The world is always evolving with fresh standards, and more collective intelligence and psychology that demands more value and less noise. The companies that realise this will be able to capitalise on the moment and retain/hire the most appropriate match in the industry. The way a company determines compensation for employees it’s the way it sets its culture. Compensation can be a major determining factor in attracting and retaining top employees, which directly affects your organisation’s bottom line.
At this moment, the job market in the US, UK and EU are the hottest they have been in half a century. There is a very high demand for labour but a scarce workforce, and the Great Resignation has not helped much in this equation. This helps workers to shift to better jobs, enticed by fundamentally higher pay. According to many economic experts, wages saw the biggest increase in more than 25 years. But increasing wages to draw in talent is one thing and maintaining a competitive compensation process to retain talent is another—and more essential.
So, if a company hasn’t revisited its compensation procedures in a while then it will definitely need to do so right now. The unplanned approach that things have always worked out, will definitely have a negative impact on the organisation. So, now is the time to re-evaluate and determine a fresh compensation approach that aligns with current market realities. In general, compensation should be fair and aligned with the local job market. In fact companies should aim to benchmark the average of the total compensation offerings.
For accuracy, any company trying to develop a viable talent driven strategy, should clearly understand its total compensation offering. This suggests that the organisation needs to research similar companies that compete for similar talent. Embrace salary, equity, benefits, and perks that (logically) should total an above market average point. This means that you have to offer more than the average compensation for jobs at similar levels of the relevant industry and geographical area. The highlights of the overall approach are listed here:
- Gross Salary is only a part of the equation
- Compensation practises should be revisited every 2 years
- A 10% pay increase brings a 1% increase in job satisfaction
- Benefits, Perks, Equity, Flexibility & Remote work are equally important
- Promote fairness with systematic process and transparency
- Base salary should reflect the market’s current value
- Inflation adjustments are optional
Therefore, the insight here is clear. People want to be rewarded with a fair salary but are not only driven by money. And this is the key of this entire article. Salary compensation will never be the only thing that makes people join or stay at any company, nor should it be. Strictly speaking, sole salary compensation is not a healthy version of retention. According to research that covered more than 200.000 employer reviews and salary data, underpaid employees will not have high job satisfaction. But, because of the rule of diminishing happiness, getting paid more than the market rate will not increase job satisfaction in the long run. Balance is the key.