October 1, 2010

Refining Employee Compensation Plans

Employers and HR professionals alike put a lot of time, research, and energy into developing a strong and attractive employee compensation plan. Stacking benefits like profit–sharing and team-based pay onto basic compensation is commonly done, then that approach is reviewed, researched, and refined over time.

How do you communicate your compensation plan to your employees? Learn how to simplify your approach in four easy steps by downloading PayScale's whitepaper:
"4 Tips for Communicating Your Compensation Plan to Your Employees"

Although every employee has their attention caught by the phrase “competitive compensation plan” in a job posting, there’s a truth that this can all be boiled down to. As they say in the military, what every person wants out of a compensation plan is “more money and more time off.”

Generation Y is now taking over in the workforce and, according to About.com’s description of them, they are more family-centric than the previous working generation. The American workforce is shifting away from putting in crushing hours, and moving towards more of an “effortless effort” when it comes to putting in the hard time at work. On a larger, with the slowly recovering economy, more money in a paycheck might serve to invite additional talent.

Placing the idea of intrinsic rewards on the back burner for now, the following can be done to refine employee compensation plans without much research.

Learn More About Our Compensation Software

More Money…

Many organizations develop extensive incentive-based pay and other organizational reward systems in order to retain talent, and recruit new blood to an organization. However, unfortunately, what most employers are not aware of is that many extrinsic reward programs often fail. As pointed out by Kreitner and Kinicki in their book “Organizational Behavior,” there are several reasons why these systems often fail to motivate performance:

– Extensive benefits become entitlements
– Rewards lack an “appreciation of effort”
– Too long of a delay between performance and rewards

In addition to this, many reward plans don’t have the immediate visibility that increased base pay has. Kreitner and Kinicki go on to state “…one recent study documented how incentive pay had a negative effect on the performance of 150,000 managers from 500 financially distressed companies.”

Annual rewards, 401(k) with a lengthy vesting period, and even disability/life insurance are parts of a strong benefit program, but lack the motivational power of a bigger paycheck. Furthermore, it’s possible that employees don’t understand the intricate details of how some benefits (i.e. stock/profit sharing, retirement plans, HSA’s) work. Employees from any organization would agree that one of the strongest extrinsic rewards they can be compensated with is the kind that provides for immediate visibility and utility.

And simply put, I’ve never experienced a co-worker or staff member complaining that the organizations disability plan isn’t as comprehensive enough versus the countless times when someone might complain that they aren’t receiving a big enough paycheck.

…And More Time Off

Companies tend to rely on providing vacation and sick time as part of a generous benefit package, or possibly even combining the two to make are useful “bank time” concept. However, the problem again with this is failure to remember the typical work ethic of the American worker. Many employees tend to think that if they are not present at work due to sickness or otherwise, the overall organization will suffer. Furthermore, it’s a common occurrence that employees feel looming pressure from deadlines so much that they will end up placing work before planned time off.

Think back on your working career and recall the many times that either you or another employee ended up staying late at work due to large projects and deadlines, or possibly even skipping holidays and working on weekends. Paid time off simply isn’t an important benefit when it isn’t used.

Aside from the up-and-coming Y Generation shift towards being more family centric, there has been resounding research by organizations like Entrepreneur magazine, Time magazine and others showing that these workers favor flex time, telecommuting, and four day work weeks. In looking at this research, employers benefit from increased employee satisfaction and decreased stress. Plus, they benefit from reducing the workplace operation costs associated with running the organization on that fifth day.

From a more humanistic approach, increased time-off will naturally diminish stress in the work environment and reduce the costs associated with going to work (i.e. commuting, day care, lunch, etc.). This is a benefit within a benefit that employees can easily identify, and again, it’s quicker and more likely to motivate them versus a retirement plan that could be literally decades away.

More money and more time off may be a concept that leaves many organizational managers and HR professionals scoffing at it’s simplicity, but when boiled down and considered in the current and ever-changing employment environment, it seems to be quite relevant. Barring other factors, such as employee/manager pay discrepancies and job roles requiring a seven-day presence, research on benefit plans shows that increased pay and time off is a positive step towards becoming a stronger, more attractive employer.

Regards,

Donald Nickels

More from Compensation Today:

Do you have a topic you would like Compensation Today to cover? Write us at comptoday@payscale.com.

More Resources from PayScale: