Effective Compensation Strategy – A Tool to Attract and Retain High Performers!
During my several interactions with the Business Leaders and Top Management Officials, I found a common thread that most industries find it difficult to attract and retain the high performers. As the economy improves and hiring heats up, I have observed many Business Leaders and Top officials getting sleepless nights with nightmares about losing their best talent to greener pastures. This is quite natural because in each organization there is a very narrow pool of employees that deliver high performance and keep organization competitive and profitable. An article in Harvard Business Review mentions that a high performer can deliver 400% more productivity than an average employee. Top Management Leaders hence naturally are concerned about aggressively retaining and attracting more high performers who can deliver best on business results.
While there are several elements that impact attraction and retention of high performers, progressive and attractive compensation strategy is found to be a real game changer. The compensation strategy is extremely important part of overall HR strategy that focuses on attracting and retaining best talent to keep the organization competitive and ensure sustained growth. If we wish to retain high performers we need to understand what they desire? What they feel especially about how they are rewarded?
Following are some of my observations during my consulting projects involving high performers
- High performers are extra sensitive to the compensation packages, organizational respect and the recognition they receive for their contributions.
- High performers across organization are also found to care significantly about overall philosophy and rationale driving compensation and career decisions affecting their lives.
- Tenure based pay hikes or the compensation levels where there is marginal difference between the high or low performers is frustrating for high performers.
- Most employees including high performers, also find it upsetting when the current compensation systems fails to address the financial needs of the life cycle phase they are in.
- They also have an anxiety as to whether or not they are sufficiently compensated for their talents and performance. They fear the loss of employability and potential to earn more if they stay in an organization that doesn’t have a fair and reasonable compensation philosophy.
As per the research conducted by Karie Willyerd a workplace futurist for SAP Success Factors, for Harvard Business Review Article, compensation tops the first two critical concerns of employees and especially the high performers.
To meet these challenges, companies, regardless of industry and size, must craft a clear and compelling strategy for implementing a well thought-out total reward/compensation plan to retain and motivate key talent. It should also articulate a unique value proposition that will inspire and guide the team in the right direction.
Definition of Compensation –
Compensation is the sum of all the monetary and non-monetary factors provided by an employer to an employee in return for work performed as required and expected.
Ideally, compensation plan and structure should be based on –
- Market research about the worth of similar jobs in the marketplace,
- Employee contributions and accomplishments,
- The accessibility and ease of seeking employees with desired skills in the marketplace,
- The viability of an employer to pay market-rate compensation,
- The desire of the employer to attract and retain a particular set of employee(s)
- The profitability of the company or the availability of funds
A company’s compensation package is an expression of its overall compensation and reward philosophy. However, monetary compensation is not a sole factor that influences and retain a top talent. For example; non-monetary rewards such as flexi working, company-paid club memberships, healthcare and insurance facilities, training and development opportunities, paid sabbaticals, educational loans are some of the interesting offerings that can be included in pay package based on nature of industry and needs of workforce.
Total compensation strategy should integrate the following key components to holistically meet the needs of employees –
- Total Compensation (Base pay, incentives, etc.)
- Benefits (Vacations, Insurance, etc.)
- Work-life Balance (Child care, fitness centers, etc.)
- Training, Career development opportunities, etc.
Of course, there is no thumb rule to include all the above elements in the compensation structure. The nature of business, life cycle phase of organization, (start-up, growth, maturing, booming, declining or renewal), average age of the workforce, competitive scenario, geographical and logistics concerns may dictate which component(s) organization should focus upon.
The most common factors that should be considered before imbibing any compensation philosophy in particular industry, are –
- Level of requisite knowledge and skill of employees
- Industry and market competitiveness
- Union vs. Non-union Status
- Capital Intensive vs. Labor Intensive industry
- Size of Business
- Philosophy of Management
- Profitability of the Organization
- Employment Stability
- Employee Tenure and Performance
These factors may vary from organization to organization. However, taking aforesaid elements into consideration at the outset can set the stage for effective talent attraction and retention. Organization also needs to provide a framework of principles with which to design the reward agenda. This framework further provides a basis for communicating the business rationale driving the compensation strategy to the people managers, employees and other stakeholders of the organization.
Rewarding your high performers with a competitive package is one the best ways to motivate and retain them. Investing one time in the compensation restructuring exercise gives you multifold positive impact in improving employee motivation and overall business performance. Because finally it is your top performer who is making a difference to your company’s top and bottom lines – Each Day!
Want to know how to design a competitive compensation strategy that empowers and motivates every employee in your business and ultimately helps the company grow? Please, get in touch with us.
We are a team of highly qualified and experienced Business and HR OD consultants. Through our HR and OD Solutions we provide you hands on support in defining effective compensation strategy and structure. We also design result driven Performance Management Systems based on KRA-KPI and Competencies and other innovative HR Processes and systems.
We help you ensure strategic alignment of your organization, develop progressive HR architecture and transform your organization into a “Place to be at” for the high performers. Reach Us Today!