5 Compensation Trends HR Leaders should know

Updated on: 10 Apr 2023

Compensation is the key link between employees and organizations, vital to attracting and retaining the best talent. Of course, it refers to the general return that the employee gets for their work; but to keep employees satisfied, organizations often need to do more than just offer basic pay.

Compensation management is complex – you have to take care of an employee’s skills, position, performance and devise an appropriate plan. In addition, there should be an addition of all the non-monetary benefits that can improve the employee’s effectiveness. With our evolving work cultures, compensation plans must also adapt.

There are more than a few trends an HR leader would do well to know, that can help them provide better compensation to their employees. Let’s take a look at some of them:

1. Variable Pay

A majority of organizations tended to have a policy of giving all employees a certain percentage of increment per year. While this seemed like a no-problem approach, it had the potential to discourage top-performing employees. Since even the low-performing ones get the same benefit, the high performers may no longer have strive to become better.

To address that issue, variable pay programs have taken a steady leap in popularity. They offer incentives over the base pay based on performance. This may include any bonuses, profit-sharing or commissions that an employee receives. Variable pay ensures that productive employees receive the recognition they need while others are motivated to achieve that level of work.

2. Pay transparency

Jargons on their payslips and plans are bound to confuse many employees. They are often unaware of the tax compliances and can fail to seek clarity. Another trend related to this has been seen now that even employees discuss the compensation plans amongst themselves. Therefore, it has become more important than ever that organizations keep openness and transparency in their compensation strategies.

There should be proper communication of the structure and logic of their plans so that employees understand what they are getting and why. This will help them understand clearly their needs and wants and help them choose better if they ever plan to switch.

3. The Cafeteria Approach

Employees today look for more than a few rewards from their jobs and aren’t just limited to cash pay. They’re likely to have different needs from their plans, based on which stage of life they are at. Thus, organizations have started to offer personalized compensation plans where the employees can select the perks and services as per their needs.

This approach is often called the cafeteria approach, where the employer provides a certain budget for the services and perks, and the employee can choose whatever he/she likes to spend it on.

4. Quality of work-life reward

At times, organizations may not have the budget to provide for incentives, bonuses or other rewards. This can be compensated for by providing certain benefits to the employee that could improve their work life. One key reward is flexibility in work. Offer flexible timing or work sharing opportunities, and employees should be able to work more freely. Facilities for recreation, extended leave programs, corporate credit cards are also some of the rewards that go a long way in making the workplace a nice place to be.

A company can also provide other benefits – such as mentoring for better positions in the company itself, guidance for career prospects and more.

5. Tracking Hot Job pay changes

At any point in the market, certain jobs are more in demand than others. For example, in 2019, jobs in AI tech would see to be buzzing across industries. These jobs are called hot jobs. To attract people with such ‘hot skills’, traditional compensation plans are unlikely to be enough. Proper research of market competitiveness is required to reduce turnover in such jobs. Such jobs should be given more benefits and importance as they provide more value to the business.