Article: Four key trends to improve your compensation models

Compensation & Benefits

Four key trends to improve your compensation models

As employee costs show a significant year on year increase, how can HR professionals ensure that it leads to better employee motivation and retention? We take a look.
Four key trends to improve your compensation models

The changes in how businesses operate today have over the years created significant shifts in how companies look at acquiring and retaining talent.  As markets become more competitive, the value of good talent goes up. In parallel, there also is an impact on the bottom line performance of the company due to this increase in competition. The cumulative result of these forces operating in the Indian economy has been that companies, from a human capital perspective, have witnessed an increase in employee cost while the growth of their revenue has remained slow. Or as Anandorup Ghose  from Aon Hewit puts it, “ The rate of growth of revenue vs. the rate of growth of employee cost is significantly different in today's market.”  All this while attrition levels have remained the same. 

Although salary levels have gone up, a similar level of attrition rate over a period indicates that talent is equally perceptible to leave increasing the volatility of the markets further. A look into how executive pay for big companies in India has grown shows that the progression followed a similar trend. This puts companies in a tight spot as the situation finally boils down to this— the talent market today seem equally volatile as the preceding years irrespective of how the pay structure has evolved. A spot from which getting out has no clear routes. 

As Anandorup Ghose, Partner –Talent and Rewards Consulting at Aon Hewit in his session on Top Priorities for APAC Comp & Ben leaders during the People Matters Total Rewards and Wellness Conclave explains, “ Figuring out a solution to this has to be a mutual process of discovery. At the same time its essential to know what fundamental levers  exist outside the ambit of pay increase as they might help companies find the right answer.” 

“Pay as a lever,” he noted has made “talent more expensive over the last decade or so without necessarily influencing how long they stay in the company” This now means that is essential for HR professionals to look beyond pay increases to create the right compensation strategy.

Tapping into the entrepreneurial gene

“Looking at Asia as a region,” Anandorup Ghose added, “ one notices that the region has a fairly strong entrepreneurial gene.” A look at the global startup ecosystem and its rate of growth show how well India and China have performed in this area; reaching levels comparable to the North American region. From an HR perspective, this means as caretakers of employee morale and retention, its important give talent in a company reasons to feel ownership over their work. It's more than just providing stock options as a way to create ownership but rather looking at ways to build in a consensual agreement on the criticality of one’s work.   

The importance of work-life balance

By comparing the usage data of the word ‘remuneration’ vs. the term ‘work-life balance’ as obtained from a basic Google keyword search results, Anandorup showed how the usage of work-life balance had increased significantly vis-a-vis remuneration. “ From 1995 onwards the global importance given to work-life balance has increased. This points to the second critical area where companies need to look at today to ensure their talent remains. And that is how a proper work-life balance can be achieved by their employees. 

Simplify Compensation 

Compensation discussions over the years have become increasingly complicated. From introducing variable pay and performance-based incentives, often complicated compensation frameworks do little influence employee behavior and on factors like attention, motivation, and retention. Making compensation a conversation into one that makes sense to the employees without throwing around complicated terms is often more effective. It’s also critical that compensation discussion address the ‘fair treatment’ aspect of rewarding an employee because that often goes missing in modern compensation frameworks. 

Segmented and targeted to individuals  

The final aspect of making compensation a valuable and effective ally lies in the ability of HR to segmentize its workforce and provide targeted compensation options. This ‘n=1’ is often the ideal situation many HR folks hope to achieve with regards to their talent management policies. But ensuring compensation is not a copy paste, numbers game would help bring life into what otherwise seems a fairly transactional part of the job. By bifurcating the workforce on a clear basis and mutually agreeable outcomes, HR professionals can create compensation models who do more than just attempt to meet the numbers but rather boost productivity and ensure employee retention. 

Although cash today remains a very critical component of the modern compensation model, sticking just to pay has shown to do little to ensure retention of talent. It is necessary criteria but not adequate in itself.

Employee motivation and retention in today's competitive world, which is also comparatively more affluent, requires compensation discussions to more than just the pay. They require employees to provide them with a sense of ownership and should provide work-life balance while being simple and targeted. Only then can companies survive with the increasing employee costs and shortening revenues.         

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Topics: Compensation & Benefits, #appraisalseason, #TRWC2018

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