A Publication of WTVP

As unemployment shrinks and hiring forecasts grow, most everyone who wants a job probably has one. These conditions make for an employee’s market, where there are more opportunities to “change” jobs and, consequently, more confidence to make a move. Therefore, as the employer, what can you do to hang onto your top talent and even look at recruiting some of your own? Certainly, there are many aspects to successfully retaining top talent; however, one key area is compensation.

Compensation can be one of an organization’s biggest expenditures, so a well-designed plan is an important element in business success. A well-designed plan should help employers recruit, motivate, and retain the best employees in their field. In contrast, a poorly designed plan can cause high turnover and hurt an employer competitively, as the talented employees needed to keep the company ahead of the competition seek employment elsewhere.

When considering pay, a good place to start is the organization’s compensation philosophy and how it reflects its values toward employee pay. The philosophy should constantly be evaluated to ensure it’s in line with the organization’s goals. As business conditions change, employers might need to adapt their compensation philosophies to reflect current realities.

Now more than ever, employers must be concerned that their compensation practices are competitive with other firms in the same or similar industries within their region. If employees believe they can receive better pay for performing the same work, they have little incentive to stay with an employer. High turnover can be an indicator that the compensation plan is undervaluing employees. Employers who set starting salaries too low will have difficulty attracting the best people.

The current emphasis on pay-for-performance means each employee is compensated according to his or her contribution. Employees who go above and beyond receive concrete recognition for their efforts. Pay-for-performance programs can serve as powerful motivators for employees if employers provide a meaningful spread between the pay of high and low performers. Some experts say that to be truly motivating, the spread should be at least 10 percent. Employees compensated at competitive market rates have one less reason to look elsewhere for a job.

Excessive turnover can be costly to an organization. The loss of trained and experienced employees can leave a void when higher level positions open up. Without internal candidates to promote, employers are forced to look outside the organization, which can cost more in both salary and time lost to training and orientation. On the other hand, there might be some positions within the organization where high turnover can be anticipated due to the nature of the work. In these positions, it might be desirable to keep salaries low as a way of controlling compensation costs.

Have you looked at your compensation plan lately? Is it time to update your philosophy for the 21st century? With the labor shortages we’ve started to see, now is the time to evaluate your compensation system. IBI