Most economic predictions for 2014 are for overall growth, though still at a slow pace. The cautious optimism has employers continuing to walk a fine line between fixed base salary budgets and remaining competitive in the labor market. Continued moderation in base salary increases creates pressure on companies to build more effective variable pay and non-financial reward programs.
To keep valued employees from searching for greener pastures, firms must address their employee engagement challenges and focus on reward programs that have the most impact on retention. Typically, these include incentive programs and key nonfinancial rewards, such as career development opportunities, meaningful job designs, work climate and recognition programs.
Due in large to the great recession of the past few years, organizations are struggling to keep up with compensation trends and changes. The practice of awarding equivalent increases to all organization members has become a dinosaur. These across the board salary increases, send the wrong message to underperformers and leave organizations with too small of a budget to adequately reward top performers. Though this salary increase criteria is still used by many companies, forward thinking organizations are changing the way they look at salary and compensation.
The use of variable pay plans has been steadily on the rise. These plans are more economically sound. The costs associated with a variable pay plan can be aligned with revenues and performance and therefore vary with company performance. The motivational potential of variable pay is stronger than other forms of compensation. Variable pay plans can result in income that is lower than last year’s and they can provide rewards that are consistent with the individual’s contribution. Variable pay plans can be customized to fit different business units, providing customization to each unit’s ability to pay and creating a focus on its specific objectives. These plans can also be an effective tool for attracting and retaining critical skills, as well as high performers
Of course there are potential disadvantages associated with variable pay. Budgeting is difficult and it is vital that all performance criteria, measures and standards are made very clear and defensible to all parties. As more employees operate in a service capacity, with no physical product that can be exactly measured, getting agreement from everyone regarding productivity and outcomes during a performance period can be challenging.
Talent retention continues to be a top priority for companies and human resources with hiring and new job creation still at a low. Compensation can be one of your most important communication tools used to send a message about your organization’s expectations and goal achievement rewards. Your compensation philosophy should be aligned with the organization’s mission and vision. A well written compensation philosophy drives organizational success by aligning compensation plans with business strategy. It provides the foundation for plan design and administration and anchors current and future plans to the company’s culture and values. It provides the “why” when employees question compensation practices, serving as a helpful communication tool for reward determination.
At WageWatch our compensation consultants can assist with your organization’s compensation needs and help you ensure that your compensation programs are supporting your company’s business strategy and objectives. WageWatch also offers accurate, up-to-date benefit surveys, salary surveys and pay practices data that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online .