Many Employers Struggle to Wield Compensation as a Retention Tool

It’s often said that a paycheck isn’t the only reason an employee stays at a job, and there’s certainly evidence to support this. However, let’s be honest: People generally go to work to earn money, and compensation is undoubtedly a significant factor in maintaining their loyalty.

With that in mind, you might think that employers have gotten pretty good at designing, implementing and administering compensation programs that keep employees in the fold. Yet a recent survey indicates otherwise.

Reviewing the survey

In October of last year, global advisor, brokerage and solutions provider WTW released its 2024 Pay Effectiveness and Design Survey. The report’s results were based on the responses of nearly 1,900 companies worldwide, including 332 in the United States.

Of those respondents, only about half stated that they’re effectively fulfilling their compensation programs based on six core objectives:

1. Driving employee attraction,
   2. Driving employee attention,
   3. Promoting fair compensation among employees,
   4. Promoting competitive compensation compared with other organizations,
   5. Aligning pay with their business strategies, and
   6. Rewarding employees for current-year performance.

To reinforce the importance of getting a compensation program right, WTW cited its 2024 Global Benefits Attitude Survey in the report, which found that:

• 48% of respondents said pay was one of the main drivers of retention, and
• 56% stated they’d consider another job offer for better pay.

The benefits survey results were based on responses from 10,000 U.S. employees of midsize and large private-sector employers.

Reevaluating compensation philosophy

If you’re concerned that your organization’s compensation program may be inadequately supporting employee retention, there are steps you can take. Begin by reevaluating your compensation philosophy.

This is the mindset or framework your organization used to, whether consciously or not, design its compensation program. Ideally, your philosophy should be a carefully considered and formally documented approach that accounts for factors such as:

• Aligning compensation with strategic goals,
• Staying competitive in your industry’s current job market, and
• Promoting pay equity and transparency to the degree your organization deems appropriate.

As you know, the employment landscape has undergone seismic changes over the last five years or so. The pandemic, rising inflation, generational workforce shifts and skilled labor shortages have substantially affected the relationship between employers and employees. You may need to adjust your organization’s compensation philosophy to suit the changed expectations and developing needs of today’s workers.

Adjusting program design

If you decide to make some changes to your compensation philosophy, or even if you don’t, carefully review your compensation program’s design. Look for adjustments you might make that will likely improve employee retention.

Remember that a compensation program is far more than just where you set starting salaries or wages and how you increase them over time. A well-designed program addresses a wide array of elements, including:

• Base pay,
• Variable pay (such as bonuses and commissions),
• Equity compensation (such as stock options),
• Fringe benefits,
• Position-based pay structures, and
• Communication strategies and actions related to compensation.

Be sure your organization has a clear and reasonable rationale for where each element of its compensation program currently stands. You may need to conduct market research and do some external benchmarking to determine just how competitive your program is. And the communications element is huge. In some cases, improving retention could just be a matter of better explaining the total value of compensation for each position.

Rising to the challenge

Precisely how to go about paying employees is one of the most challenging aspects of being an employer. And the complexity of compensation tends to increase as organizations grow. Contact us for help evaluating and improving your compensation philosophy and program.

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