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How will your organization meet employee demands in a post-pandemic economy? Despite an expanding jobs market and growing optimism about the recovery, employers are finding that in many ways employees are in the driver’s seat as competition for workers tightens. This seeming paradox comes as unemployment levels remain high.

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Agile companies are responding with compensation and benefits programs that address employees’ shifting priorities. Yes, making a fair and competitive wage or salary is important. But so is workplace flexibility and a focus on employee health, wealth, and well-being.

Here are four of the most relevant post-pandemic workforce challenges and opportunities to consider when revising your compensation plan in 2021:

1) Hiring & Retaining Key Employees

The biggest human resource challenge facing companies as the economy recovers is hiring and retaining employees. In the latest jobs report for March 2021, openings in the U.S. rose to 8.123 million, the highest on record. This is 5 million above pre-pandemic levels, based on data tracked by the Bureau of Labor Statistics.

While many of these job opportunities are in industries virtually shut down during the pandemic, other sectors including manufacturing are expanding. Unlike prior recessions, the laws of supply and demand are not the only trends impacting hiring and employee turnover. Concerns about workplace safety, issues with childcare, and other factors such as generous unemployment benefits may be keeping some workers on the sidelines.

Still, paying a competitive salary is key to bringing on new talent and rewarding key employees, especially your top performers and those in positions in high demand.

Finding real-time wage and salary information will help you determine how competitive your current compensation plan is and whether adjustments should be made.

2) Targeting Pay Equity

Organizations are targeting pay equity to ensure employees doing similar work under similar working conditions are paid fairly. Employees are demanding it; laws require it; and employers must address it to recruit and retain top talent.

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The current federal administration will likely apply more stringent enforcement of equal pay regulations. Already employers who run afoul of the Equal Pay Act (EPA) can face penalties from the Equal Employment Opportunity Commission (EEOC). However, the reputation damage can be much worse, affecting the ability to attract and retain talent.

3) Enhancing Benefit Programs

As workers’ needs evolved during the pandemic, the value of benefits to all employees has become increasingly apparent.

Flexible work arrangements have been evolving and have been accelerated during the pandemic as employees had to care for children being schooled at home or for other family members. Accommodating flexible employment arrangements has become central to being an employer of choice. This means working outside of the historic 8 am to 5 pm workday and balancing employer and employee needs.

Some employees are subsidizing childcare, recognizing that difficulties finding reliable care during working hours may affect productivity. Others provide care on-site.

In any case, taking a fresh look at benefit strategies goes together with pay to support a competitive total compensation package.

4) Compensating Remote Work

During the pandemic, most organizations implemented employee work-from-home programs. Many employees would prefer to continue working remotely, at least part of the time. In exchange for reduced commuting time and more flexibility, many found these new arrangements to be more productive and family friendly.

Employers also found remote work arrangements helped them save on real estate and other overhead, such as travel and meeting expenses. Making these types of arrangements permanent or long-term will require changes to management style to integrate remote and in-office workers.

In addition, companies who can hire from any location must decide how they will pay their remote workforce. On the one hand this is a desirable workplace perk, while on the other salaries vary drastically depending on competitive practice cost of living and other factors from region to region.

We believe that most companies will approach the issue by referencing cost of labor and not cost of living data. Whether they use specific location or broad geographic information to determine a compensation structure has yet to be determined. But companies will most likely base remote compensation on competitive practice to avoid paying under market and allowing employees to be poached away because of pay.

Summary

Shifting attitudes about work and the workplace developed during the pandemic will carry over longer term and will impact compensation, hiring and retention in 2021 and beyond. What you pay employees and how you reward them with benefits and services will either help or hinder employee management plans in an increasingly competitive job market. Be sure to make the right choices based on what’s competitive for your industry and market.

Contact Us

For help or information on this topic, you can email me nlappley@lappley.com or call (847) 921-2812.

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.

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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.