Whether it be the rising cost of insurance or revenue shortages in the wake of the COVID-19 pandemic, creating compensation plans is more challenging than ever in 2021. However, as employee compensation is an important component of figuring out how to value a business, innovative strategies must be used to overcome these obstacles. The four ideas listed below are great ways to overcome challenges and create compensation plans that will attract and retain employees.
Have a Clear Understanding of What You Want to Reward
Compensation plans are a necessary cost of doing business. While strong compensation plans are meant to secure high-quality employee performance, too many companies do not have defined metrics on what types of performance their compensation plans are rewarding.
Is the company all about sales volume? Does the company value loyalty and want to reward longer-tenured employees? Are education and skills certifications of utmost importance?
By designing compensation plans around specific and measurable benchmarks, not only can the company better measure how effectively its compensation is going toward its intended purpose, but employees can set goals for themselves and feel like their efforts are being rewarded.
Communicate What You Offer Beyond Salary
Any competent HR professional knows that salary accounts for only about 70% of the entire compensation package. However, nearly all positions are defined by their annual salary or dollar-per-hour figure.
The challenge lies in how well the company communicates its fringe benefits to employees and encourages them to use these benefits as part of a fulfilling compensation plan. A report by CNBC found that in 2016, employees forfeited 206 million vacation days, worth roughly $66.4 billion. For those companies that offer matching 401k’s, remind employees of the uncertain future of pension plans and social security to encourage them to maximize what the company offers.
While encouraging employees to maximize these perks will increase the cost of employee benefits, it can be an effective solution for companies facing pay freezes as a result of pandemic-related budget crunches. In addition, there are a number of lifestyle benefits, such as memberships to fitness clubs, streaming entertainment services, and childcare assistance programs that cost significantly less than traditional benefits such as healthcare or retirement but can go a long way toward making employees feel whole.
Match Compensation Plans to the Stage of the Employee Life Cycle
The typical employee life cycle goes through six distinct phases: attraction, hiring, onboarding, developing, retention, and separation. As this life cycle evolves, what employees deem as rewarding compensation will evolve with it.
Newer employees are likely to be attracted to positions that will help them meet the necessities of life. As such, higher salary/hourly wage, housing allowances, and a company car are likely to be attractive early on.
As an employee matures within the company and starts balancing a career with other life goals such as home ownership and starting a family, factors such as health, wellness, and time off become increasingly important considerations.
Finally, employees moving toward either retirement or new career opportunities are likely motivated by work/life balance and more altruistic reasons. They are likely at a point where work has become about far more than money, so compensating them in a way to ensure their future happiness in either retirement or through their continued relationship with the company should take priority.
Familiarize Yourself with an Evolving Talent Pool
The first place to start when drafting a compensation plan is realizing that what is considered rewarding compensation is not the same for everybody. As technology continues to change the way in which professionals perform their responsibilities, a traditional 9-to-5 job with health insurance and a retirement plan is not the ultimate dream for some modern workers.
In fact, online platforms such as Fiverr and Upwork have made it possible for freelancers to make a living on their own schedules, getting paid per project for the work they do. By utilizing freelancers and gig workers to tackle projects for the company, the overall cost of compensation can be reduced, as such positions do not come with the traditional fringe benefits of an FTE.
However, while using these types of temporary employees does save money, they must be utilized correctly in order to realize the savings. Freelancers have far less tying them to the company than an FTE, so trying to reduce their pay rate or infringing upon their schedules will likely lead to a defection, which can lead to the costly and time consuming task of finding someone else to do the job.
Get Your Plan Started
Finding ways to adequately compensate employees is more challenging than ever in the wake of the COVID-19 pandemic. By considering the four strategies listed above, HR professionals can effectively draft and design compensation plans that are mutually beneficial to the company and employee, alike.