HR leaders have long been hip to the value of organizational culture in accomplishing business success. Executives are starting to see the importance of having a defined organizational culture, engaging employees, and communicating with employees. At PayScale, we think the way you pay says a lot about you as an organization. Compensation should be a reflection of and an extension of your culture. In PayScale’s 2017 Compensation Best Practices Report (CBPR), we found that 57 percent of organizations agree that compensation is becoming more important to their executives. We think this has to do with the increasing value placed on culture and the growing link between compensation and culture.
How Are Compensation and Culture Linked?
Often companies put their mission statement or their values in writing on the wall. However, it typically matters more to employees that organizations live their values than that they proudly display them. One of the trickiest problems organizations can run into is when employees feel a disconnect between espoused values and actions. Compensation is one of the first things that fall under employee scrutiny. But how do compensation and values connect?
If You Believe Employees Are Your Most Valuable Asset…Pay Fairly
As we continue down the path into knowledge-based work, employees are becoming more and more impactful to the success or failure of a business. In the 2017 CBPR, 19 percent of respondents to the survey said that having talented employees sets them apart from their competitors. That said, only 44 percent of organizations said their employees feel they’re paid fairly, and even fewer employees agreed (20 percent). First and foremost, if you’re going to purport to value your employees, pay them, and pay them fairly. That means making sure their pay is market competitive, rewards high performance, is more competitive for mission-critical jobs, and is consistently applied across the organization (i.e. is compliant).
If You Have a Fast-Paced Organization…Examine Pay Frequently
A lot of organizations are proud of their fast-paced environments. They create a lot; they sell a lot; they engage customers a lot. When these same organizations turn around and give raises annually, or even give bonuses annually, their compensation is inconsistent with their culture. In the 2017 CBPR, 54 percent of companies have done a market study within the past year. Thirteen percent reference market data for individual jobs at least weekly. When it comes to bonuses, 6 percent offer project-based bonuses, 10 percent do monthly, and 16 percent provide quarterly bonuses. With more frequent payouts, it is much easier to align to the speed of business and reward the behaviors that are driving business results.
If You Value Open Communication…Prove It
A lot of organizations tout an open-door policy, or say they value communication. Often they’ll talk about transparency and share organizational goals. Sometimes they talk about clear decision-making practices. Increasingly, organizations are turning to pay transparency. Some reject it outright, believing that pay transparency is all or nothing. At PayScale, we believe that there is a whole spectrum of pay transparency possibilities, which we have spelled out on a five-point scale from least to most transparent. Pay transparency often means sharing the rationale for pay, not necessarily actual pay amounts. In the 2017 CBPR we learned that nearly half of all organizations aim to be transparent in 2017. As with other ways of fostering open communication, the end goal of pay transparency isn’t transparency, but increased trust, buy-in, and engagement from employees.
If You Give Your Managers Autonomy…Help Them Out
In most organizations, managers are given the responsibility for engaging their team. They are expected to help them grow and develop, perform, and deliver results. Often they do this with one hand tied behind their back as they’re not often given the authority to allocate increases. According to the 2017 CBPR, only 12 percent of managers approve comp, and only 42 percent can even recommend comp for their employees. It’s no wonder then that when it comes to communicating comp, just 19 percent of CBPR survey respondents trust their managers to have tough pay conversations. And yet, only 30 percent actually train their managers on compensation. If you give managers responsibility for engaging their team, give them some authority and training as well.
What Should You Target First?
With so many ways to emphasize organizational culture through compensation, there are a lot of helpful actions to take to begin to connect the dots. Here’s a good place to start.
· Set Compensation Strategy
I think of the compensation strategy as the brain of the comp plan. So, get smart about how you allocate your comp dollars. Figure out what matters most and allocate your dollars that way. Hint, it should fit your culture. If you value teamwork, why not give a bonus to someone who goes out of the way to help a peer? If you value performance, don’t give everyone the same raise or year-end bonus.
· Measure Employee Engagement
Increasingly the link between employee engagement and business results is becoming clear. In an earlier PayScale study, we found that 60 percent of employees who said they were underpaid, whether they actually were underpaid or not, intend to look for a new job in the next six months. If you want engaged employees, ask them what works best with an engagement survey. In the 2017 CBPR, just about half of organizations agree that compensation drives engagement in their organization, but only 26 percent have changed their comp strategy as a result of engagement survey feedback. What?!To be competitive, get the best talent, and really be a great place to work, organizations have to put their compensation where their culture is.Click To Tweet
· Improve Communication Around Pay
Decide how transparent you want to be and start sharing more information about comp with your organization. A total compensation statement is a great start. In fact, 53 percent of top-performing companies share total comp statements with employees (vs. 38 percent of typical companies). The one caution to increasing communication is to develop clear compensation objectives and the plan to accomplish them before communicating too much to employees. Once you start sharing, you’ll get more questions. Pro tip: get all your managers in sync with clear talking points so you can respond consistently across the organization.
· Pay for Performance
Link performance with pay in some way, if you are legally able to. Only 11 percent of 2017 CBPR respondents don’t reward performance. Although organizations provide both monetary and non-monetary rewards for performance, monetary rewards topped the list: 54 percent give bigger base pay increases, 35 percent give a bonus with no formal plan, and 29 percent give goal-based incentives.
My first, not so subtle hint that compensation is a major driver of culture came after years of work as an HR professional. After getting a master’s degree in organizational development, I thought I was going to change the world one organization at a time. Change was slow-going with an HR title, but as soon as I switched over into compensation, it became much easier to create real, substantive organizational change. They say when you really care about something, you should put your money where your mouth is – and I totally agree. To be competitive, get the best talent, and really be a great place to work, organizations have to put their compensation where their culture is.