2. | 49january 2016 workspan
AN
employee compensation
strategy is not a new concept,
but it’s an important one to
review often in order to stay competitive
in the labor market. A company would not
take its products and services to market
without a marketing strategy. In the
same way, a company should not try to
attract, retain, and motivate the employees
needed to execute that marketing strategy
without a strategy that enables it to
compete effectively in competitive labor
markets. In other words, companies
should have a strong vested interest in
their employees because they are integral
to their success.
A recent workspan article by Buck
Consultants at Xerox called, “Executive
Compensation Strategies: Do You Have
an End Game?” discusses how companies
can use a clearly articulated executive
compensation strategy to create alignment
among the organization, the leadership
team and its shareholders/stakeholders.
When properly implemented, such a
strategy can create an environment
and culture that contribute to higher
performance and long-term value creation.
A Key to Workforce Engagement
By James Sillery, Buck Consultants at Xerox
Can compensation strategies boost workforce engagement?
3. 50 | workspan january 2016
The article raised an important
question: Should a company also
have a total compensation strategy
for employees? If so, would it be
different from the total compensation
strategy established for executives?
The answer to both of these ques-
tions is yes. A total compensation
strategy for employees can create a
framework that links a company’s
reward structure with the drivers of
workforce engagement. By doing this,
the company can create alignment
with organizational strategies and
build greater workforce commitment.
The result can drive cost effectiveness,
improve productivity and increase
company performance.
In fact, most companies would
say with conviction that they have
a compensation strategy for their
employees, but if you ask how well
their strategy is working, the answer
is less certain.
Authors Herbert G. Zollitsch and
Adolph Langsner of “Wage and
Salary Administration” state that a
compensation strategy is designed
to attract qualified employees. It is
designed to motivate employees to
develop and perform at their highest
levels by offering both financial and
non-financial rewards as an incentive.
This strategy can help to control costs
by providing policies and procedures
that ensure internal equity while at
the same time providing a compensa-
tion opportunity that is externally
competitive with the market. It can
provide a structure that serves as the
basis for effective hiring, utilization
and development of employees. It can
also promote a positive relationship
between the employee, the company
and its management.
The environment that HR profes-
sionals work in is constantly changing
and increasingly challenging.
Companies regularly expect higher
returns on their human capital invest-
ment, yet the tools for increasing
productivity in this knowledge-worker
world are often rooted in the past.
The professionals who manage the
HR functions in global companies
still struggle to find their seat at the
table. Levels of disengagement for
employees in the corporate world
are stubbornly persistent. Based on
this, how can we make sure that
an employee compensation strategy
works in today’s environment?
A study of compensation practices
shows that employee compensation
strategies have, in fact, evolved over
this period. But, have they kept up
with the pace of change?
Why Compensation
Strategy Exists
Historically, a company’s compensa-
tion strategy has been an integral part
of the employer-employee relation-
ship. Initially, these relationships were
one dimensional with companies
providing competitive compensation
based upon management’s view of
Figure 1 | Five Generations in the Workplace
Gen 2020
Millennials
Gen X
Baby Boomers
Traditionalists
Source: Bureau of Labor
Statistics Employment
Projections
2020
2015
2010
2005
0% 20% 40%
A total compensation strategy
for employees can create a framework that links
a company’s reward structure with the drivers
of workforce engagement.
4. | 51january 2016 workspan
employee needs. For example, if an
employer provided an employee
with continuous employment and
competitive pay, that employee would
reciprocate with long-term service.
However, things began to change.
Companies could no longer promise
long-term employment. The competi-
tion for business and talent became
global. There was a shift in supply
and demand for labor as companies
had to compete for new skills in
response to technological changes.
At the same time, companies were
looking for more than loyalty. They
were also looking for commitment,
motivation, time and productivity.
