The growing labour shortage and widening skills gap make it more challenging for employers to attract high-quality candidates.
On top of this, a recent survey revealed that 41% of workers around the globe are considering leaving their jobs. That percentage jumps to over 50% for workers aged 18 to 25.
To overcome these obstacles, many employers are increasing employee compensation. This response is so widespread that it's reaching nearly every corner of the world.
Research from the World Economic Forum shows that salaries are increasing in:
- 100% of countries in North America
- 92% of countries in Latin America
- 91% of countries in Southeast Europe
- 87% of countries in Western Europe
- 78% of countries in the Asia Pacific
- 76% of countries in Central and Eastern Europe
- 50% of countries in the Middle East and Asia
For your company to remain competitive enough to attract new talent and retain current employees, it must regularly reevaluate its compensation offerings to ensure it's meeting or even exceeding industry standards. This review is just one step in developing a comprehensive compensation strategy known as rewards.
With the fair pay and benefits, your company can increase employee retention rates and distinguish itself as a desirable employer.
Keep reading to learn what are the steps to develop an effective compensation package that has the power to attract and retain top talent.
Download these tips to keep them on hand for quick reference as you work on your compensation plan.
align compensation with business goals
The first step is to align your compensation strategy with your overall business and HR goals. This
step requires you to have a strategic discussion around the company’s vision and values and your employee value proposition (EVP), and identify what employee behaviours you want to reward. With this input, you can develop a compensation and benefits framework.
For example, at Randstad, we put a significant emphasis on three behaviours, namely development, collaboration and performance. Therefore, when creating our compensation framework, we focus on rewards incentivising employees who excel in these areas.
consider your market
To create a competitive compensation package, you must first understand the overall job market and the market for your specific industry. Recognising emerging market trends, determining the most in-demand skills and qualifications, and identifying average salaries for your specific industry and location can prove invaluable when it comes time to establish salaries.
For example, the global manufacturing industry is facing a significant labour shortage. Experts estimate that the industry could have a shortage of 8 million workers by 2030. Therefore, it's safe to say that competition in this industry is high and that competitive salaries are a must for any manufacturer that wants to fill open positions both now and in the future.
know your competition
While it's good to know your industry as a whole, it's equally important to complete a detailed analysis of your competition. It’s essential to recognise that your competitors in the labour market are not always the same as your direct business competitors. This is especially true when you’re seeking candidates with specific skill sets.
This in-depth analysis provides a glimpse of what you're up against. This information can help you set salaries and adjust company benefits to match or exceed your competition's offerings closely. Without this data, you risk setting salaries too low or failing to include vital employee benefits.
ask your employees for input
With research revealing that over 40% of employees are considering leaving their jobs, your company cannot sit idly by. Instead, you can take steps to prevent this level of turnover by acknowledging your employees' needs, concerns and expectations.
For example, are they looking for more pay or are advanced benefits, such as flexible work hours or more paid time off, equally important?
The best way to obtain this input from your employees is to ask them using exit interviews, workplace meetings, one-on-one interviews or employee surveys. Be sure to give your employees a lot of leeway to express their concerns and needs to ensure you understand what types of benefits they want.
understand what talent wants
You also need to understand job seekers' expectations. To help you with this process, we research what attracts candidates to an organisation in more than 30 markets. We release these findings in our annual Randstad Employer Brand Research report to help you understand how workers' expectations shift. This insight is crucial when developing a benefits package.
For example, this year's research reveals that 57% of the workforce consider maintaining a healthy work-life balance a significant motivator to change jobs. This data shows that benefits, such as flexibility, job security, a pleasant work atmosphere and career progression, are significant to today's workers.
develop compensation package
Once you better understand your competition, gather talent insights and align your compensation objectives with the company’s overall philosophy, you can start the development phase. Below is a look at the primary parts of a compensation and benefits package you could consider.
fixed pay rate
- Also referred to as base pay, this represents employees' set salaries or pay per hour.
- Variable pay includes overtime, commission, tips, incentives, bonuses and stock options. While this payment type is not guaranteed, it should still be considered part of the overall compensation package.
- Benefits are a core component of any compensation package and include health insurance, pension plans, paid time off, holiday pay and tuition reimbursement, to name a few.
- In addition to benefits, there are a variety of non-financial rewards, such as flexible work options, recognition programmes and even the company’s location if it’s connected to a train station or close to the city centre.
When creating a compensation package, the goal is to set salaries high enough to remain competitive in your respective industry but not so high that it negatively impacts the company's financial stability. While this process can be tricky, market research, specifically salary data, can help your company establish the optimal salary package.
Fortunately, recruitment companies, such as Randstad, conduct this type of research and can provide your company's insights.
Compliance is a must and depends on location. You must understand the rules and regulations regarding your area's workers' salaries and benefits. These details might include understanding which benefits are taxable and what, if any, forms must be completed and how often.
For example, childcare or home office setup subsidies may be taxable in some locations. Failure to comply with these rules and regulations can cause your company to face fines.
equal pay for work of equal value
Implementing a diversity and inclusion strategy and closing the gender pay gap can improve business outcomes and enhance recruitment and talent retention efforts.
According to a recent UN Women report, women worldwide only earn $0.77 for every $1.00 men make. This discrepancy has not gone unnoticed. Seven countries worldwide have set policies to help close this gender pay gap.
For example, countries such as Sweden, Spain, and Denmark require or request employers to conduct annual salary audits to identify gender pay gaps and develop action plans to deal with these discrepancies. Whether your business is located in one of these countries or not, this is a good practice.
Closing the gender pay gap isn't the only thing employees want. Our research shows that nearly one in three employees would like to see more diversity and inclusion in the workplace.
Studies also show that diverse-friendly workplaces tend to have higher levels of innovation and team communication and often perform better financially.
implementation of the plan
It would be futile to go through all the steps of creating a compensation package and not write it. Before implementation, a written policy should be established for each type of benefit the company offers.
For example, if your company offers health or life insurance benefits, a clear policy should explain eligibility and how much the company contributes to this benefit. On the other hand, a policy explaining training and development should discuss eligibility and detail the steps employees need to take to receive these benefits.
The HR team should also have a communication plan to ensure all employees understand the salary structure and benefits offerings. Additionally, it's a good idea to include these benefits on the company's career page or as bullet points within a job posting.
The goal is to bring awareness to the total amount your company invests in its employees. In reality, employees often underestimate their compensation package's actual value. It's more than just salaries and bonuses. Adding all the extra benefits, such as paid time off and pension plans, quickly increases in value. Your benefits package should be designed to highlight this added value.
This type of transparency may be enough to help you attract top talent and entice them to accept a job offer.
When developing a compensation package, you must include a process for measuring its success. For instance, your company should assess salaries at least every 12 months. With the competition in the job market today, wages could continue to rise until the labour shortage subsides a bit. Evaluating these salaries annually is essential to ensure they still meet industry standards.
Additionally, it would be best to track various metrics, including total cost of workforce, turnover rates, absenteeism, overtime costs, time-to-hire and fill rate, to determine success. These metrics can also show how much the company has saved by implementing a revised compensation and benefits package.
Now's the time to take proactive steps by developing robust compensation packages. Download these tips, so you can keep them on hand for quick reference as you work on your plan.