- Workforce management
Employee compensation strategy done right
On average, employees think about leaving their job within 3 years and six months of employment. One of the major reasons cited for this was the employers' refusal to raise pay.
It comes to no one's surprise that good employee compensation is essential to keeping your workers engaged and loyal. Of course, it's not the only factor that counts, but it's definitely one of the most important.
Your employee compensation should involve great incentives, bonuses and industry-standard cash payments to your employees. In short, your employee compensation needs to be competitive.
But what makes employee compensation "competitive" and why is it important to your business, anyway?
Let's dive in.
Why you should offer a competitive employee compensation
An industry-standard refers to the average salary an employee is paid for a specific position, in their niche. A competitive salary is one that is either higher than this average or at the very least, matches it.
Usually, small businesses try to cut corners when it comes to employee compensation. Now, of course, this is perfectly understandable because you need to take your budget into consideration. However, this could do you more harm than good.
Your business runs on the efficiency of your employees. A less than average employee compensation will attract a less than average employee. In addition to this, there are two other benefits that you get from offering competitive employee compensation.
Maximize employee retention
If you want employee loyalty and high employee retention, you've got to offer competitive pricing. Not only does it keep them motivated, but they also realize that they're getting a better deal than most of their peers.
Creating a better brand
How many brands have come under fire for not paying their employees enough? Low wages are not only bad for your employees but terrible for your own brand image.
Defining an employee compensation strategy
A well-thought employee compensation strategy allows you to plan and prepare the employee benefits and salaries you're willing to offer your employees. It takes into considerations a variety of factors unique to your business.
Here's how you can start drafting your employee compensation strategy.
1. Analyze your own needs
You need a customized employee compensation strategy that works for you. This is all about finding the right balance between affordability, structure and competitiveness.
2. Offer non-traditional incentives
One way to address the issue of a low budget is to offer your employees non-traditional or non-monetary incentives, such as meal vouchers through a expense management system. This could include perks like a more flexible working environment, a fantastic company culture, allowing a variety of training and learning opportunities and the ability to grow with the company.
3. Draft your employer's USP
An employer's main USP is the ability to offer something that other employers cannot. If you feel like your business is on the verge of a breakthrough, let your employees know. Employees don't want to be a part of a company that has no future.
Whether it's technological advances or simply a great idea, learn how to use your strengths as incentives for future employees.
Defining salaries and wages
A salary is what an employer pays an employee in exchange for their labour or effort. Similarly, a wage is what you pay your employees for their daily, hourly or weekly work. Generally, salaries are fixed, while wages are subject to frequent change.
While determining your employees' salaries, here's what you need to keep in mind.
1. Above minimum wage
Your very first priority as an employer is to ensure that your salaries are higher than the standard bare minimum. Keep in mind that the National Minimum Wage in the UK is £8.72 in 2020. This is applicable to any employee aged 25 or above.
2. Do your research
Additionally, as we discussed above, it should also be on par with the industry standard. You also have to take a look at factors like the value of the position and what the employee brings to the table. While an employee's salary history might seem relevant, you also want to ensure that it does not perpetuate low, uncompetitive or unequal pay .
3. Set a benchmark
You need to focus on distinguishing between positions and their respective salary trends. Doing research on individual positions allows you more insight into what you need to pay.
Additionally, once you know the market average, you can offer a slightly more attractive package, allowing you to get the very best in the field.
Incentives are all the additional factors that make your company more attractive to employees. For example, most companies may follow the industry-standard strategy, so if you do the same, you are now on par with them. However, offering additional incentives is what will make you stand out.
Here are a few that you should consider.
- Bonuses are additional remuneration given to employees, particularly for exceptional work
- Profit-Sharing allows your employees to benefit from the company's success by sharing with them a percentage of company profits
- A stock option incentive allows your employees to buy stocks at discounted rates with a lower rate of taxation on the profit
- A commission incentive is where your employees are encouraged to help with the direct sales of products or services in exchange for a percentage of profit
These incentives are great for keeping your employee compensation strategy competitive, employees motivated, engaged and actively interested in your company's growth.
Regularly updating your employee compensation strategy
Your industry is constantly evolving, and your employee compensation strategy needs to evolve with it too. Here are a few factors that should help you determine when your employee compensation strategy needs an update.
- Changes in the market, indicate a change in demand for your service and the changes in the industry standard of payment
- Competitor changes, refer to an increase in the salaries offered by your competitors for specific positions
- Company growth in the form of expansion or increased profits
- Employee lifecycle, their loyalty to your company, the growing years of effort, experience and knowledge
Each of these changes must be acknowledged and addressed by tweaking your employee compensation strategy from time to time.
Supporting your employee compensation strategy with HR software
Tracking the changes and fluctuations of employee compensation or expense management is not easy. You need a safe, efficient payroll software and expense management software that allows you to view your own company's compensation history.
That's where HR software comes in. You can record all your data in one convenient location while viewing every update in chronological order.
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