The simplistic model that had
been in place for years evolved into
a more complex, two-dimensional
model, based on a quid pro quo
between the employer and the
employee. This “employee value
proposition” redefined the employ-
ment deal that defines what an
employer expects from its employees
and what it provides in return. Over
time, companies have expanded the
definition of pay to include benefits,
rewards and recognition, short- and
long-term incentives, and other forms
of compensation. Career progression
and the opportunity for advancement
were added to the mix. Most recently,
we have seen aspects like work-life
balance included. Taken in its entirety,
this total rewards model provides a
comprehensive offering to address a
range of employee needs.
However, while this model has been
evolving, there has been a steady
decline in workforce engagement and
an increase in workforce mobility,
according to Gallup’s “State of the
American Workplace” report. In this
case, employee engagement has
become critical.
Working With a Global
Workforce
Today companies are looking at
opportunities opening across global
markets and the characteristics
of these markets have undergone
dramatic changes following the last
recession. For many companies, the
decisions made today will determine
their success for years to come. A
global knowledge-based economy
is dependent on people and their
knowledge, skills and commitment to
a degree not seen in the past. To be
successful, companies need to fully
engage their workforce.
Best practices show the top drivers
of workforce engagement are related
to an employee’s perceptions of his/
her career. Increasingly, employees
are offering a new definition of
career that is based on current and
future opportunity for pay, personal
enrichment, professional growth and
employability. Within this definition,
an employee is free to continually
make trade-offs between these
factors as he/she moves through
his/her career.
Career also carries a more dynamic
definition. Career is a life journey and
not a job progression. It is not bound
by the current employment relation-
ship. Instead, it is a continuum, with
the current relationship serving as a
link between past, present and future
experiences. Also, work and life are
now integrated. Today’s worker has
one life that moves from personal to
professional and back in continuous
fluid motions, without interruption.
It also drives different motivations.
While Baby Boomers may leave a
company because they perceive their
Events that have
an impact on
the workforce:
Black Monday: The stock
market crash of 1987
Great Recession: December
2007 — June 2009
Equity markets have shifted
from static to dynamic to
constrain to volatile.
Businesses have shifted their
focus from local (domestic)
practices to exporting
U.S. practices as well
as implementing shared
global practices.
A growing multigenerational
workforce that includes a
Baby Boomers and Millennials
as seen in Figure 1.
Labor markets. The work-
force is becoming more global
as organizations expand in
different countries.
The “currency” of compen-
sation is evolving from
security, to cash, to equity and
opportunities as companies
respond to new economics.
Rewarding the workforce.
In response to a changing
workforce demographic,
companies are looking
at different ways to meet
employee needs accordingly.
Beware of these
disengagement drivers:
Shortages in talent that
exist side-by-side with
long-term unemployment.
Persistent levels of
workforce discontent
remain unaddressed from
the last recession.
Retention that is
jeopardized by
“latent turnover.”
5. 52 | workspan january 2016
work is not appreciated and Gen Xers
may leave because they perceive they
are treated unfairly, Millennials are
likely to leave because they perceive
that they have stopped learning.
Basis of Compensation Strategy
Given this, the purpose of an
employee compensation strategy
needs to expand beyond attracting,
retaining and motivating talent to a
strategy that drives engagement and
commitment. Developing this defini-
tion requires two-way communication
and mutual understanding. It also
requires that companies expand their
definition of “compensation.”
That does not mean that we move
away from compensation. Studies
show that compensation remains
an important part of the equation.
Instead, we need to redefine compen-
sation. According to Merriam-Webster,
the use of the word “compensation”
is not new; it dates back to the 14th
century. It has had several mean-
ings, but today, it most commonly
means money or something else of
value that is provided to someone
in return for something (such as
work) or as payment for something
lost, damaged, etc.
Historically, that definition
meant that the company provided
pay when the worker provided
something of value (commitment
and/or productivity). Today, this
value proposition has changed.
