All About Compensation Strategy (And Some Other Stuff)
Julie Simmons, SPHR, SHRM-SCP, outsourced HR, recently talked about compensation strategy and how it relates to office culture, total rewards, inflation, etc. Here’s an overview of the discussion.
A Seismic Shift
According to Julie, everything shifted for organizations in regards to how they do their work in March 2020 (we all know what happened then!). Over the last three years, everything has changed as it relates to compensation, planning, and how you do your job. The way we do work and business has been turned on its head, and businesses need to keep that in mind when it comes to compensation.
Finding and keeping good talent is the number one problem that Julie’s clients are having, she doesn’t see that changing any time soon, and it’s at the heart of our discussion and the trends we’re observing.
Office Culture
“Office culture” is a big buzzword right now - what do we need to be thinking about in terms of remote/hybrid work and flexibility?
Hybrid/remote work is here to stay, says Julie; business leaders need to embrace that and realize that the daily commute to and from work is no longer the norm. New workers - those just graduating college or trade school - expect a different working environment than what their parents and grandparents had. If you want to keep top talent, some level of compromise on where/how often work needs to be done in the office is necessary.
Intentionality and strategy around communication, connection and engagement with employees will be key. You can’t count on accidental opportunities to connect with others any more.
Performance management is evolving, as well; almost 70% of organizations are implementing employee monitoring as it relates to remote/hybrid work according to the WorldatWork survey. The question now is, how can companies measure actual performance, output, and KPIs in a way that is meaningful and resonates with the culture of your organization?
Compensation Strategy
We need to go back to the basics and focus on the fundamentals with regards to compensation strategy, according to Julie. Understand what your compensation philosophy is, make sure you have an established framework, think about pay equity when you’re analyzing your compensation data, consider how you’re going to promote through your organization and use your compensation framework as a vehicle for that objective. All of these issues and more need to be taken into account when developing a compensation strategy. While large organizations often have this type of approach at the forefront, mid/smaller organizations maybe dusting off their plans or pivoting in this new environment. All sizes can benefit from looking ahead at the organization they want to be and designing toward that goal.
Salaries, bonuses, equity, etc. - think about how to pull all the levers relative to compensation, and be intentional and strategic. You want to reward your top talent without making everyone else feel left out. You want to drive the right behaviors and the right culture (and not end up like a certain bank that had employees opening multiple accounts per customer.)
Another trend that Julie thinks is here to stay is pay transparency. As of January 2023, nearly a fifth of U.S. workers are covered under a pay transparency requirement. This means that business leaders can no longer assume that your colleagues don’t know not only what you make, but what they’re making. This requires a degree of intentionality and sophistication around how you’re going to recruit, reward and retain your employees.
Total Rewards
There’s a lot to be said for getting credit for what you’re giving your employees, says Julie. If you’re paying for part of their health care, or matching their retirement contributions, or offering mental health days, etc. - find a way to quantify those benefits in a way that speaks to your employees so they can know the value of these benefits. This is a positive way to retain and educate all of your employees from top to bottom. (Why else do you have benefits?)
Communication is key: reinforcing the message to employees that they’re getting more than just a salary from their employer can go a long way towards keeping them around.
Creating a competitive total rewards package for executives is an issue we’ve talked about before. This webinar and this blog post go into detail on the subject, explaining how to start with the compensation strategy and KPIs/behaviors you’re trying to reward, and taking a look at programs and communication from there.
Current Economic Conditions
Julie’s advice to small and medium-sized businesses when it comes to compensation strategy in the face of high inflation? Determine what your organization can sustain in the long term, and how flexible the leadership can be in recognizing and rewarding employees, while also recognizing that they’re running a business. You may need to have some tough conversations around where the money is coming from to support salary increases and bonuses. A lot of small and medium-sized businesses are being squeezed and it’s even more important that they are educated about how the organization actually makes money.
In the last 3 months there have been a number of high-profile layoffs, especially in tech. The work is still getting done, just by fewer people. It’s important for employers to maintain a dialogue with employees about how the layoffs are affecting them, as well as reassuring them that they are still a key part of the company. Julie’s advice? Run towards the problem, not away from it - there are lots of ways to reward those employees who remain after a layoff.
If you want more information on compensation planning in the face of high inflation and what your organization can do to adapt, we wrote a whole blog post about it here.
New Regulations and Compensation Strategy
SECURE Act passed in December of 2020 and SECURE 2.0 passed in December 2022. Both contain sweeping changes to retirement plans with well over 100 provisions between the two of them. Here are some that may have an effect on your organization’s compensation strategy:
The employer match can now be in Roth dollars (previously it was only pre-tax dollars). Once they iron out the tax issues and a number of nuances, this might be an attraction tool for workers.
Emergency savings plans can now be part of or adjacent to retirement plans. Where financial wellness programs have often lurked, this could be a real solution to help employees in the short term, and have more healthy retirement account balances in the long term. Studies have shown that reducing financial stress often helps increase productivity.
More help with student loan debt payments can be offered by employers by way of the retirement plan. Student loans are a deterrent to retention – employees with loans will often leave for $1 more/hour in pay.
Separating top-heavy testing of excludable employees is now allowed. If you were excluding a certain group of employees from using the plan (for whatever reason) this will not count against your top heavy non-discrimination testing. Likewise…
Long-term part-time employees can now participate in the organization’s retirement plan without having to be matched or counted toward ADP testing. If you were excluding part time workers from your plan or weren’t as competitive, this could now be a better way to retain a part-time workforce.
Takeaways
If we’ve learned anything since the pandemic began, it’s that you really don’t know what’s around the corner, says Julie. It’s time for organizations to pause and plan for the long term when developing a compensation strategy. This may be easier said than done for small organizations, but most medium-sized organizations can handle a 5-year compensation plan.
Remote/hybrid work has made the talent pipeline much bigger, and has provided organizations more flexibility when finding talent. Still, it’s much easier to keep an employee than to find a new one - knowledge and creativity are key when it comes to developing a compensation framework that works for both the employer and employee.
You can find Julie on LinkedIn and at Human Capital Strategic Consulting.