TO IMPROVE ENGAGEMENT & RETENTION - HRsoft...2. Reward for Retention Once you have clearly...

USING COMPENSATION PLANNINGTO IMPROVE

ENGAGEMENT & RETENTION

02Copyright 2015 HRsoft, Inc. | All Rights Reserved www.HRsoft.com

For most organizations, compensation planning is a highly specialized area. The work is complex, always changing, and very cyclical in nature. As a result, compensation departments are often isolated from much of the company and not always linked to overall HR initiatives like engagement and retention – until now.

We all know that an organization’s talent is arguably its greatest expense and asset. We also know that keeping that talent engaged and employed has become a more challenging proposition than ever. In 2014, over 50% of employees reported that they were not engaged in their jobs. Additionally, turnover due to voluntary quits has been increasing over the past 5 years. The resulting economic impact is lost productivity and turnover costs spiraling out of control to the tune of up to $500 billion per year for U.S. businesses. For a mid-sized company of 1,000 employees who has a 10% annual rate of turnover, the annual cost of turnover is $7.5 million!

The simple truth is that these are real costs affecting virtually every sized company in nearly every market. And it’s not as if organizations are ignoring the problems. It’s estimated that U.S. businesses are spending over $1.5 billion per year on engagement initiatives. But with decades of data in, it’s clear that traditional engagement and retention methods are no longer working.

Don’t worry – there is some good news.

Embedded in your organization could be one of the best engagement and retention tools you can use: your compensation department. Yep, that’s right – compensation planning is no longer about just making sure everyone is paid correctly (although that’s still important), it’s a tool that can be used to dramatically improve retention using many of the systems you already have in place.

The truth is – the idea of using compensation planning as a viable strategic lever to engage employees hasn’t really been on the radar of HR and compensation managers, but its time that we truly evaluate the value it brings to the table. In this report we will reveal 3 key engagement and retention strategies that can be implemented leveraging the work you are already doing with your compensation planning. Let’s get started.


How Can Compensation Planning Help Improve Engagement & Retention?Disengaged employees are less motivated, less productive and over time, are more likely to leave the company for better opportunities elsewhere, thus creating high turnover rates.

According to PayScale survey findings the main reason why employees left in 2014 is due to compensation issues (although this can vary from company to company) which can be related to base salary, commission, overtime pay or end-of-year bonuses. In response to that, about 63% of the companies have referenced retention as top focus of compensation and more than half of the companies that were surveyed use some form of pay-for-performance strategy.

After seeing all this data, it is clear that many companies already believe that compensation plays a major role in employee engagement and retention. The real question is – how successful are these attempts?

We all know that employee engagement and retention needs to go beyond just a hipster looking office or an occasional company retreat. And we are not suggesting that your engagement and turnover challenges will be instantly solved with compensation. It is clear, however, that improving engagement requires a multifaceted approach – on that includes a well thought out compensation strategy.

Why is Compensation Planning a Relevant Retention Strategy?As much as it is a cliché, money really matters when you are trying to engage employees. Despite the many interesting employee perks and innovative work life balance approaches, it is essential that employees feel that they are being paid fairly for the amount of work that they put in. While things like work life balance play a big role in their corporate lives, money and benefits are still one of the most decisive factors that employees consider when deciding whether to stay or to leave the company. In order to attract and retain top talent, the compensation package has to be attractive and effective.

Setting Up the StrategyIn order to leverage compensation planning to increase employee engagement and retention, we want to first break things down into clear, concise actionable steps. Compensation planning can be fairly complex and has to take into account many factors (profit sharing, performance metrics etc.). What we need to do before going into the nuts and bolts is to categorize them into separate strategies that are easy to understand and implement.

1. Identifying Your Top Performers

2. Reward for Retention

3. Show and Tell (the money)


1. Identify Your Top PerformersThe first few questions we need to ask ourselves before diving into the planning process are:

“Who are we trying to target?”

“How do we identify our top performers and critical talent?”

“How are they currently being compensated?”

What may appear to be simple questions on the surface can help identify not only the employees you want to focus on but potential gaps in your compensation strategy. The last thing we want to do is to create a generic compensation plan that does not target the right people because we do not understand their contribution to the company or because we do not understand their existing pay structure. Answering these basic questions will help us begin to shape our compensation strategy around our top performers.

