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Pay transparency is a hot topic for employers navigating how best to meet growing demands to close gender and race-related pay gaps, as well as satisfy loyal employees. It can be a difficult needle to thread. How much pay transparency is too much? Should an organization adopt a pay transparency standard?

A new study by compensation software provider Beqom reveals employee perceptions about pay equality have eroded further in 2020-21 as many businesses adapted to the pandemic with work-from-home strategies, reduced work hours, and even temporary furloughs. In its survey just one year earlier, Beqom reported one-third of employees believed their companies had a pay gap, a view that negatively impacts employee retention.

During the latest economic downturn, many pay equity programs had to be put on hold as companies faced growing financial constraints.

Businesses that embrace pay transparency benefit in a variety of ways, not the least of which is by establishing a higher level of trust with employers and co-workers. Trust promotes respect and improves employee retention and loyalty. Top performers know their accomplishments are being recognized.

Pay transparency also helps employers make meaningful progress toward achieving Diversity, Equity, and Inclusion (DEI) goals. And when employers are more open about pay ranges for roles and job levels within their companies, employees can shift their focus to career growth and how to support organizational success.

Arguments against pay transparency include concerns that employees may have resentments if co-workers make more than they do or that failings in the company’s compensation, hiring and development systems may be exposed. Furthermore, pay communications can make employees vulnerable to being hired away. As a result, many organizations have rules against discussing pay. It is the author’s experience, however, that even with company restrictions, many employees continue to discuss pay among themselves.

Pay Transparency in Focus

When your company decides to proceed with a pay transparency program, organizations have three key decisions to make. The first decision is Why or determining the results to be achieved when communicating compensation. The second decision is What information will be communicated. Finally, the organization must determine the How, which focuses on the ways that pay information will be disseminated to employees.

Why options that define goals of your transparency program range from describing compensation strategy to linking company purpose with employee purpose. Other goals include improving understanding of compensation programs, increasing compensation ROI, enhancing employee engagement, and reducing turnover.

Initially, establish only one or two why goals to make your transparency approach straightforward. Be sure to put specific measures in place to determine if goals are met.

Next, determine What will be communicated, which depends on the degree of pay transparency planned. Some organizations only communicate the salary range and position in range for specific roles. Others seeking complete pay transparency reveal all salaries for every employee in the organization.

Additional choices include pay opportunity relative to market, sources of competitiveness information, how pay is determined, your overall compensation budget, specific groups’ pay relative to company average pay, and employee pay communication restrictions.

Finally, the How depends on the way the organization typically communicates. Options include one-on-one meetings, group presentations, manager training to enhance ability to explain programs, leadership videos, intranet, email, employee handbooks, and the annual total rewards report.

Summary

Although there can be challenges to successfully implementing pay transparency programs, the dangers of standing pat are even greater. Organizations need to have their compensation programs in order and pay transparency is a growing priority. In fact, the Beqom survey finds 51% of employees would consider switching companies with more pay transparency than their current employer.

Contact Us

If you found value in this article, please share it with anyone you think may also find it of interest. For help or information on this topic, you can email me nlappley@lappley.com or call (847) 921-2812.

Compensation Alert periodically features guest articles from thought leaders in their fields. National speaker and trainer Jeff Kortes, founder of Human Asset Management LLC., shares his views on pay raises and promotions to reduce turnover. Jeff helps organizations recruit, engage, develop, and retain talent.

As an employee retention speaker and trainer, I see a lot. I also see a lot that simply amazes me. One of the things I just saw was an article in the Wall Street Journal that stated that 39% of employers hand out promotions with no pay increase. My question is: Why don’t you just slap the employee in the face and tell them to look for a new job?

In the opinion of this employee retention trainer, it is a huge insult. You want to give the person more responsibility, probably more work and not pay them anything more? Organizations that do this are just begging to have the person quit and go somewhere where they are rewarded for what they do.

Photo courtesy of Pixabay

You often hear people say it’s not about the money. I do not buy that; not totally. Few employees are independently wealthy and work just for the fun of it. People work to pay the mortgage, make the car payment, send the kids to college, and have a decent life. So, to an extent, it IS about the money. People are told to work hard and get rewarded. Then, when they clearly work hard, are doing something right, and get promoted and DON’T get rewarded for it, the perception of most people is, “That’s not fair.”

Most people expect to be treated fairly. In a fair system, the top performers get paid more!

