La high labor market volatility It is one of the most important factors in companies recently. As a result of the impact of COVID-19, people refuse to work in the same conditions as before. Entities face a labor shortages, and positions that require high-demand skills are harder than ever to fill.
Medium-sized companies find it particularly difficult to retain qualified staff. Faced with significant resource constraints, tighter budgets, and workers' demand for flexible solutions, the challenges for SMBs are as big or even bigger than for larger organizations.
One way to make the company interesting is by developing attractive compensation strategies and increasing pay transparency and equity. Employees don't always leave or stay because of salary, but an opaque model for allocating compensation exacerbates feelings of disconnection and reduces engagement.
Key to discussing how companies can benefit from compensation analytics and how available data can be used to develop a comprehensive compensation strategy.
Understanding the Complexity of Compensation
Pay equity is one of the most urgent social problems to be faced today, and any discrepancy may have adverse side effectss on reputation and relationships with the company.
The money that comes into an employee's bank account is a part of current compensation packages. Compensation can consist of a base salary, annual cash bonuses, and long-term incentives.
When mixing an offset combination, there are different offsets to consider:
- Fixed versus variable compensation: Base salary compared to bonuses.
- Long-term incentives versus short-term incentives: Short-term incentives can take the form of annual bonus structures. Long-term incentives are typically stock or other forms of compensation that are awarded over the years.
- Cash vs. Equity: Equity may include stock options, restricted stock, and performance stock.
- Group incentives versus individual incentives: You can implement a percentage-based salary increase for all positions or give bonuses to selected employees.
It is not appropriate to have a uniform policy for all positions and departments. Managers should explain their reward decisions at the individual level, and compensation decisions should reflect each person's skills and contributions.
In addition, companies are likely to have different budgets (for example, higher revenues during the holiday seasons) and philosophies on how to allocate them.
Many remain in the error of sticking to an approach that does not work from a strategic point of view or that does not motivate the team enough. Today's managers must collect data, work through various analyzes and scenarios, and design a compensation strategy tailored to the business. All this means having tools for managing the available compensation models.
talent information
The data helps understand where the talent market is headed and where the company stands relative to that market.
One way to get market, role, and industry data is to search existing databases. Often this data is based on extensive surveys and data from hundreds, if not thousands, of companies.
Public databases are a good starting point, but the type of information and data your business needs depends largely on your organization's own needs. Startups often work in niche sectors with very few available public benchmarks, so they may want to consider running a survey of their own.
Data can also be obtained from a smaller sample in the same sector. This may include information about the skills and abilities required for a particular job or measures used to assess performance. Educating yourself on these topics can be challenging, but it is essential to making the right compensation decisions.
For example, when analyzing data for a product manager role at a startup, a new business model, or market need, you often won't find any data on a comparable position. A similar but inferior position may be used as the basis for salary qualifications and then increase the value of the position, taking into account the additional value this position is expected to bring to the company, the skills required and the quality of work.
Companies that want to run a custom survey should follow a few guidelines. When time and money are tight, keeping a survey simple and short is critical to success. If taking a survey isn't possible, you may want to pay for tools available on Glassdoor or Linkedin to get insights.
Once the data is obtained, it can be uploaded to compensation management software for initial analysis.
Analyze to optimize
Confirming the alignment of the employee development plan with current HR trends in the industry, geographic location, or among organizations of similar size is key. A wide variety of analyzes must be verified to establish the framework for a compensation strategy.
Market comparisons
Compare your salary data to the market average, considering the relative size of companies, salary ranges from other organizations, and salary levels in different regions. By being competitive on this front, you can ensure that these entities you review do not gain an advantage with your retention strategies.
You can also identify local competition based on the talent required in different industries or markets. However, market data is only part of the equation. They should never be the only criteria, as they cannot provide a complete picture of what is appropriate for compensation in a company. Therefore, greater depth must be ensured.
Labor cost analysis
Personnel expenses are a major component of operating costs and include what employees are paid for their contributions, both physically and intellectually. Labor cost analysis basically consists of finding out how the company makes money and if it has competent personnel to remain profitable.
This requires you to combine payroll data such as base wages, bonuses, overtime pay, and benefits to determine overall costs, revenue growth, profitability, and skills needed for growth.