Identifying Your Top Talent to Target

Focusing your comp planning strategy on your top performing employees will yield better, faster retention and productivity results. In fact, a recent Personnel Psychology study revealed that a high performer can deliver 400% more productivity than an average performer. To start, you will need good tools, information and metrics to accurately identify these top performers. Here are a few options to consider:

Performance Management - You likely have some sort of performance review process in place, so this is an easy place to start. Effective performance management is more than just an annual review of performance and goals, but an ongoing process through which goals are set, measured and assessed with a continuous feedback loop in place to assess the progress against the objectives set. Doing all these prevents the company from managing performance based on ‘gut feel’, which is important when you want to be fair and transparent especially to your top performers.

Hiring & Line Managers – Don’t forget to tap into your resources on the front lines. Your hiring managers have worked tirelessly to attract your top talent so they often know more about what brought them to your company (and what might keep them) than anyone early on. And the line managers have insight from their day to day interaction with the employees. Their feedback provides a valuable and important balance to the process.

Succession Planning – If your organization has a succession planning program in place, this is a great way to identify high performing, experienced employees that are ready to take on expanded roles.

Calculating the Right Compensation

Before you decide on a compensation strategy for this group of employees, you need to first understand how they are being paid. Compensation can be driven by a number of factors including performance, market data or corporate policy.

If you have not had a formal compensation strategy in place, it will be helpful to understand how your top performers are currently being paid and create a consistent process to compensation them going forward.


2. Reward for Retention

Once you have clearly categorized your employees for your strategy, it’s time to allocate the budgets. Using compensation for engagement and retention is more than just following guidelines, it’s about putting the dollars where they can make the most impact – something we like to call Return on Employment (ROE). Some important questions you want to consider:

“What is our compensation strategy?”

“Is compensation given out compensation appropriately?”

“How should we allocate the compensation budget?”

What Is Your Compensation Strategy?

The first step to successfully leverage compensation as a tool for engagement is to craft out a solid strategy. A compensation strategy is critical in determining how your company positions itself on the open job market and crucial in how effective the company can be in retaining its top talent.

Traditionally, compensation strategies are aligned with organizational goals. Implementing a compensation strategy aligned with organizational goals creates better synergy and allows for a more effective allocation of compensation budgets to help retain the best talent.

Generally a compensation strategy needs to include a framework on how employees are compensated including things like career opportunities, pay raises or adopting a centralized model or decentralized model for compensation planning.

Is Compensation Given Out Appropriately?

HR and compensation managers intuitively know this should be done, but in practice it can challenging to execute. Often it can be the lack of processes, resources or tools that prevent efficient allocation.

But right now, it is more important than ever to empower managers (who understand individual employee performance more than HR) to be able to make compensation allocation decisions. This enables comp budgets to be used more effectively in your overall engagement and retention strategy.

And as much as we don’t want to lose good talent because of compensation, we also don’t want to overpay. A good compensation planning strategy will allow you to avoid overpaying by having done the research, established benchmarks and collectively decided upon your pay structures and pay-for-performance modeling.


Allocating Compensation Budgets

The common challenge for line and compensation managers is working around a fixed compensation budget and allocating money to where it gives the maximum return on employment. A pay-for-performance model provides a valuable tool for achieving this goal. Perhaps you have considered this strategy in the past but felt it was too time-consuming or resource-intensive - it doesn’t have to be. A simple approach can yield great results. Below are a few ideas to help you get started.

Categorize employee performance – for most organizations, employee performance falls into one of two categories. For a more consistent and fair measurement of performance, use these (or others more appropriate for your organization) to create a systematic way of identifying what part of the employee population belongs.

1. Qualitative Performance - activities directly related to customer experience. Most of your sales and support personnel would fall in this category.

2. Quantitative Performance – activities related to the administration side of the organization such accounting, processing, inventory, etc.