The most important thing to this employee retention author is that not giving a raise sends the message you do not think enough of the person to pay them what they are worth. This is about respect (or lack of it). That is how most people would view it. They would feel disrespected. When people feel disrespected they get angry. That anger is one of the things that drives a person to action. The action taken may be to go home (or maybe even fire up their computer during lunch to look on Indeed for a new job).

Even in this economy, you might as well count that employee as a turnover statistic. The best people are always in high demand.

MY TAKEAWAY

Rarely does this employee retention speaker advocate throwing money at an employee retention issue. However, in this case, to quote a local Milwaukee attorney, “It IS about the money!” Money is a factor in employee retention and when an organization does promote someone, a pay raise is warranted. Organizations that do not do this risk losing some of their best people.

ABOUT THE AUTHOR

Jeff Kortes is a recognized speaker and trainer who helps organizations recruit, engage, develop, and retain talent. Founder of Human Asset Management LLC, he has more than 25 years of experience in human resources working with companies including ConAgra Foods, SPX, Midas International and American Crystal Sugar. He is a member of the National Speakers Association (NSA) and the author of several books including: Give Your Employees C.R.A.P., 7 Other Secrets to Employee Retention, and HR Horror Stories…True Tales from the Trenches. For more information visit http://www.jeffkortes.com

ABOUT LAPPLEY & ASSOCIATES

Lappley & Associates is a management consulting firm that specializes in the development and implementation of compensation programs for clients. We primarily consult with manufacturing, service, utilities, and not-for-profit organizations for medium and small-sized businesses.

CONTACT US

If you would like to discuss this or other compensation related topics, contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.


What will your HR and compensation priorities be in 2021? Chances are they will look a lot different from where you started in 2020. CEOs have had to make tough choices to survive a recession not of their making. Change has been the norm.

Although flexibility and resilience will still be required heading into next year, CEOs and HR leaders surveyed about the critical issues they face are struggling with how to optimize talent and skills to deliver on their business strategies.

Photo courtesy of Pixabay

In its annual CEO benchmarking report, The Predictive Index surveyed 160 CEOs about their top talent concerns. They wanted to find out: How is your organization’s health? How is senior management holding up? Is the team prepared for the work ahead? What kind of guidance are they looking for?

Surveying more than 800 HR leaders, the Gartner 2021 HR Priorities study sought to identify their key priorities to achieve business goals – namely, growth and cost optimization – in a sea of constant change. While the pandemic disrupted traditional ways of working, it also uncovered widespread skills gaps in the talent areas needed most today.

Here are each survey’s findings and their implications for the world of work in 2021:

THE PREDICTIVE INDEX 2021 CEO BENCHMARKING REPORT

  1. Many executives are leading all-new teams, as 69% of companies restructured during the pandemic. It is not surprising then that finding ways for employees to work well together is a priority. Also, new teams mean new people problems to solve. Sixty-six percent of CEOs say productivity is a major concern; this worry is an increase from 36% in 2019.
  2. Remote work is here to stay as 97% of CEOs will allow some degree of remote work going forward. Still, CEOs cite a large challenge in getting remote teams to work well together. This leads to conflict and leaders spending time mediating people issues. More important, CEOs whose operations are mostly remote believe their teams struggle to deliver on short-term and long-term strategic goals.
  3. CEOs have had to navigate entirely new business circumstances due to the pandemic. As a result, 96% overhauled their business strategy in 2020. Currently 53% of CEOS say strategy development continues as their number one priority. Moreover, 80% believe a lack of strategic clarity runs deep within their organizations. Making sure that employees understand the mission and strategy is essential to ensure teams are equipped for the work ahead.

KEY TAKEAWAYS:

  • Management of remote teams requires a people-first approach and great amounts of time coordinating and communicating to maintain company culture and to ensure teams are engaged and motivated to meet their goals. Communicate new strategic direction throughout the organization, making sure that each level thoroughly understands and can communicate the strategy to the next level.
  • Do not neglect talent strategy. This means taking inventory of current skills, minimizing those that are becoming less important, and focusing on new competencies required. Help employees learn those new skills and rework the performance management system to reflect those changes.
  • Ensure that each employee function in the organization is directly tied to company function which will anchor employees to the company’s strategic direction. Make sure incentive plan participants understand how program measures support company strategies.
Photo courtesy of Pixabay

