Total compensation: pay is not enough
It goes without saying that employees deserve to be paid fairly for the work they do. The issue lies in how organisations can accurately assess this and ensure pay equity across the board. The ongoing Great Resignation and record-high level of job vacancies in the UK have only exacerbated this issue. In a highly competitive talent market, employees are expecting much more from current and potential employers – not only in terms of pay but also the entire employee experience.
In order to overcome these challenges, organisations will need to take a new approach to retain and attract talent, whilst ensuring fair pay for all. The solution comes in the form of total compensation – an approach which looks at pay as part of a whole system of benefits and rewards, rather than in isolation.
The value of labour
Before discussing the possibilities of total compensation, let’s go back to basics. Knowing what a role is worth is an organisational necessity. Each role has value and employers need to know with certainty what that is – including as it changes over time – in order to pay employees fairly. There are several traditional options when assessing the value of a role. One of the most common options is to use pay guides based on current, relevant compensation data. Known as compensation analysis, this is an external view that assesses markets and competition for talent.
While an approach based on data is wise, it may not always result in fair pay in the modern workplace. For example, while the UK has a national minimum wage, living wage, and London weighting to bolster pay in the expensive capital, these measures cannot always keep up with other external factors. Currently, the UK is experiencing what has been called a ‘cost of living crisis’, which has left many households struggling to afford basic necessities. A generic compensation analysis may not take all available factors into account – especially in recent times when financial changes can occur quickly, as demonstrated during the pandemic through the speedy provision and cancellation of schemes such as furlough.
True pay equity requires its own statistical analysis – simply adding a module onto existing payroll software is not enough. While compensation analysis takes an external view, a pay equity analysis looks inward at how equitably employees are paid within similarly situated work. One of the greatest threats to pay equity at the moment is, ironically, the fact that many organisations are offering higher salaries to new recruits just to get them to join. While this seems like an obvious hiring solution in the face of the Great Resignation, it also results in immediate pay inequity within your company.
This leaves employers in a tricky situation. They need to incentivise new hires in a competitive talent landscape, but cannot necessarily afford to give all their employees raises to offset this pay inequity. As always, the issue lies in maintaining the right balance between fair pay for employees, and profit for the company.
Recognition is its own reward
In order to maintain this balance, and continue to recruit and retain talent, employers need to take a more holistic view of compensation. Compensation analysis and pay equity analysis will help ensure you’re paying your employees a fair wage. But in a competitive talent landscape, this is now the bare minimum. Employees want to know that they will be valued and appreciated on a day-to-day basis – not just through their pay-cheque.
The differentiator really comes down to having a positive company culture – and positive employee experience as a result. One of the best ways to achieve this is through a company-wide programme, such as peer-to-peer recognition, which allows employees to regularly recognise and reward each other for a job well done. Simply having a strategic recognition programme alone has a proven impact: employees at companies with recognition programmes are two times less likely to be planning to leave.
What’s more, the more recently someone has been thanked by a manager or peer, the greater their sense of connection to the company culture and their colleagues. Just witnessing public thanks is also associated with less burnout and stress, which means the more you can amplify and socialise recognition, the more impact it will have across your organisation. A great way to enable this is by allowing employees to recognise each other for achievements outside of work too, such as significant life events. Celebrating employees’ personal as well as professional achievements recognises them as the fully-rounded, unique individuals they are, and thus leads to a more human workplace.
Recognising employees individually with rewards and gratitude will support further compensation conversations in the long term, whilst ensuring your people feel valued and appreciated in the day-to-day.