The growing labor shortage and widening skills gap make it more challenging for employers to attract high-quality candidates. On top of this, a recent survey revealed that 41% of workers around the globe are considering leaving their jobs. That percentage jumps to over 50% for workers aged 18 to 25.
To overcome these obstacles, many employers are increasing employee compensation. This response is so widespread that it's reaching nearly every corner of the world. Research from the World Economic Forum shows that salaries are increasing in:
- 100% of countries in North America
- 92% of countries in Latin America
- 91% of countries in Southeast Europe
- 87% of countries in Western Europe
- 78% of countries in the Asia Pacific
- 76% of countries in Central and Eastern Europe
- 50% of countries in the Middle East and Asia
For your company to remain competitive enough to attract new talent and retain current employees, it must regularly reevaluate its compensation offerings to ensure it's meeting or even exceeding industry standards. This review is just one step in the overall process of developing a comprehensive compensation strategy, also known as rewards strategy. With the right pay and benefits, your company can increase employee retention rates and also distinguish yourself as a desirable employer.
Keep reading to learn what are the steps to develop an effective compensation package that has the power to attract and retain top talent. You can also download these tips so you can keep them on hand for quick reference as you work on your compensation plan.
align compensation with business goals
The first step is to align your compensation strategy with your overall business and HR goals. This
step requires you to have a strategic discussion around the company’s vision and values, your employee value proposition (EVP) as well as identifying what employee behaviors you want to reward. With this input, you can start developing a framework for compensation and benefits.
For example, at Randstad, we put a significant emphasis on three behaviors, namely development, collaboration and performance. Therefore, when creating our compensation framework, we focus on offering rewards that incentivize employees who excel in these areas.
consider your market
To create a competitive compensation package, you must first understand the overall job market as well as the market for your specific industry. Recognizing emerging market trends, determining the most in-demand skills and qualifications, and identifying average salaries for your specific industry and location can prove invaluable when it comes time to establish salaries.
For example, the global manufacturing industry is facing a significant labor shortage. In fact, experts estimate that the industry could have a shortage of 8 million workers by 2030. Therefore, it's safe to say that competition in this industry is high and that competitive salaries are a must for any manufacturer that wants to fill open positions both now and in the future.
know your competition
While it's good to know your industry as a whole, it's equally important to complete a detailed analysis of your competition. It’s important to recognize that your competitors in the labor market are not always the same as your direct business competitors. This point is especially true when you’re seeking candidates with specific skill sets.
This in-depth analysis provides a glimpse of what you're up against. This information can help you set salaries and adjust company benefits so they closely match or even exceed your competitions' offerings. Without this data, you risk setting salaries too low or failing to include vital employee benefits.
ask your employees for input
With research revealing that over 40% of employees are considering leaving their jobs, your company cannot sit idly by. Instead, you can take steps to prevent this level of turnover by acknowledging your employees' needs, concerns and expectations. For example, are they simply looking for more pay or are advanced benefits, such as flexible work hours or more paid time off, equally important?
The best way to obtain this input from your employees is to ask them by using techniques, such as exit interviews, workplace meetings, one-on-one interviews or employee surveys. Be sure to give your employees a lot of leeway to express their concerns and needs to ensure you obtain a complete picture of what types of benefits they really want.
understand what talent wants
You also need to understand jobseekers' expectations. To help you with this process, we conduct research into what attracts candidates to an organization in more than 30 markets.. We release these findings in our annual Randstad Employer Brand Research report to help you understand how workers' expectations are shifting.This insight is crucial when developing a benefits package.
For example, this year's research reveals that 57% of the workforce considers maintaining a healthy work-life balance a major motivator to change jobs. This data shows that benefits, such as flex schedules, job security, a pleasant work atmosphere and career progression are extremely important to today's workers.
develop compensation package
Once you better understand your competition, gather talent’ insights and align your compensation objectives with the company’s overall philosophy, you can start the development phase. Below is a look at the primary parts of a compensation and benefits package you could consider.
- fixed pay rate: Also referred to as base pay, this represents employees' set salaries or pay per hour.
- variable pay: Variable pay includes overtime hours, commission, tips, incentives, bonuses and stock options. While this pay type is not guaranteed, it should still be considered part of the overall compensation package.
- benefits: Benefits are a core component of any compensation package and include health insurance, pension plans, paid time off, vacation pay and tuition reimbursement, to name a few.
- non-financial rewards: In addition to benefits, there are a variety of non-financial rewards, such as flexible work options, recognition programs and even the company’s location if it’s connected to a train station or close to the city center.
When creating a compensation package, the goal is to set salaries high enough to remain competitive in your respective industry, but not so high that it negatively impacts the company's financial stability. While this process can be tricky, using market research, specifically salary data, can help your company establish the optimal salary package. Fortunately, recruitment companies, such as Randstad, conduct this type of research and can provide the insights your company needs.
Compliance is a must and depends on location. It's absolutely critical that you understand the rules and regulations regarding workers' salaries and benefits for your specific area. These details might include understanding which benefits are taxable and what, if any forms, must be completed and how often.
For example, childcare or home office setup subsidies may be taxable in some locations. Failure to comply with these rules and regulations can cause your company to face hefty fines.
equal pay for work of equal value
Implementing a diversity and inclusion strategy and closing the gender pay gap can improve business outcomes and enhance your recruitment and talent retention efforts.
According to a recent UN Women report, women worldwide only earn $0.77 for every $1.00 men make. This discrepancy has not gone unnoticed. Dozens of countries around the world have set policies to help close this gender pay gap. For example, countries, such as Sweden, Spain and Denmark require or request employers to conduct annual salary audits to identify gender pay gaps and develop action plans to deal with these discrepancies. Whether your business is located in one of these countries or not, this is good practice to adopt.
Closing the gender pay gap isn't the only thing employees want. Our research shows that nearly one in three employees would like to see more diversity and inclusion in the workplace. Studies also show that diverse-friendly workplaces tend to have higher levels of innovation and team communication and often perform better financially.
implementation of the plan
It would be futile to go through all the steps of creating a compensation package and not put it in writing. Prior to implementation, a written policy should be established for each type of benefit the company offers.
For example, if your company offers health or life insurance benefits, there should be a clear policy that explains eligibility and how much the company contributes to this benefit. On the other hand, a policy explaining training and development should discuss eligibility and detail the steps employees need to take to receive these benefits.
The HR team should also have a communication plan in place to ensure all employees understand the salary structure and benefits offerings. Additionally, it's a good idea to include these benefits on the company's career page or as bullet points within a job posting.
The goal here is to bring awareness to the full amount your company is investing in its employees. The reality is that employees often underestimate the actual value of their compensation package. It’s more than just salaries and bonuses. If you add up all the extra benefits, such as paid time off and pension plans, it quickly increases in value. Your benefits package should be designed in a way that highlights this added value.
This type of transparency may be enough to help you attract top talent and entice them to accept a job offer.
When developing a compensation package, you must include a process for measuring its success. For instance, your company should assess salaries at least every 12 months. With the level of competition in the job market today, salaries could continue to rise until the labor shortage subsides a bit. It's important to evaluate these salaries annually to ensure they are still meeting industry standards.
Additionally, it would be best to track various metrics, including total cost of workforce, turnover rates, absenteeism, overtime costs, time-to-hire and fill rate to determine success. These metrics can also show how much the company has saved by implementing a revised compensation and benefits package.
Now's the time to take proactive steps by developing strong compensation packages. Download these tips, so you can keep them on hand for quick reference as you work on your plan.