GARTNER 2021 HR PRIORITIES STUDY

  1. Building critical skills and competencies is the number one HR leader priority, cited by 68% of respondents. Gartner reports that the number of skills per job increases 10% each year and that fully a third of skills present in 2017 will not be needed in 2021. This rapid skills obsolescence cycle makes integrating effective learning into workflows challenging, especially when it may be difficult to determine future skill requirements.
  2. The second highest priority is organizational design and change management, a priority of 46% of HR leaders. Leaders report managers are not equipped to lead change, and employees are fatigued from all the change. A past focus on improving workplace efficiency has left many organizations with rigid structures and current roles that lack flexibility to meet evolving needs.
  3. A priority of 44% of HR leaders is developing current and future leadership bench strength. They comment that current leadership is not diverse, succession processes do not yield the right leaders at the right time, and leaders struggle to effectively develop midlevel leaders. Bottom line: the leadership management pipeline today is not working.
  4. Planning for the future of work is seen as a priority by 32% of HR leaders. Many say their organizations do not have a future of work strategy. They are struggling to adapt to changes in the market, such as how AI and automation will displace workers. The question that HR leaders face most often is where to start.

KEY TAKEAWAYS:

Update performance management programs to emphasize responsiveness to customer needs and build organization resilience. Make sure employees are learning the right skills. This may require more frequent and tailored revisions to learning programs throughout the organization.

  • Invest in technology and AI to improve corporate decision making and efficiencies.
  • Ensure that the diversity, equality and inclusion journey is manifested in the organization’s hiring, development, promotion and compensation programs through inclusive hiring, promotion, and compensation processes.

SUMMARY

We recognize that CEO and HR priorities cited do not apply to all organizations. Rather, you should consider your own priorities, using CEO and HR comments as a starting point, and develop solutions to address your priorities.

ABOUT LAPPLEY & ASSOCIATES

Lappley & Associates is a management consulting firm that specializes in the development and implementation of compensation programs for clients. We primarily consult with manufacturing, service, utilities, and not-for-profit organizations for medium and small-sized businesses.

CONTACT US

If you would like to discuss how these 2021 predictions may impact your compensation strategies, contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.

The year 2020 has brought many changes to the workplace, not the least of which is a rise in remote work arrangements. According to a survey conducted in October by WorldatWork and Salary.com, prior to the COVID-19 pandemic just 13% of employees worked remotely. By April, as lockdowns became the norm, 67% of employees were working remotely. Even now, with more businesses open than not, 62% continue to work from home. About 9 out of 10 of these are working remotely full time.

As employees and companies adapted to remote working, both began to see the considerable benefits. And today’s technology advances made the adjustment easier. Organizations reconfigured company computer access for off-site staff. Zoom became the most popular platform for team meetings, cross-functional collaboration, and webinars.

The remote work relationship proved to be a win-win for employers and employees alike. Workers recaptured commuting time and costs, enjoyed more flexibility to attend to childcare and other family needs, and this translated into increased productivity. Employers maintained business operations while accommodating remote work.

Once the business disruptions from the pandemic fade, many are predicting remote work will be here to stay.

In fact, a new survey from U.S.-based Enterprise Technology Research (ETR) finds the number of employees permanently working remotely is set to double in 2021 to nearly 35%.

Businesses have many good reasons to support the remote working trend including:

  • Lower costs for commercial office space, utilities, and ancillary expenses
  • Increased diversity in hiring
  • Better employee retention
  • A reduced carbon footprint with fewer people commuting
  • Expansion of the available talent pool

On this last point, remote work allows companies to recruit from a much larger pool of candidates than they currently do, as most medium and small-sized organizations recruit talent locally. Now organizations can expand their recruiting base to the entire U.S.

One impact of the pandemic has been a reported flight from big cities as professionals seek less crowded urban environments and a significantly lower cost of living (COL). According to a new study by freelancing platform Upwork, 14 million to 23 million Americans intend to relocate to a different city or region because of telework.

If these trends do indeed become reality, employers have a strategic opportunity to reframe their basis for compensation decisions.

Even so, the current question that many employers are asking is this: Should I pay someone who is working remotely in a lower COL city the same as an employee working at our more expensive central business location? The traditional thinking goes like this: built into the corporate salary structure is recognition that larger population areas generally pay more. So, will I be overpaying if I do not reduce remote salaries to reflect these COL differences?

We believe that reducing salary simply based on COL is wrong for several reasons. First, employees will not like having their salaries reduced. How they spend their money is their own business. After all, employers do not care if an employee drives a 10-year-old Chevy or a Mercedes. So, why should they care what street the employee lives on? Second, paying less than the broader market rate increases the risk employees will be recruited away. Finally, administering and communicating separate pay programs for remote employees with multiple pay arrangements can be an organizational burden.