Create a Pay-for-Performance Checklist – below is a checklist you can use for building a basic pay-for-performance plan:

Clearly outlined performance category segmentation Clearly defined job descriptions and goals Clearly defined department and organizational goals (aligned with the employee goals) Performance management system for tracking manager feedback/evaluations Transparent goal tracking system for employees (view current results vs. goals)

Model Your Compensation Plan – Once a pay-for-performance plan is in place, you can utilize any number of powerful compensation components to reward your employees including:

Base compensation Merit Pay Equity Special Recognition Paid Time Off (PTO) Opportunity Income (tuition, paid development)


3. Show and Tell (the money)Utilizing compensation as a proactive engagement and retention tool is a great first step. Now that you have identified the key talent and built a systematic way to calculate their compensation, we need to make sure they know about it!

At first, this seems a bit obvious – of course they know what they are paid! But do they? Most employees assume their compensation is comprised of just their base pay plus any additional bonus they may or may not receive. They often forget – or perhaps are not told – that in many cases 30 to 50 percent of their entire compensation plan is comprised of stock/equity, profit sharing, benefits, bonuses, PTO, etc.

Being able to effectively communicate the full value of employment is nearly as important to the strategy as the compensation itself. In other words, it’s not enough to just pay them – we need to show them the money! Below are a few ideas to help you do just that.

Employee Education – make sure time is spent during the onboarding process (and perhaps even in the review process) to ensure employees understand what and how they are paid. This can be as simple as reviewing a comp statement or showing them how to use an online employee portal.

Compensation Culture – if compensation is a key to retention and engagement, then let’s talk about it! Find ways to share your compensation strategy with the general employee population. Make it something you are proud of, promote it and be sure to explain the benefits.

Employment Branding – incorporate your compensation strategy into your employment branding. This would typically be messaging found on your career site where applicants are reading about the company. Understanding how you pay and why can be an integral part of attracting (and retaining) the right talent for your organization. Essentially you are aligning them with your comp strategy before you even hire them!

Total Rewards Communication - create (at a minimum) an annual total rewards statement that summarizes the total value of employment. This can outline the direct or indirect value of many of the items shown in our list above providing a more tangible value to their employment. Even better, implement a total rewards portal that allows employees real-time online access to this data 24/7. This is particularly helpful for those using a pay-for-performance model or for retaining employees with stock.

Compensation Management – have a system in place that provides a clear and transparent process so employees can see how they are paid. Make it easy on managers to extract compensation data for their staff to avoid confusion and frustration. Quick and easy answers means more engaged employees.

Summary

The employee engagement and retention challenges we face today are very real and need a new approach to solve them. By leveraging the efforts of your compensation department you can dramatically impact your engagement and retention results without overwhelming your managers. Using smart processes, tools and technology compensation planning can become a powerful engagement and retention tool for your organization.


About HRsoftHRsoft is a cloud-based, High Impact Talent Management™ software company that specializes in improving employee engagement and retention for mid-large sized employers. Our High Impact Talent Management System™ includes modules for compensation management, applicant tracking, management software, total rewards, stay interviews, and content management.

Phone: 866.953.8800 | Email: [email protected] | Web: http://hrsoft.com

Connect with us: Facebook | LinkedIn | Twitter

About the Author Brian Sharp is the Chief Marketing Officer at HRsoft, a High Impact Talent Management™ software company that specializes in cloud-based software solutions to improve employee engagement and retention.

With over 20+ years of marketing and management experience, Brian has been involved in the start-up, development and successful exits of three companies. As an award-winning speaker, he is a frequent presenter and author on the topic of HR technology & strategy. At HRsoft, he is responsible for product marketing and company branding across North America.

High Impact Talent Management™

About HRsoftHRsoft is a cloud-based, High Impact Talent Management™ software company that specializes in improving employee engagement and retention for mid-large sized employers. Our High Impact Talent Management System™ includes modules for compensation management, applicant tracking, management software, total rewards, stay interviews, and content management.

Phone: 866.953.8800 | Email: [email protected] | Web: http://hrsoft.com

Connect with us: Facebook | LinkedIn | Twitter

About the Author Brian Sharp is the Chief Marketing Officer at HRsoft, a High Impact Talent Management™ software company that specializes in cloud-based software solutions to improve employee engagement and retention.

With over 20+ years of marketing and management experience, Brian has been involved in the start-up, development and successful exits of three companies. As an award-winning speaker, he is a frequent presenter and author on the topic of HR technology & strategy. At HRsoft, he is responsible for product marketing and company branding across North America.


Compensation & Total Rewards Resources

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