The Importance of Compensation Components

Posted on by careerswithmichelle
Image via Lynda

Compensation and benefits are one of the most important components in the workplace. The significance of this leads to better retention rates within the company. In a career standpoint, better pay and better benefits leads to job satisfaction.

However, many employers shy away from compensation and benefits and this topic should be discussed more comfortably and freely between the hiring manager and the employee. Smart employers know that keeping quality employees requires providing the right compensation and benefits package. Compensation includes wages, salaries, bonuses and commission structures. Employers shouldn’t ignore the benefits portion of employee compensation and benefits, because the benefits sweeten employment contracts with the priorities that most employees need.

Top talent may soon be looking elsewhere for opportunities if they do not feel like they are being adequately rewarded.

— Christina Lee, SHRM’s researcher for total rewards strategies and project leader of the Employee Job Satisfaction and Engagement (SHRM, 2016) Report

According to Small Business’ resources of Chron, the right compensation and benefits in the workplace results in:

  • Attracting Top Talent
  • Increased Employee Motivation
  • Boost in Employee Loyalty
  • Increased Productivity and Profitability
  • Job Satisfaction So People Stay

There are 4 elements of performance pay:

Image via SHRM
Image via SHRM

Below are some discussion points that global leaders from HR and Talent Acquisition have highlighted, that folks can gain insight from:

