Consider the following:
These days, customers are not as loyal and are constantly on the lookout for high quality, punctual, low cost products and services.
An inability to deploy the best assets—especially employees—to meet customer expectations can negatively affect a company’s earnings and ability to remain competitive.
High employee turnover and job vacancies are recipes for failure.
With a multi-generational workforce and an emphasis on attracting, retaining, and motivating the best employees—a total compensation approach to today’s workforce is crucial for ongoing success. A one-size-fits-all approach will no longer suffice.
Companies often aggressively focus on risk management strategies aimed at reducing or eliminating risks. Just consider how companies manage cyber security. Now, adopting a similar risk management approach towards compensation will ensure that a company’s most important asset—its people—are retained and motivated.
What is a Total Compensation Plan?
This perspective transforms the approach employers take to design and manage their people strategy. Today’s environment demands a departure from the traditional sole focus approach (e.g. compensation, benefits, and retirement) to an interrelated “all-in” approach of pay and benefits. The appropriate balance is driven by business demands and total compensation philosophy.
Armed with this focus in order to integrate this strategy, the next step would be to design total compensation strategies that offer employees choices of pay, benefits, time-off, and retirement packages that reflect an employee’s current needs while still being competitive, cost-effective, and compliant. These designs must not adversely affect operations.
Employers typically believe that as long as they offer a structure where each benefit offering is competitive, they are fine. Consider the following type of typical offering:
- Base compensation targeted at the 50th percentile
- Offering a variety of PPO benefits with required employee premiums and different co-pays and co-insurance levels, depending upon plan selected
- Standard level of life insurance, dental, vision, life, and disability
- 401(k) match of 50% of the first six percent deferred
Any employer would be proud to offer these benefits to their employees. After all, this approach is often effective because it streamlines and simplifies compliance and administration.
Nevertheless—why are employers still struggling to attract, retain, and motivate employees? Why might turnover be so high?
Employers know that the workforce is currently comprised of multiple generations. In order to satisfy employees across generations, it is crucial for employers to develop targeted Total Compensation packages. To that end, it is practical—and smart—to allow employees to choose from a menu of options.
The first step in this process would be to assemble sufficient demographic data for all current employees. This would include items such as:
- Date of birth
- Date of hire
- Family status
- Base compensation
- Incentive compensation
- 401(k) participation rate
This would build the baseline to develop status-quo costs and assist in development of fundamental data needed to assess Total Compensation migrations. This data can be expressed in total dollars and average cost per employee.
As part of this study, it may be beneficial to create employee focus groups to discuss the concept and gather information about particular areas of importance from their perspectives. Members of each focus group should be a cross-section of employees from different age groups, service lengths, locations, and genders to allow for a diverse and fair sampling.
In the final analysis, this strategy will produce:
- Competitive compensation – with a robust base and variable pay strategy, supported by market pricing and a commitment to pay communications linked with a career ladder component, detailing requirements, and related experience required to advance in an organization
- Comprehensive benefits – a complete array of health, time-off, retirement, and wellness
- All-in package options tailored for different generations/needs – delivered effectively through efficient standardized and scalable tools with adequate systems and processes; enriched through employee education and communications; packages are aligned with a company’s values and philosophy while being competitive.
What About the Economics?
Any new program must not create higher costs compared to status-quo. Utilizing this primary objective, each option developed will include tradeoffs of pay, retirement, time off, or benefits in such a way to not only distinguish between options, but must also be cost neutral.
For example, using total points (derived from service, age or some combination) can be used for a retirement contribution where more funds can be skewed to more tenured employees and less to new hires. Loan repayment programs can be created to assist employees with eliminating debt with funding coming from a benefit reduction in another area. Through modeling, the total costs can be determined.
The economic cost of these programs should generate savings by a lower turnover rate.
Organizational Impact and Risk Reduction
The total compensation offering with choices will clearly aid in being an employer of choice, reducing risks while aiding in an employer’s ability to attract, retain, and motivate employees.
This will be combined with an ability to incorporate a career ladder with the criteria to advance with total compensation and opportunities, delivering matched pay strategy with employer strategy.
This approach will also then parallel other operational goals to create a longer-term focus, moving away from annual merry-go-round tactics associated with tinkering with premium contributions, deductibles, co-payments, across-the-board wage increases, etc.
Elliot Dinkin is president and CEO at Cowden Associates, Inc., specializing in helping corporate clients find the best solutions, both for the enterprise and its employees, with regard to compensation, health-care benefits, retirement and pension issues, and Taft-Hartley fund consulting.
© 2022 Newsmax Finance. All rights reserved.