Photo courtesy of Pixabay

A better approach is to define a larger geographic area and set compensation competitiveness targets for that area, then administer pay to one set of parameters. So, instead of using competitiveness survey information for the company’s immediate surrounding geography, expand the territory that is used to determine competitiveness.

For example, if you are recruiting from a Midwest talent pool, you may want to examine salary data for Wisconsin, Iowa, Michigan, Minnesota, Illinois, Ohio, and Indiana. Both state-level data and regional data can be used to determine pay ranges for each position or job level. If you are recruiting from coast-to-coast, you can use a national median. This can offer a great advantage to organizations with a highly distributed workforce.

In any case, it is important to weigh the benefits and risks for your remote workforce and to consider how pay may vary depending on the industry, occupation and skillset required. Using a broad geographic approach for your competitive salary information is easy to administer and avoids confronting employees with a pay reduction.

About Lappley & Associates

Lappley & Associates is a management consulting firm that specializes in the development and implementation of compensation programs for clients. We primarily consult with manufacturing, service, utilities, and not-for-profit organizations for medium and small-sized businesses.

Contact Us

If you would like to discuss pay of remote employees, contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.

When we look back, 2020 will long be remembered as a year of massive change for business and industry on a scale not seen before.

The COVID-19 pandemic has plunged our economy into a global recession and put health and wellness at the center of workplace conversations. Worldwide protests supporting the #BlackLivesMatter movement have joined #MeToo voices urging meaningful community action on discrimination, pay equity, and inclusion.

In response, organizations are making significant changes to their business models and accelerating the adoption of Environmental, Social and Governess (ESG) criteria to guide business investment and decision-making. They recognize that their organizations’ stakeholders are motivated by more than a goal for increased revenues and profits; other success metrics include environmental, social responsibility, gender, and racial diversity measures to track progress on social and economic purpose. Some are calling this new integrated approach to corporate governance stakeholder capitalism.

In tandem with these changes, proactive CEOs and HR professionals are taking a step back to reassess their compensation programs, so they align with a more purpose-driven business model. This is an opportunity to transform massive challenges into meaningful change, but it will require a thoughtful and strategic compensation approach that looks at the following:

1) Assess critical job skills. Quite likely, as the result of an updated business model, critical skill jobs have changed. They should be identified and monitored for pay competitiveness. These employees are most susceptible to being recruited away.

For instance, purchasing professionals are dealing with disruptions in their supply chains, especially in manufacturing. Sourcing from India and China has become problematic during the pandemic. Employees that can fill supply chain gaps are highly valued and in great demand. Employers may need to prioritize their investments in these job skills even when resources are scarce.

2) Revisit your compensation strategy. This flows from the company’s purpose and business strategy and is part of the organization’s overall HR strategy. To the extent that your business model has changed, compensation strategy must also follow the organization’s purpose or why it exists. A recent Compensation Alert here takes you through the elements of establishing your strategy. A critical part of your updated strategy will be to reestablish your benchmark of competitive and comparable organizations, update your current competitiveness levels and determine your targeted level of competitiveness.

3) Take a fresh look at pay equity. Many employers have implemented pay equity analyses to identify whether they have gender or race-based compensation gaps. They have done this to promote fairness, retain talent, and mitigate risk. If you have not done a pay equity analysis already, you should begin the effort soon. If you have, dig deep into the data to determine what is driving pay disparity: the actions of certain managers or decision-makers; out-of-date policies or business practices; or unconscious biases within a division or department. You can learn more about Pay Equity and The Rules of Engagement here.

4) Review base salary and incentive plans. Many companies have taken salary actions in the wake of the COVID-19 health crisis. These include pay cuts, cancelled salary increases or freezes, delayed or deferred annual salary increases, and adjusted planned average salary increases. In addition, organizations have suspended promotional increases or added additional pay for essential work (often called hazard or hero pay), while others have reduced or suspended benefit programs. As the economy improves, business leaders must determine when and under what conditions salary actions taken during the health crisis will be lifted or withdrawn.

It is too early to forecast levels of average merit increases for 2021. It is more likely, however, that more companies will not be giving salary increases next year. Even more, this will vary by industry and region, so it is prudent to develop a good idea of what your competitors will be targeting.

Incentive plans have also taken a hit from the pandemic, as organizations have modified their short-term and annual incentive programs by reducing opportunity, deferring or delaying payments, and adjusting performance targets. Changes to long-term plans have been less prevalent. Consider the following actions:

  • Short-term plans: As you plan for the second half of the year and revenue and profit expectations crystalize, consider: increasing the use of management discretion in determining 2020 incentive/bonuses; changing performance measures consistent with repurposing of the company; and lowering performance targets, maximums and thresholds. Additionally, revisit base payouts on second half performance against second half goals.
  • Long-term plans: Take no actions for the next several months. Consider adjusting performance targets if goals become unattainable.

