By now, most compensation teams have experienced or are experiencing the unfortunate situation of an annual increase cycle without much to work with. Multiple surveys have indicated that 2016 budgets will remain relatively flat at roughly 3%.
While there is a clear connection between compensation and retention, and more organizations are demonstrating that connection by implementing pay for performance strategies, the combined talent shortage and looming skills gap across many industries is dramatically hindering growth, innovation and service quality. How can Compensation and Rewards leaders collaborate with their HR peers to impact recruiting and succession planning? Can compensation strategies influence HR’s ability to attract and retain critical talent and sustain company growth?
With the right strategies, you can create and support the compensation practices that will help your company better attract and retain employees and win the war for talent. Here are three ways to do that:
Embracing and Competing with Pay Transparency
For many organizations, hiring is a major challenge. America has a near record 5.6 million job openings. The 2015 ManpowerGroup Talent Shortage Survey states that 38% of employers report difficulty filling jobs globally. And a recent Indeed survey shows that jobs are open longest in the US, with 25.8% of jobs remaining open for 60+ days. Candidates are now comparing salary rates and pay information of potential employers on social sites like Glassdoor before even applying for open positions.
“When the pain associated with losing too many workers to competitors or the inability to find qualified applicants reaches a general tipping point, wage growth will accelerate.” U.S. Cash Compensation Outlook for 2016 Kerry Chou, WorldatWork, Senior Practice Leader
Embrace this transparency trend and use it to your advantage, and improve your employer brand among candidates. Consider updating your target market rate for certain hard to fill jobs to improve time to fill rates. If the cost of paying above the median allows you to get new hires on board faster, it will ultimately improve output, productivity and revenues and pay for itself. Organizations like Costco and Trader Joe’s have long promoted the impact on higher sales and customer satisfaction tied directly to higher wage rates.
Train and Reward to Retain
The US faces a skills gap. While there are more college graduates than ever before, in many cases those skills are not exactly what the labor market needs. For example, there's a lack of qualified workers available for vocational jobs like electricians and plumbers. There is a dramatic shortage of truck drivers in the U.S. Manufacturing is desperately lacking certain certifications and STEM (Science, Technology, Engineering and Math) skills. Apprentice, tech ed and vocational programs are decreasing. This lack of specialized candidates means that the value of those few qualified job seekers is higher than ever, Ultimately, it costs less to train current employees than it is to recruit a new specialized employee.
To that effect, you should put rewards programs in place for completion of training programs. By tying compensation and rewards to training and development strategies, Compensation leaders can improve employee engagement, retention and succession planning.
Pay for Outcomes, not for Performance
Pay for performance is a strategy that is often implemented by many organizations to justify rewards to high performers and associate employee goals to company objectives. Talent management systems, like the PeopleFluent Mirror Suite, offer integration between performance management and compensation planning. Visibility into the flow of compensation funds across various performance rating groups and help to guide merit increase and reward decisions, and ensure they are in alignment with company strategy.
“Organizations will most likely continue to target key employees and high performers with above average pay adjustments and retention bonuses, while the bulk of the employee population will see more of the same this year.” U.S. Cash Compensation Outlook for 2016 Kerry Chou, WorldatWork, Senior Practice Leader
Unfortunately, performance appraisals can be flawed or may be too generic. The collection of employee performance data by managers and co-workers is typically subjective and often biased. Yet in many industries, labor activity data is systematically and objectively measured. Primarily used for staffing and scheduling purposes, labor data can be tied to compensation as part of a pay for outcomes strategy and an increased Return on Talent.
For example, manufacturers use workforce management systems to measure line employee activity, tracking output, quality, scrap, shortage, downtime, etc. This labor activity data is typically used to associate shift employees and equipment with work orders to measure staffing efficiency for scheduling to meet demand. That same information can be used by compensation leaders to reward employees based on outcomes. The same approach to using data to dictate pay for outcomes could be used in retail stores, tying task management systems to performance and compensation.
Pay for outcomes leverages quantifiable data for rewards and incentives.
Compensation leaders are also considering executive level goals, such as rewards connected to Innovation, a top concern for today’s CEOs.
Talent management technology discussions are often focus heavily on as recruiting, learning and performance management solutions, but a modern compensation management platform, integrated with a talent suite can elevate the strategic impact of your talent strategy to the organization.
Looking to purchase a modern compensation management platform? Check out our Compensation Management Software Buyer’s Guide
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