The average time-to-hire is at a 5 year high, and the skill gap is widening; employers are having a harder time than ever managing the balancing act that is compensation. With 52% of employers ranking hiring and retaining talent at the top of their business challenges, it is vital to get compensation right.
The cold, hard truth is that employees are currently waiting around with their hands out. According to the latest Payscale Compensation Best Practices Report, between 2009 and today, employer concern about retention has risen 29%. As turnover increases, retention is a rising concern for the majority of business owners. In 2013, 83% of companies reported giving raises, and over ¾ of those organizations gave raises to at least 50% of their workers.
This sounds like a hit for any employer trying to attract and retain quality talent (all of them), but the reality is that most of those raises were pay for performance based. That means that employers are getting back what they invest in their employees. 54% of raises given in 2013 were for performance.
Higher productivity + Higher Pay = Everyone Wins
The major takeaway is that if employers want to offer compensation that both increases retention and productivity, they have to step up their game in the performance management sector. Again, we’re seeing this vital trend in employee lifecycle flow, and the HR technologies that offer transparency and collaboration between each stage. The following factors of a great performance management system will help decision-makers create effective compensation practices in any industry.
Big Picture Performance:
Because compensation is so tightly intertwined with performance appraisals, it is imperative to look at the big picture when it comes to an employee’s performance. The reason that 22% of employees don’t like performance reviews is because they believe they don’t account for past work.
The archaic, one-sided, annual review process will often only address the most recent, short period of performance, neglecting to account for the entire year. Let’s say that a poor performer has caught on to this pitfall in your performance appraisal system; they might up their performance and engagement, just long enough to snag a raise. You have now retained and incentivized poor performance.
Let’s also say that a top performer in your workforce has had a rough couple of months, and let performance slip a little. You now run the risk of losing that good talent, because your review process made them ineligible for the raise that they actually deserve. You have now given this valuable talent a very good reason to leave the organization.
“Seeking a batter paycheck” was one of the top reasons employees left their positions in 2013. 360-reviews are the ideal way to establish a fair and transparent pay for performance model. 360 reviews combine self-assessments, manager reviews and peer assessments to generate the most accurate and complete inventory of any employee’s performance. 360-reviews establish a trust and confidence in the employer/employee relationship, and that trust affects how employees regard their compensation.
When an employee can offer objective reasons to dole out, or withhold a bonus or raise, employees are more likely to have faith in that decision. Again, a good performance management system will take the blinders off of your entire process, and ensure that the right employees are rewarded and retained.
Time management is one of the biggest black holes of cash in most workforces. It is estimated that the average employee will waste at least an hour each day looking for the information that they need to do their job. These things are important to know when creating your compensation practices. You need to know exactly how employees are spending their time.
Here’s another scenario: A worker who was formerly out performing her co-workers, has put up some bad performance numbers lately. What the average performance management system’s data might not show you is that she is spending upwards of 30% of her time re-doing her new co-works subpar work. Instead of overlooking her for a bonus because her performance was plummeting, you can find the source of the issue, and remedy it. This employee can now return to maximum efficiency and will be appropriately compensated for it.
The cornerstone of a successful pay for performance compensation model is complete transparency. You have to look beyond today’s numbers if you expect to accurately compensate, and thus retain your employees.
Beyond the strategy of effective compensation practices, the key to this balancing act of employee attraction and retention, and budget adherence, is truly the centralized collaboration of each of these employee lifecycle stages. We’ve said it before, but when stages, their data and their management are siloed, there is an intrinsic lack of efficiency that can start with recruiting, and flow all the way to the offboarding stage. While every stage is important, compensation happens to be one that makes the most notable impact on the bottom line. We think it’s time organizations starting getting it right, and we can help.
Want to know more about how a solid performance management system can help you create compensation practices that retain top talent and drive productivity?
Missed the first half of our Talent Lifecycle Series?