In a previous blog, we identified the emergence of one-to-one compensation. Employers are adopting this approach along with other innovative strategies to attract and retain talent in 2022, increasing their compensation maturity along the way.
beqom’s 2022 Compensation and Culture Report: Rethinking Pay Strategies for a Changing Workplace reveals numerous reasons that employees would leave their current employer for a new job. Employers need to adapt their strategies for attracting and retaining talent not just because of the Great Resignation, the effects of which are still being felt, but also because employee attitudes and expectations have changed.
That doesn’t necessarily mean throwing out the baby with the bathwater. Many of the existing tools in the HR rewards toolbox can still be effective and can be leveraged in new and innovative ways to compete for talent and develop deeper employee engagement.
Employers adopting flexible and fair compensation strategies
Mercer’s 2022 Global Talent Trends Study reported on how employers are adapting their total rewards strategies for talent retention. Flexible compensation and fair pay ranked highly. The top strategy cited was “offering more types of rewards and compensation (e.g., spot bonuses, gift cards, time off) (30%), in line with a trend towards one-to-one compensation.
Following that, 28% were “increasing compensation for those below the benchmark today” and “proactively adjusting pay to address internal equity.” A close third (26%) was “offering more personalized rewards packages (e.g. split of fixed versus variable, etc.),” — also in line with one-to-one compensation. Equal in prevalence were “increasing employer benefits cost coverage to increase take-home pay” and “increasing retention bonuses.”
Tying pay to performance is increasingly in style
BenefitsPro predicts that in 2022 performance-based compensation will continue to grow in popularity, with executive pay increasingly tied to company performance. That’s not only to attract executive talent but to please the shareholders: “performance that drives up share price or valuation of the company is something investors are generally happy to reward.”
Incentive programs can be based on both short-term and long-term performance goals, says BenefitsPro. Performance-based compensation can be “used not only as an incentive to reward people who perform above and beyond, but also to act as a retention bonus increasing the probability of keeping the best talent and top performers.”
Expanding the use of equity to save cost and boost engagement
Extending the notion of paying for performance, what may be on the horizon is the increased use of long-term incentives like stock and options to attract and retain talent beyond the executive ranks. “Employers at publicly traded companies may need to rethink who is eligible for equity compensation and how quickly those awards vest,” said Catherine Hartmann, managing director of work and rewards at consultancy Willis Towers Watson, speaking to SHRM. “For example, employers could use stock grants to retain high-demand and high-potential employees and managers, even if they are not at a level that would traditionally be eligible for equity awards.”
Broadening the use of equity not only can lessen the upward pressure on cash compensation but can help create pride of ownership and tether valued employees to the company for the long term.
Understanding and communicating total compensation
It becomes increasingly important to have a total compensation management solution that houses all forms of compensation under one roof: salary, bonus, commission, equity, and other perks and non-cash rewards. This is important because you want to always be able to get the full picture of total rewards for any individual, team, or department.
beqom’s Compensation and Culture Report revealed that most employees don’t actually understand their compensation. Digging deeper into pay transparency, when asked whether they knew their total compensation, which comprises take-home pay plus the full value of an employee’s benefits and perks, fewer than half of US respondents (48%) said yes; the number was even lower (41%) for UK respondents.
A total comp view is not only for the benefit of HR and management; the more moving parts you have in your rewards strategy, the more important it is to communicate total rewards clearly to employees, so they understand exactly what value they are receiving, and how their pay was determined.
Increasing your compensation maturity
Companies are beginning to see the need to increase their compensation maturity and develop the capabilities needed to deliver flexible and strategic rewards packages.
According to Payscale’s 2022 Compensation Best Practices Report, less than one-third (31%) of organizations rate themselves a 3 or 4 out of 4 on the compensation maturity model. In fact, only 53% of companies are fairly confident or very confident in their total rewards package.
That’s a lot of money being spent on compensation without a lot of confidence in the return on investment. And, says the report, 75 percent of organizations expect compensation will be more challenging in 2022, while a solid 70 percent plan to invest more in compensation management.
The increased investment in compensation management is understandable, given the need to make the most of your human capital in today’s talent environment. Many companies are finding that business-as-usual does not work anymore when it comes to managing compensation. Using spreadsheets or homegrown systems, or trying to stretch the compensation module of an HCM suite, are not adequate to meet today’s challenges for flexible and strategic use of compensation and rewards.
For more information on the benefits of a dedicated compensation management solution, contact a compensation expert at beqom.