After the past few years of pay cuts, pay freezes and meager —- if any —raises, signs of economic recovery have given many workers the confidence to hunt for new opportunities outside of their current organizations.
Fearing the loss of top talent, business leaders are taking action to stem the turnover: More than 98 percent of companies awarded base pay increases in 2011, with an average increase of 2.9 percent — up from 2.7 percent last year, according to a press release by Mercer.
“The stakes are high,” says Michael Engelhardt, benefits consultant, Associated Bank. “High turnover can undermine efficiency and effectiveness, sabotage employee morale and send recruiting and training costs skyrocketing. Low turnover, on the other hand, can increase salary expenses, which, in turn, can make it difficult to maintain adequate staffing levels and may lead to lower productivity if workers become complacent in their positions.”
One way to determine whether your compensation plan is competitive in both your industry and your region — and whether it is sufficient to keep key talent from fleeing or becoming too comfortable — is to benchmark it. A thorough knowledge of how your pay rates and benefits stack up with similar positions at other companies can help you attract and retain talent, keep a competitive edge, perform annual performance reviews and manage your bottom line.
Smart Business spoke with Engelhardt about how compensation benchmarking can help you control turnover of key employees.
How can companies get started with benchmarking compensation?
Start with job descriptions. Having thorough descriptions of each position ensures that you’re able to match skills, responsibilities and experience for each job, rather than titles alone. And don’t go it alone; ask employees and managers for their input on the descriptions, as they are most likely more familiar with the duties of each position.
Choose your data carefully. Among the variety of compensation survey data available today, not all are created equal. Be sure to select surveys that offer good coverage of your industry, location and type of organization, which may entail using several survey sources. Pay attention to how the data is collected, its effective date and any geographic differentials. Aim to match job descriptions closely — 70 percent or more matching responsibilities is ideal.
Which positions should a company benchmark?
Select the positions carefully. Don’t expect to be able to benchmark all of the positions in your organization. Instead, choose positions that are standard across industries, such as accountant or administrative assistant, or that are consistent within your industry, such as registered nurse. For hybrid positions, consider comparing those with other positions that require similar skills, responsibilities and decision-making within your organization when making compensation decisions.
What do companies need to consider beyond monetary compensation?
Pay alone may not keep key talent satisfied and loyal. Regular evaluation of efforts to retain, motivate and engage employees is critical in striking a balance between mass exodus and employee stagnation.
It isn’t just about benchmarking pay; it’s also important to benchmark your overall compensation/benefits package. Look at the whole story of what you offer as an employer. Your benefits provider may be able to provide benchmarking data, so ask if the provider can benchmark how competitive your benefits package is by region and size of company. The provider should also be able to tell you the most common plan design, average employer contribution and what products are offered.
Because pay and other hard benefits are only one part of assessing competitive compensation, employers also should consider incentives, professional development opportunities and work-life balance. Softer benefits such as flexibility, understanding workloads and rewarding people in the way they want to be rewarded also fall into the compensation bucket. Now, more than ever, companies need to get creative with their benefits, because even though the economy seems to be moving in the right direction, it’s still really skinny for a lot of employers. And the truth of the matter is that hard money doesn’t typically bring loyalty or satisfaction, and it isn’t the only direct link to productivity.
Employees can likely dismiss the fact that they are not the most highly paid employee in this position, in this market, if they get to perform rewarding work. Being able to connect their work to the strategies of their company and feeling like they are part of something bigger can also be a source of satisfaction. Giving workers a positive environment is also valuable. For example, provide opportunities for professional growth, encourage strong relationships with managers and offer flexibility. It is important that employers not underestimate the power of those types of conditions to create loyalty.
How do you determine what is important to your top talent?
Ask them. The most important thing when you’re trying to avoid losing key talent is to create an environment in which you can have a nonthreatening conversation about compensation. If you’re concerned about employee loyalty, ask your employees what’s most important to them and where the gaps are.
Survey your employees to garner valuable information to help guide your compensation decisions. <<
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Michael Engelhardt is a benefits consultant at Associated Bank. Reach him at Michael.Engelhardt@associatedbank.com or (630) 966-4586.