Compensation Strategies to Attract and Retain Talent
In this Article:
- How Does Compensation Affect Employee Retention
- Why Does Retention Matter?
- Questions to Ask About Your Compensation Structure
- 7 Compensation Strategies to Improve Employee Retention
- Contact Exude Human Capital for Compensation Studies and Strategy
The impact of compensation on employee retention is well-documented. Businesses must keep their employees happy to thrive, and 74% of HR professionals cite inadequate compensation as the top reason employees leave their organization. While many factors contribute to employee turnover, there’s an inextricable link between employee retention and compensation.
An effective compensation strategy is essential to attract and retain talent at any organization. As employees’ needs change, HR leaders must update their approach to designing and implementing compensation programs. A fair and attractive pay structure can attract the talent your business needs and ensure they feel engaged and valued enough to stay and make an ongoing contribution.
How Does Compensation Affect Employee Retention?
Employees move on to other positions for many reasons, including better work-life balance, lack of growth opportunities and low company morale. Often, compensation and retention are two sides of the same coin. Opportunities for growth and the highest pay are the primary reasons employees remain in their jobs. While people seek tangible and emotional benefits at work, compensation remains critical in retention efforts.
Meeting employees’ needs makes them more likely to stay with your organization. Fair salaries and benefits make them feel valued, engaged and motivated, increasing productivity. Low pay leads to high turnover. Employees who lack commitment to your organization are more likely to seek alternate employment. In the meantime, they’re less productive, affecting your customer retention and company culture.
Why Does Retention Matter?
Your ability to keep employees happy significantly impacts your organization’s performance, culture and profitability. Retaining the team you already have reduces the expense of training and onboarding new hires. Additionally, robust retention programs can attract top-tier talent when you have open positions.
High employee turnover can devastate your bottom line, from the cost of replacing employees and losing their skills and knowledge to the time and effort HR and management must spend recruiting replacements. When retention is high, they can focus on more productive aspects of their roles, such as effective performance management — developing employees to perform at their best and aligning with organizational goals.
Poor retention also has a marked effect on employee morale, productivity and engagement. Good retention strategies foster a positive work environment with committed team members who feel a sense of purpose in their roles. A comprehensive compensation package that comprises tangible and intangible benefits, like work-life balance and flexibility, meets employees’ needs and creates a sustainable and cost-effective environment.
Questions to Ask About Your Compensation Structure
There are several ways to determine the best salary structure. Depending on your unique needs and company culture, you can use market compensation, internal business objectives and your company culture to help shape your decision. Consider the following questions to help you develop an effective strategy:
- What would employees consider a fair wage for their role?
- How can you balance wages with your organization’s financial goals?
- Do management and employees understand your current compensation strategy? How can you communicate it to them?
- Does your pay scale reflect how employees add value?
- How can you improve your compensation plan to retain employees?
- Have you met the Fair Labor Standards Act and other legal or regulatory requirements?
- Are your organization’s culture and philosophy aligned with industry and market fluctuations?
7 Compensation Strategies to Improve Employee Retention
Compensation strategies are the methods your organization uses to handle pay and benefits, including determining the best way to calculate raises and bonuses and setting salary ranges. Companies use many tactics to attract and retain talent, and some of the most effective include the following.
1. Align Salaries With Strategy
The COVID-19 pandemic has significantly changed workplaces worldwide, and many businesses are reexamining their salary structures to compensate for talent shortages, remote work and inflation. If you’re considering updating your employee retention strategy, adjust compensation accordingly and create pay equity among your teams. Though salary adjustments can be expensive, they are still more cost-effective than hiring, training and onboarding.
2. Provide Complete Benefits and Rewards
Compensation and raises are only one part of a compensation strategy. Employees stay for many reasons, and desirable perks have a considerable influence. Examine your current benefits and rewards package and ask your team for suggestions. Possible improvement opportunities include mental and physical health support, financial wellness tools and stress management.
Work-life balance is another opportunity to augment your benefits, especially among certain age groups. Indeed, 60% of Gen Z employees claim it’s the most critical factor when evaluating a new job opportunity. Consider improving your package to include accommodations like remote work and flexible hours.
3. Develop a Robust Rewards Program
Rewards are a sincere and motivational way to show employees you appreciate their hard work. Workers who feel recognized are more likely to stay in their positions, so create a structured recognition plan. Goal setting and regular check-ins with management can be invaluable, providing employees complete clarity on your expectations and how to meet them.
Combine regular and effective performance reviews with acknowledgment of team members’ accomplishments. Money is a powerful motivator, but employees also appreciate positive and public feedback.
4. Provide Clear Growth Roadmaps
An effective compensation strategy includes growth and professional development opportunities. When you focus on retaining employees, it’s in your best interest to help them progress in their career paths, so they can continue adding value to your organization. Learning opportunities are essential to your retention efforts, as employees can evolve within their position’s requirements.
Take an active role in goal setting with employees, and consider incentivizing professional development achievements. This strategy motivates employees to better themselves and shows them you’re invested in their growth.
5. Focus on Pay Transparency
Employees who believe they earn fair compensation are more likely to stay. Develop a communication strategy where you explain why your employees receive specific payments and how they can improve their earnings. Train your managers to engage in pay-related communications to openly discuss compensation with team members.
6. Improve Work Environment and Company Culture
Feeling distressed can motivate people to look for a new job. Ensure employees at your physical location are comfortable in your space by keeping it well-lit, warm and ventilated. In addition, being part of an encouraging team is a powerful motivator, so create an authentic and value-based company culture where they can thrive.
7. Work With Experienced Consultants
Developing a compensation strategy is a complex process — professional compensation consulting can help you create an effective system. Professional input can help you with market analysis, developing workable salary structures, ensuring pay equity and designing incentive programs. They will also keep you compliant with current regulations and best practices.
Develop an Effective Compensation Strategy With Exude Human Capital
Designing, implementing and evaluating an effective compensation strategy can be challenging. Exude Human Capital understands the difficulties of developing the best compensation strategy for your organization. Our experienced total rewards team can help you develop an entire compensation program that supports your acquisition and retention strategy.
At Exude, our mission is to support yours, so reach out to us today. We can lend our expertise on compensation strategy and development and start retaining your top talent!