The desired balance requires a shift from passive to active management of reward portfolios and more frequent rebalancing. Many leading organizations rely on HR to analyze and understand evolving employee preferences, and use the data to inform compensation and benefits strategy.
Within the right framework, employers can serve the current and evolving requirements of employee and organizational wellbeing, and consider pay equity and how to win the war for talent. Knowing what information is available and understanding how to apply it for more effective talent management is a key skill for HR professionals.
The drive for pay equity
Pay equity is a concept that’s been on the federal law books since the passage of the Equal Pay Act of 1963. This law includes language on paying women and men within a single organization the same wages for equal work — accounting for skill, responsibilities and effort. In the following year, legislation was added that prohibits employment discrimination based on national origin, race, religion and gender.From changing global dynamics to national and local events, recent years have been characterized by accelerated interest in pay equity and an intensified focus on this organizational benchmark. In fact, with multiple jurisdictions now addressing these matters within their own purview, businesses that cross country, state and province lines encounter the complexity of navigating multiple sets of requirements.
That’s especially true when the laws of different government bodies aren’t completely synchronized. The responsibility for tracking relevant regulations, educating leadership and confirming that practices are compliant falls to HR teams.
It’s also important to be aware of other challenges and ready to respond appropriately. When businesses have varied operations with different total compensation practices, they often find their ability to make intricate apples-to-apples comparisons is tested. For multinational operators, new layers of misalignment exist with fiscal year calendars, and there can be normative differences in typical compensation packages — such as housing allowances or company vehicles. Meanwhile, activist shareholders at publicly traded corporations are inserting themselves into the dialogue about senior executive pay. Controversy over the extent that CEO pay ratios and leadership pay increases exceed those of U.S. workers’ wages has also attracted the media spotlight.
Winning the critical contests in the ongoing war for talent
It’s a well-known fact that the U.S. labor market has experienced record low unemployment levels in recent years. HR teams are under constant pressure to keep fishing
for prize talent in a persistently shallow pond. In the strong and long-running competition to attract and retain talent, employees know they’re in demand, and feel more confident about finding new opportunities for a better career fit, flexible work arrangements, shorter commutes and other sought-after benefits.
Recent graduates and other new hires in commissioned entry-level roles, such as sales, pose a unique challenge from the standpoint of salary, wages and other financial compensation. Because they often require time to build their books of business, the momentum of earnings tied to sales success also needs a chance to catch up. To retain the best emerging sales talent, employers are faced with considering how to provide sufficient incentives based on achieving goals tied to future predictors of performance — instead of actual sales figures.
For more tenured employees, market forces in the current economy make it increasingly difficult to sustain average pay increases of 2%-3%.¹ Employers need reasonable alternatives, and are gravitating to more variable pay and incentive compensation as well as evaluating trade-offs in other reward elements. Variable pay can help equalize compensation when attracting talent, or align incumbent compensation at organizations where wage growth is low. Employers are also getting more creative with the use of longer-term incentive plans.
Apart from financial compensation, HR leaders are rethinking competitive strategies for providing unique benefits that complement the core employee package. Examples range from offering unlimited paid time off to allowing employees to “buy” additional vacation. Among other options are health benefits that closely match the needs and interests of the employee population, such as expanded investment in fertility services. When carefully researched and clearly identified, narrowly targeted strategies like these can establish stronger employee attachment points.
Leveraging data to optimize investments
Data is instrumental in aligning total compensation strategies with organizational goals. At the end of the day, HR leaders are better prepared to make sound investments in benefit and reward programs when they’re keenly — and objectively — aware of their employees’ true wants and needs. In fact, those that recognize the value of these data-derived insights have been known to include an evaluation of employee preferences as a key input on benefits design. Especially when employers are contending with an evolving workforce profile in a competitive labor market, it’s difficult to overstate the potential ROI of connecting with employees in ways they value most. When productivity, engagement and retention improve, increased organizational wellbeing follows.
Evaluation may take the form of qualitative in-person focus group discussions, quantitative surveys or a combination. For example, after developing and testing an initial set of hypotheses in focus groups, an HR team could survey the wider population online to gauge satisfaction, identify unmet needs and measure interest in new total compensation options under consideration. Leveraging surveys and comparison dashboards from benefit providers is also an integral component of data input.
Improvements in HR data systems can expand the compensation toolkit with resources that segment costs more accurately, to facilitate better talent management. An external source, the U.S. Bureau of Labor Statistics, conducts major research on a wide variety of labor statistics and economics including productivity.²
HR professionals are charged with managing a multitude of moving parts, many of which must be directed toward attracting, engaging and retaining talent — at the right cost structure to support a multigenerational, multinational workforce that drives business results. For this purpose, they need relevant data that’s sufficiently broad and deep — not only to benchmark where the organization stands compared to its peers, but also to uncover new opportunities to compete more strongly.
Attaining the most productive and profitable alignment of employee and organizational wellbeing is a delicate balancing act in a dynamic global environment where change is inevitable. With so many unique variables, the path and the pace of progress isn’t the same for all employers. Yet there is one reliable constant. The benefit of more competitive talent strategies informed by better data helps employers prepare, pursue and achieve their unique goals through a process of continual improvement.
Contributor:
Bob Lemke
Regional President, Northeast Region
Bob brings extensive firsthand knowledge and perspective as both a total rewards practitioner and advisor with more than 20 years of HR leadership experience. Using internal and external data, workforce planning, and key stakeholder engagement, he applies strategic and analytic expertise to help clients drive results and create something special in their workplace.
Tom Paleka
Vice President, Global Total Rewards
Tom has global responsibility for guiding Gallagher’s total rewards framework for compensation and benefits, and overseeing mobility programs and payroll. Key initiatives he has undertaken in recent years include consolidating and outsourcing the company’s long-term incentive plans and launching new plan designs.
Endnotes:
¹Arthur J. Gallagher & Co., “2018/2019 Salary Planning Survey Report – U.S. Edition,” February 2019
²The Bureau of Labor and Statistics