A strategic compensation strategy guides companies’ approach to managing total employee compensation.
According to the 2021 Compensation Best Practices report published by PayScale, the focus on compensation strategy continues to grow despite hard financial times. Companies that either have or are crafting a compensation philosophy reached a record high of 75.6%, increasing 6% compared to last year.
In today’s competitive hiring market, compensation has evolved past the standard paycheck. Employees are seeking that not only offer competitive pay, but additional benefits that adapt to ever-changing employee expectations and market trends.
1. Research Rapidly Changing Salaries and Trends in Similar Companies
Comparing your salary ranges to similar-sized companies in a particular geographic region is key to ensure that employee pay stays competitive. This comparison is not exclusive to the hiring process. Markets change, so annual salary audits ensure that your employees’ compensation is consistent with those who hold the same position in an equivalent company.
Adjusting an employee’s salary based on the external market demand prevents you from losing valuable employees to higher-paying competitors.
With the rise in working remotely, additional consideration must be given regarding how this newly expanded job market will impact pay and other forms of compensation. PayScale reports that only 10.6 % of companies currently have a pay strategy specific to remote workers, and 50.4% do not anticipate that remote work will have any effect on their strategy. With an estimated 70% of employees working remotely at least five days per month by 2025, modifying your compensation strategy to meet the specific needs of the growing remote workforce can place your company ahead of the trend. Relocation and travel funds can be reallocated to stipends to assist employees working from home or increases in base salary.
2. Offer Flexible and Competitive Benefits Packages
Extensive benefits packages can be used in addition to salary to attract and retain talented employees. Common examples include:
- Health benefits
- Retirement funds
- Tuition reimbursement
To capitalize the most on funds designated for a compensation strategy, regular surveys should be conducted among the employees. Tuition reimbursement may be heavily desired among entry-level positions with employees who aim to continue their education, but those who have already reached senior-level positions may not view this as a motive to stay with the company. Listening to the workforce about what compensation is beneficial to them allows companies to adjust their strategy and better capitalize on money dedicated to compensation.
The ability to adapt to changing workforce demands allows companies to craft a competitive strategy regardless of market conditions. Additions to your compensation strategy to reflect the priorities of the current force can include:
- The opportunity to work remotely
- Pay equality
- Transparent communication regarding changes to compensationt
Discrepancies between compensation expectations and reality can create job dissatisfaction. By clearly communicating your total compensation strategy, employees can focus less on the base salary and consider all the other benefits their job provides.
3. Plan Room in Your Budget to Account for Performance Rewards
To increase employee retention rates, adjust compensation packages to reflect excellent employee performance. This requires flexibility in your annual budget but does not mean you have to break the bank. Common examples of additional benefits besides an increase in pay include:
- Additional vacation days
- Stock options
- Flexible schedule
Considering the cost and performance loss associated with hiring and training new talent, investing in performance incentives can save your company money in the long term.