Amid the 2020 pandemic, more than 50% of the U.S. workforce leaned towards “quiet quitting,” according to this Gallup study. Quiet quitting occurs when people are doing the bare minimum required at work and are detached from their job. How can employers combat quiet quitting and keep employees engaged? Consider adjusting your current compensation practices to create compensation packages that employees value and keep them engaged and motivated. Let’s learn how you can adopt the top 10 best compensation practices to keep up with the changing market and attract talent, as well as look at some common mistakes that employers make.
TOP 10 BEST COMPENSATION PRACTICES
Consider using these best practices to adjust or design your compensation plan:
1. Identify Company Goals
To start your compensation strategy, look at your company’s long-term goals and evaluate how they relate to your compensation plan. For example, if your goal is to reduce employee turnover, then you may want to conduct employee engagement surveys to get direct input for what is important to your employees. If employees value flexible work schedules or more paid time off (PTO) days, then you can adjust your compensation package to include more PTO days to increase employee satisfaction. On the other hand, if your goal is to increase sales by 5%, then your compensation strategy may be different. You may want to include a bonus at the end of the year for employees that reach a certain key performance indicator (KPI) as an incentive. No matter what the company goals are, it is key to adjust your compensation plan accordingly.
2. Conduct a Market Analysis and Benchmark
Conducting a thorough market analysis and benchmarking will help ensure that your organization remains competitive in attracting and retaining talent. By benchmarking salaries and benefits against similar roles in the market in your industry, you can make informed decisions to remain competitive while managing costs effectively. Consider relevant factors, such as years of experience, skills, location, shifts, and more. Find out how the position plays a role within your organization and how it compares to positions in similar organizations within the same industry and size.
One way to conduct a market analysis is through analyzing salary survey data. Salary surveys are questionnaires collected from multiple employers on the mean or median salary for a particular job title within a specific industry and geographic location. These surveys are used to decide the proper compensation for employees at a specific company. For a more in-depth analysis, consider using ERI’s compensation planning software to streamline your compensation strategy. Get in-depth data on the market and customize compensation based on your needs.
4. Have Specific and Measurable Data
While having specific and measurable data for compensation planning may seem obvious, it can be overlooked. Having specific data, such as performance-based compensation, market analyses, cost-of- living estimates, budgets, and more, can help you evaluate the value of a particular employee and job. Specific and measurable data will serve as important points of reference when making a compensation strategy. Explore common compensation terms and formulas to help you set pay that is fair, competitive, and aligned with organizational goals.
5. Performance-Based Compensation
Performance-based compensation aligns employee efforts with organizational goals, fosters a culture of accountability and meritocracy, and incentivizes high performance. This can be in the form of promotion, bonus, recognition, or other perks that your company can offer. For instance, if employers offer an 8-12% cash bonus based on yearly performance, then employees have the incentive to work harder to earn that bonus, benefiting both the company and employees. Utilize performance management systems integrated with compensation planning software to establish clear performance metrics, track employee contributions, and administer rewards fairly and transparently.
6. Implement Pay Equity and Adhere to Legal Regulations
With the rise of pay transparency, especially in social media where younger generations are more vocal about openness and trust regarding pay practices, it is important to adopt pay transparency practices to ensure pay equity and fairness, helping to maintain employee satisfaction and minimize legal risks. Pay equity should be considered and evaluated internally and in comparison to the market. Regularly audit your compensation practices to identify and rectify any disparities, ensuring that all employees are fairly compensated for their contributions.
7. Employee Development and Career Progression
Including employee development and career progression in your compensation planning demonstrates a commitment to nurturing talent and fostering long-term engagement. Integrating career development opportunities into the compensation framework, such as training programs and mentorship initiatives, can motivate employees to enhance their skills and contribute to overall organizational growth.
8. Compliance and Risk Management
Staying on top of legal and regulatory requirements is essential for mitigating compliance risks and avoiding costly penalties. ERI’s compliance tools can provide valuable resources and guidance to remain vigilant about changes in labor laws, tax regulations, and industry standards that may impact compensation practices.
9. Communication and Transparency
Having open and effective communication channels, such as town hall meetings, employee surveys, and one-on-one discussions, can provide opportunities for feedback and address any concerns related to compensation. Being transparent and providing employees with outlets to discuss any concerns will help mitigate any misunderstandings and ensure trust.
10. Continuous Evaluation and Adjustment
Be proactive and continuously evaluate and adjust compensation practices to remain competitive and compliant. Conducting regular reviews, employing feedback mechanisms, and promoting collaboration with cross-functional teams can facilitate ongoing improvements and ensure alignment with business objectives.
COMMON MISTAKES IN COMPENSATION PLANNING
You may be making some unintentional mistakes in your compensation planning strategies that are preventing you from getting the results you need. Here are a few common compensation mistakes that you should learn to avoid:
Using a One-Size-Fits-All Approach
As the workforce becomes more complex and competitive, our employee base grows more diverse, and a universal approach will not be effective for everyone. Every company is unique in size, culture, and goals, among other things. Consider moving away from a one-size-fits-all approach, such as the bell curve approach, which may not be the best fit in the modern workforce. Instead, evaluate several factors, such as individual performance, market trends, and organizational goals, to see how they fit into your compensation strategy.
Relying Only on Monetary Incentives
While competitive salaries and bonuses are essential components of compensation packages, relying solely on monetary incentives can be a short-sighted approach in today’s workforce. Employees are increasingly prioritizing non-monetary benefits, such as flexible work arrangements, professional development opportunities, and a positive company culture.
Neglecting Market Research
Failing to understand industry benchmarks, regional salary trends, and competitors’ compensation practices can result in offering either insufficient or overly generous compensation, both of which can negatively impact employee morale and retention. Use online tools, such as ERI’s Assessor Platform, to conduct thorough market analyses and ensure that your compensation plans remain competitive and attractive to top talent.
Disregarding Legal and Regulatory Requirements
There are myriad laws and regulatory requirements to consider when building your compensation plan. To start, familiarize yourself with these critical federal laws: the Fair Labor Standards Act (FLSA), the Employee Retirement Income Security Act (ERISA), and the Equal Pay Act. These regulations lay the groundwork for fair pay, employee classification, and essential benefits provisions. However, it is important not to overlook state-level laws, which can often introduce additional requirements that need to be incorporated into your policies and compensation practices. Our Assessor Platform can help you stay on top of changing minimum wage and FLSA requirements with alerts that ensure that you are always legally compliant.
Poor Communication
Employees may feel undervalued or demotivated if they do not understand how their compensation is determined or the rationale behind certain decisions. As compensation professionals, you should be transparent about your compensation practices, clearly outlining the criteria used to determine pay and providing opportunities for employees to ask questions or seek clarification.
Failing to Regularly Review Your Compensation Plan
In compensation planning, it is common to say, “If it’s not broken, don’t fix it.” However, to stay competitive, you should review your current compensation plan at least once a year or anytime it makes sense within your organization. For instance, if there is a big shift to increase the workforce within your organization or expand into the global market, it is important to review your overall compensation strategy.
Applying compensation best practices is important to attract, retain, and motivate your employees to perform their best in today’s competitive market. It can be confusing and difficult to implement all the best practices in your compensation planning. However, ERI’s compensation planning software can help you benchmark salaries, merit increases, and incentives, as well as evaluate pay equity, to achieve your long-term business goals.
