Employee compensation is key for attracting and retaining talent. LinkedIn’s Global Talent Trends 2022 report showed that while work-life balance remains a top priority for employees, compensation and benefits is a close second.
Integrating compensation into existing HR programs, in a way that allows it to work in parallel with other elements, is important at both the organizational level and as an employee expectation. Here's everything you need to know about integrating compensation into your people programs.
What Does Compensation Include?
When you think of compensation, salary likely comes to mind. But in addition to the monetary components of compensation — such as salary, bonuses, merit awards, commission, and equity — there are non-monetary factors that make up employee total rewards. This can include health insurance, paid time off (PTO), training and development programs, corporate wellness programs, retirement plans, and flexible work options.
Total rewards can help companies offer a more well-rounded compensation and benefits package that aligns with what employees want. For example, in the past couple of years, work flexibility has become increasingly important, and a study by resume-builder and career resources website LiveCareer even showed that 29% of respondents would quit their current job if they were not allowed to continue to work remotely.
There are also generational differences. A 2022 Lattice survey of over 3,000 US and UK workers found that while base salary, health insurance, and bonuses are still the most popular forms of compensation, Gen Z workers believe stipends for things like broadband service and home office supplies are also essential. Total rewards can show employees that a company views and supports them as a person, not just a number on a balance sheet.
Why You Need a Compensation Philosophy
While compensation is important for retaining employees, the past few years have shown that other benefits, like flexible work options, have also become essential. Due to workers’ changing expectations and priorities, it’s never been more important for organizations to have a compensation philosophy.
A compensation philosophy is essentially a playbook that establishes the guidelines of how an organization pays and rewards its employees, and it should be tied to company values. For example, if a company has identified diversity, equity, inclusion, and belonging (DEIB) as a priority, its compensation philosophy should be structured to ensure equitable salaries and raises across all groups, especially marginalized groups that have traditionally been paid less. It should also be reviewed regularly to reduce bias.
Compensation philosophies provide a holistic view of compensation, as they typically cover total rewards, salary structure, and raise models. They give people teams rules and principles to follow when creating compensation packages, which can provide transparency, promote fairness, and help achieve equity throughout the organization. Compensation philosophies are also helpful for communicating to and setting expectations for employees regarding how they can actively manage their own career development; by having established company-wide salary bands, raises, and bonuses, employees have a better understanding of how their performance will be rewarded, and by how much.
Integrating Compensation Into Your HR Calendar
Compensation nor performance are your HR team’s sole priorities throughout the year. You might have at least one people program in effect in any given month. People programs represent the ways companies exchange information with employees to enable their best work — including aligning on goals, providing feedback, and taking and responding to employee input. In practical terms, they are the big rocks on your HR team’s planning calendar, including:
- Quarterly goal setting between employees and managers
- Performance review cycles that pull together feedback and achievement over time and allow for forward-looking conversations
- Engagement surveys that enable leadership and management to gauge and respond to employee sentiment
- Compensation and promotion cycles to reevaluate employee pay on an ongoing basis and reward top talent for meeting goals
People programs aren’t limited to just the above. Depending on your team’s bandwidth and organizational needs, developmental reviews might have a place alongside these programs. Similarly, there’s no universal answer to how often to conduct performance reviews, engagement surveys, or any other people program. Lattice’s Advisory Services outlines some of the most popular approaches in People Program Models: Six Approaches to Bringing Your People Strategy to Life.
Some general best practices will still apply in most cases. For starters, scheduling compensation cycles after reviews empowers your team to close out the performance cycle and complete performance calibration. Performance calibration refers to the post-review adjustment of employee ratings to adhere to a company-wide standard. It’s intended to account for discrepancies between managers who might interpret performance rating scales differently. These calibrated scores can then figure into merit increase calculations.
Be mindful of HR bandwidth and especially wary of overwhelming employees with to-dos. In addition to staggering your people programs (as pictured above), one factor to consider is scope. For example, not every team will have the resources to conduct a comprehensive 360-degree evaluation more than once a year. In that case, perhaps your mid-year reviews might only include a self and manager evaluation.
Similarly, you may not be able to commit to a total compensation review more than once a year. In this case, running a primary and secondary cycle is an option. In the primary cycle, you’d proactively review compensation for the whole company. Most of your promotions and raises would happen within that cycle. On the other hand, your secondary cycle would catch anyone left behind — those who may not have received a promotion or raise in the primary cycle but have since earned it. This method also provides a means of rewarding (and retaining) talent without waiting 12 months.
Key Takeaways
Compensation is a top motivator for employees, and it goes beyond just a base salary. Both monetary and non-monetary compensation contribute to employee total rewards, which can help drive employee engagement and retention in the long run. Although compensation is important, it’s not the only factor that helps keep employees engaged and happy, so it’s important not to only focus on compensation, as well as not to think of it in a silo. Instead, you should incorporate compensation as one component in your organization’s people programs, in a way that lets it work in tandem with goals and performance reviews.
Lattice takes a holistic approach in improving the employee experience, and our Compensation tool is now a part of our comprehensive suite of HR management tools. Request a demo today to learn how to connect performance and compensation to drive employee engagement and retention at your organization.
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