  1. Tuition reimbursement for employees and those who have children, plays a huge role in performance pay. Not all employers are willing to provide this benefit because not all have the budget or funding to do so, especially for non-profits. However, this is a huge asset and also a good way to support employee loyalty and retention because this can help their employees continue to further their education in obtaining the necessary knowledge/credentials that can help sharpen their skills while they are performing at their current job.
    Gym membership is also another link to performance pay because in NYC, everyone I am associated with – prioritizes gym and exercise usually before or after work. Finances can one of the main barriers to health for some employees so I think that this can be a barrier that can be removed by allocating employees with that membership as a benefit.
    • Tuition reimbursement is such a draw. I have found that it’s one of the benefits that people like having access to even if they do not ultimately use it.
    • Staying physically fit can fix a host of health issues and keep the cost of health insurance down so it could be a wash or even a cost savings.
  2. Tuition reimbursement is a valuable benefit for both the employee and the employer. The employee has an opportunity to advance and develop their skills while the employee gets the benefit of having a more skilled and potentially more productive employee. This benefit and companies who offer this benefit have shown to produce more highly skilled staff as well as savings on retention, recruitment and turnover. Both the smoking cessation and gym benefits has an impact on performance. Healthier employees are often more productive and statistically spend less time on sick leave. This is an obvious and direct benefit for the employee and an more indirect benefit for the employer.
    • Particularly about tuition, smoking cessation and gym benefits being a benefit to both the individual and the company: Too often they are viewed as a benefit to the employee, but reduced sick time and higher productivity definitely help the company. 
  3. Tuition Reimbursement for Children – Considering the cost of education in Switzerland and the impact on a family spending and quality of life,  then the fact for an organisation to cover fully or partly the school tuition fee for kids will be as a very competitive benefit.
    Quality of Coworkers – Nowadays more and more employees are seeking for great place to work. Therefore the ranking and selection from future employees to join and current ones to remain, will start  to look or connect with the quality of staff behaviour, skills as much as the  overall in-house work life style and atmosphere.  It is unconsciously the more empowering and rewarding benefit to have and clearly links to much better performance pay than children tuition refund. It is not always about money but rather about sustainable and positive mental health.
  4. The value of job titles should align with performance of expectations set by the company. Addressing job performance is a very common way that leaderships evaluate a candidate on whether they are the right fit for a change in job title or a promotional increase. Having the opportunity to be assigned new job titles is an experiential benefit in the sense that is is an example of recognition, but it also can be part of direct compensation if this job title comes with different pay. Different employees have different values at different times of their lives. If we have an employee who has a strong work value and looks at companies as who the most competitive is and offers the most opportunity for growth, then this employee may put a heavy focus on the value of the job titles when reviewing the benefits of working for one company over another.
    The quality of coworkers can very much so be related to performance pay. Your immediate coworkers may be the people you spend the majority of your work week with. You trust them to get their responsibilities done, to assist you when you need help, to give you feedback and to make the workplace enjoyable. We risk losing good top performers if they don’t feel that connection or value their coworkers. I include managers in this as well. I think a lot of us have heard the phrase “I didn’t quit the job, I quit the manager.” Hearing this from an employee who is leaving the company is very difficult. We have to look at both sides to wonder if the right leader is in place or if this was extenuating circumstances with just this employee. If we don’t have a strong enough leader in the role, we risk the culture being ruined and losing people to competitors who have a better system of finding and placing management. Employees who feel supported, comfortable in talking to their managers and coworkers and seeking help will perform much better without the added stress or insecurity of failing. I think this can be tied into the value of a job title as well. Employees may not only value their own title and the opportunity to grow in title, but they may value the title of their coworkers and managers too. If they feel that a title is too senior or superior related to the behaviors a coworker or manager is displaying, there could be some tension and frustration. I may even argue that the health of the team engagement has one of the biggest impacts on production and performance. We can get honest and true feedback when the the team quality is high. We have people who are qualified for their positions, mutual respect for each other’s job functions and responsibilities and feelings of genuine interest in succeeding. Without a high quality team we run the risk of passive aggressive interactions, office politics, distrust of management and feedback and defense mechanisms to protect our workloads and our emotional well-being.
  5. Tuition reimbursement and gym reimbursement are the ones that stand out to me.  These two are great ways to create an incentive for employees to be productive and also to create a comparative advantage if you are hiring employees with higher education or those with certain certificates to show and/or improve their skill set to keep the talent in house. I also believe that gym reimbursement would encourage a healthier workforce if it’s included as part of the wellness package offered by an organization. Providing gym reimbursement programs could help to link better pay for performance conversations and motivation. Ensuring employees are taking care of their physical health but it also is a great tool to support emotional wellness. If people look and feel good they will produce better results.
