When you are speaking with a potential new employee, does the subject of compensation ever come up? Or when one of your key people announces she is taking an opportunity at another company, is pay ever mentioned as a factor? Okay, forgive the insulting questions. But with all that has been written in recent years about how small a role a rewards strategy plays in an employee’s performance, engagement and loyalty, I just thought I would ask what your “real life” experience has been. I imagine the truth is that compensation is a huge factor in recruiting and retaining the kind of talent you want. For most business leaders, having a compelling pay strategy can make or break their ability to secure the people they are trying to attract--or keep. So let’s stop pretending it’s not a big issue and examine how your compensation approach is impacting your competitiveness in today’s talent market place.
Essentially, there are three ways the compensation you offer is impacting your experience with employee retention and recruiting. Let’s break them down.
1. Role: The way you pay your people communicates the nature of the role you want them to perform in your organization. For example, the balance of salary and variable pay and short-term versus long-term incentive plans communicates whether you consider their role to be strategic or functional. Strategic roles attract people who can have a significant impact on the growth trajectory of your business. A PwC study suggests this about strategic leaders in an organization:
…strategic leaders are more likely to be women (10 percent of the female respondents were categorized this way, versus 7 percent of the men), and the number of strategic leaders increases with age (the highest proportion of strategic leaders was among respondents age 45 and above). These leaders tend to have several common personality traits: They can challenge the prevailing view without provoking outrage or cynicism; they can act on the big and small picture at the same time, and change course if their chosen path turns out to be incorrect; and they lead with inquiry as well as advocacy, and with engagement as well as command, operating all the while from a deeply held humility and respect for others. (10 Principles of Strategic Leadership, Strategy+Business, May 18, 2016, Jessica Leitch, David Lancefield, and Mark Dawson)
Talent with this type of skill is not going to be satisfied with a traditional pay package that includes salary, bonus, benefits and perhaps a couple of executive perks. They want a value proposition that speaks to the strategic results you are expecting them to produce. If your rewards approach does not communicate your understanding of the strategic role they are capable of performing, they will assume that in your mind they are just there to fill a position and “get a job done.” And under that scenario, if they are indeed strategic players, they will leave.
2. Stewardship: Your employees take a clue from the pay plans you offer them about what outcomes you want them to achieve. To understand better what this means, consider these questions: Do your employees participate in a bonus plan that incorporates multiple metrics designed to drive certain behaviors or does it unify the financial vision of the organization around one critical measure such as profits? Do employees know what the company’s philosophy is regarding value creation and value-sharing? Do they know, by virtue of their value proposition, whether you are more concerned about short or long-term performance—on both a company and individual level? Does their pay plan help them understand their impact on the profitability of the company and or revenue growth or shareholder value?
There are more questions that could be asked, but hopefully you get the idea. The compensation strategies of most organizations have no undergirding philosophy that drives decision making about pay and pulls all of the disparate pieces together into one, cohesive whole. Their rewards approach is driven primarily by competitive pay data that has no strategic value. Instead, they should become very clear about how value creation is defined in their business, how it will be shared and with whom.
When employees understand the philosophy guiding the way they are paid, they have a tendency to assume a greater sense of stewardship in their roles. Imagine the impact of this kind of compensation discussion with a new or existing employee:
Here is the role we have in mind for you in our organization. This is why this role is so important to the future of our business. As a result, these are the outcomes we’re looking for from this role. These are the tools and the resources (people and otherwise) that you will be available to you to help you succeed in this role. Here is our philosophy about how we pay our people and how we share value with those who help us achieve our growth goals. Here are the specific pay plans in which you will participate and here’s a statement of their potential value over the next five years.
A clear compensation philosophy empowers you to have a conversation like that with your key producers. And the byproduct of that kind of conversation is employees that have a sense of stewardship about their responsibilities.
3. Partnership: When people have a clear sense of their roles and are empowered to assume full stewardship over the outcomes you want them to achieve, they feel a sense of partnership. That’s what you want. When people feel like partners, they tend to think and behave like owners and not just employees. They are compelled by the future of the organization because you have helped them see how vital their role is in its fulfillment—not just verbally but in the way they are being paid.
A sense of partnership is what draws people to a business and then compels them to stay. If you don’t achieve that kind of relationship, then you are commoditizing employment in your organization. As a result, your people will look for the better “deal” because you have communicated to them (deliberately or otherwise) that they are just part of the hired help.
We are living in a business age that makes a compelling value proposition more important than ever. Unemployment has shrunk to its lowest level in 17 years. The skilled labor market is shrinking. Finding and keeping premier talent has become a highly competitive exercise.
My suggestion is that you examine the three ways your value proposition is impacting your ability to recruit and retain the kind of talent you want and then start making adjustments accordingly—and soon.
