job seekers, only 13% indicated that they wanted to switch jobs because of pyay dissatisfaction. The remaining 87% wanted to switch jobs mainly because of other factors such as job dissatisfaction or disengagement.
Numerous research has shown that employees today value non-monetary benefits, including lateral movement opportunities, innovative benefits and flexible work arrangement. That being said, a job is still a job. Employees expect to be paid accurately and fairly based on the job expectations and their performance on the job. Here are some ways in which organisations can maximise their compensation packages beyond just the actual dollar value.
Recognise that compensation goes beyond basic salary
Compensation is more than just a paycheck. It refers to all monetary rewards that an employee is entitled to based on their performance on the job. This includes allowances, bonuses, benefits, and corporate perks. When developing a total compensation policy, it is critical to identify salary elements that are important to the organisation and its objectives. Employees’ demographics and budget constraints are a key consideration as well. For example, if organisation A’s workforce comprises largely of sales employees, they may value a higher proportion of sales incentives tagged to their sales performance as opposed to base pay. As a compensation policy typically includes various elements, it is imperative to communicate the total compensation to employees, and what it entails. This helps to reinforce the value of what the organisation is offering in terms of compensation is clear and transparent, thus attracting and retaining key talent.
Understand what market competitive compensation means
Employees always need to be paid. However, there is a key difference between ideal salary and market salary. While higher pay typically suggests bigger responsibilities, it may not directly translate to higher satisfaction and motivation levels. The most basic question to address is whether employees are paid at market pay levels. Market pay levels refer to the amount of salary that most organisations across all industries are paying based on the key expectations of the role. Any other compensation elements, such as allowances or bonuses are then tied to the nature of the job, candidate’s experiences or skill sets, and performance on the job. The market pay level for each job is where organisations need to ensure that they get it right. In fact, a study by PayChex revealed that close to 70% of employees have left or would leave a job due to low salaries. In determining the market pay levels for each respective job, organisations need to consider various factors, including their target pay positioning, peer groups, and availability of talent.
Leverage compensation to engage employees
Compensation is a powerful tool in driving desirable behaviours among employees. It can be used to attract, retain and motivate employees. With the growing gig economy across industries, compensation becomes even more critical in engaging both the physical and remote workforce. A poorly-defined compensation philosophy can result in disengaged employees, particularly when employees feel undervalued or underpaid. According to research by HR consulting firm Willis Towers Watson, employees who believe they are paid fairly compared with people within their company or other companies are 4.5 times likely to be highly engaged compared to employees who believe that they are not paid fairly. The key is to conceputalise compelling compensation strategies tailored towards specific employee groups to engage as well as attract key talent.
Incorporate compensation into overall employee value proposition
Compensation forms the foundation of the entire employee value proposition. Once organisations are able to ensure an externally competitive and internally equitable compensation package, this lays the groundwork for organisations to focus on other employee engagement initiatives, including developing career pathways or focusing on the broader employee well-being. A key consideration is to align these compensation strategies with the overarching people agenda and business objectives.
It is important for organisations to recognise the importance of compensation, and the critical role it plays in attracting, engaging, and retaining employees. The upside about compensation is that organisations have the flexibility to tailor their compensation packages depending on their workforce demographics. Once organisations are able to define their compensation philosophies and link it to the overall employee value proposition, it will inevitably promote higher productivity levels and create an engaged workforce.