Top talent without top pay

Recognition, challenges valued by star performers

Just as it is possible to tastefully decorate a home on a modest budget, employers can attract top talent on a limited compensation budget. However, this requires greater creativity in the design of workforce and workplace programs and more effective execution of these programs than wealthier competitors. Time and money spent wisely in the workplace are ultimately more effective than throwing money at top talent.

Here are three viable strategies for attracting and retaining top talent without paying top salaries:

1. Create a superior experience

Creating a superior employment experience on a limited compensation budget requires an understanding of the competitive market for your workforce and the threshold level of pay for each position. A compensation survey for a particular industry can establish the distribution of competitive pay for each position so a company can decide on the level it can afford.

Research has consistently shown pay plays an important but limited role in engaging top talent, with other workplace variables also affecting engagement. Some of the main drivers are:

• effective supervision

• job challenges

• career development

• company pride

• talented colleagues

• being recognized and feeling valued.

An employer should measure how its current workplace rates in each of the above areas and establish the changes required to deliver a “superior employment experience.” Top contributors will gladly work for a company that pays at the lower end of competitive but delivers on critical, non-monetary workplace practices that are truly important to them.

2. Pay for top talent selectively

Most championship sports teams are not filled with superstars but have a handful of stars in critical positions — the rest of the team is comprised of average players whose performances are elevated by the stars’ presence.

This analogy also works in business if companies ask, “In what critical roles will we gain the highest leverage by staffing top talent?”

If an employer can determine those 10 per cent of positions that would provide maximum lift to the business by staffing them with top talent, perhaps it can justify paying 10 per cent of staff at the 75th percentile and 90 per cent at the 25th percentile.

3. Use incentive compensation

The beauty of a well-designed incentive compensation program is payout is contingent on the company performing at a pre-determined level. Incentive compensation usually takes the form of an annual cash incentive or a long-term stock-option program but there are many variations to explore, such as gain-sharing and long-term cash incentives.

The question to ask is, “What level of company performance would enable us to provide total cash compensation (base plus incentives) closer to the top of the market?”

For example, an organization might discover if its earnings grow by 20 per cent, it could afford to pay cash incentives that would shift cash earnings from the 25th percentile to the 75th percentile. The performance goal must be achievable, but this kind of thinking might help rally the organization around an aggressive business goal and create an opportunity to deliver more cash compensation.

Many organizations throw money at talent retention and engagement challenges, and pay more than necessary to run the business effectively. Overspending on compensation can be considered easier than building effective workplace programs such as career development, challenging assignments, management effectiveness, recognition and incentives. These programs require strong design skills, knowledge of best practices and effective change-management tactics. Before diving in, companies must ensure there is strong executive commitment and the necessary resources to design and implement these programs effectively.

If your company currently pays near the top end of the market and wants to rebalance the emphasis between pay and other workplace programs, this does not happen with the flick of a switch. It takes years to put new workplace programs in place and bring salaries in line with a more conservative pay strategy.

If a company is currently paying near the middle of the market, the challenge is to build strong workplace practices on top of the existing pay strategy to attract, retain and engage top talent. However, developing these programs has a price tag in terms of time and money, and you should not sell this strategy to the executive team as being either free or easy.

Even if the organization can afford to pay top salaries, you should recognize compensation is a weak driver of employee engagement once a threshold level of pay has been achieved. It is ultimately more effective to find that threshold level of compensation, make sure you are paying at or above that level, and then spend remaining resources on workplace initiatives that engage employees and link pay to performance.

David Neilly is the managing director and founder of PeopleCOMP, an Oakville, Ont.-based HR consulting firm focused on employee engagement and performance-based pay. He can be reached at or [email protected].

To read the full story, login below.

Not a subscriber?

Start your subscription today!