If you’re a business leader, it’s almost a given that at some point you’ve become frustrated by the compensation costs in your business. And if you’re an HR professional, it’s equally likely that you’ve become frustrated with not having enough budget to satisfy the desires of your employees and candidates and allow you to achieve your objectives.
While there’s undoubtedly a temptation to blame unreasonable candidates, a challenging economy, or pressure from customers for these frustrations, in most situations some (or most) of the blame should be placed on a lack of creativity in the design of the compensation program.
Think bigger than just dollars and cents
Whether your workforce is made up of baby-boomers, millennials, those in between or more likely a mix of all three, it is a safe bet that your people value a lot more than just money. It’s also likely that you’re doing a lot more for your employees than simply given them a paycheck in exchange for their time and efforts.
Just because things like vacation days, title, learning opportunities, and the flexibility to work from home cannot be exchanged for a cup of coffee at Starbucks doesn’t mean they can’t be very compelling components of a compensation program. Despite not having a market value, these and other non-financial rewards can have a powerful impact on employee attraction, retention and motivation.
Shift your thinking from money to value
Consider the scenario were Shanna, a talented young executive, had offers from two companies. Company A offered:
- 115k base salary
- 20% variable pay potential
- 3 weeks of vacation
Company B offered:
- 105k base salary
- 15% median variable pay for people in her role
- 3 weeks of vacation
- A plan to achieve promotion in 18 months which would be accompanied with a minimum 10% pay increase
- 1 day per week of flexibility to work from home if desired
- Flexibility to periodically work non-traditional hours assuming no adverse impact to work
- Participation in a structured mentoring program
- Company core values that structure the business as a meritocracy where the best ideas are used regardless of the
- seniority of the person offering the idea
While Company A’s offer is objectively more lucrative, Shanna, as the mother to two young children found far more value in the offer from Company B. The work flexibility and cultural alignment cost the company nothing but created great value for Shanna. And while the mentoring program consumes some senior executive time, it carries no additional financial burden and arguably develops the mentor as much as the mentee justifying that allocation of time for both people.
Consequently, Company B’s offer was for Shanna much more valuable than the more lucrative offer from Company A.
Become adept at offering compensation in many currencies
The first step in being able to compensate in multiple currencies is to understand your employee and candidate groups. In any job, there will be natural commonalities between the people who are a good fit for the role. Figure out those commonalities and build compensation that invokes the currencies most relevant and interesting to people who possess those traits.
Non-monetary currencies include:
- Rate/clarity of career progression
- Working location
- Quality of office space and/or infrastructure
- Flexibility in work structure (working from home, flexible hours)
- Level of independence
- Level of autonomy
- Title (more robust title for same role in competitor organizations)
- Access to unpaid leave and/or sabbaticals
- Culture (level of bureaucracy, competitive vs collaborative)
- Continuous learning opportunities
- Individualized coaching and/or mentoring
- Perks (airline points, discount programs, lifestyle programs)
- Opportunities to gain publish exposure (publish, present)
- Networking potential
- Resume value (contribution to future career moves)
In general, offerings in these categories do not create material additional financial burden for employers but do create material value for employees.
Communicate if you want credit for non-monetary currencies
Simply offering some compelling non-financial currencies to candidates or employees is not enough. A company must draw attention to those offerings and communicate them as a value provided by the company to the employee. Employees who do not know how to benefit from these sources of value generally won’t. And if they do, they are more likely to view the benefit as a result of their resourcefulness not the intentional investment by the company.
Most companies who struggle to have an effective and competitive compensation program struggle because they fail to communicate their program thoroughly and effectively not because they have an insufficient or poorly constructed compensation program.
Win with currency diversification
While in competitive markets, the use of currency diversification can allow a company to attract and retain talented people without having to “buy” them with higher salaries, the real power comes when an employer understands its employees well enough to craft a compensation program that has a lowers monetary cost to the company while generating more total value to the employee.
Company B was able to do this. They were able to have lower cash flow constraints while still providing a more compelling offer to their candidate.
In the current environment, many studies have shown that people are more likely to leave for non-monetary reasons than low pay demonstrating the importance of the non-financial currencies. Companies whose attractiveness is anchored to those non-monetary currencies often have the best success in attracting, retaining and motivating people. Plus, they have the easiest time differentiating themselves from competitors, a crucial step in attracting talented people