5) Do not overlook your sales force. The COVID-19 pandemic had a great effect on sales organizations. Orders for commercial and industrial goods were curtailed. Falling orders meant less revenue for sellers for sales compensation credit. Our work with clients indicates that most companies have implemented pay protection methods to replace some or all lost sales incentives for sellers. The most popular methods include pay guarantees, quota reductions and formula changes.

It is time to reset for the balance of the year. Sellers need to be reengaged to reactivate suspended opportunities and find new revenue. A good time to start fresh is July 1st, the start of the last half of the fiscal year for many organizations. But at the same time, discontinue pay protection programs. The sooner you are beyond pay protection programs the better. Consider the following actions to fast-track sales revenue:

  1. Redo quotas: Continued uncertainty will make it difficult to project expected revenue for the second half of the year. However, take into account new avenues for revenue based on your adapted business model as well as revenue purchasing customer patterns. Develop stretch goals.
  2. Review payout formulas: Thresholds, incentive rates, accelerators and caps should be reviewed.
  3. Jump start incentives: As an add on, use a combination of contests and spiffs to add excitement, and motivation. Provide both cash and non-cash awards. Keep the jump start short – a maximum of three months.

In Conclusion

Uncertainty and change will be the hallmarks for organizations during the remainder of 2020 and into 2021. Short of a crystal ball, prudent planning to address the workplace issues of our time is your best bet to make your culture stronger and better equipped for future growth.

Despite current economic hardships, visionary business leaders who understand where and how to prioritize investments in talent will seize the opportunity to recruit the best and the brightest for the road ahead.

Contact Us

To discuss how to adjust your organization’s compensation strategy and develop more meaningful benchmarks and metrics to make your workplace stronger, please contact Neil Lappley at (847) 921-2812 or nlappley@lappleiy.com.

Sometimes great advice comes from our peers and respected colleagues. This is why networking, panel discussions and webinars are such powerful business education tools.

With that in mind, this issue of Compensation Alert shares expert insights from a diverse group of human resource (HR), management consulting, compensation and employee retention leaders. We asked them for feedback on three key questions impacting hiring and compensation management decisions in 2020. Our experts include:

  • David Gilmartin, managing director at Patina Solutions, a management consulting firm that partners with organizations to fill a key expertise or resource gap.
  • Jeff Kortes, an employee retention consultant, author and speaker. Jeff is founder of Human Asset Management.
  • Aaron Schneider, managing director of the Petenwell Group, an executive search and employee retention firm.
  • Rena Somersan, president of the Milwaukee Area Compensation Association (MACA). Rena also is the Newport Group’s managing principal, compensation consulting services.

Of course, HR compensation consultant Neil Lappley, founder of Lappley & Associates and publisher of this newsletter, also weighs in.

Here are Your Three Questions and Answers From our Top Experts:

1) What do you think will happen with wages, salaries and benefits this year?

Salaries will continue to increase; part of that is driven by what everyone is calling the “labor shortage.” Benefits will remain the same. Aaron Schneider

Wages and benefits will (increase) at a higher rate; lowest-worker wages will finally start to push the next tier of worker wages up. Middle-level managers will see wages go up at a rate lower than the lowest tier because (they) tend not to leave and (so) are subject to the “salary pool budget.” Jeff Kortes

Photo courtesy Pixabay

Wages will remain flat this year. With the state (of Wisconsin) not making changes to minimum wage, that alleviates the short-term risk.

Still, (there is) concern changes (will be) made for 2021 and beyond or at the federal level. David Gilmartin

Our market intelligence suggests that 2020 wage growth for production, professional (non-management), management, and executive job classifications will remain largely unchanged from the prior year, hovering between 2.8% and 2.9%. While we do not anticipate sweeping changes in benefit plan offerings for 2020, employers are modifying their benefit plans to entice younger workers. (Offerings include) tuition forgiveness, flexible schedules, and richer parental leaves of absence. Rena Somersan

Median salary increases will be flat at median 3.0% and average at 3.2%. Assuming the Consumer Price Index increases by 2.3% as projected by the International Monetary Fund, real salary increases will be .7%, the lowest level in 40 years. Neil Lappley

2) What are the biggest HR challenges facing your clients? What have you been hearing from them?

