If there is one word that cuts through the complexity of employee compensation, it’s fairness. Fair pay for the actual work, and fair pay in relation to colleagues and market expectations. There are many reasons to make fairness the cornerstone of your compensation philosophy and practices, not the least of which are an increased ability to recruit and retain top talent. A reputation for fairness contributes to a stronger employer brand and helps increase employee productivity and loyalty. Being cheap, or even perceived as cheap, does the opposite.
Too many busy employers develop their compensation policies, then put them on a shelf and forget about them. You can’t afford to do that in this competitive talent market. If you don’t regularly review and compare what you offer with what others in the market provide, you won’t know where you stand—and it could be costly to wait for the market to tell you.
If you’re keeping on top of the issues, you know that compensation/pay has become the top factor in overall employee job satisfaction (SHRM). And you know that 87 percent of major business decisions in 2018 will be related to hiring, at least for small- to mid-sized companies (Vistage). Sixty-two percent of those companies expect to boost wages this year. What about you?
This would be a good time to delve a little deeper into compensation complexities and challenges to make certain that you are both being fair and staying competitive. It’s the best recipe for growth.
Our Catch-22 Market
We’re in what I’d call a “Catch-22 market”: Companies are fully recovering from the Great Recession and more confident about the future, but you have to recruit the right talent before you can grow. In this moment of history, there are more job openings than people to fill them—and the gap is increasing. This means the demand for top talent has outstripped the supply, and surprisingly, wages are not rising as we’d expect under these conditions. So what’s a company to do?
The fact is, if you want to fill open positions with the best people and keep the best people you already have, you need to pony up and pay more. That should be a given. The companies that step out and up from the competition to meet the needs and expectations of employees will be the ones that win the top talent as well as their loyalty. In addition to boosting wages, Joe Galvin, Vistage Chief Research Officer, has found a number of other ways companies are responding to these market challenges. They include:
Adding employee benefits
Engaging and developing existing employees
Retaining while recruiting
Managing demand/slowing growth
Adjusting fulfillment/delivery times
These responses offer a clear picture of how the “people” and “business” sides of a company intertwine to create our current market environment. The majority of them relate directly to people. And that’s where fairness comes in.
The Fairness Questions
Employees want to be compensated well for the work they do, as much for their self-esteem as their living expenses. How much you compensate them, in total, shows how much you value them as workers and as human beings, at least that’s the way they feel.
Raises can be a great way to keep current employees. The more you give, the more they feel appreciated. But how much to give to whom? If the average hike is 3 percent, how should it be distributed? Do top workers get 10 percent and the lowest performers get 1 percent, or none at all? If you have a small raise budget to work with, should everyone get some? Or will that diminish the contribution of outstanding employees and encourage low performance in others who think they can get away with it? Should top performers get it all? Should you give bonuses instead so you’re not locked into increased salaries? And what about cost of living increases? If you don’t give those, it’s like giving everyone a demotion.
If that’s not enough to worry about, what about the newest employees? Are you paying them as much or more than current employees for the same job? Should you raise current employees up? Will morale tank if long-term employees feel cheated?
Wages and raises are the foundation for all other forms of compensation. Think about them as a value, not a strategy. Ask yourself, “Would I think this was fair if it were offered to me?” Be able to justify your decisions—and communicate your reasoning.
Adding employee benefits:
Benefits, like healthcare, vision and dental plans, life insurance, retirement plans, and stock options, sweeten employment contracts to attract candidates and retain current employees. What are competitors offering as benefits? Can you match them? If your budget won’t allow for that, are there ways you can compensate with perks of some kind? Those could include things like flexible work hours or working from home, paid time off, unlimited vacation policies, generous family leave … use your imagination. Have you asked what candidates and current employees want from you? Pay is important. Benefits are important. And a myriad of other factors is important to employees. It’s up to you to find out what’s wanted and come up with benefits or alternatives that match your employees’ needs and your budget. Just make sure that those benefits are distributed fairly.
Engaging and developing existing employees:
Stretching the concept of “total compensation,” don’t underestimate the value employees place on professional development. It’s especially important to Millennials and Gen Z. If your budget for wages and raises doesn’t match the competitions’, what about developing a mentoring program? Can you beef up training and offer tuition reimbursement for college courses or professional development programs? How engaging is your company culture? Do people like coming to work? Do you celebrate? Do you have fun? Is everyone included and are managers trained to treat everyone equally? How effective is your communication? There are so many things you can do to create a workplace where people want to be.
Retaining while recruiting:
However you do it, winning top candidates over the competition feels good! But exactly how did you win them? If you succeeded by offering them more than you give current employees, you’re not only being unfair, you risk losing your top performers and damaging your reputation. Before you make your offer, ask yourself who might be hurt and how you can remedy that. How can you make it work for candidate and employee?
No one likes a cheapskate in any circumstance, and somehow we can feel when we’re being taken advantage of. In building employer-employee relationships, which are fundamental to our livelihood and our humanity, above all: be fair. In fairness, people will come, and stay, and thrive.