  6. Tuition reimbursement for employees is definitely a value added benefit from an organization perspective. This is a common benefit which we have seen in the larger organization, however the medium / small firms do not provide such offers to employees. This kind of benefit helps employees in developing their skills which will help the org to get higher productivity with better revenue / margin from these employees.
    Tuition fee reimbursement for children is most useful for employees in the mid-level of the organizational hierarchy where attrition is the strongest. It can be used as a strong motivation factor to retain talented employees as it also encourages employees to put their children to good schools, which they wouldn’t have been able to afford previously.
    Advancement opportunities motivates employees to choose and certify in the area of their interest. Through this, the organization can drive a culture of learning and innovation. It indirectly opens opportunities for internal job movements and job rotations. When employees are given this sort of flexibility, it reduces attrition in the long run.
  7. Having a smoking cessation program allows and encourages motivated employees to get healthier which decreases costs for the employer. Non-smokers may be more productive as they are less likely to take smoke breaks or to be out sick. However, since not everyone smokes, having this type of program only benefits those that currently smoke.
    Quality of coworkers – Almost everyone, regardless of their position, must work with coworkers at some point. Having a respectful and positive relationship with coworkers can make even a mediocre workplace so much better. Alternatively, you could have a great employer and workplace but having a negative coworker can outweigh those pros and can even affect other aspects of your life.
    • Comparing the two areas above, I think quality of coworkers is the better option for linking pay for performance as this is something that would likely affect more employees and would be a great attribute to attract and retain employees.
  8. As a recruiter, one of the most asked questions I receive from potential hires is the Value of Advancement Opportunities. Employees want to know that they have a future with the organization, and that their work will be considered, appreciated, and rewarded with the possibility of advancement. However, I have also noticed that many candidates are not really interested in probing further. They will ask if there is a career path or opportunity to grow, but it feels as if they are ticking the box, that they have asked the question and if they receive a strong sounding “Yes”,  they move on. They don’t probe further nor do they ask about what their individual career plan would look like, what their milestones would have to be.
    I have also held focus group discussions with current employees and have noticed that female employees feel that they don’t have the same opportunities (in our organization) for career advancement in comparison to our male colleagues (for a number of different reasons but especially because they don’t believe they get the right exposure to executive management). Therefore, career advancement opportunities may be a value that is limited to a specific number of employees and not an opportunity that all employees will feel that they have.
    On the other hand, Value of Job Title is a confirmed pay for performance benefit, because it comes at a specific time and possibly with added benefits and a higher direct pay (on all 4 elements of performance pay). Employee satisfaction would be higher, and organizations can ensure that they look at the performance of their female staff and reward it directly with a higher Job Title. Therefore, job titles are a better pay to performance value than a better advancement opportunity.
    • I work with some organizations where job title is not necessarily reflective of job duties and responsibilities, but because they want to keep the incumbent happy they inflate the job title. Many employees link their satisfaction to the job title, which directly affects productivity levels.
  9. Tuition reimbursement for employee plays a major role in performance pay and is a very valuable benefit for both parties. Having the support of your employer to further your education, whether it be additional degrees or a specialized certification, is an excellent benefit for the employee. It also shows the investment the employer is making in you as they want to assist in sharpening your skills and knowledge increasing your value as an asset to the company.
    Gym membership can be viewed as a positive impact for performance. Gym memberships can be costly and deter employees from joining and participating. Helping overcome that financial obstacle as well as instilling a healthy work environment can improve the mental sharpness of the organization increasing productivity.
  10. Advancement opportunities – Opportunities to advance within a company drives progress within employees. If they know there are opportunities for growth within the company they won’t settle for “good enough” instead they will drive to get better and better at what they do so they can advance within the company. 
    Quality of coworkers – When employees enjoy working with others within their company they are less likely to leave the company. This gives the company an advantage over others who may pay better but have less enjoyable work environments. Since turnover is such a high cost, hiring quality employees, even if it takes longer, is of great benefit to the company. 
    Both of these link to pay for performance in similar ways. Employees who are more satisfied with their work environment work harder and stay longer. However, I would argue that having quality coworkers would eventually prove more beneficial to the company over advancement opportunities. The reason for this is because most people under-perform and leave their companies due to the frustration of the overall company culture. Those who lead form the culture but the employees maintain it. Having a healthy group of workers who maintain a great work environment will lead to more success for the company overall and make it more attractive than other companies within similar spheres of work. Which means less turn-over, more quality hires, and quality work throughout the company. Providing greater service and producing greater results. All because people enjoy working where they are, the culture is one of working hard and producing quality results, and the workplace is attractive to other quality employees.   