The employer-employee relationship
is now a segment on the chain that
forms a career. Workers are looking
for something that is more consistent
with their perceptions of value. And
because employees define career
beyond their employment relation-
ship with any single company, this
value proposition may need to have
a horizon that goes beyond the tradi-
tional employment lifecycle. So what
companies need to provide is a valu-
able link in that chain.
If companies build a comprehensive
reward structure that resonates with
an employee based on his/her career
definition, then the perceived value
that employee places on his/her
career can motivate positive behav-
iors that are valued by the company.
In other words, to engage workers,
companies must manage based not
just what they want, but what the
employee wants (Figure 2).
There is no one-size-fits-all solu-
tion you can implement, but there
are several steps that a company can
take to understand the requirements
for a rewards solution that is specific
to employee needs:
❙❙ Understand your business strategy
and needs, i.e., who you are as a
company and the types of people,
skills, and competencies that will
Workers are looking for something that is more
consistent with their perceptions of value ...
So what companies need to provide is a
valuable link in that chain.
Figure 2 | Response to Employee Value
By providing value to employees
Employer Engagement Employee
Employees respond by providing value to the company
6. | 53january 2016 workspan
support your needs. Understand
how your culture can create align-
ment around this.
❙❙ Understand what attracts an
employee to you. If it is pay alone,
you may be competing on price.
If it is your culture, you may be
competing on value.
❙❙ Know who your employees are.
Your workforce can cut across a
broad range of demographics with
perceived values that can have roots
in differences based on generations,
cultures, gender identity and more.
❙❙ Gather employee input, but know
who you are listening to. While
feedback from your entire employee
population can give you a lot of
data, amplified voices can provide
you with insight and information.
❙❙ Invest wisely based on what your
employees value. Plotting a cost/
value scatter gram analysis can
show you where your highest return
(measured in employee response)
may be relative to your invest-
ment (measured by cost), i.e., is
it low cost/high value or high
cost/low value?
❙❙ Broaden your reward structure to
include what employees are both
interested and capable of doing, not
just what they are doing now.
❙❙ Build a platform for communica-
tion and delivery.
By following this process, a
company can implement a
strategy that maximizes employee
engagement. This not only helps
to attract and retain employees, it
also increases the organization’s
overall productivity.
What should your compensation
strategy look like? As discussed
earlier, one size will not fit all.
The below message was posted on
WorldatWork’s community discus-
sions page in response to a question
about compensation philosophies
and communicates an impressive
holistic message:
“Similar to any other company
we’re trying to attract, hire and
retain the best and the brightest
talent in our industry. We do this
by offering competitive base pay
(using quality, industry-relevant
salary surveys with a focus on
matching the market between the
50th
and 75th
percentiles), broad use
of equity with a vesting schedule
more favorable than our competitors,
innovative cash incentive plans for
all employees, higher than average
merit increases and a generous
benefits plan. Our entry-level
professionals are evaluated and
rewarded twice per year to ensure
their compensation remains aligned
to the market as their skills grow.
(No sense training them to take a
job elsewhere, right?) Additionally,
we offer a dynamic yet casual
work environment where employees
can lead projects and make a big
impact. We have a great office
location close to prime dining and
shopping and we offer free parking
or bus passes to all employees (their
choice). And yes, we have free bever-
ages too. I honestly couldn’t ask for
a better company to work for ...”
This is not an easy undertaking, but
is it worth it? Studies show that, in
a typical company, only about one-
third of the workforce is engaged.
What would it look like if two-thirds
of your workforce was engaged?
The competitive advantage that it
would offer could be unbeatable.
James Sillery is principal and an executive
compensation leader at Buck Consultants in the
Minneapolis-St. Paul area. He can be contacted
at james.sillery@buckconsultants.com.
Understand what attracts an employee
to you. If it is pay alone, you may be
competing on price. If it is your culture,
you may be competing on value.
resources plus
For more information, books and
education related to this topic, log
on to www.worldatwork.org and
use any or all of these keywords:
❙❙ Career Development
❙❙ Employee Engagement
❙❙ Global Workforce.
