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Beyond Ratios and Raises: 3 Compensation Strategies for Better Outcomes

by 
PeopleFluent
on May 24, 2018

It’s an unfortunate fact that most compensation teams have experienced or are experiencing the pressure of managing an annual increase cycle with a flat or trimmed budget. The recent trend of 3% increases appears to be holding steady in 2018.

While there is a clear connection between employee 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 managers and rewards leaders use best practices for collaborating 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?

A compensation strategy is defined as a company budget and employee compensation plan for rewarding, developing, and creating incentives for employees. You don’t need a perfect compensation strategy to create a strong compensation plan, but by implementing best practices, your company can better attract and retain employees to win the war for talent.

Here are three tips to do that.

1. Embracing Pay Transparency

For many organizations, hiring is a major challenge. Global figures indicate that 40 percent of employers have difficulty filling positions. As of March 2018, the US has 6.6 million job openings with an average vacancy duration of 30.4 working days—64.3 days for companies with 5,000 or more employees.

“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.” US Cash Compensation Outlook for 2016 Kerry Chou, WorldatWork, Senior Practice Leader

Job seekers are now comparing salary rates and pay equity information of potential employers on social sites like Glassdoor before even applying for open positions.

Embrace this transparency trend and use it to your advantage to improve your employer brand among candidates. Consider updating your target market rate for certain hard to fill jobs to improve time-to-fill rates and pay equity. 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 of their pay plans on higher sales and customer satisfaction.

2. Train and Reward to Retain

The US faces a skills gap. The supply of college graduates remains steady, but the labor market needs other skills such as qualified electricians and plumbers. The US manufacturing sector needs truck drivers, specialized certifications, and STEM (Science, Technology, Engineering and Math) skills.

Where specialized candidates are in demand, the value of qualified job seekers is higher than ever.

In some cases, it can cost less to train current employees than to recruit a new specialized employee.

To that effect, consider establishing rewards programs for employees who complete training, professional development, technical, or apprenticeship programs. By tying compensation and rewards to training and development strategies, compensation leaders can not only improve employee engagement, retention, and succession planning—they can effectively meet the talent demands of the business.

3. Pay for Outcomes, not for Performance

Pay for performance is a compensation strategy that many organizations implement to justify rewards for high performers and associate employee goals to company objectives. Talent management systems, such as the PeopleFluent Talent Productivity Platform, integrate performance management systems with compensation planning. This delivers across various performance rating groups to guide merit increase and reward decisions and ensure they align 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.”  US Cash Compensation Outlook for 2016 Kerry Chou, WorldatWork, Senior Practice Leader

Unfortunately, performance appraisals can be flawed or may be too generic. The employee performance data collected by managers and co-workers is typically subjective and prone to unconscious biases. 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.

The hallmark of pay for outcomes is to leverage quantifiable data for rewards and incentives.

For example, manufacturers use workforce management systems to measure line employee activity, tracking output, quality, scrap, shortage, downtime, and other metrics. These data are 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—not just in manufacturing, but also in retail stores, by tying task management systems to performance and compensation.

Integrate and Elevate for Maximum Strategic Impact

Talent management technology discussions often focus heavily on recruiting, learning, and performance management solutions, but a modern compensation management software integrated with a talent management suite can elevate the strategic impact of your talent strategy to the organization.

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