In ManpowerGroup’s 2024 Age of Adaptability report, we discussed how workers are expecting greater customization in all aspects of the employee experience – which, of course, includes compensation and benefits.
Since the business world became more structured more than a century ago, fixed and consistent compensation among groups of employees has been the standard, but increasing hyper-personalization is a thread that runs through all our considerations about the future of total rewards.
In HR.com’s 2024 report on the future of compensation and total rewards, 70% of leader respondents agreed that updating their organization’s total rewards strategies will help keep pace with changing attitudes around compensation. In addition, 85% said that it’s important to modify reward strategies for individual contributors.
In this piece, we’ll explore compensation best practices as we approach the quarter mark of the twenty-first century, such as agile compensation models, pay transparency and equity strategies, lifestyle and financial wellness offerings, and the involvement of AI in decision-making – which could paradoxically make compensation more uniform at a time when employees are demanding the opposite.
Pay Grades and Salary Bands No More
Traditionally, organizations made compensation decisions based on pre-set pay grades and salary bands, but in the post-pandemic business world, many question whether this model is fair, equitable, or well-suited to rapidly evolving conditions.
My research suggests that the most effective compensation strategies are more agile and allow organizations to recalibrate total rewards based on real-time factors inside and outside the company. And rather than being assigned a one-size-fits-all title, salary, and benefits package upon hiring, employees can now customize the total rewards package that best matches their individual preferences based on an a la carte menu of options.
As Anita Lettink, a global future of work expert and the author of Equal Pay for Equal Work, told me, this approach works better because we can no longer view employees in homogenous groupings when offering rewards. “People don’t adhere to specific life stages anymore – for example, needing childcare in one’s 30s – so it makes sense to let employees pick and choose on a monthly basis,” she said.
In practice, a new hire may exchange lucrative stock options or company-funded retirement for a lower base salary. In tandem with this trend, more organizations are offering company equity to individual contributors rather than reserving it for senior leaders. Lettink said companies are also launching “employee sharing” initiatives in which workers receive payouts for something the organization created or revenue they helped to generate. “These programs encourage behaviors that are beneficial to company growth,” she added.
Agile compensation models don’t rely on a once-a-year performance review to determine an incremental salary bump or bonus, but rather leverage technology to auto-adjust rewards frequently in keeping with industry and market developments, larger economic factors like inflation, and peer feedback. These nimble strategies involve a broader range of metrics for assessing value including specialized employee skills, innovative contributions to company growth, and supervisor effectiveness.
Pay Transparency and True Equity Will Sweep the Globe
Pay transparency, which refers to openly disclosing the salary range for a given position, is considered a critical step in the journey toward pay equity. Although Lettink correctly noted that pay transparency is driving positive change for employees – especially at the lower levels – many organizations tend to drag their feet until they are mandated to deploy it. However, the concept is gaining momentum all over the world and we should prepare for it to be universal in the coming years.
Despite increased attention to the issue over the last decade, pay disparities based on race and gender remain stubborn problems. In response, a bevy of equal pay regulations designed to promote fairness have taken root. Organizations are ensuring compliance with these regulations by increasing their use of pay equity software to run statistical analyses of their compensation models, develop benchmarks, and derive core insights by comparing internal and external data.
Equity analysis isn’t just for leveling the playing field for women and underrepresented minorities. These tools may also illustrate pay disparities between employees at a specific location, function, or level and employees with similar characteristics inside and outside the company. Objective and ongoing reporting of pay gaps facilitates their immediate resolution and prevents these gaps from becoming systemic and leading to legal liability.
For the rest of this piece, check out the full blog series at ManpowerGroup.