4 Compensation Planning Tips for a Most Unusual Year
Compensation planning for the year ahead always involves a certain amount of guesswork. You have to try to anticipate several variables, from your company's performance to trends in the hiring market.
This year promises to feel even more like a guessing game. While the more optimistic analysts predict that the economy will return to growth by the end of 2021, everyone is scrambling to recover from the shocks of last year. The next twelve months will be unpredictable.
But you still have to make a plan. Here are some tips for building a compensation strategy that will withstand whatever 2021 throws at you.
How to Build Your Compensation Strategy for 2021
1. Work closely with finance
HR and finance generally work together on compensation planning, but co-operation between the departments is more important than ever in 2021. Businesses are dealing with all kind of financial turmoil right now, from the sudden cost of adjusting to Covid-19 to loss of profitability in a volatile market.
These bottom-line realities will impact your compensation plans. If your company has struggled, you’ll need to have honest conversations about what it all means in terms of raises, bonuses, and other forms of compensation. On the other hand, if your company is performing well, there might be an opportunity to offer additional performance and loyalty bonuses to staff.
Either way, finance leaders may push back on some of your compensation planning needs. During unpredictable times, their instinct is to keep overheads as low as possible. You’ll need to communicate how getting compensation right is an essential step towards securing future growth. Be ready to demonstrate industry hiring trends and show how you currently match up to other employers.
2. Communicate as soon as possible
Communication is what got most businesses through the pandemic, and it’s what will get you through the aftermath. Employees need clear, concise, timely communications about the things that matter most to them, such as:
- Compensation planning changes that affect them personally
- Changes to performance targets or related metrics
- Any new caps that affect bonus payouts
- Changes to benefits or perks
- Financial pressures that may impact their job security
- Any forthcoming opportunities to earn additional compensation
Employees benefit from being kept in the loop, especially when you’re delivering bad news. When you communicate early, you have a chance to explain the financial pressures that are driving your decisions. It’s a chance to talk about goals and strategy with the team, and to get everyone focused on a return to growth.
Communication may be challenging in the age of hybrid teams. As a leader, it’s up to you to find the best way to engage people, whether they’re at home or in the office. It’s also a good idea to give people a virtual space where they can meet and talk as a team about compensation plans and the company's future. If you’ve got a positive, collaborative culture, they’ll encourage each other to keep pushing through to better times.
3. Pay attention to industry benchmarks
Salaries are likely to be extremely turbulent during 2021. Entire sectors such as hospitality and tourism have been obliterated, leading to mass unemployment and downward pressure on wages. Other industries – such as IT, healthcare, and finance – have seen a boom that has sent salaries skyrocketing and created an insatiable demand for talented candidates.
Whatever your industry, it’s essential to know how your compensation strategy stacks up against the market. To get a clear picture of your performance, you’ll need to:
- Participate in industry benchmarking studies
- Conduct employee surveys about satisfaction with the compensation structure
- Update and refine job listing to match industry standards
- Keep an eye on rival job listings in your locale
- Attend local conferences, seminars, and networking events to discuss the latest compensation trends
It’s not always possible to offer increases that match starting salaries elsewhere. But by knowing how you compare to the rest of the market, you can identify areas where you’re most at risk of losing talented staff.
4. Compete on something other than salary
Even in the best of times, it’s not always possible to compete on salary alone. If a candidate is highly talented, there’s always a chance that someone else will swoop in with a higher offer.
But salary isn’t everything. Candidates will choose a lower salary if it means a better job, and existing employees will stay put if they feel valued. That’s why it’s a good idea to think about your total rewards package during compensation planning, which includes things other than salary, such as:
- Benefits: After the pandemic, employees are especially conscious of health-related benefits, such as health insurance and paid leave. They also want to see improved support for the work-life balance, which may include remote working and flexible schedules.
- Recognition: Recognition from leadership can really help people feel like part of the team. This can take the form of awards or even a well-timed thank you email. Make sure you have a system for identifying people who excel.
- Development: Training and development are often worth more than cash, especially at the start of someone’s career. Every person should have a detailed development plan, with dedicated training resources and achievable milestones.
- Wellbeing: Last year showed us the importance of an employer's commitment to wellness. Now is the time to look at things like employee assistance programs and to confirm that you are working to ensure your people are cared for.
Even if you can’t match the highest market salary offers, you may be able to retain staff if the whole of their compensation meets their needs.
Time to start preparing for 2022 Even in challenging times, you still have to think ahead to the future. There are a few compensation planning milestones to hit in the next 12 months:
- Q1: Begin preliminary incentive forecasting for the coming year
- Q2: Review forecasts at the end of Q2 based on data from the past half-year
- Q3: Create a detailed expense projection for 2022’s compensation plans
- Q4: Finalize and sign off plans for the next year
Fingers crossed, 2022 will be a dull, uneventful year that’s easy to plan for. Either way, now is the time to start refining your compensation planning for the future.