Recruiting and retention (are) the biggest challenge(s) and will be for the next decade at least. My manufacturing clients are still afraid to raise prices, but when they have gotten past that they have been making (prices) stick by telling clients they (can’t) keep talent if they are not competitive with compensation. When the argument is presented in this way, customers accept the increases. Jeff Kortes

No question the two biggest challenges facing management are retention and recruiting. Companies are expanding their sources for new workers and are paying more attention to taking care of current employees. For HR and compensation professionals, emphasis is being placed on pay equity and pay transparency. Neil Lappley

Photo courtesy Pixabay

Employee retention and hiring are my clients’ biggest challenges. The availability of skilled laborers is a significant risk in Wisconsin and beyond, especially with our strong manufacturing base. There is also concern for finding leadership and technology skilled resources. One example: Milwaukee Tool needs to find almost 800 (new) employees as they continue to expand in SE Wisconsin. David Gilmartin

Our clients and members of MACA are concerned about executive talent flight. The job market is hot for skilled executives who possess the managerial fortitude to lead organizations through major transformations in today’s increasingly competitive global economy. Rena Somersan

The pressure is on to review systems and processes. Many HR managers are under increased pressure to increase benefits, find candidates for job openings, and (improve) employee engagement. These managers are noticing that some of the same systems that worked for the last several years are changing. Aaron Schneider

3) What would you advise your clients – especially small and mid-sized businesses – who are having trouble hiring and retaining top talent in the current business climate?

As companies struggle to differentiate rewards and recognize excellent employee performance, they are increasingly turning to incentive compensation, both in number of programs and numbers of eligible participants. At the same time, employers are relying on gig workers to fill employment gaps in the tight labor market.

In addition, to capture and retain talent, employers are personalizing employee benefits – not necessarily high-cost perks – that align with their culture, offer greater flexibility and work-life balance. Neil Lappley

My advice it to take advantage of firms like (ours) who (can provide) experienced professionals who are willing to work in interim and project-based roles with clients. Businesses need to look beyond the Wisconsin state border; (Patina Solutions) has access to those resources and the ability to expedite the hiring process for our clients. David Gilmartin

Increasingly, executives at SMBs are being hired by larger companies. These larger companies likely have long-term incentive (LTI) programs in place to attract, retain, and reward executives for their contributions to the business. LTI programs provide actual or pseudo “ownership” in the firm and typically comprise a large portion of the executive’s total direct compensation package.

Photo courtesy Pixabay

To maintain a competitive edge, SMBs should determine whether their executive compensation programs provide a long-term incentive opportunity for key executives. The LTI opportunity should be aligned with the company’s strategic plan and future growth goals, and it should provide monetary rewards commensurate with performance and appropriate levels of risk taking. Even if SMBs cannot provide “ownership” in the traditional sense (i.e., equity), several cash-based program types might be considered. Rena Somersan

Hire where you are at. Meaning, in small and mid-sized organizations, it is important to hire people that fit your current organization, but maybe can take you where you’re going. (This also means not hiring) someone outside of your current capabilities. If you are focused on the ideal candidate and not getting jobs filled, shift to hiring candidates that fit the culture and be ready to train them up on the needed skills. Aaron Schneider

Focus on retention. In my case, I tell them to pay competitively and “Give their Employees C.R.A.P.”  (Caring, Respect, Appreciation, and Praise). Develop a strategy to retain people (versus) trying to recruit people. Jeff Kortes

Do you have more questions about where wages, compensation and benefits are heading in the current economic climate? Or would you like to connect with any of our Q&A contributors? If so, please contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.

Identifying the right talent for your organization’s long-term success is a business imperative. To tap into this talent pool, many companies invest in High Potential Employee (HIPO) compensation programs to develop and retain their most promising future leaders. Researchers from MIT and Harvard have found that companies can consistently identify 3-5% of their workforce as HIPOs.

High potential employee compensation programs typically share these priorities:

  • Building a pipeline of talent to fill future company leadership positions,
  • Expanding HIPO skills with new growth opportunities and experiences, and
  • Rewarding high potentials for their development and accomplishments.

As these priorities make clear, high-potential employees require much more than higher compensation to succeed in the workplace. Training and development are equally valued by high potentials. Likewise, employers who cultivate high potentials by creating structured learning environments that also support their business strategies build competitive advantage.

Photo courtesy of Pixabay

Still, at the same time organizations are mentoring and coaching their high potentials, recruiters have your top performers squarely in their sights for their own critical positions. If they choose to leave, these ambitious and motivated employees are difficult and costly to replace. Not only do companies lose their investment in training and development for HIPOs to another employer, they also incur costs to recruit, hire, onboard and train a new employee at many times more than base compensation.