  11. Onsite daycare – the cost of daycare can be very high in some areas. It can also be challenging for parents to find a facility in which they can trust the people to keep their children safe. Once a daycare is found, parents have to take the time to drop off their children before they go to work and leave work early enough to pick up their children at the end of the day. An onsite daycare cuts down the travel time in both directions, employees can easily pick up their children without losing additional work time and they don’t have any out of pocket costs.
    Advancement opportunities – this is particularly important for people early in their careers. Employees who have career goals typically want to work for a company where they can advance their skills and experience but stay at a company where that growth is rewarded with a promotion or new role. If they can’t get that in their current organization, they will take that knowledge and experience to another company which is a huge loss to their current employer.
    Both of these benefits really tie into the place where someone is in their life. Typically, someone in their 20s or early 30s is most concerned bout getting to a certain place in his/her career before they settle down and start a family. Someone with a family, may be more likely to have achieved a management level or higher role and is looking to maximize their time at work and with their families and may prefer the daycare benefit. The most important thing to consider is what’s important to YOUR group of employees. What is the current demographic and how do you align your benefits strategy to that? As the demographic changes, how do you adapt that to where your employees are in their lives at that point in time.
  12. A huge part of someone’s performance is tied to their mental health, and a huge part of mental health is physical health – gym membership. Gyms and trainers can be incredibly pricey, but if you offer your employees cheaper options, they’re more likely to exercise and, in turn, be even more productive at work. This is something most people would take advantage of in a company, so people would really appreciate this
    onsite daycare, even more so than a gym membership, would do a LOT of employees a lot of good. There are so many people that are kept from corporate jobs because they have children and can’t afford child care. If a company offers child care at their facility, employees can bring their children with them to work and ensure they are safe and taken care of all day, worry free. This will allow them to focus on their job rather than the financial burdens of child care. This is something people would easily accept a job for, all else being equal or even close. Though gym memberships would go a long way, on site child care would be the most powerful thing that a company could offer with regard to pay for performance over time.
  13. Tuition reimbursement for children and quality of coworkers are tied for me. It’s hard to say which of these two would hold more water in linking pay for performance. I think it depends on an individual’s value and may also be influenced by different generations. For example, quality of coworkers might appeal more to Millennial employees, while tuition reimbursement for children may be more of a benefit to Gen X.
  14. Tuition reimbursement for employees is an incentive to promote further education and training, which is why it links to pay for performance. It incorporates the will to improve and strive to become better.
    Advanced job title relates to pay for performance since the title indicates to third parties which responsibility an employee has, and since most people want to live up to expectations held about them, it motivates to fulfill said expectations. Since with an advanced title, usually the salary advances as well, the title can also be seen as blended benefit and not purely experiential one.
  15. Advancement opportunities and onsite daycare are the two components that I would like to pick.
    I believe advancement opportunities offer a more direct co-relation to greater performance as one can be clear that better and greater performance can lead towards career growth and there is scope for the individual to then earn more and as a result improve the overall quality of life.
    Onsite daycare on the other hand is a more here and now benefit, which might not be applicable to all employees and hence has a limited scope in influencing performance of all employees.
  16. Tuition Reimbursement for Employees – Providing this benefit allows employers to develop top performers by ensuring they meet education requirements necessary for a promotion. Hiring within and keeping the talent in-house versus heading to a competitor.
    Gym Membership – Physically active, healthy employees who feel good are more productive, call in sick less, and contribute to a healthier, more positive work environment. 
  17. Tuition Reimbursement for Children. This is a very interesting point on linking it back to performance pay. In Asia overall, education is critical. The view that the child has to surpass the education of their parents is evident. Therefore for an organization that can provide this children tuition reimbursement, will definitely be highly regarded by the local communities in Asia.
    Value of Job Title. Yes, believe it or not, Job Titles are more important that what the job actually entails in some Asian communities. Therefore there had been ways where more higher perceptions on Job Titles are implemented to unlock this, and had been doing well in inducing performance for some organizations including mine. For example, in my organization, we change the title of “Senior Assistant Brand Manager” into “Brand Lead”; no change in job scope. This has then create a huge shift in perception on the job and making the position more attractive. As millennials said “Job Titles are how we want the external society know us, it is important!”, quoted on one of the FGDs about career in my organization.
  18. Advancement opportunity is something that is equally important to the employee and the employer. An employee who is motivated to develop a successful career path within the organization will be committed to the organization and theoretically, perform at a high level and be super productive. An employer will benefit from the employee’s growth within the company, their institutional knowledge that they develop over time, as well as expanded skills and knowledge. Driving this advancement opportunity with performance pay is a clear method to providing this benefit.  
