Labor market challenges of recent years forced most organizations worldwide to change their priorities and goals for attracting and retaining talent. Employers responded to and reviewed legacy compensation programs that no longer aligned with the modern workforce. In order to stay competitive as we collectively continue to work through a cost-of-living crisis and increasing demands for pay transparency, we wanted to offer compensation program considerations to support your compensation program.
Here are five key areas of focus that your rewards team should pay attention to:
- Retaining top talent with limited budget
- Moving to increased personalized pay
- Understanding the direction of geographical-based pay differences
- Creating value with skills-based pay
- Building trust with fair and transparent pay
Focus #1: Retaining top talent with limited budget
A key issue organizations raise is how teams can retain top talent with no compensation budget. For many organizations, the economic consequences of the Coronavirus pandemic meant a return to managing rewards in a recessionary, cost-constrained environment. Rewards teams needed to optimize reward spend to understand what was effective and ineffective and what employees valued most.
The years following the last recession, we saw very weak pay differentiation (sometimes known as the peanut butter approach) with “across the board” allocations used to distribute modest budgets and correspondingly low employee engagement and retention. Most employees recognized that moving jobs was the way to get a decent pay raise. Yet even a modest pay budget still represented a significant monetary amount.
At this point, it’s time for a reward audit. It’s time to evaluate each element of your reward package, how much they cost, and which elements bring the most value to your employees while having the largest business impact. You need to evaluate this ROI in terms of attracting, retaining, engaging, and rewarding key talent—and don’t take anything for granted.
Focus #2: Moving to increased personalized pay
Once you begin your reward audit, you will certainly find that different types of employees will value different reward elements. This is not a new concept, but recent years has turned the employee experience on its head and has forced us to respect individual differences, including: home lives, caring responsibilities, skills, mindsets, and personal characteristics. This contradicted the pre-crisis approach of most HR and reward policies that treated employees as a relatively homogeneous body.
The labor market will continue to be characterized by transitioning workforces. For example, ‘temporary’ remote work for many remains a reality while others are settling into more permanent hybrid workforce categorizations and are restructuring reward in response. This specific transition includes a broader reward offering with more options around wellbeing benefits to suit individual circumstances.
Focus #3: Understanding the direction of geographical-based pay differences
For those organizations committing to maintaining remote work for the longer term, reviewing how to manage geographical pay differences is at the top of the agenda. Do you adjust an employee’s pay because they are working remotely from a low-cost location compared to their high-cost office location? Or should staff salaries be adjusted to align with the cost of living in their chosen remote work location?
Other teams are taking a more considered approach with predictions that pay will gravitate to national averages when geography no longer becomes a component. Remote-first companies are ahead of the curve here, already asserting that geography plays no role in determining the intrinsic value of work. This will continue to be an interesting ethical debate that continues to play out.
Focus #4: Creating value with skills-based pay
Even before the global crisis, exploring new technologies and ways of working were disrupting jobs and the skills that employees need to do the jobs. Skills were already becoming the latest currency in the market for talent, and paying for skills or skill acquisition rather than jobs was already a reward debate. Then, as workplaces transformed at pace, the need for rapid skills acquisition hit home. This transformation has accelerated the need to create a talent marketplace that improves internal talent mobility and creates a skills ontology to identify skill gaps in the workforce. Technology platforms powered by machine learning and AI enables employers to address talent gaps and surpluses. Organizations are also empowering employees to connect the skills and interests they have to the right opportunities, benefitting both the individual and business. A stronger understanding of skills and how they create value in your organization will help to pave the way to your skills-based pay structure.
Focus #5: Building trust with fair and transparent pay
The last focus is on being transparent with your team. During the crisis, many organizations created a level of transparency and trust amongst their workforce that hadn’t been widely apparent before. We spent time explaining why we had to make the various changes that impacted our employees’ work life and family life. A great example of this was the number of employees who willingly accepted pay cuts – something that was unthinkable before the pandemic. It’s crucial to carry on this spirit of trust and affiliation as part of your company culture now and beyond.
While COVID-19 was an ample leveler in many respects, the crisis has also highlighted the inequalities that sit at the heart of our societies and workplaces. The impact of the pandemic on low income and minority workers is clear. And does not sit well with the move to considering broader environmental, social and governance (ESG) concerns with organizations redefining their purpose to generate a positive impact on society. With this essential conversation happening at the board level now, it’s time to review wage equality between employee groups, undertake a proactive pay equity audit and build on the trust and affiliation earned during the crisis with continued transparency.
Rewards should be resilient and adaptable
As you reflect on your 2022 HR activities and outcomes, and review your reward processes for this year, also think about ensuring the actions that you take this year are resilient and adaptable. Establish reward processes that can withstand the unexpected and can adapt to your changing business priorities.
We need to emphasize the power of broader compensation and reward programs that treat our employees as valued individuals, keep emotional wellbeing in the forefront of our company culture, allow for flexible working arrangements and foster collaborative, supportive and agile teams to ensure sustainable growth for 2023 and beyond.
