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Why Mis-Aligned Compensation Strategies Cost Billions – and How You Can Avoid the Loss

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Erin Cushing

It’s time to take a hard look at your compensation program. Are you too focused on process? Process is absolutely important, but sometimes a narrow focus on process means that you lose the nuanced benefits of a more strategic approach.

Without a clear strategy and transparency into compensation data for you managers (the front line of your organization), your best people might be walking out the door and worse yet, going to your competition. In fact, organizations lose over 11 billion dollars a year on employee turnover. In a candidate-driven job market where an individual can expect a 10-20% increase in pay by switching jobs, you have to be able to use your compensation program to reward high performers and encourage retention.

But what does a retention-focused compensation strategy look like? It should contain some of these elements:

Pay for Performance Structure: One of the more obvious ways to support employee retention with compensation strategy is to implement a pay for performance system, ensuring that the right people for the business are receiving appropriate rewards. This investment in deserving employees demonstrates your organization’s commitment to recognizing hard work, motivating ambitious employees. When building your pay for performance program, make sure you:

  • Create a framework for performance management that measures individual employees’ performance in demonstrable ways.
  • Provide visibility for managers into department budgets to allow line-of-business managers to allocate funds for pay increases.
  • Empower leaders to view reward recommendations, along with employee performance data and compensation data in one easy-to-access place.

Continuous Rewards Strategy: If you want to keep your best performers, then you need to invest in them, and in this market, you can’t afford to do so annually. Your technology solution should offer you visibility into individual performance metrics as well as the funds accessible year round to reward individual performance. To implement a continuous rewards strategy, you should:

  • Plan for off-cycle rewards and document approvals at all levels – your technology partner should allow managers and compensation leaders to easily view performance and compensation information and expedite approvals in one place.
  • Review rewards budgets over the whole year when it comes to the distribution of payments instead of applying a disproportionate amount investment at one time.
Communicate the details of your continuous rewards program to employees – ensuring your stakeholders understand how you are structuring compensation around performance will encourage behavioral shifts.

An Emphasis on Diversity and Inclusion: Best-in-Class organizations that include diversity and inclusion strategies in their talent management model experience 2.3x higher cash flow per employee than organizations that don’t, and more and more employees expect their hiring organization to invest in D&I. Support these initiatives through compensation by:

  • Including diversity and inclusion goals and data into the compensation planning process.
  • Using market data to compare pay to best practices.
  • Communicating diversity and inclusion goals to line of business managers who are responsible for making pay decisions.

Compensation is a key component of retaining those individuals that support the differences in your business. With nearly one in three employees actively looking for new work, don’t leave the compensation side of the equation to chance. Support retention efforts and business initiatives with a proactive compensation program.

When it comes to these initiatives, the right technology partner makes all the difference. Enterprise organizations across the world rely on PeopleFluent to help power their multi-faceted compensation strategies. See why they place their trust in us – join us for a demo of our award-winning compensation management solution on Thursday, June 9. Register here.




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