Looking to build a better culture? Set compensation strategy accordingly

The way employers pay says a lot about them as organizations
By Mykkah Herner
|Canadian HR Reporter|Last Updated: 05/15/2017
Men on Pillars
Compensation is one of the first things that falls under employee scrutiny. Credit: MJGraphics (Shutterstock)

Organizational culture matters now more than ever. It is the unique and varied personality that is associated with each organization. It is the set of values and rules that unite those in the organization, guiding them toward a similar business goal.

With five generations in the workforce, we’re seeing more diverse needs and motivators across employee populations. This has brought to the forefront the need for a clear organizational culture that allows employees to opt in to the organization.

HR leaders have long been hip to the value of organizational culture in accomplishing business success. And executives are starting to see the importance of having a defined organizational culture, engaging employees and communicating with employees.

And the way employers pay says a lot about them as organizations. Compensation should be a reflection of and an extension of company culture. More than half (57 per cent) of organizations agree compensation is becoming more important to their executives, according to PayScale’s 2017 Compensation Best Practices Report based on a survey of 7,700 HR leaders, executives and compensation experts (including 641 in Canada and 5,316 in the United States).This has to do with the increasing value placed on culture and the growing link between compensation and culture.

Often, companies put their mission statement or their values in writing on the wall. However, it typically matters more to employees that organizations actually live their values, rather than proudly display them. One of the trickiest problems employers can run into is when employees feel a disconnect between espoused values and actions.

Compensation is one of the first things that falls under employee scrutiny. So, how do compensation and values connect?

If employees are the most valuable asset, pay fairly

As we continue down the path into knowledge-based work, employees are becoming more and more impactful to the success or failure of a business. Nineteen per cent of respondents to the PayScale survey said having talented employees sets them apart from their competitors. That said, only 44 per cent of employers said employees feel they’re paid fairly, and even fewer employees agreed (20 per cent).

First and foremost, if an employer is going to purport to value employees, it should pay them and pay them fairly. That means making sure their pay: is market-competitive, rewards high performance, is more competitive for mission-critical jobs, and is consistently applied across the organization.

In a fast-paced organization, examine pay frequently

A lot of organizations are proud of their fast-paced environments. They create a lot, they sell a lot and they engage customers a lot. When these same employers turn around and give raises annually, or even bonuses annually, their compensation is inconsistent with their culture.

Fifty-four per cent of companies have done a market study within the past year, according to the survey. Thirteen per cent reference market data for individual jobs at least weekly. When it comes to bonuses, six per cent offer project-based bonuses, 10 per cent do it monthly, and 16 per cent provide quarterly bonuses. With more frequent payouts, it is much easier to align to the speed of business and reward the behaviours that are driving business results.

If open communication is valued, prove it

A lot of organizations tout an open-door policy, or say they value communication. Often, they’ll talk about transparency and share organizational goals. Sometimes, they talk about clear decision-making practices.

Increasingly, organizations are turning to pay transparency. Some reject it outright, believing pay transparency is all or nothing. But there is a whole spectrum of pay transparency possibilities, and pay transparency often means sharing the rationale for pay, not necessarily actual pay amounts.

Nearly half of all organizations aim to be transparent in 2017, according to the PayScale survey. As with other ways of fostering open communication, the end goal isn’t transparency, but increased trust, buy-in and engagement from employees.

If managers have autonomy, help them out

At most organizations, managers are responsible for engaging their team. They are expected to help them grow and develop, perform and deliver results. Often, they do this with one hand tied behind their backs as they’re not always given the authority to allocate increases.

Only 12 per cent of managers approve compensation, and only 42 per cent can even recommend compensation for their employees, according to the survey. So it’s no wonder that when it comes to communicating compensation, just 19 per cent of respondents trust managers to have tough pay conversations. And yet, only 30 per cent actually train managers on compensation. If an employer gives managers responsibility for engaging their team, it should give them some authority and training as well.

What should be targeted first?

With so many ways to emphasize organizational culture through compensation, there are a lot of helpful actions to take to begin to connect the dots. Here’s a good place to start:

Set compensation strategy: The compensation strategy is the brain of the compensation plan. So, get smart about how you allocate compensation dollars. Figure out what matters most and allocate dollars that way. Hint: It should fit the corporate culture. If you value teamwork, why not give a bonus to someone who goes out of her way to help a peer? If you value performance, don’t give everyone the same raise or year-end bonus.

Measure employee engagement: Increasingly, the link between employee engagement and business results is becoming clear. Many employees who feel they are underpaid, whether they actually are or not, intend to look for a new job in the next six months. If you want engaged employees, ask them what works best with an engagement survey.

Just about half of organizations agree compensation drives engagement at their organization, but only 26 per cent have changed their compensation strategy as a result of engagement survey feedback, according to the PayScale survey.

Improve communication around pay: Decide how transparent you want to be and start sharing more information about compensation with the organization. A total compensation statement is a great start — many top-performing companies share these with employees.

The one caution to increasing communication is to develop clear compensation objectives and the plan to accomplish them before communicating too much to employees. Once you start sharing, you’ll get more questions. Another tip: Get all your managers in sync with clear talking points so responses are consistent across the organization.

Pay for performance: Link performance with pay in some way, if you are legally able to. Only 11 per cent of respondents to the survey don’t reward performance. Although organizations provide both monetary and non-monetary rewards for performance, monetary rewards topped the list: 54 per cent give bigger base pay increases, 35 per cent give a bonus with no formal plan, and 29 per cent give goal-based incentives.

They say when you really care about something, you should put your money where your mouth is — and I totally agree. To be competitive, get the best talent and really be a great place to work, organizations have to put their compensation where their culture is.

Mykkah Herner is a modern compensation evangelist at PayScale in Seattle, Wash. For more information about the study, visit www.payscale.com/cbpr.

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