This week in HR, we are discussing company culture, changing work environments due to M&A activity (at least three of our customers are in heavy acquisition mode), and benefits, and it's clear that employee compensation remains THE pivotal factor in attracting and retaining top talent in and through change. While initiatives that support team members as individuals contribute to a positive environment, a robust compensation package is the key to capturing the attention of quality candidates and fostering loyalty among high-performing employees.
Some key data that might give you a sense of worker sentiment following 2023 in the USA:
Employee compensation can get complicated; I like to write about things that are difficult to understand and simplify concepts for my own edification, and hopefully yours, too. Here’s a primer on some basic compensation concepts:
Understanding Employee Compensation
Employee compensation is far more than just the base salary. Total compensation encompasses various benefits and perks, such as health insurance, life insurance, 401k matching, stock options, and more. These components collectively form a comprehensive compensation strategy that goes beyond monetary considerations.
Direct and Indirect Compensation
There are two main types of compensation: direct and indirect. A well-balanced mix of both creates an attractive compensation package for both employees and organizations.
Direct Compensation:
Indirect Compensation:
Indirect compensation not only provides financial benefits but also enhances engagement, improves employee satisfaction, and reflects company culture—can typically provide some motivation for ‘extra-curricular’ activities and projects that strategic value to the organization.
The Importance of Competitive Employee Compensation
While a positive work environment and company values are significant, an individual's financial stability often takes precedence in the hierarchy of needs as the highest impact feature of talent management. Regardless of how appealing a product or mission statement may be, the ability to positively impact someone's bottom line plays a crucial role in recruiting and retention efforts.
According to a recent workplace survey by a large HCM service provider, compensation emerged as the top motivator for over 62.2% in the US. And it ranked as the top reason for employees leaving organizations in 2023. It also appears to be in the air, as ever, for 2024 as something that employees are open to, as a recent Gartner study indicated.—It’s not something employers can afford to ignore. Employee turnover is costly, and a generous compensation package builds loyalty, reducing vulnerability to competitor offers.
“Employees will go where the money is. And where they’re treated respectfully and valued. But, mostly, it’s the money”.
This does raise a question around when in the hiring process you can start discussing salary. There’s a growing consensus on including salaries in job descriptions from the get-go – here’s why you can and should consider this in your own recruitment process.
Building a Competitive Employee Compensation Plan
As you craft your employee compensation strategy, consider the following:
Structure and Strategy are Key
To create a pay structure, conduct a job analysis to define each position and its relative value within the company. Utilize benchmarking or pay grades to align salaries with market trends and company objectives. Enhance your strategy by incorporating indirect compensation offerings that align with company culture.
A competitive employee compensation package, combined with a positive organizational culture, yields long-term benefits that extend beyond the initial costs.
PHILIP CARRILLO, MBA, SHRM-SCP
Director, HR Services
Philip began his 12-year Human Resource career in HR Project Management and Recruiting in the legal tech sector, working for startups that were listed among Forbes Fastest Growing Companies. Philip has managed human capital operations in almost all 50 states and in parts of Europe. His experience ranges from compliance to leadership coaching. After achieving his MBA from Tulane University in 2019, Philip transitioned from in-house Director to consulting, where he focuses on helping leaders understand, document, and improve productivity and visibility through Performance Management, Mission Vision and Values integration, and Professional Development. Compliance remains a cornerstone of his strategic assistance to companies that want to scale carefully and smartly.
Philip believes that every employer can methodically create an attractive and inspiring Employer Brand and Human Capital strategy. “Every challenge can become the building block of a breakthrough opportunity through a dynamic HR strategy.”