How to Align Your Total Compensation With the Needs of Your Employees

Managers working on aligning their compensation strategy with the needs of their employees. For most employers, labor is the biggest expense of running a business. It’s also the most important one. Pay satisfaction improves engagement, morale, employee retention, and helps attract top talent. 

So how can companies make sure they spend their money well? 

According to Catherine Dovey, Founder and Managing Director of Sound Compensation, there’s no one-size-fits-all solution to employee compensation. No two businesses are alike and what warehouse workers value might be different than what an accounting firm’s employees care about. 

In August 2021, Catherine joined Jenifer Lambert to present Compensation Strategies in a Red Hot Labor Market, as part of TERRA’s HR Hotspot webcast series.

In this informative webinar, Catherine explained that an important part of a company’s compensation strategy is aligning their pay plan with the needs and expectations of the employees they are looking to attract and retain. 

Here are four strategies to align compensation with employee needs: 

  1. Market test your current pay structure. 
  2. Survey your employees. 
  3. Evaluate for equity. 
  4. Communicate with your employees. 

1. Market test your current pay structure.

If you want to shape your compensation strategy to fit what your employees need, the first thing you’ll want to do is review your current pay structure and see how it compares to your competition for the talent you employ. 

Unless your pay is competitive, you’ll struggle to retain or gain talent. According to Catherine, “People don’t leave organizations for lower paying jobs.” And the converse is true– If you pay your employees less than your competition, you run the risk that current employees will leave for higher-paying jobs. That talent will be hard to replace if you are paying lower than your competitors for that same worker. 

To get data on how your pay compares to your industry, your competitors and your region, Catherine suggests investing in salary surveys. She explains that they’re the best way to get accurate data. 

While there is free or low-cost data available, Catherine reminds employers that you get what you pay for. For the best results, you should pick your salary surveys carefully and pay for ones that give you data from companies similar to yours. That doesn’t mean you should only rely on data from your exact industry. Focus on similar-sized companies that hire the same talent — your “talent competitors.” 

For example, if you are a logistics company hiring for entry-level warehouse jobs, the talent you’re looking for might also be looking at jobs in retail or fast-food. So be aware of how much these jobs pay as well! 

Once you have that data and know where you stand in regard to your competition, you’ll be able to adjust your pay strategy. You’ll avoid losing employees by underpaying them. And, just as importantly, you’ll avoid overpaying for a bad hire. 

2. Survey your employees.

When you know how your compensation compares with your competition, examine how your employees feel about their pay and benefits. If your employees don’t find your benefits valuable, your business may not be spending money efficiently. 

Catherine suggests sending a survey to your staff asking questions about the benefits you offer. Address each benefit individually and ask first whether they use that benefit, and then whether they find it important. Finally, you can ask your employees what benefits they wish were offered in place of ones you currently have.

Do also remember that “cash is king.” Any employee that’s paid under $70,000 a year is probably going to be a lot more cash-focused than benefits focused. Catherine explains that, in some parts of the country, $70k is the cost-of-living threshold. So “until you get to that number, anything beyond cash is a hard sell.” 

She adds that the value your employees put on your benefits also depends on their demographic and stage of their career. For example, in an environment where a large share of employees are earlier in their career without dependents, cash is more of a priority. Long-term benefits like retirement savings plans or health benefits they don’t use don’t matter as much. 

Keep in mind that this data can change over time so it’s important to re-evaluate this regularly. 

3. Evaluate for Equity.

It’s not uncommon for an employer to inadvertently have pay differences in their organization. But if you’re not being careful, those differences can create inequity. A lot of factors can contribute to pay differences beyond just variations in skills or experience. Inequity can emerge when there is too much flexibility or lack of structure in hiring decisions. It can also emerge when there is too much latitude and lack of policy around pay increases. 

Without rigor and consistency in pay strategy, Catherine explains that it’s likely that “the folks who are more aggressive will get better deals. And you’ll have the potential for inequality in your organization.” In turn, other employees might feel undervalued or taken advantage of. 

So how can you ensure you don’t have unfair practices, or fix them if they exist? You can start by making sure your executive team is in agreement and aligned with regard to compensation strategy. Help them consider questions such as, how flexible are they willing to be? How consistent? What measures are they willing to take to fix existing inequalities? 

Then look for existing inequalities in your organization. Perform a pay audit to compare the pay of employees doing comparable jobs and look for pay disparity. Investigate the cause of those differences to get a better understanding of imbalances in your organization and how to address them. 

Another good way of staying on top of pay disparity is to do a quarterly exception report to your executive team. Catherine emphasizes that if you “provide data and show them where there are pay exceptions or decisions that are not equitable” executives will be more inclined to take steps to not only fix inequities, but make sure they don’t happen again. 

Pay inequities can happen despite the best intentions. Regularly audit your compensation to make sure your intentions are aligned with the reality of how pay is being administered in your organization.

4. Communicate with your employees.

In order to be aligned with the needs of your employees, you need to raise awareness and increase transparency. Educate employees about the pay strategy and pay practices of the organization. 

According to Catherine, being transparent about how pay is determined goes a long way towards improving pay satisfaction. And “if you have pay satisfaction, you’re 70% more likely to retain employees.” 

Similarly, take the time to explain your benefits. And make sure your employees are aware of what’s available to them. A good way to do this is to set up a communication plan to help increase understanding, appreciation and participation in your benefits. 

Look for opportunities to communicate about benefits — newsletters, email, company meetings, bulletin boards, etc. Also make sure employees know who to contact for questions about compensation or benefits. 

Keep in mind that good communication is especially important in times of change. If you are updating your policies and/or benefit package for any reason, make sure your employees know exactly why and how you’re doing it. If they feel like you are being honest and open to their concerns, they are less likely to react poorly to the changes. A little transparency will buy you a lot of goodwill.

Ultimately, aligning your compensation with the needs of your employees will greatly benefit your organization. It will improve employee retention and morale, and go a long way towards you being able to attract AND retain good talent.

Want more information on compensation strategies? Watch the full webinar here: 

And if you need some extra compensation tips, take a look at our blog! We have lots of helpful articles such as, 5 Compensation Mistakes (And How to Avoid Them).

How TERRA Can Be a Resource 

TERRA Staffing Group is a leading staffing agency, based in the Pacific Northwest. We work with many companies across a variety of industries in the Seattle-Puget Sound, Portland, Phoenix, and Denver metro areas.

Our monthly HR HotSpot webinars provide guidance, solutions, and best practices for HR professionals, managers and business leaders.

These free webinars give insight from industry experts on a wide variety of timely workplace topics. Subjects include: employee compensation, talent acquisition and retention, diversity and inclusion, talent engagement, HR advice, and more. 

If you find yourself needing staffing help, don’t hesitate to reach out to TERRA. Our expert team is eager to be a resource to you. 

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