The situation is especially urgent in Europe, which lacks the maturity of the US in compensation personalisation. Across the Atlantic, rules are increasingly demanding transparency on compensation with several states introducing legislation, with a resulting culture of openness emerging on pay ranges and structures.
Pay problems in the UK:
CEO pay passes average annual income after just 38 hours of work
Will pay transparency solve the gender pay gap?
Should we increase the minimum wage?
Despite the EU parliament passing a directive to negotiate with member countries on pay transparency legislation, it is not clear when it will become a legal mandate in Europe.
However, there is growing encouragement for Europe to fall in line with America, as it makes sense for organisations that want to have a single global model and the trend to formalising compensation disclosure could have downstream impacts even on non-multinationals.
More important than ensuring global consistency though, compensation personalisation and transparency will help you to retain talent and build a strong culture and brand.
Think different
We need to take a new approach to compensation. In the past base salary, short-term incentive (such as bonuses) and long-term incentives (such as stock grants) have been used as the main levers in differing degrees to build compensation packages.
We need policies to expand beyond these narrow rewards with managers able to offer custom compensation packages that drive employee morale and employee engagement.
Compensation personalisation isn’t without complexity, however. Highly unionised sectors will often see pay bands negotiated, and civil servants also often operate within formal pay grades. Also, many lower-ranking performers often feel content with the band system. But if you want to attract and keep the most talented people, rewarding on a personal basis demands attention.
This must be driven by careful analysis and a strategy for explaining where people sit within a range. This is not without nuance: grade people low and they may get upset, while others may be content to be low on a band because it gives them scope for growth rather than being high but with a ceiling, meaning static rewards.
It’s complex and a sensitive area. But what is above all critical is to communicate, explain your thinking on the proposed package and set goals for improvement.
Often the challenge is not so much one of explaining to employees but their managers. Some managers don’t understand the compensation personalisation concept: they may think it’s fake or else opaque.
Among the biggest frustration compensation professionals have is dealing with constraints from leaders and their lack of a policy. Top executives have often grown up in a system that worked for them and an attitude of “if it ain’t broke, don’t fix it”. But you must persist: a culture of silence or obscurity quickly becomes toxic and can lead to all sorts of misunderstandings, jealousies and antagonism.
It’s no good to say “I’d love to pay you more but the boss/system/economy won’t let me,” we need structure.
A checklist
Creating a framework for compensation personalisation can be based around the answers to the following questions:
- Do you have a clear and communicable policy on compensation, how much you pay and why?
- Is there a clear structure for career advancement?
- Do you regularly collect and use data on pay such as competitive rates, and staff satisfaction?
- Do you have flexibility in how you can quickly adapt rewards, for example to tailor rewards to individual preferences?
- Does your organisation provide clear guidance on compensation to managers?
- Do you communicate clearly and across channels that employees use?
- Do you use specific compensation software and complementary HCM-related modules?
- Do you regularly review your compensation model and receive feedback on it?
A test
One simple question for compensation managers I often set: can you write down your plan of action? Being able to explain a simple strategy triggers a clear understanding of the value proposition you offer employees. You can deal with any outlier situations after that but if you don’t understand the offer you’re making, then you can’t very well expect your people to know.
Personalisation requires benchmarks so develop them, communicate them, and then formalise processes so your compensation model is repeatable but configurable for subsequent tweaking if needed.
It helps a lot if software is also designed as a suite with integrated complementary components for talent acquisition/management, core HCM and other elements that touch on compensation.
This is the age of personalisation. We expected marketers to target us based on our tastes, buying history and our volunteered preferences.
We often see research pointing to manager/employee relationships, training, career opportunities and culture being nominated as key reasons for attracting and retaining people.
But there can be no doubt that compensation packages are key too so it’s time to pay attention… and pay what individual people deserve.
Boyd Davis is global head of compensation at Unit4
