This article is the fourth post of our HR Cloud Technology series that analyzes the new role data and cloud technology plays in human resources and how it’s preparing departments for the future of working.
The working population is evolving. As fresh talent enters the labor force, policies, procedures and work environments are adapting to meet new expectations. At the forefront of this transformation is employee compensation.
Baby Boomers currently make up most of the global workforce— which has profoundly shaped the employee/employer relationship for the past few decades. This generation has drastically different expectations regarding their employment experience than their younger— often misunderstood— counterparts. Traditionally, Boomers thrived in corporate culture, craved structured hierarchies and enjoyed working alone in an effort to slowly scale the corporate ladder. Millennials however, have effectively opposite ambitions and demands.
The new generation of workers are more formally educated, technologically savvy, self-confident and collaborative than their more seasoned colleagues. Already, they are transforming the employer/employee dynamic that has been formed over the past few decades by their boomer counterparts. This transformation necessitates adaptation from organizations, in structural, cultural and technological terms, to meet the needs of their new majority demographic.
The Generational Divide
By the year 2030, 75 percent of the American workforce will be composed of millennial talent, born between the years of 1980 and 2000. This inevitable shift in the workforce has a significant effect on employees overall expectations from employers and in turn, is forcing organizations to rethink and restructure themselves to satisfy a new set of demands.
Let’s make a quick compare and contrast regarding baby boomer ideals vs. millennials:
|Loyal pensioners, often working with one company for life||The average millennial is reported to have shifted employers 4 times by the time they are 32.|
|Working for stable income, home and vehicle ownership||Have less regard for savings, place lower value on home or vehicle ownership|
|Individualistic, like to work autonomously to achieve goals||Individualistic, yet crave visibility and acceptance, making them more well suited to teamwork|
|Value organizational hierarchies, which set a clear path for career growth||Uninterested in hierarchies. Millennials want to move from analyst to manager in a few years - not decades|
|Work is conducted in the office - only||Work is conducted wherever there’s a wi-fi connection|
What exactly do these differences mean for employers?
Implications of a Changing Workforce
If we refer to the comparison between millennial and baby boomer ideals above, we can infer that the implications for organizations are potentially huge, particularly in large organizations with culture deeply rooted in baby boomer ideology.
One of the first areas that organizations must be flexible is their employee compensation model. While culture takes years to shift, a compensation model can be planned with fresh insights in a considerably shorter amount of time - and the benefits of doing such are sure to help you collect and retain top-tier millennial talent.
You Get What You Pay For
This classic saying rings particularly true in regards to an organization's workforce, considering employee compensation is the costliest expense of every budget; making up (on average) 40 to 80 percent of an employer's overall business budget, according to Chron.
While compensation comprises a hefty amount of the overall budget, competitive salaries and performance-based bonuses do more than enhance employee satisfaction— they also increase workforce performance and revenue. A recent compensation study by PayScale shows that generous and competitive compensation is directly reflected in the superior performance of market-leading organizations.
This direct correlation between compensation, satisfaction, and performance provides an incentive for those employers hesitant to increase salaries and implement performance-based rewards.
With the global workforce becoming even more competitive, it's time to rethink your employee compensation strategy.
How to Improve Your Employee Compensation Strategy:
Over recent years, HR departments have focused on alternative strategies and non-monetary incentives to attract and retain top talent. While the development of an enticing work culture assists in acquisition and retention efforts— nothing has greater influence than the compensation of both current and future employees.
With the generational shift in the workforce, successful compensation strategies revolve around the new employer/employee relationship and are directly correlated with employee performance.
Organizations looking to implement this new compensation methodology can focus their efforts on two strategic areas: pay for individual performance or pay for company performance.
Rewarding Individual Employee’s Performance
Best used in service based organizations, an employee performance model encourages individuals to set and exceed personal goals on a consistent basis and enables a sense of accountability from the start. When focusing on individual employee performance, a company essentially incentivizes an individual employee's contributions to the company by rewarding successes and outstanding achievements.
