To Win the Race for Talent, Think Differently About Compensation
Let’s be honest—money talks when attracting and retaining talent. But pay is only a part of a much larger compensation conversation. The organizations that are winning the race for talent are the ones that think bigger about comp. Here is what they do differently:
5 Ways Talent Leaders Think Differently
1. They look outside their industry.
Feel like you’re in an ever-escalating wage war within your industry? Workforce winners side-step that battle by looking beyond their direct competitors to a broader talent market.
Take quick-service restaurants. Drive down a fast-food boulevard, and you’ll see pay one-upmanship on full display. With industry blinders on, what they’re paying across the street is all you can see.
But, if those restaurants were to expand their view to retail and customer service sectors, a whole new pool of workers and motivations open up.
Are you looking to other sectors, taking into account transferable skill sets and leveraging the job’s local or remote nature to expand your pool of talent?
2. They have a plan supported by validated data.
Many employers and employees dread discussing pay. Talent leaders get ahead of the conversation with a data-driven plan that’s communicated throughout the employee experience.
Compensation Plans and Philosophies
A well-documented and regularly shared compensation plan is a vital leadership tool that helps guide decisions around pay increases, budgeting, professional development investments, benefit programs, and organizational structure.
It also ensures equitable practices and addresses disengagement and productivity issues.
A compensation philosophy supports the plan by laying out your competitive market position, explaining the “why” behind employee pay, and creating a consistent framework.
You don’t need a consultant to get started building your compensation plan.
However, you do need compensation data that goes beyond crowdsourced, non-validated sources.
Free or low-cost industry or membership organizations’ salary survey reports only provide a piece of the puzzle. Their sample sizes are often small and self-reported, leading to outliers skewing results, are typically region or industry-specific, and focus on titles, not responsibilities.
To get the full picture, look for compensation benchmarking surveys that comply with the principles and practices of WorldatWork and U.S. Department of Justice compensation survey standards.
And make sure to keep your data up-to-date. The labor market can look significantly different in a few short years. A good rule of thumb is to revalidate your data every other year.
3. They highlight their strengths and don’t hide from their weaknesses.
Organizations winning the war for talent don’t overpromise and underdeliver on the employee experience. Instead, they accurately spotlight where they excel AND own up to their areas for improvement.
Talent leaders proactively embrace transparency. They address common concerns early in the hiring process. They share how they’re working to improve or how they compensate.
For example, are you just starting your DEIB journey as an organization? Don’t shirk from a discussion. Talk with candidates about where you’re at, where you’re headed, and how you plan to get there.
Pay below market rate? Don’t dismiss it. But do share the other benefits and perks current employees appreciate.
There are plenty of examples of hourly and salaried organizations that pay below market rate but have exceptional retention thanks to profit sharing, world-class benefits, flexible scheduling, and accessibility perks.
Total compensation encompasses much more than a pay rate. And increasingly, job seekers are looking for more than just higher income.
4. They ditch annual merit adjustment for market-based pay.
Employers that attract and retain top talent understand that jobs have a fair market value. So they ditch antiquated pay scales based on title and tenure. Instead, they build their compensation strategy to keep up with the market.
Salaries move at different rates each year. By following the conventional wisdom of a 3% annual merit increase, your valued employees fall further behind every year. (Most typically grow annually by at least 4%.)
Merit-based pay (also known as pay-for-performance) relies on a set of criteria defined by the employer. Even when performance criteria and rewards are tied to business objectives, ratings are still subjective and can be hard to define and quantify clearly.
Depending on the relative increase values, merit-based pay can quickly move salary ranges above or below market value. In the long-run, those increases can lead to retention or performance issues.
Market-based pay looks at what other employers in the labor market pay their employees to ensure competitiveness. The degree of competitiveness of the pay range depends on an organization’s compensation philosophy. And incumbent pay is adjusted based on the organization’s pay administration policy.
Not only does market-based pay better attract and retain valued employees, but it also reduces your risk of pay equity issues.
5. They understand that compensation is not one-size-fits-all.
People costs are one of an organization’s most significant expenses (typically in the top three). Smart, strategic businesses don’t delegate it to a single line item. They take a detailed approach to maximize their ROI.
Even though an organization-wide philosophy guides them, they deliver their strategy with a local approach.
They realize that sales teams prefer a different mix of base and incentive compensation than operations teams.
They consider pay shift differentials for critical manufacturing nodes.
They weigh the potential of “geo pay” strategies to provide locally competitive wages while lowering their total people spend, which is more important than ever with the rise of a WFA, digitally distributed labor force.
To compete for top tier talent in a tight labor market:
- Think bigger about your talent pool and your value proposition
- Put a stake in the ground about how you view compensation
- Communicate your strengths and be transparent about your weaknesses
- Use validated data to pay people not based on tenure but on the market
- Build effective compensation packages based on staff different motivations
Although pay plays a key role in attracting new talent, remember that it is only one aspect of a compelling employee experience.
Need a helping hand developing your compensation plan or benchmarking your positions? Learn more about our compensation services.