Compensation is quickly emerging as a differentiator for organizations looking to attract top talent. The Great Resignation of 2021 has influenced corporate strategy, specifically compensation. Unfortunately, while most organizations have reacted to the phenomenon, they have yet to address the underlying cause – employee mental, physical and financial wellbeing.
With higher year-to-date salary increases than ever before (4%), employers are looking to woo talent with higher pay. On the flip side, inflation is eating away most of the wage increases. Employee purchasing power is diminishing and it has become a cause for concern for employers as well as employees.
Enter total compensation.
What is Total Compensation?
Total compensation encapsulates the entire spectrum of benefit offerings provided by an employer. This includes the base salary along with short- and long-term incentives. In contrast, salary is a component of total compensation and does not reflect the additional benefits provided by an employer.
So, why is total compensation more important than salary for employees?
As wages increase, leisure time becomes more valuable and appealing for workers. This is one of the prime reasons why a majority of flexible, hybrid and remote work arrangements are expected to become the norm. In addition to leisure time, employees also want a hedge against inflation and they increasingly expect their employers to help them do it. Benefits medical, dental, and 401(K)s allow employees to do more with their compensation.
Finally, for organizations with limited resources, total compensation offers an attractive proposition – instead of competing on numbers, they can offer benefits such as shorter work weeks and more paid vacation days to win the war for talent. Employees that work hybrid or remotely often have weaker social and emotional bonds with their coworkers. These weaker connections make it easier for employees to quit their jobs by reducing the social pressure associated with separation. However, more flexibility and attention to mental wellbeing can significantly impact how employees view their jobs.
Reasons Why Traditional Compensation Models Fail
If retention is an issue (and it is for many companies with the rise of remote work, mass resignations, and walkouts), the compensation plan may be to blame:
- Employees don’t always understand their total comp.
- How it’s computed
- If it’s competitive
- The actual cost of their comp and benefits in the marketplace and the investment the employer is making in them
- Employers don’t always do a great job of explaining the value or selling it to the employee.
- As a result, employees don’t value their total comp.
- Employers don’t design the total comp for ALL employees and don’t anticipate what employees value, want, and expect.
SHRM estimates as much as 85% of companies fall back on the mid-range for comp and rewards. Right in the middle of the pack where everyone else is. As a result, if a worker is comparing job offers that are similar in comp and benefits, they’ll generally choose the company that took it at least one step further and offered things that other companies don’t – but that employees really want.
Understanding What Employees Want
Everyone wants to understand what workers want, need, and expect in workplaces in 2022 and beyond. The businesses that focus on the answers to those questions, and acts on them, are much closer to achieving their business imperatives.
A successful comp strategy must at least meet the competition with all the standards but preferably exceed it with intangibles like:
- Work schedule flexibility
- Remote work.
- Personal as well as developmental opportunities.
- Outstanding extras that make working just a little bit easier.
- Communication to employees about the company’s commitment to and investment in their success and total well-being.
- Opportunities for employees to design their jobs and compensation.
- Treating employees like a valued customer vs. a business commodity.
What a Stellar Total Compensation Strategy Looks Like
First, it doesn’t look like a package or a plan. Packages and plans are cookie-cutter, off-the-shelf approaches to individual, complex expectations and needs of actual people. WillisTowersWatson believes that “companies that do right, do well.” They advise companies to evaluate compensation actions historically instead of as individual programs or policies.
The emphasis is on strategy. Successful total compensation is a strategy designed specifically to address unique business objectives and challenges. It’s a long-term, transformative plan of investing in candidates and employees.
Companies that embrace this approach have a competitive advantage. Deloitte’s report on “The Readiness Gap” illustrates the same old problem. Sixty-nine percent of respondents believe compensation expectations and strategies are important to their success. But only 9% are ready to address that trend.
Yet, employers are notoriously secretive about compensation. Pay transparency promotes trust. Research suggests that employees who believe their leaders’ respect and trust them are 110% more likely to stay with their organization. Early adopters of pay transparency like Buffer, have realized retention rates upwards of 90%.
Businesses that take that extra step to invest in their workforces experience higher engagement and retention rates, more employer branding, and a competitive business edge that makes all the difference.