Turnover Takes a Toll

According to the 2019 Mercer Turnover Survey, U.S. companies had an average turnover rate of 22%. This turnover stat reflects s 15% voluntary, 6% involuntary, and 1% retirement rate. Although employers have little input when their employees leave for personal reasons or to pursue an entirely new career, they do have control over what they pay them and how they support growth opportunities.

Employees surveyed by Mercer gave the following reasons for their decision to leave:

To combat turnover and prevent employees from leaving, Mercer reports the two most prevalent employer practices are continuous compensation reviews and regularly looking at engagement.

Rethinking Retention Strategies

Many companies have programs in place to reduce turnover, especially for their top performers. But too often these programs rely exclusively on traditional compensation models designed to Attract, Retain and Motivate (ARM) employees. This plain vanilla approach may not be enough for future leaders and high potentials.

Instead, more businesses are rethinking their HIPO compensation programs to favor engagement and alignment with key strategic goals. These programs reward and promote employees who exhibit the desired behaviors and serve as role models for others. In addition, they include robust measures that address current performance, future potential and talent fit for the organization’s strategic direction and cultural values.

Many of the elements of a HIPO compensation strategy are like your company’s overall compensation approach. However, reciprocating your HIPO employees’ ambitions with greater opportunities for training and advancement helps build value for your firm.

Here are the key planning considerations:

1. Conduct a Competitive Compensation Analysis

For each participant in the high-potential program, conduct a compensation competitiveness review. First compare current compensation to the market for the participant’s current role. Then compare current pay to potential next positions for the participant.

Analysis should include base salary, recent salary increases, bonus/incentive opportunity and history of earnings, total cash compensation and, if currently or potentially eligible, long-term incentive and total compensation. The result of the analysis will highlight the gaps between current compensation, market and likely next positions.

2. Determine Compensation Program Elements

Not surprisingly, pay often determines whether high potentials either leave or stay at your organization. Here are four key areas to consider when putting together your compensation program:

  • Promotions – Promotions typically target an average of 8.5% for most organizations. The more appropriate target for HIPOs should average 12% to 16%, a 50% to 100% increase over current practice.
  • Base salary increases – Salary increases for 2020 for most companies are predicted to average 3.2%. According to PayScale, retention raises are the second highest reason for granting a salary increase. Therefore, for high potentials increase your 2020 salary increase budget from 6.5% to 13.0%, an increase between 100% and 200%. Consider developing a separate salary increase budget for high potentials.
  • Incentive/bonus opportunity – The incentive/bonus opportunity should be increased from 50% to 100%. If the high-potential employee is not currently eligible for participation in an incentive/bonus program, consider establishing a separate plan.
  • Long-term incentives – If the high potential is not currently eligible and a potential new position does include participation, consider including at an appropriate level during the current role.

3. Prepare Your High-Potential Compensation Strategy

Develop a compensation strategy that is unique for each high-potential employee. For most employers this means platforming from their current organization-wide compensation strategy. Most likely this will mean that competitiveness targets will be greater.

For instance, if the corporate targets for base salary and total cash (base plus incentive/bonus) are, respectively, median and 60th percentile, targets for high potentials might be 75th percentile for base and 85th percentile for total cash.

Next, for each high-potential program participant, select one or several options from a combination of promotions, salary increases, incentive/bonus opportunity and, if appropriate long-term incentive participation.

4. Help High Potentials Learn to Lead

From rapidly changing technology developments to managing multi-generational workers, the challenges facing high potentials require specialized problem solving, communication and people skills to bridge the gap between top executives and the front line. You may want to customize your training opportunities to include different elements for emerging and senior leaders. Development programs should build on current skills while strengthening areas for improvement.

High potentials being groomed for senior positions may move quickly between managerial and operational roles to learn other parts of the organization. Their performance feedback should be frequent and consider time in position and ability to make an immediate impact. If assigned to special projects, performance evaluation should include both leadership of the group and individual contributions. Group project quality, timeliness and results all need to be measured.

A variety of training methods ranging from individual coaching to seminars and workshops will help your high potentials make the transition from being an individual contributor to team manager and ultimately senior executive. On-demand resources through online learning and email communications will reinforce the new skills they have acquired as they put their new knowledge into practice.

5. Don’t Forget Performance Management

All too often, managers focused on their day-to-day responsibilities will lean on high performers to carry out their primary responsibilities while neglecting their role as mentor and coach. After all, high potentials are talented, energetic and highly productive contributors. Include a component in your compensation strategy that ensures managers of high potentials offer the guiding experiences so essential to their development.

