You would think, in this money-mad society, that most people make their big work-related decisions on the basis of maximizing their compensation. And you would be wrong. In fact, social scientists will tell you that most people satisfice; that is, they choose an action that is merely “good enough” rather than optimal.
For example, when it comes to deciding whether or not to stay in a job that does not meet all of their needs, people satisfice. Sure, they may not be happy with their pay – who is? – but compensation is usually “good enough”. It is rarely the prime reason why employees opt to trade in their job. More significant are lack of growth opportunities, deadening work, or unethical behaviour by supervisors or colleagues.
Compensation, however, is a significant factor in employee retention. Poor or inequitable pay is often the trigger that will get an already dissatisfied employee to return that call from a headhunter or start trolling the job boards. So if you are a talent manager who wants to reduce your turnover rate, compensation is certainly one useful lever.
To tighten the link between compensation and retention, here are three modest proposals to consider.
Make Compensation More Transparent
At the risk of attracting a flame thrower or two, I would suggest that your organization make its compensation policies and assumptions much more transparent. I admit this is a controversial idea. Many people assume transparency means that everyone knows what everyone else earns. They say Jack may want to know what Jill earns but Jack certainly doesn’t want Jill to know what he himself earns.
That is not what compensation transparency means. It means posting salary grades so that people know what jobs – as opposed to individual employees – are worth. It means explaining why some jobs are valued at a higher level than others.
Greater transparency should lead to more candid conversations about what it takes to move up in the organization. It puts the onus on management to provide incentives (yes, incentives still have a place in the transparent organization) to develop skills and realistic pathways and career ladders to advancement. And it makes it much more difficult for rogue managers to cut side deals with favoured employees that are not based on performance.
If you are still unsure, consider that technology may force your hand. Employees can now go to websites such as PayScale.com to learn what workers with similar jobs in other organizations earn. Position yourself ahead of the curve and reap the benefits of engaged employees.
Make Compensation More Meaningful
In all but very few sectors, today’s workforce is highly diverse in terms of demographics and ethnic composition. What drives under-30s, for example, is very different than what stokes 35-year-olds or the over-40s. Unfortunately, compensation plans too often fail to reflect this diversity and consequently fall flat.
It is worth assessing how well your organization’s compensation practices reflect the needs and wishes of your workforce. Here are a few questions to get you started:
- Does it offer generous daycare benefits when your workforce is much older and would prefer eldercare?
- Are most of your benefits of greater interest to families when your workforce is young and single?
- What sorts of educational assistance opportunities are available? Are they tied solely to organizational functional interests or do employees have incentives to follow their personal interests?
- Are sabbaticals available to retain employees who want to slow down or refresh yet still contribute to the organization?
In short, what do your valued employees really value?
Make Compensation More Strategic
When it comes to compensation and retention, no organization is an island. But how vulnerable are you to poaching from a competitor?
As a rough guide, it takes a lure of a 15 percent increase in base pay before a typical employee will consider bolting from an organization. This, of course, depends on the intensity of competition in your sector, among other factors. It does suggest that organizations generally have a fair amount of wiggle room if compensation is the driving reason for employee attrition.
The most important implication, though, is that organizations must have a good handle on the competitive positioning of their compensation strategy. SMEs are particularly weak in this area. They do not establish salary lines, have little knowledge of internal turnover rates and external market rates, and are dimly aware of how to position themselves. For example, if you choose to pay below prevailing rates in your community or industry, prepare for greater recruitment and training costs and higher turnover. Compensate above the market area and the opposite will occur.
Thinking and acting strategically requires solid data. Does your organization participate in annual remuneration surveys? Does it track supply and demand issues that may affect the market rates?
It was Churchill who said: “However beautiful the strategy, you should occasionally look at the results.” So too with compensation strategy: Is your organization happy with its turnover rate or level of engagement? If not, it is time to take a critical look into the pay packet.
Paul Juniper, CHRP, SPHR, is Director of Queen’s University IRC, a management development unit for human resources, organization development, and labour relations professionals. A senior HR leader for a number of organizations, Mr. Juniper has some 30 years of practical experience in the field.
Alan Morantz is a communications consultant with Queen’s IRC.