Assuming that the analysis of the competency-based compensation system reveals that the company needs to increase compensation significantly to avoid employee losses, managers must then perform a business and labor cost analysis to determine how much revenue growth is due. achieved through increased employee competency before they can approve a raise.
retention analysis
Reviewing the risk of employee departure, information is obtained on the probability that people leave their position and, therefore, establish attractive incentives.
Employee satisfaction is a key metric in retention analysis. How it is measured depends on the ingenuity to pull data from multiple sources and consolidate it into a single point. Companies often use surveys, personal interviews or assess the general motivation that an employee shows. Be that as it may, it is necessary to assign values on measurable scales, creating an index of different factors.
Having said that, the risk of absconding cannot be measured only by the somewhat subjective perception of satisfaction. One help is industry compensation benchmarks and linking them with data on own employee roles. For example, some companies use thresholds of 6, 12 or 24 months as the most likely periods when employees will look for new opportunities.
Startups can have a higher turnover and it can be challenging to find the right fit right away. One way to use this analysis is to set the compensation on these thresholds.
Analysis of high-performance people (HIPO, high-potential employee)
Quality talent can be identified by analyzing performance levels and their relationship to benefits, training, prior work experience, and job opportunities. soft skills.
Identifying the best employees is a critical step in this process. In some companies, top performers make up only a small percentage of teams. However, on average, they produce up to 61% of the work. To recognize top performers, look at quality metrics like NPS scores and favorable customer reviews.
Once top performers are identified, companies need to ensure they are rewarded appropriately. Companies often use a merit matrix to fairly distribute commissions or dividends among various performance indicators. A department can develop guidelines for its salary review process and then measure how close each unit is to those guidelines. Guidelines may include factors such as actual revenue versus expected revenue or quantitative performance versus average team performance.
Wage costs by geography
Companies with headquarters in different countries have to adjust wages to location and adjust labor costs.
The global talent market makes it necessary to differentiate compensation, costs and retirement benefits between countries. For example, Silicon Valley companies conducted apayroll adjustment by location where workers were located during the pandemic.
This data can help you make decisions about expanding your business or outsourcing based on where staff are located in lower cost areas.
Payroll balance analysis
To align with a culture of equity, it is necessary to analyze the data and existing or demanded positions in search of inconsistencies or discrepancies in salaries. Pay equity is one of the most notorious social issues today, and any discrepancy has adverse side effects on reputation and relationships with the company.
The data necessary for an accurate assessment of pay equity includes base salary, bonus structures, job types, and performance values. Comparing each individual on a team along with these factors helps identify anomalies.
Dynamically encourage dialogue
Hiding employees about why they receive a base salary or bonus breeds mistrust. They may not feel valued enough if they only look at their salary and cannot understand their contribution to business development. Every compensation decision should always have a “why”.
Constant dialogue with employees is essential for the development of talent. It facilitates transparency, establishes clearly defined objectives that align with personal development and brings out motivational incentives for people. Team leaders who provide a graphical representation of new compensation plans and their long-term development facilitate these conversations.
On the other hand, showing potential new hires a dynamic visualization of their likely future development and salary and how performance will influence compensation will change the approach to talent acquisition.
Take advantage of creativity applied to the incentive model
According to F. W. Cook, 83% of the 250 largest companies in the S&P 500 have historically relied on a annual incentive plan formulated with predefined metrics and weights. However, in the face of the pandemic, many companies adjusted their compensation planning to correspond to the unique labor market and budget constraints. In large companies, flexibility requires innovative and creative thinking and a willingness to try, fail and learn.
Smaller organizations are more agile and can drive more disruptive solutions to address challenges. The pandemic has taught that flexibility is key to growth. Companies that quickly took advantage of the growing demand for digital platforms and remote work are driving their respective industries.
The need to embrace change and be open to adjusting processes also applies to compensation planning. For example, new businesses often pay their employees for their pre-tax expenseslike parking, subway passes, gym memberships, hardware, or the occasional lunch.
Flexible incentive design can be difficult, but it is not impossible. Leveraging analytical compensation management capabilities facilitates success in this key aspect of attracting and retaining talent.