Implementing an individual performance based compensation model requires a powerful Human Capital Management (HCM) system to collect, analyze and measure a workforce’s activities, goals and benchmarks. This database of information allows managers to make objective, fact-based decisions regarding an individual's allotted bonus and salary increase. Organizations will have all of the information needed to make objective, data-backed decisions when rewarding valuable employees by collecting these vital insights.
Using an HCM solution, also automates the rewards process by using an employee performance scale. This scale connects performance and achievements to a numeric system— traditionally using a five-point scale with one being the least performing and five being exemplary.
For example, if an employee achieves a rating of one or two then a bonus is not rewarded due to unsatisfactory performance. An employee receiving a three rating is entitled to 75 percent of the total allotted bonus. A four rating rewards talent with 100 percent of the bonus and staff awarded a score of five receive 120 percent of the allocated bonus.
A Company-Wide Compensation Model
Companies that are more reliant on the efforts of an entire workforce may be better suited for a company-wide compensation performance model. Building a strategy around the success of the overall company enables a work culture engrained with a team working mentality. It allows a work culture built from collaboration and appreciation for every role in an organization.
When a corporation does well, every employee is rewarded.
Most famously, GM implemented the pay for company performance strategy with their announcement that they would share public profits with hourly workers after partnering with the United Auto Workers (UAW) union. After analyzing internal processes and factoring in new technologies, the auto manufacturer realized that one high performing assembly line worker no longer speeds up the manufacturing process— thus, requiring a shift in the distribution of financial incentives.
Transparency is Vital
When adopting a pay for performance compensation strategy, transparency and defined rules of advancement are vital to success. The compensation philosophy must define pay, reward systems and more importantly, performance. It must inform employees of bonus plan eligibility and potential bonus plan payouts awarded for meeting specific targets.
An employee dashboard is an excellent way to streamline communication that is necessary when implementing compensation transparency across an entire organization. The dashboard gives talent the ability to log in and view their profile, their performance metrics and where they stand regarding monetary rewards. This dashboard system not only decreases the workload of administrators, but it also builds trust with employees and enhances engagement.
Provide Equal Pay to Become More Attractive to Top Talent
Closing the gender pay gap is essential to the success of businesses around the globe. According to the International Consortium for Executive Development Research (ICEDR), the number one reason millennial women leave their current employer is pay— making them more likely than men to leave a job due to issues with compensation.
Besides the obvious reasons regarding the retention of top talent— organizations have many other reasons to close the pay gap. Equal pay laws have become a hot topic with local and federal governments. With an increasing number of states enforcing new legislation protecting against gender bias, compliance costs could increase if legal action is taken. By proactively tackling these issues organizations not only save money but become increasingly attractive to top talent.
Recently, Salesforce CEO Marc Benioff announced that the company invested 3 million dollars to increase the salaries of female employees to the same level of male colleagues. By publicly revealing the promise of eradicating gender bias, the software powerhouse elevated its employer brand and became more attractive to the global workforce.
Getting a head start on providing employees with fair and equal pay can be a daunting task, especially for global corporations. Having an HCM solution in place can ease the process of mining the employee data needed to identify the gaps to fill them.
Human Capital Management
In order to supply the changing demands of the next generation of the workforce, its time to consider digitizing HR processes from end to end - from recruiting, to compensation & benefits and beyond. Choosing the right HCM system can be a real asset in altering a workforce’s sentiment towards its employer, and make recruiting and retaining top talent a whole lot easier. A strong HCM platform is paramount to defining the rules of compensation packages, analyzing historical data regarding performance, organizing competencies and job descriptions to ensure a fair compensation model and managing transparency across the enterprise. With the right foundation, organizations will have access to all the information needed to implement, monitor and improve upon a strategy that not only keeps employees engaged in the short-term but keeps them engaged for years to come.
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