Riding the Roller Coaster of Compensation Trends

by Cherryll Sevy

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Consider this statistic... over 50% of employees today are either actively looking for another job or are ready to make a move as soon as they find a "better" opportunity! This has been published in a variety of reputable sources and surveys recently, with an increased focus on compensation as the stated reason for leaving. Is your company willing to lose over half of its top talent just as the market gets better, further stretching the lean resources you have had to live with for the past several years? As the economy picks up, dust off your Compensation programs and prepare to update your current compensation plans and revamp your incentive designs.

Since 2001, companies have been forced to do more with less. Employees have felt the pinch-- salary levels have remained flat or frozen, while rising health costs and the crash of employee 401(k) plans have eroded their savings. Those not laid off have settled with being satisfied having a job. With the cautious forward economic movement, employees' expectations are rising; especially the top talent who has been feeling unrewarded and unrecognized these past few years. Companies still need to control costs, but must invest in and strive to retain their top talent to position themselves in the growing economy.

There are several steps to pursue in reviewing your total compensation programs. 

1. Differentiate between High, Average and Low Performers.
   Identify your company's top talent, review and revise your pay policies and practices, merit increase guidelines and incentive programs to reward performance excellence. 
2. Align Business Objectives, Employee Goals, Performance Behaviors and Pay.
   Your top performers should be making substantially more than marginal performers. Employees must know how their performance is tied to critical business initiatives. Establish an effective, powerful performance management system. Train managers on establishing employee performance goals, metrics, making decisions and discussing compensation with their employees. 
3. Expand Incentive Plans Eligibility.
   Consider incentive for non-management exempt and non-exempt employees. Are there quantifiable goals over which the employee has control and where their performance will make a clear difference? Move away from discretionary bonuses to predefined incentives. 
4. Consider Long-Term Incentive Alternatives.
   Retaining selected employees through long-term incentive plans is a viable and tangible way to recognize and reward your top performers. Also, stock option expensing, the graying of the workforce, and the declining 401(k) values make these alternatives much more attractive.

For more information on how you can update your compensation programs, please contact Cherryll Sevy at 408.358.7794 or by email.

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