    Second, job title is important to an employee and fits hand in hand with advancement opportunity. There are companies that will promote an employee in title only, and not link performance pay to it, and others that do link it to a salary increase. Job titles are something employees are proud of and wear as a badge (whether the job title change comes with performance pay or not).  However, without real career  advancement tied to that change in title, including things such as additional responsibilities, direct reports, and future opportunities to strive for, the change in title is meaningless.  Therefore, I believe advancement opportunities can be better linked to performance pay.
  19. Value of job title. Employees value their job title when it is meaningful to the position held. Assigning the correct job title to a position is a basic essential task. A job position with the wrong title can lead employers to many problems like pay inequity, loss of morale, turnover, etc. Employees with the incorrect job title can often be frustrated, lower productivity, and lead them to leave for a “better” opportunity. From my personal experience I can share that my company did not have the title “executive assistant”, when I was hired as an Executive Assistant to the VP Operations and Technology I came onboard with 10 years’ experience as such. At that moment, the company decided to grant the job title of ‘Executive Assistant” to all the administrative personnel working for an executive or a director. Overnight, the administrative assistants were suddenly called “executive assistant”.  This change led the administrative assistants to think that they should be earning a much bigger salary than they were. In practice, they were not fulfilling the role of executive assistants, but administrative assistants. As they start to retire or get new career opportunities elsewhere, we have replaced those positions with true to market executive assistants that do fill the position expectations and are paid according to market. I think that there is no other benefit that can be offered that would better link pay to performance than this one. At the end of the day, the correct title will reflect in a more accurate salary benchmark.
    Value of advancement opportunity and tuition reimbursement. I chose to list these two together for a reason. In an era in which long tenured employees are vanishing from the workplace, people do not wait years to advance to the next position in the same company. This alone, creates a whole host of issues and there is a definite need for employers to find creative ways to entire them to stay. Usually employees stay around 2-5 years with a company and get their next opportunity in a different company. It is very important for a company to show to its employees both: a ladder and a way to prepare for their next career step wherever they go. This way of presenting career advancement would lead a company to attract employees that are eager to learn and advance and help them all at the same time (education and promotion).
  20. I think coworker quality is an undervalued component of the workplace. In trying to create a high-performance culture, which is something my organization is working towards, it is important to incentivize the behaviors you want to encourage. For example, in our production departments, we are beginning to incentivize speed and accuracy. We do this by measuring the output of each contributor and developing goals that are tied to incentives. As we set our expectations, a culture of workers who are fast, accurate, and have high attention to detail will begin to emerge because those who cannot meet those expectations will not succeed. Employees who do meet those expectations will begin to hold each other accountable and measure their output against others (as employees are already constantly looking at their own performance in contrast to others). Thus, working alongside others who understand and work toward the high-performance culture will create more job satisfaction and will increase the overall compensation.
    The value of tuition reimbursement could be a great component of pay for performance. Tuition reimbursement could be a benefit offered based on tenure, on sales goals, on overall performance evaluation ratings, or any number of other achievements or competencies. We live in a highly individualistic culture, so rewards based on an individual’s contributions against a benchmark instead of those rated against the performance of others could be a more successful pay for performance model than the standard production output incentives.
  21. Onsite daycare is a very valuable benefit. Especially being a mother myself, I truly believe this can have a great impact on employees. Having to travel across town to take your kids to daycare and try and make it back to work on time can get really stressful. Offering this benefit to your employees really shows an organization’s support for its employees which can then increase employee loyalty. 
    Tuition reimbursement for employees is also a very valuable benefit to offer to employees. I have noticed that not all employees take advantage of this, but I think just having it as a benefit says a lot about a company. My company offers this benefit and it has allowed me to take paid HR courses.
  22. Onsite Daycare – Access to childcare is a major factor for families when considering employment opportunities as well as pay. Having onsite daycare eliminates that worry and may even result in an individual either choosing one company over another OR accepting a lower salary because the convenience of the onsite daycare outweighs the discrepancy in pay. 
    Gym Membership – Gym memberships are definitely linked to performance pay as it is an extra expense a lot of people have every month. If this was something that was paid for by a company as an added benefit it is one less thing that the individual has to pay for and similar to my argument above it may result in someone choosing one company over another OR accepting a lower salary. 
    I think choosing which component is better linked to pay for performance depends on the target audience. For example, if a company was trying to recruit a lot of younger college graduates then the gym membership may be more valuable to them than onsite daycare. Personally, the onsite daycare is more appealing for me because I know the monetary value of daycare is much higher than a gym membership. 

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