Top 2023 Trends in Compensation Strategy
The business landscape is still muddy after the pandemic because companies are struggling to recruit and retain talent, as remote work has become more and more attractive. On the one hand, there is high inflation which is making every company implement a compensation strategy for the employees. Still, the fears of a looming recession are keeping them in check on the other.
So, employers will have to tread the path of work compensation carefully. This article will discuss the top trends in the compensation strategy in 2023 and help you understand its mechanics in detail.
What is a Compensation Strategy?
A compensation strategy simply refers to a holistic compensation management system, including the salary, bonuses, and benefits structure for your employees. A quality compensation strategy takes everything into account, such as the company’s culture, values, goals, and market. Moreover, getting the best out of your employees is crucial, as superior management performance has been associated with compensation packages.
What are the 3 Main Components of the Compensation Strategy?
1. Salary is the Focus
There should be zero doubt that salary is the most significant part of compensation, followed by bonuses & other benefits. Here’s what salary in compensation packages usually includes:
- Base Pay (hourly or annual salary)
- Frequency of the pay
- Scheduled pay raises, if applicable
It can be tricky to set a base pay, but you can simplify it by checking the minimum, median, and maximum pay in the market and then coming up with an average amount. You can always pay below the minimum or above the maximum pay, but that depends upon your compensation budget and how well-suited a candidate is to your business.
That’s why it is so crucial to do thorough market research. Otherwise, you’re likely to fall prey to biases and other problems while setting a suitable pay range for the paid time, such as;
- Becoming uncompetitive in the market because of unattractive wages.
- Not attracting & retaining top talent due to a distorted wage structure.
- Might still end up overpaying for some full-time positions, causing inefficiencies.
2. Bonuses & Incentives
The next big part of a compensation structure after paying salaries to employees is bonuses and incentives, which add flexibility to your offer. Employers offer bonuses and incentives in two ways:
- Indirect Compensation
Indirect compensation can involve:
- Performance bonuses
- Referral bonuses
- Stock options
In exchange for their incredible services, employees should be rewarded through additional pay or bonuses. It doesn’t mean you must pay them high amounts above the market rates. Instead, you can become flexible and throw in some bonuses to make it more exhilarating and rewarding for the employees.
As mentioned earlier, inflation is really high at 7.8% in Australia, and the clouds of recession are looming over our heads. Bonuses and incentives can help employees navigate this uncertainty and focus on strengthening the company.
3. Additional Benefits
Employees prefer to work with companies that offer benefits such as healthcare. Healthcare costs in Australia have seen a steep rise in recent years, so it makes perfect sense for employees to want to work with companies that cover those hefty expenses. As an employer, you can approach this issue in two ways:
- Pick the benefits you’ll offer.
- Your contribution towards employee premium.
Here are some of the benefits a company offers:
- Medical insurance is often at the top of the list for employees. Also, it’s the provider that matters and whether your employee can add their family members.
- Dental & vision
- Life insurance
- Short & long-term disability, work-related injury.
- Legal & financial services can provide them with low-cost access to legal and financial advisors.
- Childcare and family benefits.
What are the 5 Steps in Formulating the Compensating Strategy?
Here are the 5 steps you need to follow to create an effective compensation plan:
1. Think About Your Organization’s Culture & HR Strategy
The culture of an organisation means what it is all about and the values you follow that drive the organisation forward. After all, there is a purpose behind the existence of any organisation, and a business strategy is all about achieving the goals related to that purpose. However, it is not possible to achieve any goals without the right set of people running the show.
Therefore, it is always crucial for companies to attract top talent, train it, and retain it for as long as possible. Only through an effective and innovative HR department can you strengthen your company. You can use insightful HR metrics with the latest data to make the necessary improvements.
2. Pick Your Rewards
Of course, it is great to reward your employees, but there should be some method to it. You should know what kind of behaviour you want to incentivise through rewards. Do you want to reward loyalty or performance? Or do you want to reward employees who learn certain skills that you consider indispensable?
You should ask yourself these questions before setting up a reward structure so that everyone knows what to do to move forward.
3. Explore the Talent Landscape
When looking around for talent, you don’t need to look at what similarly-sized organisations are paying their employees. Sure, it can serve as a good reference, but don’t stick firmly to it. It doesn’t mean you should pay what organisations much larger than you are paying, but exploration and conversations with key stakeholders inside your company don’t hurt.
4. Focus on Affordability
It is important to factor in your payment plans and how competitively you’re willing to do it. How much will the pay differ with job levels, locations, functions, etc.? Crunch different numbers and determine whether your plan is affordable or not.
However, even if you can afford to pay a higher base salary, is it smart to do that? By mixing benefits and bonuses with the salary, you might not need to raise the base amount by much, so play smartly.
5. Get Executive Approval
Getting this far means you have done a lot of work. However, one crucial step of getting executive approval still remains. Executives care more about compensation today than ever before.
You need to engage your leaders regularly and discuss where the company stands. By having these conversations, you ensure that the company keeps evolving with the market’s changing needs.
How Do You Add a Compensation Strategy?
Here is how you can add a workers’ compensation strategy to your business plans:
- Define your compensation philosophy and the company’s approach to compensation.
- Conduct a thorough analysis of the market and the pay rates for different job levels.
- Determine a budget that you’re willing to commit to your compensation strategy.
- Include both monetary and non-monetary benefits in the plan to make it more holistic.
- Communicate the compensation plans to your employees and be completely transparent about them.
- Continuously monitor the plan and make necessary adjustments along the way according to the job market, employee feedback, and business goals.
With a shaky economic landscape, the compensation programs of businesses will also see a significant shift in 2023. Potential employers will make more and more use of compensation management software and powerful metrics to make informed decisions using the latest data.
The best choice you can make in this regard is the Human Resource Information System (HRIS) from EmployeeConnect, a holistic and flexible HR solution for easy workforce management. From recruitment to analytics to performance management, there is nothing this software can’t accomplish. Moreover, it allows you to go completely paperless, boost efficiency, and create seamless workflows with accurate data.
In short, it’s the best management software you can experience today. So, get your hands on this Australian-developed software that evolves with your business!