The Role Compensation Plays in Values, Culture & Engagement Strategies

By Decusoft
Home > Resources >

A complex, critical question that often plagues HR revolves around one of the core components of the employer-employee relationship: money. Getting compensation right can be tricky – that’s why businesses perform due diligence and conduct benchmarking surveys. Then they generally take the safest route – the middle lane.

Compensation was always important, but it’s even more critical in the aftermath of the pandemic. Pay isn’t the only reason that people work or are engaged by their jobs. But it is a fundamental motivation.

With it becoming increasingly difficult to recruit and retain talent, employers must take a hard look at the relationship between employee compensation and their value, culture and engagement strategies.

Compensation Specialization

Compensation is so complex, it’s become a specialty within HR. Specialists abound to study internal and external trends and build compensation packages that align with them. And while there are common themes throughout compensation strategies, there’s never a “one size fits all” solution.

And workers are confused. Some employees have no idea if they’re paid appropriately, and some are convinced they’re underpaid. A PayScale survey found that 51% of employees believe they aren’t paid fairly even if they’re at or above industry benchmarks.

That means compensation is a critical but multi-faceted business strategy. It requires a long-term plan that’s agile enough to flex with the changing workforce. At the same time, it must be comprehensive and inclusive enough to attract and retain talent in one of the most competitive labor markets in history.

Compensation Can be a Significant Motivator

Using compensation to motivate candidates and employees makes sense, but following through is more complicated than you might think. Job offers that aren’t competitive lose candidates. Pay too little and your current employees will leave as soon as they have the opportunity. And remember: Sometimes employees are disengaged and unhappy when they stay in a job, which affects productivity for everyone.

Although having compensation that’s higher than your competitors’ can provide a business advantage, it can also create issues with sustainability, return on investment or meeting business goals.

Matching Compensation to Values, Culture & Engagement

A survey by PayScale confirmed what many HR professionals already know: Money is not the complete solution for building employees satisfaction. How companies strategically position pay is what makes the difference.

Employees are more likely to be engaged when they:

  • Have a clear understanding of how their compensation is determined.
  • Receive constructive performance feedback with clearly identified expectations.
  • Are provided with meaningful development opportunities.
  • Believe that their employer is committed to its own values, culture and engagement strategies.

In a 2021 salary survey, Willis Towers Watson reported that a majority of companies surveyed plan to raise wages an average of 3% during 2022. This reflects a slight uptick over increases given in 2021. Some high performers could expect to see increases at pre-pandemic levels of 4.5%, 73% higher than average performers.

Don’t Confuse Wages With Bonuses

But WTW cautioned that bonuses to attract and retain employees are great as a short-term initiative but aren’t sustainable over the longer term. Said Lesli Jennings, WTW’s senior director of Talent Management and Organizational Alignment, “Sign-on, recruiting and retention bonuses can help employers get the upper hand in the short term, but those initiatives are temporary. If employers are serious about hiring workers with critical skills and keeping their top talent, they need to implement sustainable programs and policies that will enhance a powerful employee experience, reimagine career opportunities and flex to the needs of their increasingly diverse workforces. It’s an opportunity for a ‘great awakening’ on the employee experience.”

Jennings is right about that. Employment statistics reinforce the need for long-term compensation strategies. The BLS (Bureau of Labor Statistics) July 2021 cautions that inflation will take a bite out of those 3% increases and actually represent a decrease in purchasing power for employees. And employees will definitely notice.

But the survey also served to clarify that businesses are also recognizing what’s truly important to employees. In addition to increasing salary budgets, they’re also providing more workplace flexibility, excellent employee experiences, and increasing the focus on Diversity, Equity & Inclusion values and strategies.

There’s another big downside to a short-term focus on compensation vs. aligning pay to the organization’s VC&E strategy. ADP reports that most U.S. workers will get an average, and very tidy, 5.8% raise by changing jobs, further increasing a business’s high turnover rates.

And the solution can really be quite simple. A survey by Great Place To Work  asked the question – “What is the most important thing that your manager or company currently does that would cause you to produce great work?” Tellingly, 37% of employees responded that they want personal recognition. Only 7% answered that they wanted more pay.

In the midst of record numbers of resignations and abysmally low numbers of candidates to choose from, it’s critical that businesses get compensation right. But it doesn’t mean just throwing more money at talent. It means using compensation as a strategic employee benefit that aligns with the business’s Values, Culture, and Engagement beliefs and actions.