Employee compensation plays an important role in the caliber of talent you attract and retain at your organization. When a strong team can be the difference between being an industry leader or a sinking ship, it’s surprising that fewer than 50% of companies have an employee compensation strategy. A formal strategy can help you recruit and retain the best talent on the market, while ensuring fair compensation regardless of demographic characteristics.
Importance of compensation strategy for recruiting
The best candidates have a choice in where they work. While you don’t want an employee who is only motivated by money, you do want your job offer to be competitive with other organizations. The two most common reasons candidates decline a job offer are that compensation and benefits were not in line with their expectations (37%), and that they received another offer (37%). When candidates received another offer, 50% took it because the compensation was higher. Compensation shows the candidate that you value them, and may be seen as an indication of how fairly they will be treated as an employee. Keep your employee compensation strategy updated with current market data so you can stay competitive in the candidate market. A strong employee compensation offer shows candidates how enthusiastic you are about having them on your team, and helps you close more of your top-choice candidates.
Use your compensation strategy for retention
Compensation is a top reason employees leave companies. While 73% of employers believe their employees are fairly compensated, 64% of employees believe they are paid below average market value. Employee turnover is a real threat to the time and effort you put into recruiting top talent, and can cost up to 400% of your employee’s annual salary. It’s no surprise that employee retention is a top concern for 57% of employers. If you want to improve employee retention, maintaining a fair compensation strategy will help keep employees satisfied and engaged. Review market data regularly to ensure that raises and bonuses are competitive, so top performers don’t leave for monetary reasons.
Provide fair pay to avoid compensation bias and discrimination
Data has shown that employee compensation varies widely by demographics such as gender, race, and age. Last quarter, women earned $0.82 for every dollar a man earned, and those with Hispanic or Latino ethnicity earned $0.59 for every dollar Asian workers earned. When broken down by industry or job, wage gaps still exist. A formal employee compensation strategy can reduce these wage gaps to ensure that all employees are paid fairly, regardless of their demographic characteristics. By setting competitive pay ranges for job grades or individual positions, you can adjust each employee’s salary based on experience, skills, education, and performance. A formal learning and development program can help employees proactively earn salary increases, while top performers can be promoted when they reach the top of their pay grade. While unconscious bias may still impact where the employee falls in the salary range, an employee compensation strategy provides a more structured and transparent way to make compensation decisions.
Final thoughts on employee compensation strategies
Regardless of how you structure your employee compensation strategy – whether it be by job grades, individual positions, or some other way – make sure you update your data regularly. As the market for top-tier talent becomes more competitive, it becomes more important to provide candidates with stronger offers. In turn, existing employees should benefit from the same salary range increase to ensure that you can retain them by providing fair compensation. Talent is your top competitive advantage, and compensation is how you show employees how valuable they are to your organization.