5 Mistakes You May Be Making That Are Impacting Your Talent Pipeline

Today’s business leaders know that talent is critical to an organization’s current and future success. As a Compensation Professional, my job is to help organizations create a compensation plan that reflects their business goals, mission, and organizational culture.

If you’re currently seeing a shortage in your talent pipeline, then it might be time to review your compensation strategy. After all, having a compensation strategy and structure in place is great, but if it’s not helping you to attract and retain your talent, then we’ve missed the boat.

Here are the top five mistakes I see organizations make when it comes to their compensation strategy.

Mistake #1: No compensation strategy at all

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Your compensation strategy defines the market(s) in which you are competing for your talent and how competitively you want to pay in relation to your market(s). If you don’t have a compensation strategy in place, it’s very likely that you are not using market data to price your jobs and therefore, are at risk of losing talent, or not being able to attract the talent you need in the first place.

Start by thinking about how you define your market and who you compete with for employees. Specifically:

  • What types of organizations do you compete with for talent?
  • What industries do you compete with for talent?
  • What size are the organizations you compete with for talent?
  • What locations are you recruiting from and/or losing talent to?
  • How competitive do you want to be within your market(s)? Do you want to meet the market at the 50th percentile or do you want to lead the market and target higher?
  • Additionally, are there different answers to the questions above for different segments of your workforce (e.g. sales, leadership, etc)?

Once you brainstorm the list of markets you compete with for talent, the next step is to narrow it down to decide exactly which market(s) you want to pay like in order to attract the talent you need. Having your compensation strategy defined will help you will know which market(s) you want to target so you can then begin gathering the appropriate market data for your jobs.

Mistake #2: Using an outdated compensation strategy

This one may seem obvious, but I’ve seen many organizations choose to keep their same compensation strategy year-after-year—even when their business and/or competitive landscape has completely changed!

In order to keep your compensation plan current and ensure your ability to attract the top talent, you should be evaluating your compensation plan, including your compensation strategy, at least on an annual basis. Depending on your organization and your market(s), you might even need to review your compensation plan more frequently.

For example, if you’re a small health clinic and suddenly a large hospital opens up down the street from you, your competitive landscape has completely changed. If you find yourself unable attract RNs or other key positions to your organization, this would be a great time to review and potentially revise your compensation strategy.

Mistake #3:Targeting your business competitors, not your talent competitors

One of the biggest mistakes I see organizations make when they create a compensation strategy is that they create their compensation strategy solely based on who they competewith for business. However, who you compete with for business may not be the same as who you compete with for talent.

For example, if you’re a small software development company in Tacoma, Washington, you might be competing for business with other small to mid-sized companies in Tacoma. However, I would suspect that in addition to competing with this market for talent, you are also competing with large corporations in Seattle. Therefore, if you are struggling to attract Engineers or other key positions for your company, a better strategy might be to try and pay like a larger organization than you currently are, target a different location for data, and/or target higher in your current market in order to attract the talent you need.

Mistake #4: Using one strategy for your entire organization

When developing your compensation strategy for the first time or reviewing your current compensation strategy, consider the different parts of your organization. Are there different segments of your workforce where you’re competing for talent differently or having a hard time attracting or retaining talent? If so, this is a good indicator that you need a segmented compensation strategy.

In the example above, let’s assume this was the labor market the company had been using for market data for all of their positions:

Industry: Software Development

Location: Tacoma, Washington

Organization size: 100 employees

Since Engineers are a key position for the business, and they’re struggling to attract them with their current compensation strategy, I would recommend segmenting their workforce. Perhaps the new labor market for the Engineers group would look something like this:

Industry: Software Development

Location: Seattle, Washington

Organization size: 500 employees

Segmenting your compensation strategy should give you better results to attract the talent you need while also being more strategic with your budget.

Mistake #5: Targeting too low in your market

Your compensation strategy informs what market data you will use for competitive benchmarking so it’s important to get this piece right. In addition to defining the types of organizations you’re targeting, along with the industry, organization size, and location, you will also want to define how competitively you want to pay to your market(s).

In the compensation world, the 50th percentile is considered “meeting the market.” Anything below the 50th is considered “lagging the market,” while anything above the 50th is considered “leading the market.” With the current market being so competitive, I would encourage organizations not to “lag the market” unless there is a valid reason that makes sense for your company.

Most of the organizations I speak with want to target the 50th percentile and “meet the market.” The challenge I see for many organizations is that when you’re competing for the top talent or key positions for your company, the 50th percentile of the market might be too low. Nowadays, many of the top companies are targeting their key positions closer to the 75th or even 90th percentile of the market.

Depending on your organization, this may not be the right strategy, especially if budget limitations prohibit you from doing so. However, if you are struggling to get key positions in the door you can consider targeting some segments of your workforce slightly higher than the 50th (perhaps the 55th or 60th percentile) and work on communication. If you’re targeting higher than the 50th, technically you’re leading the market and your employees should know! Use this as an opportunity to be more transparent and brag a bit about your compensation strategy so employees and candidates are aware of your compensation practices.

When most businesses develop a compensation strategy, their goal is to be able to compete with the market for talent, but the key is defining exactly what “the market” means for your organization. If you’ve created a compensation strategy that reflects your organization and helps you attract and retain the talent you need, then this is a sign that the strategy is working well for your business. However, if you’re struggling with issues like attraction and compensation is to blame, don’t be afraid revise your compensation strategy and continue reviewing it annually to make sure it is still working for your organization.

Is your organization serious about getting compensation right? Take your compensation plan to the next level and join us for Compference this September! Get all the details here.


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