Summary

High-performance employees are catalysts in the workplace, inspiring others to work harder and more effectively. Your investment in these top performers will have a ripple effect, setting a great example for their teams and raising the bar on performance for colleagues.

Contact Us

If you have questions about how to develop and reward your high potential employees or on other compensation topics, please contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com. In addition, please share or pass this article along to anyone you think may find it of interest.

As we begin a new decade, the challenges facing businesses, executive leadership and HR professionals are growing. From societal changes to digital transformation, the trends shaping organizations have HR responsibilities evolving. These issues require fresh ideas and perspectives.

With that in mind, Compensation Alert will periodically feature guest articles from thought leaders in their fields. Our first is from national speaker and trainer Jeff Kortes, founder of Human Asset Management LLC. Jeff helps organizations recruit, engage, develop and retain talent.

Photo courtesy of Pixabay

Employee retention is the biggest challenge organizations will face in the next decade. The reality is that Baby boomers are retiring at a rate of 10,000 per day. There are simply not enough people to take the spots of the people that are retiring.

Trying to find replacements is difficult and costly, so when you do find them you need to be able to retain them. As an employee retention speaker and trainer, I have worked with organizations to address their employee retention issues. They cite various reasons, including:

The first and most frequent reason is money.

The bottom line is that having a revolving door of people costs an organization a lot. Those costs drop right to the bottom line.

One of my clients, a metal casting company, determined that it was costing them hundreds of thousands of dollars to hire new employees, train them and ramp them up to the point where they were producing quality parts. The owners were turning down sales because they didn’t have a fully staffed plant due to their employee turnover. To address the situation, they took the approach of:

  • Educating managers on what drives employee turnover,
  • Getting managers input on how to address those drivers in their organization, and
  • Taking certain key actions to improve job satisfaction.

These actions helped them reduce turnover by approximately 30% in the six-month period after our employee retention workshop.

Another compelling reason is the stress that employee turnover puts on the people who lead their teams and their departments.

In this case, the supervisors and managers who were leading the people in the organization were so stressed because of the constant turnover that they were experiencing that it was starting to take a toll on them emotionally.

The HR Director and the VP of Operations saw the toll it was taking on these leaders and realized it was not sustainable in the long run. They also realized that the reason that much of the turnover existed was because of the way their supervisors were leading.

As a result, they embarked on a six-month leadership training program to educate leaders on how to lead Millennials and Gen Z employees so that they wanted to stay with the organization.

Beyond starting to reduce the stress of excessive turnover on the supervisors and managers, they are also experiencing operational gains because of the change in leadership style.

Lastly, and most importantly, another reason for addressing the issue of employee retention is organizational survival.

When you can’t keep the people you need to run your organization and your competitors can, you are out of business. That’s reality. In the next decade, we will find that organizations that don’t get a handle on their employee turnover will find themselves unable to compete. When this happens, an owner’s years of working to build a business will be flushed down the toilet or stockholders will suffer massive declines in the value of the business.

One manufacturing client in a rural area with a 1.8% unemployment rate was simply running out of people. They had to stop the employee turnover, or the business would be in jeopardy.

Using a combination of an employee retention workshop to get buy in from supervisors and managers and a focused kaizen event on employee retention, the organization saw a significant drop in employee turnover in the next year so that they now have a stable workforce. In fact, they were not only able to survive but are now able to grow.

In Conclusion

Regardless of the reason for embarking on an employee retention initiative, delaying the inevitable impact of employee retention is sheer insanity. The key to attacking employee turnover is to recognize that if you don’t take focused action, the issue is not going to go away.

The days of thinking that you can simply replace people are gone — long gone. And, the reasons for taking action are compelling ones. Clearly, it’s in the best interest of any organization and the leaders who must bear the brunt of turnover to act on this compelling business issue.

About the Author:

Jeff Kortes is a recognized speaker and trainer who helps organizations recruit, engage, develop and retain talent. Founder of Human Asset Management LLC, he has more than 25 years of experience in human resources working with companies including ConAgra Foods, SPX, Midas International and American Crystal Sugar. He is a member of the National Speakers Association (NSA) and the author of several books including: Give Your Employees C.R.A.P., 7 Other Secrets to Employee Retention, and HR Horror Stories…True Tales from the Trenches. For more information, contact me at jeff@humanassetmgt.com, 414-305-9626 or visit http://www.jeffkortes.com.